Discussion Forum
Grading Rubric
5 pts possible
5 pts.
Consistently showed
original, thoughtful and
reflective responses.
Demonstrated the
learning from readings,
lectures, and class
discussions. Opinions
were formed from class
content. All posts were
done on time.
3-4 pts.
Mostly showed original,
thoughtful and
reflective responses.
Demonstrated the
learning from readings,
lectures, and class
discussions. Opinions
were formed from class
content. One post may
have been late or
missing.
2-3 pts.
Occasionally showed
original, thoughtful and
reflective responses.
Occasionally demonstrated
the learning from readings,
lectures, and class
discussions. Opinions
were occasionally reflective
of class content. More
than one post may have
been missing or late.
0-2 pts.
Rarely showed original,
thoughtful and reflective
responses. Rarely
demonstrated the
learning from readings,
lectures, and class
discussions. Opinions
were not reflective of
class content. Late or
missing posts.
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 the Americas, Asia and
Africa. Around the world, nearly 400,000 employees produced approximately 30,000 vehicles per day or
were involved in other vehicle-related services.
With its nine brands, the Volkswagen Group had a presence in all
important automotive markets around
the world. Key sales markets included western Europe, China, Brazil, the United States, Russia and
Mexico. The company had been able to increase its market share in 2010 despite a tough economic climate
and competitive marketplace. In fiscal year 2010, the Volkswagen Group delivered 7,205,094 vehicles to
customers worldwide, an increase of approximately 15 per cent from 2009, thus achieving a new record for
the company. The delivery figures in each of the 12 months of the reporting period were higher than in the
corresponding prior-year periods, when sales had, in some cases, been negatively affected by the
consequences of the financial and economic crisis. Demand for Volkswagen Group models exceeded the
previous year's demand in all models and in almost all markets. Exhibit 1 provides an overview of the
deliveries to customers by market and of the respective passenger-car market shares of the Volkswagen
Group in fiscal year 2010.
Growth Strategy
Much of Volkswagen's current and future expected growth was attributed to what was termed “Strategy
2016," which was a global strategy that had originated at the corporate level and was pushed down to each
group at the country level. The key element of Volkswagen's Strategy 2016 was to position the
Volkswagen Group as a global, economic and environmental leader among automobile manufacturers. The
company expected to achieve this objective by using intelligent product innovations and technologies;
paying particular attention to an environmentally friendly orientation; and by promoting a continuous focus
on improving productivity, quality and customer satisfaction. The Volkswagen Group's aim was to be the
most successful and fascinating automaker in the world by 2016.
Deliveries in North America
Although the growth in the passenger car market in the United States had slowed somewhat in the second
half of 2010, the Volkswagen Group's sales figures had increased by 21 per cent in 2010 from 2009 as a
whole. The car models that had recorded the highest growth rates were the new Beetle, Golf, Tiguan,
Passat CC, Audi A5, Audi A6, Audi A5 Coupe and Audi Q5 models (see Exhibit 2). In Canada, deliveries
to customers had increased by 16 per cent year-over-year. Particularly strong demand was recorded for the
Golf, Tiguan, Audi 4 and Audi Q5 models.
VOLKSWAGEN GROUP CANADA INC.
Parts Distribution Network
VGCA operated one Parts Distribution Centre (PDC) located in Toronto, Ontario. The PDC was also part
Source: Internal documents, March 30, 2011.
Source: Volkswagen Group Website, Annual Report 2010
http://www.volkswagenag.com/content/wwcorp/info_center/en/themes/2011/03/Annual_Report_2010.html, December 27,
Source: Internal documents, March 30, 2011.
2011.
of a larger North American distribution network that included seven large PDCs situated across different
regions of the United States. The PDCs were responsible for storing the inventory of spare parts for
distribution to dealerships across the country. These parts were used for general maintenance and repair for
vehicles owned by Volkswagen customers. The PDC was not responsible for the storage and distribution
of new vehicles, which were transported directly to dealerships from the Port of Halifax.
of the seven U.S. PDCs, the largest was located in Newark, New Jersey, where all parts for North
American markets were received from the German manufacturers. The Newark PDC was the only PDC
referred to as a slow-moving PDC, which stocked 100 per cent of Volkswagen parts. The fast-moving
PDCs, such as the one in Toronto, carried 60 to 80 per cent of the most commonly ordered stock-keeping
units (SKUS). Parts not stored at the Toronto PDC could be acquired by placing a special order to the
Newark PDC, for shipment first to Toronto and subsequently to the dealer.
VGCA 2016 Growth Plans
In the previous year, VGCA sold approximately 69,000 vehicles in Canada across both the Volkswagen
and Audi brands. The sale of spare parts shipped out of the Toronto PDC to Canadian dealerships
amounted to $200 million in revenue.
VGCA had aggressive plans to grow the volume of new car sales annually by 10 per cent per year over the
next five years. The growth of spare parts sold to dealerships was expected to increase at this same rate.
This increase included the ability to service the demand of an additional 17 new dealerships scheduled to
open in new markets across the country during this period, primarily in Ontario and British Columbia.
New Vehicle Launch and Facelifts
VGCA's plan included four new vehicle model launches and four new facelifts to existing models each
year for the next three years for a total of 12 new vehicles and 12 facelifts (see Exhibit 3). Approximately
75 per cent of all SKUs would be kept in inventory at the fast-moving Toronto PDC. Each new vehicle
model would add 3,000 new SKUs, and each new facelift would add 1,000 new SKUs. The Toronto PDC
already housed more than 80,000 total active SKUs.
TORONTO PDC
Warehouse Size
The Toronto PDC was a 160,000-square-foot facility that was 400 feet in length and 400 feet in width with
a 30-foot ceiling (see Exhibit 4). Typically, 20 per cent of the warehouse space was occupied by racking
that was stacked to the ceiling. Wide aisles enabled staff to pick product throughout the facility. The
warehouse had an additional 40,000 cubic feet of unused space in the warehouse that could be installed
with new racking to store more parts.
The Toronto PDC supplied parts to 122 Volkswagen and Audi car dealerships across Canada and, at any
one time, held, on average, $20 million in inventory. VGCA had a master service level agreement with the
Canadian dealerships that committed the Toronto PDC to deliver parts within 24 hours of order receipt.
5 Internal documents, March 30, 2011.
Page 4
9B12D002
The internal service level for filling orders accurately and within 24 hours was targeted at 95 per cent.
Current service levels were at 93 per cent.
Bin Storage Requirements
The racking used for storing parts in the warehouse was made up of two bin sizes. Small bins, which
represented 25 per cent of the total, had a capacity of 10 cubic feet, while the large bins had a capacity of
100 cubic feet. Typically, one bin was sufficient to store as many parts as were needed for each type of
SKU. The warehouse had 80,000 total bins available, of which 64,000 bins were utilized. Kym estimated
that the warehouse had capacity for an additional 16,000 SKUs to fill the remaining empty bins, but was
concerned that the warehouse might not be sufficient to handle the expected SKU growth over the next five
years (see Exhibit 5).
THE DECISION
As a starting point for the meeting on Wednesday, Kym wanted to first identify the capacity constraints on
the Toronto
PDC using a five-year time horizon and then evaluate the possible options.
Expecting that expansion would be likely, Kym identified three alternatives: Expanding the existing
warehouse, building and leasing a new warehouse in a different location and outsourcing all or part of the
warehouse to a third party. Each option had advantages and disadvantages that needed to be weighed
carefully (see Exhibit 6).
During the meeting the following day regarding alternatives for expansion, Kym wanted to consider at
least four factors. First, timing was a consideration. Kym was concerned that a long delay would
compromise the Toronto PDC's service levels. Second, any expansion would need to minimize disruptions
to the existing facility. Current service levels were slightly below target, and Kym did not want to
negatively affect warehouse performance in this area. Third, the Toronto PDC serviced a vast geographic
region, and Kym recognized that setting up a warehouse in Western Canada might provide opportunities to
improve customer service. She was concerned, however, that opening a new PDC might lead to higher
inventory levels. Lastly, the final decision needed to be cost-effective. The automotive industry globally
was still in a difficult period, which meant that every capital expenditure would be thoroughly scrutinized.
Page 5
9B12D002
Exhibit 1
VOLKSWAGEN DELIVERIES TO CUSTOMERS, BY MARKET, 2009-2010
Deliveries (Units
Share of Passenger Car Market (%)
Territory
2010
2009 Change (%)
2010
2009
Europe/Remaining Markets 3,599,951 3,492,438
3.1%
Western Europe
2.902.948 2.917,888
-0.5%
21.0%
20.9%
Germany
1,038,596 1.246,571
-16.7%
35.1%
34.2%
United Kingdom
381,175
341,888
11.5%
17.2%
16.1%
France
270,527 260,799
3.7%
11.2%
11.3%
Spain
246,125
224,692
9.5%
23.8%
23.2%
Italy
242,732
237,760
2.1%
11.5%
10.1%
Central and Eastern Europe 429,485
385,320
11.5%
13.4%
13.4%
Russia
133,503
95,208
40.2%
7.1%
6.5%
Czech Republic
81,932
77,952
5.1%
45.6%
43.7%
Poland
81,639
79,120
3.2%
22.8%
224%
Remaining Markets
267,518
189,230
41.4%
Turkey
87,434
49,094
78.1%
11.9%
10.3%
South Africa
72,279
52.758 37.0%
19.9%
19.3%
North America
549,578 467,769
17.5%
3.9%
3.7%
USA
360,287
297,973
20.9%
3.1%
2.9%
Mexico
129,548
118,391
9.4%
15.7%
15.6%
Canada
59,743
51,405
16.2%
3.8%
3.5%
South America
907,778
825,851
9.9%
19.6%
21.7%
Brazil
727,790
697,279
4.4%
22.9%
25.4%
Argentina
135,628
103,445
31.1%
24.2%
26.9%
Asia-Pacific
2,145,787 1,550,261
38.5%
9.6%
8.6%
China
1,924,649 1.400,514
37.4%
16.8%
16.5%
Japan
63,998
53,904
18.7%
1.5%
1.4%
India
53,555
19,002
181.8%
2.5%
1.1%
Worldwide
7,203,094 6,336,319
13.7%
11.4% 11.2%
VW Passenger Vehicles
4,502,827 3,954,551
13.9%
Audi
1,092,411
949.729
15.0%
Skoda
762.600
684.226
11.5%
SEAT
339,501
336.683
0.8%
Bentley
5,117
4,616
10.9%
Lamborghini
1,302
1,515 -14.1%
ww Commercial Vehicles
435,584
361,506
20.5%
Scanta
63,712
43,443
46.7%
Bugatti
40
50
-20.0%
Source: Volkswagen Group Website, Annual Report 2010
http://www.volkswagenag.com/content wwcorpinfo_centerlen/publications/2011/03/Volkswagen_AG_Geschaeftsbericht_201
0.-bin.acq/qual-BinaryStorageltem. Single.File/GB_2010_e.pdf. December 27, 2011.
W12772
WAREHOUSING STRATEGY AT VOLKSWAGEN GROUP CANADA
INC. (VGCA)
Adam Bortolussi wrote this case under the supervision of P. Fraser Johnson solely to provide material for class discussion. The
authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised
certain names and other identifying information to protect confidentiality.
Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmittal without its written permission.
Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request
permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, c/o Richard Ivey School of
Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-
mail cases@ivey.uwo.ca.
Copyright © 2012, Richard Ivey School of Business Foundation
Version: 2012-03-05
It was Tuesday, January 18, 2011, and Kym Meisner, director of warehousing and logistics at Volkswagen
Group Canada Inc. (VGCA), was reviewing a presentation by the sales and marketing team regarding the
five-year growth plan for both the Volkswagen and Audi vehicle brands in Canada. In her 20 years
working for VGCA, Kym had never seen such aggressive growth targets attributed to new car launches,
product facelifts and expected increases in year-over-year vehicle sales volume. She had already heard
concerns from Dave Cook, the warehouse manager of VGCA's parts distribution centre in Toronto,
Ontario, regarding the limited space available in the warehouse. She wondered to herself how they could
possibly make room for the inventory of additional new parts needed to supply the growing network of
dealerships across the country.
Kym had scheduled a meeting with Dave and the other members of the warehouse team the following
afternoon to work on a plan for the distribution centre. She was particularly interested in the changes, if
any, that would be needed to the size and layout of the warehouse to accommodate the company's growth
plans. Kym decided to do some quick analysis to prepare for the meeting on Wednesday.
1
VOLKSWAGEN GROUP¹
The Volkswagen Group, headquartered in Wolfsburg, Germany, was one of the world's leading
automobile manufacturers and the largest carmaker in Europe. The company represented nine brands from
seven European countries: Volkswagen, Audi, SEAT, Skoda, Volkswagen Commercial Vehicles, Bentley,
Bugatti, Lamborghini and Scania. Each brand had its own character and operated as an independent entity
on the market. The product range extended from low-consumption small cars to luxury-class vehicles. In
the commercial vehicle sector, the product offering spanned pickups, buses and heavy trucks.
Source: Volkswagen Group Website. http://www.volkswagenag.com/content/vwcorp/content/en/the_group.html.
December 27, 2011.Exhibit 2
2011 VOLKSWAGEN AND AUDI VEHICLE MODELS IN CANADA
2011 Jetta
from $15,875
2011 Golf 3-door
from $20,475
2011 GTI 3-door
from $28,875
2011 Golf Wagon TDI
from $26,875
2011 Eos
from $36,975
View Q7
from 53.900 CAD
View TTS Roadster
from 62.200 CAD
View A5
from 46.200 CAD
View A6 Avant
from 68.200 CAD
View Q
from 41.200 CAD
▸ View A3
from 32.300 CAD
View A5 Cabriolet
from 38.400 CAD
View 56
from 99.500 CAD
2011 Touareg
from $48,440
2011 Golf 5-door
from $21,475
2011 GTI 5-door
from $29,875
2011 Tiguan
from $27,875
2011 Routan
from $28,575
View RS
from 144.000 CAD
View A4
from 37.800 CAD
View 55
from 59.900 CAD
View AB
from 99.200 CAD
2011 Touareg TDI
from $53,190
2011 Golf TDI 5-door
from $25,275
View A4 Avant
from 42.800 CAD
2011 Golf Wagon
from $22,975
View RS Spyder
from 187.000 CAD
View S5 Cabriolet
from 68.300 CAD
2011 CC
from $33,375
Source: Volkswagen Canada Website. http://www.vw.ca/en/models.html. December 27, 2011.
Source: Audi Canada Website. http://www.audi.ca/ca/brand/en/models.html. December 27, 2011.
View TTS Coupe
from 57.900 CAD
View 54
from 52.500 CAD
View As
from 64.200 CADPage 7
New Model Launches
Facelifts
NUMBER OF THE VOLKSWAGEN GROUPS' NEW MODEL LAUNCHES AND FACELIFTS FOR THE
NEXT FIVE YEARS
Source: Internal documents, March 30, 2011.
Length: 400 feet
Production
Office
Small Bin
Racking
Year 1
4
4
Small
Racking:
Maintenance
Room
Exhibit 3
AAAAAA AAAA
Year 2
4
4
Source: Internal documents, March 30, 2011.
Exhibit 4
LAYOUT OF VOLKSWAGEN GROUP CANADA'S TORONTO PARTS DISTRIBUTION CENTRE
Width: 400 feet
‒‒‒‒‒‒‒‒‒‒‒‒‒‒
Staging Area
Year 3
4
4
Loading Dock
Year 4
0
0
9B12D002
63
Misc.
Storage
Year 5
0
0
Height:
30 feetPage 8
VOLKSWAGEN GROUP CANADA'S CURRENT BIN INVENTORY
Large Bins
Small Bins
* 1 Bin = 1 SKU Type
Occupied
16,000
48,000
Source: Internal documents, March 30, 2011.
Cost
Time
Lease Terms
Management Control
Exhibit 5
Expanding the
Existing
Warehouse
$80 per square foot
6-8 months
10-Year Extension
High
Source: Internal documents, March 30, 2011.
Empty
4,000
12,000
Exhibit 6
TIME AND COSTS ASSOCIATED WITH EXPANSION OPTIONS FOR VOLKSWAGEN GROUP
CANADA'S TORONTO PARTS DISTRIBUTION CENTRE
Total
20,000
60,000
Leasing a New
Warehouse
Size
100 ft
10 ft³
$120 per square
foot
2 years
20-Year Lease
High
9B12D002
Outsourcing all/part
of the Warehouse to
a 3rd Party
$120 per square foot
Immediate
10-Year Contract
Low
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