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Supply Chain Value of Volkswagen

University Affiliation

Supply Chain Value of Volkswagen

Part A: Volkswagen and its Supply Chain History

Volkswagen Group (VW) is an automobile making firm founded in 1930 and is headquartered in Wolfsburg, Germany. It was formerly known as Gesellschaft-zur Vorbereitung but was in the future rebranded Volkswagen Aktiengesellschaft in 1985 after undergoing diversification. The firm specializes in designing and manufacturing of automobiles including vehicles and motorcycles (Hopfinger, 1971). In 2016, the Fortune Global 500 magazine ranked the company as the seventh among largest firms worldwide (Fortune Global 500, 2016).

The firm’s supply chain is such that it has 60 branches and manufacturing units in fifteen countries. A report by Csizmazia, (2014) documents that the firm has employed more than 370,000 workers who handle all the designs and manufacturing processes. The distribution of these units has enabled the firm to maintain contact with its partners, suppliers, and customers thus forging mutual relationships. Volkswagen Group has different brands under its names comprising different companies running independently such as Scania, Volkswagen, Audi, Porsche, Audi, Bentley, Skoda, Lamborghini, and SEAT. The firm additionally has the Volkswagen Institute, which is charged with developing the skills of its staffs. The company also has a financial institution, Volkswagen Bank, which lays focus on investments besides savings. Remarkably, the firm has two groups being the automotive and the financial services divisions (Hopfinger, 1971).

Concerning the supplies of the firm, exports of components from Germany are done to the independent branches. The bulk of constituents parts are done in line with the demand and competition levels. Charles Lavies’ study of 2011 documented the sales volume of Volkswagen, which demonstrated that the company focused on luxury cars in Europe and the USA due to the demand. Within Africa, VW has majorly distributed economy vehicles that are fairly priced. The company undertakes its distributions in line with the customer’s demands, a strategy that has ensured its stay in the market even with stiff competition from other firms such as Toyota and BMW.

Part B: Customer, Service and Global Value Analysis of Volkswagen

Customer Service

Customer Service is described as the means, which firms differentiate their item to maintain customers’ loyalty, improve sales, and raise profitability (Yi & Gong, 2013). The Volkswagen Group seeks to set competitive prices, enhance its product and services quality as customer service. The firm’s vision is to be the leading automotive group worldwide in environmental and in economic perspectives. Thus, the firm seeks to satisfy its customer’s needs through smart and well-utilized technologies and to improve its profitability. It ensures that its suppliers create components that ensure environmental conservation and minimize the extra costs associated with the use of their products (Rugraff, 2012). In terms of product quality, the firm has responded to the challenges faced by its clients by expanding its customer-facing activities and undertaking various CRM initiatives, comprising a blend of stand-alone software apps and other paper-based processes. The company has endeavoured to give its customers a wide range of goods to facilitate selection and choice. For the clients with a passion in sporting and luxurious cars, the company has provided befitting models such Bentley, Lamborghini, Audi or Porsche, which are all known to be of the highest quality to their users (Sarieddine, 2013). This has lured both the young sporty clients as well as the aged.

Selected Dimension of Customer Value

According to Ryu, Lee, & Gon Kim, (2012), there are different dimensions of customer value. Volkswagen has adopted the value-added services aspect to improve its customer value. The firm has established a comprehensive series of wayside assistance services that are available to its clients 24 hours all year round all over Canada or the U.S. The 24-Hour Assistance combines a team of skilled customer service experts with a national towing network to bring excellent assistance where it is needed the most. There is a significant benefit of owning a Volkswagen brand because of the firm’s quality manufacturing and commitment to its client’s total ownership experience (Hennig-Thurau, 2000).

A comparison of the Global Value Analysis of Volkswagen and BMW

Volkswagen is a global company both geographical and in its model range. Its production variety spans city car to luxurious automobile, from small business van to a heavy business cars. The company offers twelve models, 280 brands produced at its production centers (Csizmazia, 2014). A company having extensive vertical and horizontal levels should endeavor to coordinate the company’s activities in the company. The insufficient technology development and production structure such a company may result in a significant competitive disadvantage against other rival firms. VW has met stiff rivalry from BMW. The firm has recently faced scrutiny from its clients after cheats of emissions broke out in 2015 (Burki, 2015). The issue tainted the firm’s reputation affecting its sales negatively and consequently dropping its revenue by 12% to 237 billion dollars. The company had to pay fines and compensate customers. On the other end, BMW was making profits and even topped and won four awards on customer satisfaction. Unlike Volkswagen Company, BMW allows customers to make specifications of their desired model and deliver to them between two to three weeks. The company also goes ahead by sending them a video on the making process of their car. The BMW offered driving pleasure, reliability, and priceless quality increasing satisfaction levels among Americans. In 2016, BMW Twin Power Turbo technology won awards among the best engines

Part C: The Procurement Strategy Analysis of Volkswagen in Comparison to BMW (500 words)

Background Information of the Automotive Industry Outsourcing

Outsourcing has turned into a common international issue and the automotive manufacturing industry is catching up with the trend. The economic crisis, which occurred in the mid-1970s, represents the start of a period attributed with the saturation of markets that culminated in a momentous change in business strategies (Sako, 2005). The stiff competition experienced in the automotive industry brought by increased globalization has made companies to use outsourcing to tap the international market. The use of assembly service providers from outside is widespread in the automotive industry. Outsourcing of parts and assembling them in foreign nations picked pace in the 1980s, a turning point period for labor in the American labor industry (Sako, 2005).

The Volkswagen Commencement Date for Outsourcing

fundamental changes in the trade and economic framework, which started towards the 1980s end (Camuffo, 2004). The planned development of a free trade zone was considered into the strategic planning of the Volkswagen Group as the firm realigned its North American business following shutting of the previous Westmoreland, American plant and transferred manufacturing of the Jetta for the American market to VWdM (Volkswagen, 2013). The other regions it procures from are Europe, Asia-pacific, and South America. VW started to outsource following the

The firm used outsourcing of supply and production to gain quality assurance and flexibility, which assists to avert the complexity of procedures and increase efficiency of all stages in the processes. As a result, the company can focus its efforts on other manufacturing processes that matter. Consequently, the company opted to outsource services and products including gearboxes, engines, and windscreens.

The Level to Which VW has outsourced

The Volkswagen Group has outsourced its in-plant undertakings and line feeding to suppliers. The firm has had a historical relationship with the Schnellecke Group, which provided in-plant activities and the Anji-Ceva joint business in China for Shanghai Volkswagen plants (Kotabe, Mol, Murray, & Parente, 2012). The automaker has furthermore outsourced in-plant amenities to providers at plants comprising Hanover, Osnabrück, and Wolfsburg in Germany, and in Hungary. Manufacturers of vehicles would prefer to minimize manufacturing expenses and reduce product lead times. One sure way is by outsource the model and manufacture of given components, or design systems. With this in mind, Volkswagen designed its truck plant in Resende-Brazil, around the issue of splitting the car into component systems (Csizmazia, 2014).

A Comparison of Volkswagen’s and BMW’s Procurement Strategies

VW optimizes the modular framework. The model will assist to determine the decision of the company of outsourcing or in-sourcing. Present outsourcing embraces major organizational variations, which often involve dismantling the firm’s traditional structure, redoing the terms and conditions of the staff, transferring employees to external suppliers, and changing the employees expectations who remain in the outsourcing company (Corrêa, 2001). As such, Volkswagen has adopted the modular-type framework with its suppliers in a bid to attain responsiveness and flexibility. The model allows the firm to use standard interfaces between constituents to develop a flexible product architecture (Simchi-Levi, Simchi-Levi & Kaminsky, 1999). Table 1 below demonstrates VW’s procurement by commodity in %.

The framework adopted by VW allows it to accord its customer’s preference in determining the product configuration. On the other hand, BMW optimizes an integral procurement strategy. The firm opted to in-source its products in a bid to minimize the risks that result from outsourcing (Schmidt, 2010). The strategy has apparently worked for the company because the firm can now produces in house thus, ensuring better quality for its customers giving the firm a competitive edge over Volkswagen that outsource most of its products and services. Under the integral model, different related components are encompassed to ensure better system performance. Consequently, the model allows the firm to use its built-to-order system alongside a mass customization plan to deliver cars in line with the requirements of the customers.


Volkswagen should learn from BMW’s procurement strategies, which give the latter a competitive edge. VW has faced a recent major emissions scandal, which has never been experienced by BMW. Thus, Volkswagen ought to minimize its outsourcing to avert the danger of of spilling its technology. The firm should as well assume the Singled out strategy by Piston, which will guarantee that only particular parts would be outsourced to ensure quality assurance and better customer satisfaction.


Burki, T. K. (2015). Diesel cars and health: the Volkswagen emissions scandal. The Lancet Respiratory Medicine, 3(11), 838-839.

Camuffo, A. (2004). Rolling out a “world car”: globalization, outsourcing and modularity in the auto industry. Korean Journal of Political Economy2(1), 183-224.

Corrêa, H. L. (2001). The VW Resende (Brazil) plant modular consortium SCM model after 5 years of operation. In Proceedings of the International Conference of the Operations Management Society, Orlando, 1-9.

Csizmazia, R. A. (2014). Reconfiguration of Supply Chain at Volkswagen Group to Develop Global. International Journal of Academic Research in Business and Social Sciences4(12), 294.

Fortune Global 500, (2016). Volkswagen. Retrieved from: <>

Hennig-Thurau, T. (2000). Relationship marketing: gaining competitive advantage through customer satisfaction and customer retention. Berlin: Springer Science & Business Media.

Hopfinger, K. B. (1971). The Volkswagen Story. Cheshire: R. Bentley.

Kotabe, M., Mol, M. J., Murray, J. Y., & Parente, R. (2012). Outsourcing and its implications for market success: negative curvilinearity, firm resources, and competition. Journal of the Academy of Marketing Science40(2), 329-346.

Rugraff, E. (2012). The new competitive advantage of automobile manufacturers. Journal of Strategy and Management5(4), 407-419.

Ryu, K., Lee, H. R., & Gon Kim, W. (2012). The influence of the quality of the physical environment, food, and service on restaurant image, customer perceived value, customer satisfaction, and behavioral intentions.International Journal of Contemporary Hospitality Management24(2), 200-223.

Sako, M. (2005). Governing automotive supplier parks: Leveraging the benefits of outsourcing and co-location. In DRUID Tenth Anniversary Summer Conference, 27-29.

Sarieddine, I. (2013). Critical Analysis of Porter’s Value Chain Analysis (VCA) Framework. Retrieved from: <>

Schmidt, J. (2010). BMW Market Analysis. Retrieved from: <>

Simchi-Levi, D., Simchi-Levi, E., & Kaminsky, P. (1999). Designing and managing the supply chain: Concepts, strategies, and cases. New York: McGraw-Hill.

Volkswagen, (2013). Sustainability report. Retrieved from:

Yi, Y., & Gong, T. (2013). Customer value co-creation behavior: Scale development and validation. Journal of Business Research66(9), 1279-1284.