Review of the article "Supply Chain Analysis at Volkswagen of America".

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The article “Supply Chain Analysis at Volkswagen of America” gives a review about the existing distribution system of Volkswagen of America and also specifies the opportunities for changes with significant savings. The article was written by two external consultants who were participants in the study on how to reengineer the distribution process at Volkswagen of America. One of the authors is a consultant from IBM Supply Chain Optimization Practice at Michigan and another is a consultant from Production Modeling Corporation at Michigan as well. The third author of the article was an actual employee at Volkswagen of America located in Michigan. The actual his position is not mentioned in the article.

 In 1995, Volkswagen of America assigned a project team to evaluate the existing vehicle distribution process and to develop a new improved distribution model. The company’s objectives were to improve responsiveness and reduce costs from customer to customer throughout the world. Volkswagen of America, a subsidiary of Volkswagen AG (Germany), imports and distributes Volkswagen and Audi vehicles in the United States. The vehicles assembled in Mexico or Germany are distributed to a network of Volkswagen dealers across the United States.

The authors point out that the existing distribution system had served the company for many years and had been hardly ever examined. The main argument is that the present system was not designed to maximize profit for the whole system, but only to realize cash flow for the original manufacture. That is, the interest was only the benefit of manufacture rather than benefit for Volkswagen and dealers in the United States together. The existing distribution system in the United States “has a single dominant form, in which the original equipment manufactures (OEMs) inventory and sell new vehicles to franchised sellers.” So, the dealer was a primary customer for a Volkswagen, and the dealer was a supplier to the end user. As a result, dealers and OEMs were only loosely attached within the system creating many disadvantages for both parties. Dealers were encouraged to carry as much inventory as possible, even though realizing that it was threatining for their businesses. Moreover, they were dependent on OEMs because they could restrict supply or appoint competing dealers. This specific distribution logic was developed under assumption that vehicles were configured as a standardized product line- one model in one color. Even after introducing a competitive advantage as a primarily focus for the franchise network, the structure of the distribution system had remained the same. The result of this structure was that dealers were not able to offer the customer an actual required product because of the limited inventory, even though OEMs in the last decade started to offer thousands of model designs.  

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The subject of this paper is a study about a new configuration that could deal with these limitations and achieve benefits for Volkswagen and dealers together. The goals included to maximize the percentage of customers receiving their first choice of vehicles within 48 hours either from dealer inventory or from Volkswagen. By reducing inventory the goal was to reduce the total system costs for dealers and Volkswagen together, including transportation, financing, and storage costs. One potential solution was to pool vehicles in regional depots so that it would reduce the local dealers’ inventories and in the same way would assure ...

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