Company Analysis Volkswagen Group in Forest, Brussels - Report Example

Company Analysis – Volkswagen Group in Forest, Brussels Table of contents Executive Summary 3 ment of topic 4 2. Production process in Volkswagen Group in Forest, Brussels 4 2.1 Description of the process 4 2.2 Cost management 8 2.3 Quality management 11 2.4 Logistics 13 3. Conclusions and Recommendations 14 Bibliography 16 Annexes 19 Executive Summary The successful development of business operations worldwide is depended on a series of factors. In the manufacturing sector, the performance of firms’ production units is critical for securing these firms’ competitiveness in the global market. Most commonly, the effectiveness of production units is based on the following criteria: quality of products, management of cost and time involved and response of the customers, i.e. the level at which the products resulted are welcomed by the public or not. In any case, it seems that organizations that operate globally are more capable of developing effective production processes, at the level that they can face appropriately any potential problem related to these processes. On the other hand, the unexpected changes in the local or the global market may result to the need for updating the production processes so that the position of a firm in the market not to be threatened. Current paper focuses on the examination and the analysis of the production process of a well-known firm: the Volkswagen Group. The processes employed in the Group’s production unit in Forest, Brussels are reviewed and evaluated emphasizing on the effectiveness of this unit’s quality and cost management. The paper aims to show that the production processes used by the organization are well organized despite the fact that the logistics management of the organization is quite challenging, since the parts of cars are sent to the firm’s unit in Brussels by various places across Europe and have to be assembled so that the finished product is promoted to the European market. It is concluded that the firm’s production unit in Forest, Brussels, meets most requirements of a successful production unit; still, certain changes are required so that the performance of the unit to be standardized in the long term. 1. Statement of topic The production process of Volkswagen Group has a key role in the Group’s development worldwide. The Group’s production unit in Forest, Brussels, is considered as one of the most important production units of the organization. The production process developed in the particular unit is analyzed in this paper. Emphasis is given on the potentials of the Group to reduce this unit’s costs without affecting the Group’s performance or the quality of the products involved. At the same time, the unit’s logistic process is reviewed focusing on the fact that the various parts of the firm’s cars are coming from different places in Europe and are assembled in Brussels to be then sold all around the world. 2. Production process in Volkswagen Group in Forest, Brussels 2.1 Description of the process In order to understand the performance of the firm’s production unit in Forest, Brussels it would be necessary to present primarily the key characteristics of the production unit involved. Then, the production process should be analytically described, as all of its phases. Finally, the phases of the process that are of key value for its success, meaning the cost management techniques and the quality management techniques as used in the specific production unit, should be further analyzed, followed by suggestions as of their potential update or alteration for supporting the increase of the Group’s performance. Volkswagen Group incorporates a high range of brands (see Figure 1, Appendix). This means that the terms of operation of the Group’s production units internationally need to be carefully reviewed, so that delays or failures in regard to the quality of the products (cars) are avoided. In Figure 2 (Appendix) the monthly deliveries of the Group are presented. It is made clear that the orders of customers in 2011 have been increased, compared to 2010. Still, turbulences in the volume of monthly deliveries have not been avoided, a problem that also appeared in 2010 (Figure 2, Appendix). On the other hand, ‘the orders received by the Group in Western Europe, excluding Germany, have been at the same level as in 2011’ (Volkswagen Group, Orders Received by the Volkswagen Group 2012). Still, if estimated by referring to Europe as a whole, the performance of the organization in terms of orders has been improved; indeed, in 2011, an increase of 2.6% in the orders received by the firm’s customers (Volkswagen Group, Orders Received by the Volkswagen Group 2012). The increase of the Group’s deliveries in 2011, compared to 2010, verifies the current effectiveness of the organization in meeting the requirements of customers and respond to the market trends; indeed, as highlighted in Figure 5 (Appendix), in 2011 the deliveries of the Group have been increased both in regard to cars/ light vehicles and for trucks/ buses (Figure 5, Appendix); the increase in the second category of vehicles has been really impressive, reaching the 104.585 units in 2011, compared to 63.712 in 2010 (Figure 5, Appendix). The production unit of the Group in Forest, Brussels, is one of the firm’s ‘most productive units’ (Fortitude 2012). Moreover, because of its location, the specific unit offers a series of advantages, such as ‘the access to a wide network of suppliers and service providers’ (Fortitude 2012). The particular production plant has been established in 1949 (Figure 3, Appendix) and it covers a area of about ‘540,000 square meters’ (Volkswagen Group. “Data and Facts” 24 May 2012). In order to increase the plant’s production capabilities, the Group’s strategic managers decided to proceed to an investment of €300 (Volkswagen Group, “Data and Facts” 24 May 2012), a sum that has been invested gradually, from 2007 up today for the improvement of the plant’s infrastructure. By 2010, the plant has been involved in the production of Audi, a fact that highly benefited the sales of the specific model (Volkswagen Group, “Data and Facts” 24 May 2012). The Automotive park of the plant is a unit that incorporates two key parts of the production process: the logistics and the packaging unit (Volkswagen Group, “Data and Facts” 24 May 2012). The production plant of the Group in Forest, Brussels, is presented in Figure 3 (Appendix). The material and the organization of areas, both internally and externally, in regard to the relevant plant can be characterized as two important characteristics of the particular plant. It should be noted that since 2010, the production process of the Group, as developed in the particular plant has been changed, being aligned with the production rules used for the production of Audi (Volkswagen Group, “Production” 24 May 2012). In this way, it is expected that the plant’s ability to meet the requirements related to the particular brand will be increased. In order to meet the requirements of Audi, the firm’s production plant has been extensively transformed; the changes made included: a) the establishment of a new building as body shop; 450 robots support the development of tasks that need to be completed in the particular phase of the production process (Volkswagen Group 11 May 2010), b) the previous ‘Assembly building has retained’ (Volkswagen Group 11 May 2010), but has been improved at many of its features, such as the introduction of an advanced system for testing driving safety (Volkswagen Group 11 May 2010), c) a Quality Assurance and Process Evaluation center has been established (Volkswagen Group 11 May 2010), for ensuring high quality in regard to the firm’s cars, d) Improvements have been made in regard to the plant’s paint shop and the energy supply systems (Volkswagen Group 11 May 2010). In any case, it should be noted that the standards on which the operation of the firm’s plant in Brussels is based are quite high, a fact that can be verified through the photo in Figure 4 (Appendix). The internal environment of the firm’s production unit has been customized accordingly so that the firm’s continuous growth to be secured. Through the photo in Figure 4, the following assumption can be developed: the standards set in regard to the quality of the plant’s sub-units and machinery are high, ensuring that the firm’s image in the market is promoted. Volkswagen Group has highly emphasized on the effectiveness of its production process, as a necessary requirement for the organization’s success. In the study of Lan, emphasis is given on the Group’s intensive efforts in ‘simplifying its procurement procedures and optimizing logistics’ (Lan 252). The production potentials of the Group’s production plant in Brussels are significant. According to the corporate website, the particular plant is able to support the production of up to 500 cars daily (Volkswagen Group, Pursuit for Growth 2012). Also, the ability of the production plant to respond to complex requirements, in terms of assembly, is proved by the following fact: approximately 200 keys are employed in the assembly of each of the firm’s cars (Volkswagen Group, Assembly 2012). Emphasis is given on all phases of the production process; in this context, the painting of each car is carefully monitored as of the quality of the colors used and the quality of the work, in terms of the homogenous result in regard to each car coloring (Volkswagen Group, Paint shop 2012). As of the plant’s logistics, the relevant processes are incorporated in a framework, known as ‘Automotive park’ (Volkswagen Group, Logistics 2012), a term used for explaining the entire infrastructure employed in the plant’s logistics processes. 2.2 Cost management The potential improvement of the cost management techniques used in the firm’s production plant in Brussels should be decided by referring primarily to the cost management methods mostly preferred by modern organizations, especially those organizations that are well established in the global marketing, a fact that increases their risks in case of failures in managing costs. Lianabel (168) notes that one of the most important challenges that managers have to face when managing costs is the allocation of overhead costs related to a particular organizational process. The term overhead costs is used for describing those ‘costs that cannot be directly traced to a product in a cost-effective way’ (Lianabel 168), as for example the funds required for the payment ‘of electricity or for the employees’ training’ (Lianabel 168). The overhead costs should be taken into consideration in regard to the Group’s production plant in Brussels, even if, for the moment, hidden costs do not seem to threaten the Group’s performance, which can be characterized as quite satisfactory. Still, overhead costs would significantly help the organization to develop accurate forecasts for its future performance, limiting the chances for unexpected losses. From a similar point of view, Stenzel and Stenzel (192) claim that the effectiveness of a cost management plan is depended on the plan’s ability to cover all phases of the production process. It is further noted that there are three ‘element of process efficiency’ (Stenzel and Stenzel 192) that need to be taken into consideration when developing when developing a firm’s cost management plan: ‘the skills of employees, the product transportation and the time required for the completion of the process involved’ (Stenzel and Stenzel 192). Managers in Volkswagen should also take the above issues into consideration: aligning a product’s strategic planning process with an organization’s objectives is a challenging task especially when the physical capabilities of the person involved, meaning their skills in responding to the demands of the relevant plans, are not quite clear. Shim and Siegel (44) note that the cost management systems implemented in organizations worldwide are chosen according to a series of factors, such as the type of the product/ service involved and the activities required for the completion of the production process. Furthermore, it is made clear that for most organization, a process-related cost management plan is likely to be preferred than a job-related cost management plan. Moreover, a process – related management plans has a series of advantages, such as the limitation of errors in estimating the costs involved in the production process. Also, when the products/ services involved do not vary, then a process-related cost management system should be rather chosen so that to secure the effectiveness of the figures retrieved (Shim and Siegel 44). According to the figures incorporated in the firm’s annual report, the performance of the Group seems to be continuously improved on annual basis. Indeed, in 2011, the Group’s sales revenue reached the €159.337 (in terms of million), while in 2010 the firm’s sales were estimated to €126.875 and in 2007 they were €108.897 (Figure 6, Appendix). In other words, the Group has achieved a continuous growth, in terms of its sales; 2009 has been the only year that the firm’s sales revenues were declined, reaching the €105.187, a fact probably related to the global financial crisis of 2008 (Figure 6, Appendix). However, for the same period, i.e. from 2007 to 2011, the firm’s cost of sales has been also significantly increased, reaching the €131.371 in 2011 from €105.431 in 2010 and €91.608 in 2209 (Figure 6, Appendix). An effective cost management approach should be established in the organization ensuring that the increase of costs will be effectively monitored annually so that the Group’s profitability is not threatened. The above suggestion is further verified by the following fact: in 2012 the Group’s sales revenues will be significantly decreased, reaching the €126.9 billion, compared to €159.3 billion of 2011 (Figure 7, Appendix). A limitation is also expected to appear in regard to the Group’s deliveries, which will be decreased in 7.2 million units compared to 8.3 million units in 2010 but also in regard to the Group’s operating profit which will reach the €7.2 billion compared to €11.3 billion in 2010 (Figure 7, Appendix). The above figures are presented in order to show the necessity for the update of the Group’s cost management strategy, following possibly the suggestions made above, so that the firm’s financial performance in the future to be stabilized. In the firm’s financial statement presented in Figure 6 (Appendix) reference is made to four different types of costs: administrative costs, distribution costs, cost of materials, and personnel expenses (Figure 6, Appendix). The above costs, which have been significantly increased between the years 2007 and 2011 (Figure 6, Appendix) should be more clearly analyzed in order to explain whether they are related to the cost of sales, as also incorporated in the particular financial statement, or not. In this way, the potential effects of expenses on the firm’s profitability would be identified. The emphasis given on cost management, as part of the strategic planning in Volkswagen Group, can be explained by the following fact: costs can highly affect the success of organizational plans, leading, under certain terms, even to the cancellation of these plans. Therefore, the estimation of the costs related to the daily operations of the Group’s plant in Brussels would help to reduce the chances for severe failures and delays in regard to the plant’s production process. Also, as noted in the study of Hansen, Mowen and Liming (130) the structure and the characteristics of a firm’s cost management system ‘should be aligned with the firm’s production process’ (Hansen, Mowen and Liming 130), otherwise the specific system would fail to respond to the firm’s demands in terms of effective cost management scheme. 2.3 Quality management Apart from costs involved, the quality of the products delivered by the Group is of critical value for the success of the Group’s production group. Indeed, production is a necessary element of all firms’ production processes. Quality management is of particular importance especially for firms operating in the manufacturing industry, but also in other industries. When related to the production process, quality management usually refers to the quality standards of the materials used in the production process (Brown 144). An effective quality management plan needs to incorporate appropriate mechanisms of quality control, a process that helps to ensure that ‘goods and services are produced in accordance with design specifications’ (Pride, Hughes and Kapoor 233). Two modes of quality control are suggested in the study of Pride, Hughes and Kapoor: the first one is entitled as ‘statistical process control’ (Pride, Hughes and Kapoor 233) and it is based on data and graphs as tools for checking whether all phases of the production process are aligned with the quality standards involved, meaning the quality standards set by the organization in regard to its production process (Pride, Hughes and Kapoor 233); the second one is entitled as statistical quality control and incorporates a series of ‘statistical techniques’ (Pride, Hughes and Kapoor 233) that are used for checking whether both ‘the production process and the finished product’ (Pride, Hughes and Kapoor 233) are aligned with the quality standards that the organization has established in regard to its production process. On the other hand, Morroni (109) note that the quality of products/ services can be checked and appropriately fixed at any level of the production process and, by any means, before the completion of the particular process, i.e. before the exit of the finished product from the production plant. At the same time, Kersten (132) claims that, in its common form, quality management has emphasized on the improvement of the quality of product; today, quality management refers not only to products but also to all phases of the production process, including the supply chain (Kersten 132). Wiese (7) explains that in Volkswagen Group, quality control begins quite early in the production process; in fact, the components of the cars are checked as of their quality before entering the production plant (Wiese 7). This quality check secures the quality of the car parts, i.e. the quality of the final product but there are certain issues that need to be addressed: a) it is difficult for the time required for the completion of this quality check to be estimated in advance, b) the criteria used for this quality check need to be periodically changed, so that the new quality standards and market trends, as developed in the global market, are met and c) the evaluation of the results of the above quality check have to be objective; criteria common for all the firm’s production plants would be established; in any case, these criteria should be realistic so that the rejection of car parts as non-appropriate to be fair in terms of the actual status of these car parts. 2.4 Logistics The characteristics of logistics required for the support of a particular production process are not standardized. According to Farahani, Rezapour and Kardar (55) the key scope of logistics should be the ‘elimination of waste in all supply chain activities’ (Farahani, Rezapour and Kardar 55). This means that a firm’s existing resources should be used in the best possible way so that the waste of resources is avoided. The particular practice can be used also in the logistics management sector, which is, in any case, closely related to the cost management. In addition, the above researchers support that when a firm’s logistic management system is updated, emphasis is given on ‘both the inbound and outbound sides of logistics’ (Farahani, Rezapour and Kardar 55). In the study of Sople (2007) reference is made to three different types of logistics: ‘inbound logistics, process logistics and outbound logistics’ (Sople 7). Firms that are interested in improving the performance of their logistics should choose among the three categories of logistics presented above, meaning that the needs of the organization as of these categories should be carefully evaluated. The needs of a firm, in terms of the restructuring of its logistics, may be extended if taking into consideration the fact that the term logistics is used for describing the process ‘through which a commodity is moved through from the customer’s order to the consumption’ (Voortman 1). Therefore, the performance of a firm in terms of its logistics is critical in order to decide whether the firm’s potentials for future growth are significant or not. Logistics in Volkswagen are closely monitored, as explained above, so that failures in regard to the organization’s daily operations are minimized. The ‘former chief of production, Jochem Heizmann’ (Wimmer 74) noted that one of the key needs of the production process in Volkswagen, meaning all the firm’s production plants, is the standardization of processes, so that the same production processes are used in the firm’s production plants worldwide. The standardization of all the firm’s processes, including its production process, would also help to identify highly skilled employees that are capable of developing accurately all phases of the production processes, as defined in the firm’s strategic plans. The standardization of the firm’s production processes would possibly help to avoid delays in the delivery of completed products. Still, the following problem would exist: the time required for the parts of each car to enter the production plant can vary; setting time limits for the transfer of car parts to the firm’s production plant in Brussels, would be an important strategy for reducing time required for the completion of each order. 3. Conclusions and Recommendations The evaluation of the effectiveness of a production process is quite important for estimating the current and future potentials of the organization involved. The review of the production process in Volkswagen’s production plant in Brussels has revealed the strengths of the specific process; it is assumed that the firm’s performance in the global market, as reflected in its financial statements, Figures 5 & 6 in the Appendix section, is highly related to the high performance of the production plant in Brussels. One of the most important characteristic of this production plant seems to be the following one: technology is highly involved in the production process but the role of employees in the development of key phases of the production process is still of critical importance. Indeed, automation in the production process of Volkswagen has not been promoted at a high level, as in other firms, as for example in Toyota. In this way, Volkswagen has developed its own production system, which is highly based on employee capabilities. The firm’s competitors, such as Toyota, have emphasized on the volume of production rather than on quality; the Just-In-Time production system of Toyota reflects the firm’s need to continuously keep its sales at high level, a target that can be achieved only by supporting equality and fairness in the workplace. The production process would be the key sector in which such values should be promoted. In any case, the high quality of technology and infrastructure involved in the production process of Volkswagen as developed in its plant in Brussels, can be considered as the organization’s key advantage. A critical issue in regard to the production plant of Volkswagen in Forest, Brussels, is the following one: despite the fact that the organization’s performance, including the level of vehicles produced daily, is kept at high levels, as analyzed above, still the risks for the organizational profitability have not been eliminated. Indeed, according to the firm’s forecasts (Figure 7, Appendix), the organization’s performance in 2012 will be significantly low, compared to the firm’s performance the previous years, especially from 2007 onwards (Figure 6 & 7, Appendix). Therefore, the development of certain initiatives for controlling such risks would be emergent. In the sections 2.2 up to 2.4 above, suggestions are made in regard to the improvement of the Group’s performance as of its cost management, quality management and logistics. In this way, it is expected that the firm’s performance will be standardized in the years that follow. Currently, the firm’s faces a series of challenges that have led to the limitation of the Group’s perspectives for the future, see Figure 7, Appendix. The organization’s managers should promote the strategies suggested above, taking into consideration the following fact: the response of organizations to market pressures can be differentiated across organizations with different characteristics. In this way, the performance of the measures suggested for helping towards the improvement of the firm’s image in the market cannot be guaranteed, especially in the long term. The identification of allies for covering gaps during the production process is quite important. Also, production processes that have been already tested, and, possibly, be used by the competitors, can be published, so that the investigation on the existing evidence, as related to the production process, to be feasible. Bibliography Brown, James. Modern Manufacturing Processes. New York: Industrial Press Inc., 1991. Farahani, Reza, Rezapour, Shabnam, and Kardar, Laleh. Logistics Operations and Management: Concepts and Models. London: Elsevier, 2011. Hansen, Don, Mowen, Maryanne, and Liming, Guan. Cost Management: Accounting & Control. Belmont: Cengage Learning, 2007. Kersten, Wolfgang. Global Logistics Management: Sustainability, Quality, Risks. Berlin: Erich Schmidt Verlag GmbH &, 2008. Lan, Yi-Chen. Global Information Society: Operating Information Systems in a Dynamic Global Business Environment. Hershey: Idea Group Inc (IGI), 2005. Lianabel, Oliver. The Cost Management Toolbox: A Managers Guide to Controlling Costs and Boosting Profits. 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