Logistics Management, Group Number: 5 (B), Team Member Names: Anunay Jallan, Bhaskar Ghosh,

Musaid Helal Khan, Varun Gokhale

In CASE 2 (Sessions 4-5): Volkswagen / Odd Groups

Question for Case Analysis: Theorize on any five key aspects that propels Volkswagen to re-
define its warehousing?
Response: The Volkswagen Group was a global brand that sold and distributed vehicles in 153
countries, supported by 62 production plants in 15 European countries and a further seven countries in
America, Asia and Africa. The sales figures for the group had increased by 21% in 2010 as compared
to 2009 and they were looking for further growth through their global “Strategy 2016”. Apart from
vehicles they also sold spare parts through their PDCs to the dealers and Toronto PDC was one of the
seven PDCs present in the North American distribution network. There were several reasons for
VGCA to redefine the warehousing at Toronto PDC. Some of them are mentioned below:
1. Insufficient Capacity: The area of the Toronto TDC was 160,000 sq. ft. facility which was
400 ft in length and a 400 ft wide with a 30 ft ceiling. The warehouse had 40000 cubic feet of
unutilized space which could add another 400 large bins or 4000 small bins, increasing the
capacity to 84000 SKUs for the next year.
The warehouse currently had 80,000 total bins available of which 64,000 bins were utilized.
Each bin was sufficient to hold all items of a particular SKU, so they had an additional
capacity of 16,000 SKUs. So, considering both unused area and unused bins the total capacity
that can be increased is 20,000 SKUs. Even after optimally utilizing the available space, the
PDC’s capacity would not be sufficient to meet the expected growth in the sales and SKUs in
the next five years.

2. Launch of New Vehicles and New Facelifts: The VGCA plans on launch four new vehicles
and four new facelifts every year for the next three years i.e., twelve new vehicles and twelve
new facelifts. Each new facelift would add 1000 new SKU and each new vehicle would add
3000 new SKU. Thus, the SKUs would increase by 16000 each year for the next three years
and among them 75% of the SKUs would be required to be kept inventory at the fast-moving
Toronto-PDC. But they only have a capacity to increase 20,000 SKUs in future compared to
the required increase of 48,000 SKUs over a period of 3 years.

3. 2016 Growth Strategy: VGCA sold 69,000 vehicles in the previous year and had a plan to
annually increase the sales volume by 10% over the next five years. This will also increase
the growth of demand for spare parts at the same rate. With this growth strategy, plans were
made to open 17 new dealerships in the market over the same next five years primarily in
Ontario and British Columbia. So, in order to make the Toronto PDC able to service the
increased demand it was important to redefine the warehousing.

4. Dependency on the Newark PDC: The Toronto PDC is a fast-moving one and stores mostly
60-80% of the most commonly ordered SKUs. They supplied parts to 122 Volkswagen and
Audi car dealerships across Canada. The Toronto PDC relied on the Newark PDC, the largest
PDC in U.S. to acquire those parts which it did not store. This dependency on the Newark
PDC adversely affected the service level that the PDC was achieving. Hence, expansion
would enable VGCA to house more parts and fulfill their commitment of delivering parts
within 24 hours.

5. Low Service Levels: The sale of service parts shipped out of the Toronto PDC to Canadian
dealerships amount to $200 million in revenue. So, the delivery of service parts was a major
source of revenue for VGCA, and it was important to maintain good relationship with the
dealers. The delivery of spare parts was centralized in VGCA, and they had a master
agreement with all their dealers that committed them to deliver the parts within 24hours of
order receipt. The internal target set by the management for filling orders accurately and
within time was 95%, compared to which Toronto PDC had only 93%.

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Logistics Management, Group Number: 5 (B), Team Member Names: Anunay Jallan, Bhaskar Ghosh,
Musaid Helal Khan, Varun Gokhale

Fig. Layout of Volkswagen Group Toronto PDC

Another important reason for redefining the warehousing can be to improve the model towards a more
distribution system so that better service levels are achieved through lower inventory levels. Product
slotting, which is positioning the products according to the velocity of the product plays a vital role to
complete the on-time deliveries.
In the above layout we can see that the slotting of the products are done based on the size, and the
small bins are all placed together and all large bins are placed together for easy differentiation. Even
though Toronto PDC is fast moving warehouse some items will have higher movement rate than
others. It is generally considered that while filling an order 70% of the time is consumed by travelling
from one point to another. Also, some products which are ordered together can be bundled and stored
close to one another to make the picking process even more efficient.
The production office, maintenance office, loading dock, staging area and storage areas are also not
adjusted according to the flow of work in the warehouse. The areas should be arranged in such a way
that the flow of goods are smooth and easily understandable for the employees.
In order to further improve the functionality of warehouses, VGCA should invest into warehouse
management functions of the following types:
 Inter-warehouse management systems: enterprise definition, inventory analysis,
replenishment, tracing
 Warehouse management functions: warehouse organization definition, inventory control,
activity planning, management information
 Warehouse execution control functions: yard management, receiving, inspection, stock
movement, packaging, cycle counting, transport and distribution etc.

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