Principles Of Logistics Management Essay


Volkswagen group is an automobile manufacturer was founded in 1937, having its headquarters in Wolfsburg, Germany. It was founded to produce a large number of passenger cars at lower prices. It has a production plant all over the world about 123 in Europe countries and 11 in America, Africa, and Asian countries. Its major manufacturing is cars, trucks, and buses. Volkswagen is doing its own logistics group. It is maintaining the material and vehicle logistics completely to ensure the customer satisfaction. They are selling the vehicles around 153 countries.

The major activity of this group is the production, distribution, and logistics. The Volkswagen group has their aim for the future is “TOGETHER- STRATEGY 2025” is to have a great change in the process to be the best carmakers globally to produce a sustainable mobility. They are very well concerned about the environmental pollution by producing fully electric cars with better battery technology and to improve better logistics operation, the group has been producing autonomous trucks and buses. Every weekday the company is producing around 44,170 vehicles. In 2015, the OEM of Volkswagen group ranking among the TOP 5 brand driven. (Portrait & Production Plants)


The main purpose of this report is to explain the roles and responsibilities of a logistics manager in Volkswagen group and how the factors that are interfaces with logistics. The major job of the logistics manager is to liaise and discuss with suppliers, manufacturers, retailers, and customers. It explains about planning and managing logistics, transportation, warehouse and customer service. This report explains the sufficient information to direct, optimize and coordinate order cycle and inventory in the management. The essential part of logistics is movement in terms of transporting goods and services. Here it completely focuses on supply chain management.


In automotive industry doing short production run is not much possible, because the production cost is very much expensive. Volkswagen group has been producing long production running model in automotive industry. Since they are doing long production run, the production cost for the product will be lower as they are continuously producing same models for long time and hence the logistics cost will be higher. Volkswagen producing different models for different countries according to the customer desire. In a year they are producing nearly 5 to 10 models all over the world.

There is no particular festival season demand for the vehicles. But there is a high demand of vehicles in spring season and low demand in winter season. Volkswagen logistics have been maintaining adequate stock to prevent the stockout problem and ensure uninterrupted production. Logistics department always ensure that the supplier should have alternative raw material if there is any problem in receiving conform material. Logistics department aware of keeping alternative raw material in warehouse is again an extra cost for them. (Volkswagen is pulling the plug on the longest-running model in automotive history,2013)


Volkswagen group has produced around 11 million vehicles in the year of 2017. Being a very big manufacturer, The Volkswagen vehicles has been shipped in larger amount to keep the transportation cost to be low. Generally, the larger the shipment, the cheaper the transportation rate. If the vehicles have been transported by roadways domestically or airways worldwide, the transportation cost will be higher when comparing to sea cargo.

The product of the Volkswagen group is very expensive, hence the extra care needed for logistics department to take care of vehicles. Even a small scratch in vehicle charges extra cost to recover the fault. Hence the logistics facilities for cross brand packaging is established in few countries. During promotion period, logistics division should be aware of the demand supply.

The Volkswagen logistics has delivered five million vehicles in the year of 2016. Wholesalers are acting as a combined purchase for multiple retailers. Volkswagen group sending its finished goods and services to wholesalers and therefore reducing the logistics cost by increasing the shipment size and fewer the number of transactions. It would be a profit for the logistics department. Now most of the people are more familiar with blockchain. We have started testing block chain systems to protect cars from hackers. (Volkswagen Logistics Delivered Five Million Vehicles, 2016)I


Volkswagen group keeping a clear financial statement for the customers. The logistics department has to provide timely and accurate information to the accounting and finance department on the status of all finished goods and services. Volkswagen logistics keeping track of costs and budgets for work in progress activities. Finance and accounting department are concerned with cash flow, balance sheet, financial ratios, profit and loss statement. The data has to be managed as timely as possible. Volkswagen group has been doing the business logistics.

The logistic theory states that having the right item at the right place at right time with right quantity and quality for the right price to ensure customer satisfaction. Logistics assets include warehouse, equipment, vehicles and stocks. The logistics department job is to find the lowest total cost. If the transportation cost increases, it will decrease the warehouse and inventory cost and vice versa. The organization includes cost trade off with logistics which include ware housing cost, transportation cost, administration cost, customer service levels and inventory cost. (Volkswagen Konzern – AR 2017)


Order management process involves four steps. firstly, Order transmittal, order processing, order picking and assembly and finally order delivery. Order transmittal occurs between the time the customer places an order and the time the seller receiving the order. In Volkswagen group, the order has been placed by consumers through online, dealers or direct visit to the showroom to have a test drive. Secondly order processing, the Volkswagen dealers will do the order entry in the computer system.

Marketing department then credits the salesperson, and accounting department records transaction. Volkswagen logistics will contact inventory department which locates nearest yard to customer and pick the order. Our Transportation department then arranges for shipment. Usually the Volkswagen group don’t let for stockout problem as they are being one of the biggest automotive manufacturers in the world. The major problem for getting order process delay is because of high demand. Once the shipment is done, our logistics department do the load planning in trailer and finally reaches the direct dealer. Then the consumer will receive their ordered vehicle from dealer.

Meanwhile the dealer will intimate the customer about the order status. There are few key performance indicators in the order management process. Sometimes for a bespoke new car which is directly ordered from factory will take a lead time to reach the consumer. For example, vehicles with DSG gearboxes are in high demand, hence the lead time of vehicles will extend. Usually, we deliver in 14 days to retailer. Vehicles built outside Europe will need extra duration around six weeks after built to reach to the retailers. It is not much difficult to track our order status.

Using VIN (VEHICLE IDENTICATION NUMBER), we can track our order whether your car is in transit or received to dealer. We can get the VIN number from the dealer once our order has been placed. Volkswagen organization is ready to rectify the wrong quantity, order or product at their own cost if the mistake has been done by their company. Volkswagen employs 600,000 employees to produce 10 million cars in a year. Hence the productivity of per employee is actually 10million/600,000= 16.67 cars/employee/year. (Track My Car FAQs)


Productivity per worker is lower in Volkswagen when compare to Toyota company. In Toyota they do have around 360,000 employees and produce 9million vehicles per year. Hence for Toyota is 25 cars/employee/year. The Volkswagen group should improve the productivity per worker in order to increase the overall production rate more than Toyota and also there are some fuel consumption problem is with the Volkswagen vehicles. Few customers gave complaint on mileage issue. Some manufacturing defect like limp home mode set by the vehicle computer. It is an important sensor which will spoil the engine and transmission.

So, this will lead to extra charges for servicing done by company and also for logistics management by transporting the vehicles to the service centre. Other than that, the company is performing well enough in all the key performance indicators as mentioned above like duration of delivery, on time delivery, best tracking system by organization. Because, the company has delivered around 999,800 vehicles on time in December 2017. It is actually a best service by the organization. (Volkswagen Group achieves record sales,2017)

INVENTORY MANAGEMENT VW group is manufacturing around 11 million vehicles every year. Volkswagen is having nearly 8500 suppliers all over the world. We always prefer to buy raw materials in bulk to keep our order placing and orderings cost to be low. So, our Inventory management is holding the items or stocks which has been stored by Volkswagen organization that consists of raw materials, maintenance materials and finished goods and spare parts to be ready when it is needed. Volkswagen is manufacturing vehicles which are quite expensive when compared to other brand cars. Inventory turnover ratio for Volkswagen group in 2015 is 5.8 and 2014 is 6.2.

The stock turnover is reduced to 5.8 from 6.2. But Toyota’s inventory turnover ratio is 9.41 and the fill rate is 96%. They are doing C2C (cash to cash) cycle and reducing the inventory holding cost for the company. It means Volkswagen is keeping high stock for our production that are of some parts which have to come from far away destination. (Volkswagen Konzern – AR 2015)Just in time parts which are big and the holding inventory cost to be higher, will receive from the supplier when it is needed. If suppose the JIT parts are not able to receive from supplier, the supplier has to send the alternative parts to not stop the production line. In 2016, Volkswagen has highly invested in newest parts distribution centre in US, which delivers the stock order parts overnight instead of two or three days to deliver. So, it is useful for us in keeping low inventory.

Our company has been giving discount to the dealers for the order which take two to three days to delivery but not for the emergency order. This can result in higher fill rate with the dealers and the fill rate has been improved from 86 to 88% after three years. So, the stockout chance is 12%. The risk that the company may face is if they are forcing the dealer to keep excessive inventory and paying high carrying costs will lead the dealer to come out of business from VW. (VW aims to ship parts faster, get dealers to change their stocks, 2016)


Inventory system controls the level of inventory by deciding when to order and how much to order. The best way to find out how much to order is EOQ model. From this we can find out how to control inventory carrying costs which includes storage space, capital costs, service costs, inventory risks cost and space costs. But more than that just in time operation can have advantage of inventory physical plant space reduction. The EOQ model does work for Volkswagen to manufacture the products at lower costs to sell the vehicles at a competitive price. This model helps to prevent shortage and overstocking as it calculates when more parts should be made for production. By recommending fixed order of point (FOP), the company may able to decide when to order. It is an arrangement that the inventory is monitored continuously and replenishment stock is ordered in previously fixed quantities whenever at hand stock falls to the established re-order point.


In conclusion, the Volkswagen Group aims to be the most successful, fascinating and sustainable automaker in the world. Also, the Volkswagen Group is one of the top automotive companies because it has particular strengths and favourable opportunities to improve its operating management in production by doing long production run, marketing, finance and accounting.

How to cite this essay: