Volkswagen Group logistics

The people’s car moved by people who care

Anu Goel, Executive Vice-President of Group After Sales and Services, VW Group of America, is responsible for many of elements of the VW Group products’ first interaction with their customers and he never forgets about the people behind the orders as he tells Simon Duval Smith

Anu Goel

Anu Goel

To get an insight to the structure of VW Group’s logistics operations in the US, I ask Anu Goel how much autonomy does he and his department have in relation to Wolfsburg, how does he proffer new ideas in such a complex global network. He points to a period of change. “After the issue we went through over the last couple of years, we have restructured the organization to increase the decision-making authority that has been given to the North American region. We have established a weekly North American leadership meeting and that is the opportunity to raise issues. Simply said, the idea was to decentralize decision making so that we are now more in control of our business and we have the authority with engineering and purchasing to make decisions here locally.” For Goel, this change is part of a greater recognition of the importance of logistics as an integral part of the automotive industry, a true culture change. “From my perspective, there is a more of an appetite to bring any and all issues and opportunities, including logistics, to the table. Automotive logistics is now regularly one of the top three items discussed, behind sales and finance. This change does not happen overnight, you have to be persistent and demonstrate value and a little force of will and some courage doesn’t hurt. I believe it is the job of logistics and operational leaders to make what we do known and get our part of the auto business elevated as a priority.”

A real person behind every order

Anu Goel has a varied background in logistics, with stints at CNH in North and South America, and with Ford in global parts supply and logistics. I suggest that this must have given him an interesting perspective when he joined VW and ask him what in his experiences at those companies has contrasted with Volkswagen in vehicle and parts logistics. “The big difference with CNH was that, with construction and agriculture, the sense of urgency is greater than in passenger vehicle distribution. The reason is that if someone has a $500,000 piece of farm equipment that works 6-8 weeks of the year at harvest time, which is the bulk of the customer's yearly income, their need for timely delivery and parts supply is more than just urgent - it is crucial, it’s their livelihood.

“Another notable difference is that that some of the equipment in this sector is in use for 40+ years and tend to be well maintained. Bottom line, while the businesses are very different, I think there are lessons that can be learned by the auto sector from the heavy vehicle business, especially when it comes to relationships and loyalty.

"I guess the best way to put it is that through my experiences at CNH and at Ford, I learned that there is a real person, the vehicle owner, behind each order."

Service parts and the end customer

I ask Goel about his experiences at VW and what has he found different in being responsible for finished vehicle and service parts logistics, parts operations, service workshop and technology and for customer relations. "You start with the conversation around 'who is the customer?' If the answer to that is the dealership (service manager and/or parts manager) versus the vehicle buyer or owner, then there will be differences in how you set up your processes and service offering. If you ask a parts manager what he wants from the OEM, it is probably different to what the vehicle owner expects. For example, the vehicle owner wants to have their service or repair completed by the dealer in 30-45 minutes, max.”

"The approach we have taken is that there is only one customer and that is the vehicle owner. Our dealerships and our suppliers are our business partners and if you apply that mindset you start to modify how you do things. For example, you have to look at the terms and conditions that we have with our dealers, the returns policies, parts discounts, bonuses and so on, and see whether they are aligned with serving the customer. Our vision here at VW Group of America is to have the parts at the dealer to fix the customer's car when they come in.”

I point out that there is an enormous possible parts inventory covering VW and Audi vehicles in the US, and ask him how this size of stock is managed. “We service 200,000+ part numbers, 1500 account for 40-50% of our business and 5-6,000 account for 70-80% of our business,” he says, adding: “Benchmarking has shown us that Best-In-Class off-the-shelf fill rates are around 85% so we want our dealers to have the fastest-moving and highest-volume parts in stock, we don't want them to run out of those, ie., have them in stock when a customer comes in. There are 50-60,000 part numbers that we may only sell a few pieces of each year and another 100,000 part numbers that we may not sell any of in a given year.”

“Our vision here at VW Group of America is to have the parts at the dealer to fix the customer's car when they come in” - Anu Goel

“If the dealers do not stock those and we can get those parts to them over night, before they open the next morning, then you have accomplished something. Our network is designed so that if a dealer orders a part today, before the cut-off time, 97% of our dealers will receive those parts before they open the following day, allowing them to get the vehicle serviced or repaired by mid-day. We use dedicated delivery trucks for these orders and overnight delivery carriers for orders received after cut-off that require next day delivery. This system requires dealers to be committed to managing their service and repair parts inventory intelligently, as Goel explains: "With a reliable delivery network, dealers can 'thin out' their stock, using what we call breadth and depth. On the fast-moving parts we want them to reduce their depth, because we can replace it overnight; we then allow them to take the inventory dollars that they save and reinvest it to stock a wider breadth of parts."

Push and pull in parts supply

There has long been a debate in service parts supply as to how much this type of system should be dealer-driven, how much it should be 'pull' from the dealer and how much 'push' from the OEM. Goel says this is where one starts talking about Retail Inventory Management (RIM) systems. "VW Group has a RIM system that we have not yet launched in the US as we are still adding some functionality to help the dealers. We are hoping to introduce this sometime in 2019 or early 2020. Until then, we have set up our terms of trade to incentivize them. RIM systems run the whole gamut from the OEM pushing parts through 'because we know better than you what you need', to 'here is a recommendation of what you should stock'. 

“Some OEMs will send parts under what they call Automatic Stock Replenishment, with a 100% guaranteed return within a certain period which could be nine to twelve months. This system can impact dealers' cash flow so it needs to be managed very sensitively and it impacts OEM's as there are return transport and re-stocking/scrapping costs involved."

Challenges in finished vehicle logistics

On the subject of finished vehicle logistics, I ask Goel what the specific challenges are in North America, in road, rail and short- and long-sea routes. He starts by talking about rail routes, which he says could be a long discussion. "While rail is the cheapest way to move vehicles, it has a longer lead time than over the road transport, there is an imbalance of where equipment is located compared to what is needed and given fewer options, one can at times be at the mercy of the rail companies. The ideal picture would better service through more customer focus. Our challenges are events such as a shortage of equipment, returning late and blockages on rail routes. I think there is definitely room for improvement."

Goel talks of customers regularly and often and patently sees them as his department’s ultimate and most important customer, even to the point of giving the buyer a better view of where their new vehicle is in the supply chain. 

“If you are a vehicle buyer you have an expectation of when your vehicle will be delivered or when you would like it to be delivered. At present we provide a certain level of transparency; the customer might know when their car is scheduled to be built and have a delivery date. They might know when it is on a boat and when it has hit the US port. You cannot blame them for saying: ‘I’m not happy that it took 27 days and I can’t understand why it is at the port for two weeks; when it arrives at a US port, I want the car tomorrow.”

I put it to Goel that this transparency can be effectively storing up the possibility of disappointment for the customer. “I love the fact we have transparency and we are giving it to the customers but we should consider that in giving them information, we could be disappointing them. Do they care that we give our carriers three days to build efficient loads to get the car out of the port? Do they care that it takes two days to install an accessory that they ordered? No, if the car is at a port 100 miles from them, they might well ask why they can’t just go and collect it but overall, I believe that giving them this transparency is still less of a risk than giving them no transparency.”

Customisation and accessory fitting

As vehicles become increasingly sophisticated so the options lists grow and with vehicle buyers demanding more and more features, the question of when and where to add accessories has never been more pertinent, as Goel explains: “We do accessory installation at our ports and we have dealer-installed equipment, we may have the same accessory in both channels. Customisation adds complexity but it is a strong differentiator, that today's customers want. If we get the customer order for the vehicle, with the accessories listed, we get the luxury of lead time to ensure that the parts are at the port, ready to be installed when the vehicle arrives. This is important as the vehicle is at the port for only a few days.”

“On the other hand, a lot of cars on dealers' lots are not ordered with accessories so dealers and our field teams will decide what accessories to install on these 'stock' vehicles. These judgements are currently more of an art than an exact science so you can find yourself in a situation with less than full lead time to get the right parts. This is an area, and an opportunity, for us to improve.

“Customisation is an essential element in the business and adds value and personalisation to each vehicle, enhancing our total brand offering. If an accessory becomes 'mainstream' enough, then it will become a plant-installed option and that is the outcome we would like to see. The process also allows us to test out an accessory that our people may not know or believe has a lot of volume, so they wonder why we should put that complexity into a production plant. If a part has a 10% installation rate, it does not make sense to do it in the plant, we could install it at the port or at the dealers. If the uptake should grow to 40%-plus, then we can make it a plant option as well."

Outsourcing added value options

This takes us on to outsourcing and whether Goel believes that these operations are well served by the present service companies. He seems quite happy with the current arrangement of port personnel carrying out accessorisation.

“Customisation is an essential element in the business and adds value and personalisation to each vehicle, enhancing our total brand offering” - Anu Goel

"We train their personnel with our installation teams because there are different levels of installation. There might be parts a simple as floor mats and safety kits that you just throw into the vehicle. Then there are products that you glue onto the car, and there are accessories that you attach to the car with some more complex fitting operations, such as homelink systems and trailer hitches. For these operations one needs certified and trained top-notch installers.

“An example is the protective covering applied to the front of a vehicle; that has to be applied in a clean room, this must be done properly, as it is scrutinised pretty closely by the vehicle buyer."

Sales forecasts and market trends

With the resurgence of SUV sales in the US, partly driven by the fall in petrol and diesel fuel prices, I ask Goel whether he is looking at sales forecasts and general market trends to help shape his logistics plans. He says the US market is now made up of well above 60% in SUVs and truck and points to the VW brand's strength in this area. "We have launched two new SUVs in the past year, the Atlas and the Tiguan Long Wheelbase . We don't play in the pickup truck market today but the two SUVs are now close to 50% of our sales. In our product plan, we have even more SUV’s in the works.

“As to pickups, I fondly recall my time with the F-150 pickup and as Toyota and Nissan were getting into the segment, their efforts made me realise the enormous amount of development required to launch a successful pickup. Another important consideration is that, similar to the construction and agriculture business we talked about earlier, customers in the pickup segment are extremely loyal.”

EVs and the changing ownership model

The VW Group is marching on with EVs, hybrids and autonomous vehicles in Europe and these new models are starting to make their way to the US. Combined with projected new models of personal transport ownership such as ride-sharing, vehicle subscription clubs and other fleet models, I ask Goel where he sees the big challenges to his department. “The primary and biggest change will come from EVs.They will change the service parts business right away and we will have to modify our network and work to find additional revenue streams.”

“Are we prepared, infrastructure-wise, to handle these vehicles? We are making progress. We don’t have all the answers yet and are continuing to work to better understand customers’ expectations. You can debate shared ownership, subscription services, ride-sharing. I read an article that said that a third of the volume of vehicles sold in five years is going to be fleet customers, so fleet is definitely on our radar screen.

“What are the expectations of fleet owners for vehicles and service? Today we have ideas but we don’t have that completely figured out, for example, how do you handle the electric vehicle batteries with dealers? There are many questions still to be answered and that is what we are working to do.”

Personnel and the future

Speaking of the future, I ask Goel what he is looking forward to in logistics at Volkswagen Group of America. He speaks of staff turnover ‘churn’, and of the need for talent scouting and training, to bring on the logisticians of tomorrow. “I enjoy working to improve our systems and processes and helping the team develop and learn to better serve our customers, but one of the things that concerns me in that regard is: do we have the bench strength and are we developing the future leaders going forward to meet the challenges ahead of us?

“Logistics is a much cleaner and attractive business than it once was and that should attract more ‘bright young minds’; The question is where the talent will come from; we are seeing a 30% staff turnover in our business.

“There are lots of reasons for this but when the workforce is turning over, we must ask ourselves where the talent is going. It isn’t to other parts of the auto industry. Many other industries value the training that we provide. As to the future of automotive logistics, there is going to be more change in the next five years than in the 30 I have been in the business and I know it is going to be an exciting ride!”  

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