Sustainability of Volkswagen’s Supply Chain Network
Table of Contents
As one of the top automobile manufacturers in the world, Volkswagen attributes its commercial and operational research to its well-structured supply chain. Most of its supply chain efficacy is rooted to the focus on the manufacturing function that ensures that the production of the automobiles is of the highest quality and within a reasonable delivery period as well as the proper utilization of the raw materials. Logistics is also an equally important framework in the success of Volkswagen that ensures the smooth flow of resources. To maintain the ever increasing customer base, the company also focuses on excellent customer and supplier relationship management. To meet the environmental demands of the market, the company aims at adopting a sustainable supply chain framework that will enhance the company’s efficacy.
Volkswagen is the largest and most successful automobile company in Europe. Since its establishment in 1937, the German automobile brand has grown at a first rate through the incorporation of other competitors in the automobile industry (Ewing, 2017). Noteworthy, the sustainability efforts of Volkswagen as the company continuously seeks to improve social, economic, and environmental sustainability through all its vehicles has played a key role in its industrial development. Although Volkswagen experienced a significant setback with the 2015 emission scandal, the corporation’s management remains resilient in its pursuit of the sustainability of its supply chain. It is critical for Volkswagen to implement ideal designs and implement new strategies to improve a number of supply chain processes to fulfil the dream of sustainability (Cook, 2017). Through the implementation of two key recommendations that focus on specific aspects of the supply chain, Volkswagen will attain sustainability before many of its business rivals.
First of all, it is critical to undertake a comprehensive situational analysis of Volkswagen’s supply chain. Manufacturing function is one of the most essential functions for Volkswagen as it incorporates all the activities involved in the movement of automobiles through various stages and plants during the production process (Badenhorst, et al., 2017). In the automobile manufacturing line, the technical development phase of a vehicle determines the final quality and usability of the machines. Consequently, Volkswagen endures using quality raw materials in the production stage, and the vehicles have efficient designs for energy efficacy (Burkus, 2017). Besides, the firm has a colour change unit that helps to reduce the painting errors, and hence reduce carbon dioxide emissions. Below is a typical Volkswagen supply chain illustration:
Source: (Badenhorst, et al., 2017)
Logistics is the cornerstone of Volkswagen’s success. Due to the high demand for the Volkswagen vehicles across the world as well as the strategic goals of the organization, it is vital for the responsible management to ensure the timely delivery of the cars. The logistics functions at the enterprise encompass material sourcing, production plan and control, and distribution of the final products (Akkucuk, 2017). Through its effective logistics, Volkswagen has a successful year, 2016, with the shipment of 5.2 million vehicles via different transportation means, and sourcing of 74.3 million production materials for various factories in Europe and Asia.
Volkswagen also has excellent customer and supplier relationship management processes. The consumers and suppliers are key strategic partners for the global company as they have a significant impact on the organization’s success in the highly competitive market (Golinska-Dawson & Kolinski, 2017). Since the suppliers provide important raw materials, the firm carefully vets all potential buyers on the basis of standardized quality materials. Moreover, the management maintains transparent procurement procedures, adopts risk minimization techniques, and supplier monitoring to guarantee high standards. On the other hand, Volkswagen builds long-term and sustainable customer relationship through observance of ethical practices, feedback processes, and continuous improvements of customer experience at the firm (Ahbe, et al., 2017). Besides, the availability of advanced inventory management and order fulfilment processes aids the company in the fulfilment of consumer needs; thus, the strong bond between Volkswagen and its global customers. Further improvements to Volkswagen’s supply management activities will require the execution of the following recommendations as discussed in the following section:
The first point of focus in creating a sustainable supply chain at Volkswagen is the complete adoption of a green logistics framework. This refers to the incorporation of environmentally friendly processes in the logistics processes to help in the preservation of the ecosystem, and cost savings in the company (Sarkis, 2017). Over the last few years, Volkswagen has made several attempts to incorporate green logistics in its operations, through the use of energy efficient delivery tracks to reduce carbon emissions in the environment. Although the change in Volkswagen’s transportation system is remarkable, it is inadequate for an organization with very wide production processes in different countries. The incorporation of green logistics will require the firm to focus on several areas including material planning, inventory management, production plants, distribution process, and waste management.
Green logistics goes hand in hand with reverse logistics. Reverse logistics encompasses the recycling of waste materials in the organization (Bouchery, et al., 2017). Due to globalization, the demand for Volkswagen vehicles is growing at a fast rate through the introduction of new markets, and better production capabilities. Consequently, it is vital for the management to carefully design a recycling or disposal program for its vehicles at the end of their lifespan. However, the achievement of this goal will depend on the type of raw materials, and pollution emissions expected from the recycling of the used vehicles. Since the execution of green logistics will also guarantee the implementation of reverse logistics, Volkswagen will reap the benefits of the two innovative processes.
Besides, it is essential for Volkswagen to introduce an environmental procurement policy for future purchases of all raw materials. Various researchers define green procurement as the process through which a company buys environmentally friendly raw materials from various vendors (Paul, et al., 2017). Although the sustainability concept is growing in popularity, some vendors are yet to adopt the right processes to ensure the safety level of their product offerings. Some of the vendors remain unaware about the potentially harmful effects of their goods, on the final consumer goods. Through the environmental procurement policy, Volkswagen will access quality material from respective vendors, and forge strategic partnerships with the best organizations in the automobile industry. Moreover, the sourcing of environmentally friendly products forms the basis of green logistics in Volkswagen.
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Before the implementation of the green logistics and the procurement policy, it is crucial to carry out an options appraisal for the two propositions. The primary aim of green logistics is the implementation of environmentally friendly processes, reducing the overall logistics costs at Volkswagen, and realization of maximum benefits for the society. There are different aspects of green logistics, and each has various implementation alternatives for the company.
One is the improvements of Volkswagen’s delivery trucks to minimize their negative effects on the environment. Currently, Volkswagen truck utilizes the liquefied natural gas (LNG) that produces lower carbon emissions by 20% (Khan, et al., 2017). Further improvements can be made through the use of compressed natural gas, electric engines or the hybrid engines. Since electrical cars are very expensive, and there is a need for further improvements in the technology, natural gas is the most viable option for Volkswagen (De Nevers, 2017). Moreover, it is vital for the company to introduce fuel-efficient gears to reduce the amount of fuel consumption. At the same time, optimum load capacity is essential to make sure that trucks make fewer trips in the delivery of products.
Waste management is another crucial area in Volkswagen’s logistics activities. As the pioneers in sustainability, Volkswagen has an elaborate recycling process, where consumers can deliver their used cars and batteries at designated areas for recycling by the company using soluble chemicals. To improve this logistics function, it is important for Volkswagen to minimize the amount of water used in recycling procedures. As such, the proper disposal of the dangerous chemicals will be beneficial for the environment, society, and company in the long-run.
Green procurement is another important step in Volkswagen’s sustainability journey. Since Volkswagen factories are located in diverse regions including Mexico, Brazil, and Belgium among other countries, the corporation faces different procurement laws as set by the respective governments. Sustainable green procurement procedures should be introduced in each of these nations. There are two options for meeting this objective. One, is the training and development of suppliers to equip them with adequate knowledge of sustainability, and how to meet the quality requirements of the enterprise (Volkswagen, 2017). Two, Volkswagen can also opt to contract new vendors that are currently implementing sustainability in the production of raw materials. Further analysis of the two distinct alternatives shows that the first option is the best for the automobile company. Since Volkswagen thrives on its strategic partnership with its key suppliers, it is vital to maintaining the existing suppliers. Besides, the vendors have the capacity to fulfil the Volkswagen orders, and educations will help these entities to deliver quality merchandise for the production of better cars.
Green logistics and environmental procurement will impact several benefits for Volkswagen’s supply chain network. They include better company reputation, reducing environmental pollution, and efficient usage of resources (Coyle, 2017). Besides, the two strategies will also improve information flow in the supply chain, greater flexibility, and competitive advantage attributable to quality vehicles.
Adopting a well-defined strategic approach will be instrumental in the execution of the green logistics and environmental procurement in Volkswagen. The first step will be the evaluation of the current supply chain management activities in the logistics and procurement areas to identify the weaknesses or gaps in sustainability. Moreover, it is critical to also establish the key objectives in the correction of these weaknesses, which will be met through the proposed recommendations.
The evaluation of resource requirements is the next stage for the company. One of the major drawbacks of sustainable development is resource constraints. The adoption of new supply chain processes requires the input of significant investment by Volkswagen. For instance, money will be spent in training suppliers and improving water efficiency in the recycling process. Other important resources include hiring or improving the workforce and purchasing new capital. Through accurate identification of all the essential factors in the execution of green logistics and environmental procurement, Volkswagen will be more successful in pursuing its goals.
The implementation and monitoring of the sustainability strategies are also worth noting. In the first few months of the implementation phase of green logistics, it will be vital for the management to maintain a close overview of the whole process in all areas of operations. Regional procurement and logistic managers should track the progress, identify deviations, and undertake immediate corrective actions to guarantee the success of the recommendations.
The Gantt charts below outlines the respective timeline for the incorporation of green logistics and environmental procurement at Volkswagen Company. Since the two changes will be implemented concurrently in different departments, the following Gantt chart will be used for both projects.
Several resources are necessary for the introduction of sustainable business practices. Employees are the first crucial asset as they provide labour essential to carry out the green logistics and procurement procedures in the organization (Sarkis & Dou, 2017). The suppliers are also equally crucial assets as they provide the materials for the manufacturing of various parts of motor vehicles. In the environmental procurement process, the suppliers’ compliance with the organization’s quality demands helps the firm to fulfil its objectives (Tam, 2017). The customers are also another important resource in Volkswagen’s supply chain network. All the efforts of the company focus on meeting the needs and wants of these groups of individuals. Besides, the consumer feedback is vital in improving the overall efficiency of the green logistics and environmental sustainability activities. Also, it is critical to note the role of the management team in the designing and subsequent execution of a sustainable supply chain. They provide general guidance to all the stakeholders involved in the network to make sure of the company’s success (Halff, et al., 2017). Lastly, it is important to purchase equipment like motor vehicles, gear, fuel, and training materials for the two recommendations.
Green Logistics Cost Budget
- Purchase of modern and efficient gears – $20
- Updating existing motor vehicles with the new gears – $ 5
- Purchase of new motor vehicles with efficient gear – $15
- Cost of natural gases for first one year – $25
- Training costs for drivers- $3
- Maintenance costs – $5
- Total costs – $73
Environmental Procurement Budget
- Training Suppliers – $30
- Vendors monitoring and evaluation – $20
- Contracting new vendors – $10
- Total costs – $60
|Risk ID||Type of risk||Risk Category||Risk Description||Risk Overseer||Mitigation Strategies|
|A1||Supply disruptions||High||Failure of suppliers to deliver merchandise under new sustainability requirements||Procurement manager|
|A2||Price fluctuations of natural gas||Medium||Changes in prices of fuel will negatively affect distribution||Logistics manager|
|A3||Inadequate number of gears||Low||High demand for new gear will affect the prompt supply of enough gears.||Logistics manager|
The sustainability of the automotive industry continues to receive a lot of attention from different stakeholders in the industry. Automobiles are among the major contributors to the high rate of global warming through the high emission rates from the cars (Grant, et al., 2017). Moreover, the companies also lead to environmental degradation in a variety of ways including the production, distribution, and delivery of the vehicles to the consumers. There has been a general rise of awareness about the level of adverse effects that the automobile companies have on the environment, hence the need for these organizations to adopt sustainable supply chain processes as fast as possible. Volkswagen has made significant achievements in the area of sustainability. Since the company has a first-hand experience with an emission scandal, knows its responsibility in the adoption of the right processes in the supply chain. The decision to focus on this company was motivated by the need to identify the extent of its social responsibility, and the areas the firm needs to focus on to improve the supply chain.
From the analysis, it is clear that Volkswagen should seek to promote green logistics and environmental procurement. The two processes are closely linked, and they are directed towards social, economic, and environmental sustainability. For example, the use of green raw materials means that the company will have an easier process in the recycling process of the waste products. However, it is imperative for the management to meet all the requirements outlined in the project plan, strategic approach, budgeting, resources, and project outline.
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