Volkswagen Audit: Operations and Supply Chain Management

Topic: Company Analysis
Words: 5031 Pages: 20

Introduction

The strive for sustainability in the automotive industry has become crucial in recent years due to a wide variety of factors (Wellbrock et al., 2020). Volkswagen AG made environmental sustainability the core of its strategy after the emission test scandal in 2015 (Hotten, 2015; Volkswagen AG, 2022a). This paper focuses on the analysis of five aspects of Volkswagen as an organisation. First, the paper focuses on the analysis of the company’s strategic management with a focus on the strategy’s effect on operations and customer service. Second, the report focuses on the organisation structure paying special attention to key roles, nature of supply chain structure, and nature of relationships with partners. Third, the paper focuses on Volkswagen’s processes, their development and management. Fourth, the report describes how the company uses information to improve supply chain planning and decision-making. Finally, the paper analyses key aspects of performance and measurement of performance.

Company Overview

Volkswagen AG is a multi-national company operating in the automobile industry, as its primary operations are associated with producing, marketing, and servicing vehicles (Volkswagen AG, n.d.). The company operates in four segments, including Passenger Cars and Light Commercial Vehicles, Commercial Vehicles, Power Engineering, and Financial Services (Yahoo Finance, 2022). The company operates under ten brands, which are subdivided into volume brands (Volkswagen, Volkswagen Commercial Vehicles, Skoda, SEAT, and CUPRA), premium brands (Audi, Lamborghini, Bentley, and Ducati), and sport (Porsche).

The company has 120 production plants in Europe, Asia, Americas, and Africa with 51.5% of the plants concentrated in Europe, as demonstrated in Figure 1 below (Volkswagen AG, no date). The company’s long-term strategy is “NEW AUTO – Mobility for Generations to Come,” which emphasizes the importance of sustainability in the automobile production (Volkswagen AG, no date). The company set a high goal of becoming a world leading provider of sustainable mobility (Volkswagen AG, no date).

Volkswagen plant distribution
Figure 1. Volkswagen plant distribution

In 2015, Volkswagen AG experienced a turning point in its modern history. In September, the Environmental Protection Agency (EPA) found that Volkswagen used software that could determine if the engine was tested (Hotten, 2015). The device would change the performance of the engine to provide better environmental test results (Hotten, 2015). The scandal had a devastating effect on the company’s reputation and financial performance (Volkswagen AG, 2016). As a result, Volkswagen changed its long-term strategy to move to sustainable mobility through development, production, and marketing of electric cars (Volkswagen AG, 2016).

Strategy

Strategic Direction

Strategic management is of increased importance to multinational organisations, as they help to align processes around the world with as single set of values and goals (Frost, Birkinshaw, and Ensign, 2002). Therefore, Volkswagen has a clearly formulated corporate strategy that applies to all its plants, units, and branches around the globe. According to Foss (1997), a corporate strategy is a pattern of decision-making processes the reveals the company’s objectives, goals, and purposes while defining the core policies and a range of businesses a company pursues.

A company should also define a business strategy, which defines how company plans to compete in a specific market (Campbell, Stonehouse, G., and Houston, 2002). Porter (1980) distinguished between four strategies, including cost focus, differentiation focus, cost leadership, and differentiation. Porter (1980) claims that without adopting one strategy, the company will experience difficulties competing effectively. Porter’s generic strategies matrix is provided in Figure 2 below.

Porter’s generic strategies
Figure 2. Porter’s generic strategies

The company’s strategy is based upon the idea that the world of mobility will change significantly by 2030. In particular, the company developed the ‘NEW AUTO’ strategy based on the increased impact of electric drive and fully-networked transportation on the automotive industry (Volkswagen AG, 2022a). In 2021, the share of electric car sales in the world automotive industry continued a strong growth, which confirms Volkswagen’s assumptions (Morgan Lewis, 2022). Additionally, recent qualitative business research provides significant evidence that that the impact of electric mobility will grow significantly in the following decade (Rodge and Joshi, 2018; Upshaw, Larson, and Hubbard, 2021). Therefore, Volkswagen strategy is based on the factual information and market sensitivity. The ‘NEW AUTO’ strategy summarised in Figure 3 below.

NEW AUTO strategy
Figure 3. NEW AUTO strategy

​ The essence of the strategy described in Figure 3 above is to transform the company from a mobility company into a tech company. The central idea of the company is to move from reliance on car sales with internal combustion engine to mobility service provision together with the sales of software and zero-emission electric cars (Volkswagen AG, 2021a). The emergence of the ‘NEW AUTO’ strategy was developed based on the experts’ opinions concerning the future of the automotive industry along with the Volkswagen’s new image of a fight climate change fighter (Toma and Tohanean, 2019).

Volkswagen AG also has clearly distinguished and diversified business strategies for different segments. In particular, Volkswagen, Volkswagen Commercial Vehicles, Skoda, SEAT, and CUPRA are cost focus and cost leadership brands, while Audi, Lamborghini, Bentley, and Ducati are differentiation brands, and Porsche is a differentiation focus brand (Volkswagen AG, no date).

Overall, the company’s success is associated with an incredible market sensing, constant value-added transformations, and search for innovative approaches (Toma and Tohanean, 2019). Moreover, the company developed due to successful mergers and acquisitions that helped to establish worldwide presence of the company (Reddy, 2021). Additionally, the company allows high autonomy to different segments in the decision-making (Volkswagen AG, 2022a).

Impact on Operations and Supply Chain Management

Operations management (OP) is associated with transforming materials and labour into goods and services as effectively as possible (Lewis, 2019). According to Hayes (2021), the purpose of OP is “to balance costs with revenue to achieve the highest net operating profit possible” (para. 1). On other words, OM focuses on internal activities and movement of goods. There are three core components of OP, including product development, supply chain management, and process and design management, as demonstrated in Figure 4 below (Richard, 2003).

Components of OP 
Figure 4. Components of OP 

Unlike OM, supply chain management concerns external activities and movement of goods. According to Kozma, Varga, and Hegedüs (2019), there are six key dimensions of supply chain management, including logistics, production, purchasing, marketing and sales, finance, and R&D, as demonstrated in Figure 5 below.

Dimensions of supply chain management 
Figure 5. Dimensions of supply chain management 

Volkswagen’s OP is centred around the idea of sustainability. In particular, the company develops products to achieve environmental sustainability, it designs its processes to minimise the environmental impact, and organises sustainable SCM (Betala and Iyengar, 2018).

The impact of the company strategy on the company’s SCM, as sustainability of the company’s supply chain is the key concern of the company, which is in accord with the overall company’s strategy. In particular, the company strives at acting beyond the legal requirements to protect the world form climate change (Volkswagen AG, no date). Volkswagen’s SCM strategy is based on three pillars, including preventing, detecting, and reacting, demonstrated in Figure 6 below.

Supply Chain Sustainability Strategy
Figure 6. Supply Chain Sustainability Strategy

First, the company has a list of sustainability requirements used for the suppliers that help to prevent sustainability problems (Volkswagen AG, no date). Second, the company systematically scans for risks to detect any sustainability problems (Volkswagen AG, no date). Third, the companies developed a list of measures to react to problems with supply chain sustainability (Volkswagen AG, no date).

Customer Service Strategy

Volkswagen AG sees customer satisfaction as one of the top priorities in its operations (Volkswagen AG, 2022a). Therefore, it introduced a customer service strategy with an increased emphasis on customer experience (NASDAQ TTEC, no date). The central goal of the company’s customer service strategy is to boost customer satisfaction and customer loyalty, which are seen as key performance indicators (KPI) of the customer service department (Volkswagen AG, 2021a).

Volkswagen revolutionized its customer service strategy to match the ‘NEW AUTO’ strategy. In particular, the company introduced new technology into the customer service processes by implementing the following changes (NASDAQ TTEC, no date):

  1. Optimization of the client’s Cisco Platform;
  2. Introduction of self-service apps;
  3. Integration of telematics;
  4. Improvement of call routing protocols;
  5. Implementation of standardized knowledge assessment among customer service providers.

In accordance with the company’s corporate strategy, the customer service department utilised the latest solutions, including virtual assistants, chatbots, training programs using artificial intelligence (AI), and advanced analytics of all the customer requests (NASDAQ TTEC, no date). The digital transformation of the customer support services resulted in an increased customer loyalty and satisfaction. Moreover, this transformation allowed the company to centre its OP around the experiences of the customers.

Organisation

Key Operations Management Roles and Responsibilities

According to Lewis (2019), there are six key responsibilities in OP, including capacity planning, inventory management, product design, project management, quality control, and service design. Volkswagen AG allows autonomy to its divisions, which implies that every separate division based on the brand and location has different managers and these roles, and the central governance interferes in the local operations only for the matter of increased necessity (Volkswagen AG, 2021a). The Board of Management of Volkswagen AG consists of 11 members, which have their discrete responsibilities. These responsibilities are outlined below:

  • Procurement, (Murat Aksel). The Board member is responsible for obtaining goods or services from external sources to continue operations.
  • Finance (Dr. Arno Antlitz). The Board member is responsible for managing the financial resources, ensuring the accuracy of financial reporting, and compliance with the local laws in terms of accounting practices.
  • Brand Group Representatives (Markus Duesmann, Oliver Blume, Thomas Schäfer, Gunnar Kilian, Ralf Brandstätter). The Board members responsible for representing the interests and needs of different brand groups.
  • Integrity and Legal Affairs (Dr. Manfred Döss). The Board member is responsible for the compliance with legal requirements in different divisions.
  • Human Resources (Gunnar Kilian). The Board member is responsible for ensuring the best HR practices across all the divisions of the company.
  • Technology (Thomas Schmall-von Westerholt). The Board member is responsible for development and introduction of new technology in operations other than information technology.
  • Information Technology (Hauke Stars). The Board member is responsible for the areas of IT, data, organizational development, and process management.
  • Sales (Hildegard Wortmann). The Board member is responsible for sales across all the division.

Key Supply Chain Management Roles and Responsibilities

SCM concerns the relationship between three key stakeholders, including supplier, customer, and the company (Kozma, Varga, and Hegedüs, 2019). Figure 7 below demonstrates how these three major groups of stakeholders operate.

SCM key stakeholders
Figure 7. SCM key stakeholders

As seen from the schematics, modern-day logistics takes care not only of the material flow, but also of the information flow to ensure effective transformation of materials and labour into goods and services (Kozma, Varga, and Hegedüs, 2019; Lewis, 2019). In Volkswagen, the majority of the logistics the logistics is provided by Volkswagen Group Services, including logistics planning, material logistics, and automobile logistics (Volkswagen Group Services n.d.). The company has also partnered with RIO, the digital brand of the TRATON GROUP, to digitise logistics services (Volkswagen AG 2019a).

According to Kozma, Varga, and Hegedüs (2019), the key roles in logistics services are resource and material management, inventory management, transport, resource and material distribution, and cyber security. These roles are conceptualised in Figure 8 below.

Main elements of SCM
Figure 8. Main elements of SCM

Volkswagen Group Services is responsible for the entire process of the Volkswagen AG’s operations (Volkswagen Group Services, no date). In particular, the company is responsible for inbound logistics, outbound logistics, and internal logistics, which includes both material and information flows (Volkswagen Group Services, no date). The company is controlled by two Management Board members, including Hartmut Rickel, the spokesman of the Board, and Thorsten Falk (Volkswagen Group Services, no date). The Management Board of Volkswagen Group Services members are closely supervised the members of the Management Board of Volkswagen Group. In particular, Murat Aksel (procurement) and Hauke Stars (IT).

Supply Chain Structure and Network

Inbound logistics of the company is well organized primarily using the services of Volkswagen Group Services. Suppliers deliver the parts to the manufacturing plants where they are stored in large hubs (Volkswagen Group Services, no date). All the deliveries are made on Just In Time (JIT) bases, meaning that suppliers are penalised for early or late deliveries (Volkswagen Group Services, no date). Additionally, Volkswagen Group Services utilizes the MTM (Methods-Time Measurement) method for planning deliveries (Volkswagen Group Services, no date). Outbound logistics is also well-organized, which helps a steady increase in the number of deliveries annually (Volkswagen Group Services, no date). Figure 9 demonstrates the number of shipments worldwide, which includes delivery to dealerships, distributors and clients. Outbound and inbound logistics structure help to save money on deliveries and storing parts, which, in turn, helps to offer the best value for price to customers.

Outbound Logistics
Figure 9. Outbound Logistics

As for operations, the production lines also work on JIT bases. The internal transport carries all the needed parts to the production lines to optimize the cost and time of manufacturing. The slogan of the sales and marketing team is “customer delight” which means that the company aims at exciting customers on a new level (Volkswagen AG, 2022a). According to de Andres Gonzalez (2021), JIT supply management is associated with increased environmental sustainability, which is crucial for the company’s strategy. JIT supply chain management also allows to minimise warehousing costs due to enabling improvement in inventory management (Lyu et al., 2020).

Relationship with Supply Chain Partners

There are four central types of business relationship identified by Slack, Brandon-Jones, and Johnston (2013), including Business-to-Business (B2B), Business-to-Customer (B2C), Customer-to-Business (C2B), and Customer-to-Customer (C2C). Volkswagen AG prefers B2B relationships in managing its supply chain (Volkswagen AG, 2022a). All B2B relationships can be classified from short-term contracts to full partnership depending on the level of control and flexibility required (Sweeny, 2011).

Volkswagen AG prefers long-term relationship in supply chain management due to the need to control of sustainability. In particular, the company prefers full partnership or at least long-term contracts, which ensures that the company can ensure that all the suppliers operate in accord to the company’s values and strategy (Volkswagen AG, 2022a). The fact that the majority of supply chain activities are provided by Volkswagen Group Services, which is operates in full partnership with Volkswagen AG, allow the company to tailor supply chain practices to perfection (Volkswagen AG, 2022a). However, increased control over suppliers is associated with a significant loss in flexibility of suppliers and their ability to adapt to quickly changing situations (Lewis, 2019). In the times of increased uncertainty, like the current conflict in Ukraine, overly controlled suppliers may experience increased vulnerability (Reuters, 2022). Therefore, the company gave more power to regions to ensure that every division can adjust their SCM strategy accordingly to minimize vulnerability (Reuters, 2022).

Processes

Business Process Models and Their Development

Business process is defined as a series of activities of a group of stakeholders to achieve a common goal (Das, 2015). Business process modelling is a visual representation of a business process that describes how business steps, business goals, and stakeholders interact to streamline services and products to the customer (Recker et al., 2009). Slack et al. (2013) mentioned the importance of end-to-end business process that across the conventional organisational boundaries around such processes. Examples of two of such end-to-end business processes are provided in Figure 10 below.

Example of end-to-end business process 
Figure 10. Example of end-to-end business process 

Soffer and Wand (2007) state that there are two types of approaches to business process modelling, including structured analysis notations or object-oriented approaches. There are significant differences in utilising either one of these approaches, as they may have emphasis on different aspects of business processes, such as resource allocation, sequence of activities, communications, or responsibilities of stakeholders (Recker et al., 2009). Process modelling techniques can be divided into two broad categories, including intuitive graphic modelling and models based on rigorous mathematical paradigms (Phalp, 1998). Event driven process chain is an example of intuitive graphical modelling, while Petri nets are an example of the other types of business process modelling techniques (Amjad et al., 2018; Recker et al., 2009).

Volkswagen is currently experiencing a business process revolution due to transformation from the automobile manufacturer to a software-driven mobility provider (Volkswagen AG, 2021). The central idea of this transformation is changing the business model from designing, manufacturing, marketing, and maintaining cars to a new model based on mobility technology (Volkswagen AG, 2022). The current end-to-end business model can be visualised as demonstrated in Figure 11 below.

Current business process model of Volkswagen AG
Figure 11. Current business process model of Volkswagen AG

This business model is expected to change to a more complicated model by turning vehicles into software-based mobility products (Volkswagen AG, 2021). As a result, the company is expected to make additional revenue from charging the electric cars and providing software services (Volkswagen AG, 2021). As a result, the development process will become faster and more efficient due to active usage of high-tech solutions and systems engineering (Volkswagen AG, 2022). Recent news state that the company will make the development process interdisciplinary and “focused squarely on software, customer requirements and SSP, Volkswagen’s electric platform of the future, and centred on functions rather than individual components” (Volkswagen AG, 2022, para 1.). This news signifies that the company moved from intuitive process modelling based on activities to more complicated mathematical modelling using artificial intelligence, which will make process modelling more effective and efficient.

Managing Operations and Supply Chain Processes

The company relies on JIT operations and supply chain management to reduce costs associated with warehousing. According to Betala and Iyengar (2018), JIT implies using zero inventory due to getting the ancillary products to the production line at the time when they are needed. Volkswagen constantly assesses the quality of products and its wastes to ensure that both the end product and the processes are of top quality, which is enabled by the JIT operations philosophy (Fullerton and McWatters, 2001). Volkswagen utilises the Total-JIT approach to operations management, which includes JIT-information, JIT-manufacturing, JIT-purchasing, and JIT-selling. According to Bond et al. (2018), implementation of JIT practices is positively correlated with the improved performance measures.

Even though the company uses JIT philosophy as the core component of its operations and supply chain strategy, Volkswagen has started leaning towards agile SCM. Volkswagen’s current supply chain map is conceptualised in Figure 12 below. This supply chain presupposes that the company may deliver the end products to end customers, dealers, or distributors. Moreover, the company mays source the materials form different large and small suppliers. The central idea of agile SCM is making the processes quick, cost-effective, and flexible (Centobelli, Cerchione, and Ertz, 2020). Volkswagen needs to be flexible in it SCM practices due to the wide diversity of tasks to meet the needs of customers. In particular, the company may need to source materials from a unconventional sources in case of material shortages or delivery disruptions. JIT philosophy does not allow the needed level of flexibility in the times of uncertainty, which require the recent events in Ukraine (Reuters, 2022). Thus, using agile SCM practices are imperative for Volkswagen to minimise negative consequences of supply chain disruptions (Wu and Barnes, 2018).

 Current supply chain of Volkswagen
Figure 12. Current supply chain of Volkswagen

Means of Process Improvement

There are two general types of process improvement, including continuous or incremental process improvement and planned or ‘breakthrough’ improvement (Slack et al., 2013). The central benefit of continuous improvement is that it leads to efficiency in the process management and engagement of employees (Bhuiyan and Baghel, 2005). However, incremental improvement does not guarantee that the next step will follow after conducting a small change, while planned changes ensures that the end goal is achieved (Bhuiyan and Baghel, 2005; Slack et al., 2013). Therefore, some companies tend to utilise a mixed approach to benefit from both types of improvement. Figure 13 below visualises the types of process improvements.

Types of process improvements
Figure 13. Types of process improvements

Volkswagen utilises a planned approach to process improvement, as periodically reassesses the current processes and prescribes change based on the results of the assessment (Volkswagen AD, 2016). This approach organises all the processes around the total process, which is crucial during the time of business transformation. Slack et al. (2013) describe this type of improvement as Business Process Re-engineering, which is based upon end-to-end process.

The central source of improvement Volkswagen is benchmarking. The company assesses nine performance indicators, including targets, material investments, intangible investment, sold product performance, management, suppliers, clients, policy engagement and business model, against 22 automotive companies (World Benchmarking Alliance, 2021). After that, it assesses what processes are better organised by the competitors, and plans changes to achieve better results.

Information

Information Infrastructure

Information infrastructure is becoming increasingly important in supply chain and operations management in the recent years. According to Wierzbicka (2018), information infrastructure is the central pillar in the modern-day knowledge-based economy. Effective use of technology can help companies to process information, disseminate knowledge, and facilitate communication (Wierzbicka, 2018). Moreover, effective information infrastructure is the key success factor in the development of branches and reginal divisions (Wierzbicka, 2018).

Information infrastructure also promotes more effective decision-making, which is crucial for agile operations and supply chain management (Comfort et al., 2020). For instance, during the pandemic, the companies’ ability to adapt to quickly changing circumstances depended upon the effectiveness of information exchange and infrastructure (Comfort et al., 2020). Volkswagen AG improved its information infrastructure before the pandemic, which allowed the company to live through the pandemic without significant financial losses despite a tremendous decline in revenues due to mobility restrictions associated with COVID-19 prevention policies (Volkswagen AG, 2021a).

Before the pandemic, the company relied on a very ineffective information infrastructure. In particular, the company’s operations were based on 2.500 Microsoft Windows based computer systems, which controlled all the production processes (Desckcenter, no date). The system was in charge of controlling three shifts a day and producing 300 vehicles per shift, and a failure in any of the computer systems may have led to significant downtimes of operations and financial losses (Desckcenter, no date). After testing its information infrastructure, Volkswagen decided that software solutions the company used were not in accord with Volkswagen’s requirements concerning downtown recovery timing and documentation circulation (Desckcenter, no date). As a result, a new system was implemented.

Today, Volkswagen’s systems is based on effective help desk and automatic reporting, which enables the systems to recover rapidly after any failures (Desckcenter, no date). Additionally, the company implemented a modular helpdesk system that allowed quick information exchange to minimise the downtime of the control systems (Desckcenter, no date).

Volkswagen uses Big Data technology to determine any problems with the machinery and address these problems in the early stages (Volkswagen AG, 2021). In other words, Volkswagen’s IT department uses vast amounts of data beyond the ability of manual analysis and uses AI to determine patterns in data (Volkswagen AG, 2021). Moreover, the company uses AI and cameras to determine any sources of danger and safeguard its employees and processes (Volkswagen AG, 2021).

Volkswagen AG uses state-of-art solutions to enable the employees use digital media and work tools (Volkswagen AG, 2021). In particular, the company developed and integrated solutions for digital collaboration (Volkswagen AG, 2021). Moreover, the company expanded options for conducting business on mobile devices to improve productivity and efficiency of decision-making processes (Volkswagen AG, 2021). The recent changes in the information infrastructure was associated with the pandemic.

Information Systems Effect on Operations and Supply Chain Management

Information technology has a significant impact on the decision-making process in operations ad supply chain management. In particular, according to Fasanghari (2008), information systems can improve companies’ decision-making efficiency and effectiveness. The increased effectiveness is achieved due to rapid sharing of valuable information and processing this information to acquire knowledge that can be used for transforming the supply chain management strategy or making corrections (Gaimon, 2009). As a result, a company with effective information system can be more agile, than other companies (Fasanghari, 2008). As mentioned in Chapter 4 of this report, the company started turning towards agile supply chain and operations management due to increased uncertainty. Therefore, using effective information system is imperative for the company.

Operating in the circumstances of increased uncertainty associated with the war crisis in Ukraine. Previously, the company lived through the diesel scandal in 2015 and the first waves of the COVID-19 pandemic (Volkswagen AG, 2016; 2021). Roddy and Wang (2019) conducted a study concerning decision-making under increased uncertainty based on a case study of the diesel scandal in 2015. The results of the study demonstrated that the most appropriate decision-making strategy during the time of increased uncertainty are the decision trees as demonstrated in Figure 14 below.

Decision tree example
Figure 14. Decision tree example

The decision trees are based on the probability and estimations of each outcome. Having accurate and timely information is crucial for assessing the probability and outcome of each node on the decision tree (Roddy and Wang, 2018). Therefore, having an effective information system is crucial for Volkswagen.

Performance

Means of Operations and Supply Chain Performance Measurement

One of the most effective ways to measure supply chain and operations management success is to utilise a balanced scorecard (Kaplan, 2009). This approach measuring not only financial performance of a company, but also other aspects, including customer relationships, education and growth of the employees, and internal processes (Kaplan, 2009). The concept of the balanced scorecard is conceptualised in Figure 15 below.

Balanced scorecard
Figure 15. Balanced scorecard

The financial measures of the balanced scorecard are usually measured by five types of financial ratios, including profitability, liquidity, solvency, efficiency, and investment ratios (Arkan, 2016). These ratios help to quantify the success of a company in the most objective matter using the data from the annual reports and interim financial statements (Arkan, 2016). Non-financial measures include customer satisfaction, employee job satisfaction, employee turnover, training opportunities, and process automation (Kaplan, 2009).

Key Aspects of Performance over Time

Financial Performance

The horizontal analysis demonstrated that Volkswagen recovered from the crisis associated with the COVID-19 pandemic, as its revenues and profits increased significantly. The company managed to increase its sales and decrease all types of costs due to optimization of the supply chain. The horizontal analysis is provided in Table 1 below.

Table 1. Horizontal analysis (all numbers in € million)

Horizontal Analysis
2021 2020
Million € Net Evolution % Evolution Million €
Net sales 250,199 27,315 12.26% 222,884
Cost of sales 202,959 19,022 10.34% 183,937
Gross Profit 47,240 8,293 21.29% 38,947
Net Profit 14,843 6,509 78.10% 8,334
Non-current assets 328,261 26,091 8.63% 302,170
Current assets 200,347 5,403 2.77% 194,944
Total Assets 528,609 31,495 6.34% 497,114
Non-current liabilities 218,062 15,141 7.46% 202,921
Current liabilities 164,393 -1,017 -0.61% 165,410
Total Liabilities 382,455 14,124 3.83% 368,331
Equity 146,154 17,371 13.49% 128,783

Note: all calculations were made by the author of the reports using data from Volkswagen’s annual report for 2021 (Volkswagen AG, 2022a)

Volkswagen AG continued its course of increasing the production capacity of electric cars without increasing the role of debt in its capital structure. The company’s performance in terms of liquidity and efficiency was stable, with slight growth in all the ratios. While Volkswagen’s financial leverage decreased, the role of debt in the capital structure remained high. At the same time, the company’s attractiveness for investments decreased due to the disproportionate growth of share prices in comparison with dividends and profits. The financial ratios are provided in Table 2 below.

Table 2. Financial ratio analysis

Volkswagen
2021 2020
Profitability Ratios
Gross Profit Margin 18.88% 17.47%
Net Profit Margin 5.93% 3.74%
ROCE 4.38% 3.03%
ROE 10.16% 6.47%
Liquidity Ratios
Current Ratio 1.22 1.18
Acid Test (Quick) Ratio 0.95 0.92
Efficiency Ratios
Stock (inventory) Turnover 4.68 4.23
Asset turnover 0.47 0.45
Receivables Turnover 15.75 13.04
Payables turnover 12.78 10.76
Revenue to capital employed 0.69 0.67
Gearing Ratios
Debt Ratio 0.72 0.74
Interest Cover Ratio 8.77 4.39
Investment Ratios
EPS € 2.96 € 1.66
P/E 11.10 9.73
Dividend Yield Ratio 1.78% 3.50%

Note: all financial ratios were self-calculated using data from Volkswagen’s annual report for 2021 (Volkswagen AG, 2022a)

Non-Financial Performance

As it was mentioned previously in Chapter 2 of this report, Volkswagen monitors two crucial KPIs, including customer satisfaction and customer loyalty (Volkswagen AG, 2021). These KPIs are crucial for the company, as it considers itself a customer-centred business (Volkswagen AG, 2021a). Despite continuous monitoring of customer satisfaction through internal and external surveys, the company’s customer satisfaction index fell by 5% in 2019 2021 in comparison with previous years, from 82% in 2018 to 77% in 2021 (Statista, 2021). Even in 2015, after the diesel scandal, the company had a high consumer satisfaction rate in comparison with 2021 (Statista, 2021). The trends in customer satisfaction between 2006 and 2021 are provided in Figure 16 below.

Volkswagen's consumer satisfaction index by year
Figure 16. Volkswagen’s consumer satisfaction index by year

Other non-financial measurements of the company’s success in terms of supply chain and operations management are environmental sustainability, market share in the electric vehicle industry, and share of electric vehicle sales in the company’s revenue structure (Volkswagen, 2022). These measures, however, are for internal use only, and reliable public information on the matter is scarce. Figure 17 below demonstrates the dynamics in Volkswagen’s electric vehicles sales.

Volkswagen's electric vehicle sales dynamics 
Figure 17. Volkswagen’s electric vehicle sales dynamics 

Action Plan

No. Action Responsible Party Resources Deadline for
achievement
1. Diversify the chain of suppliers worldwide to ensure that supply chain disruption associated with world political instability do not affect the company’s manufacturing capacity. Murat Aksel Procurement department,
legal department, Volkswagen Group Services board of directors
November 30, 2022
2. Increase the autonomy of regions to conduct their independent policy in terms of supply management to make the company more resilient and agile when responding to disruptions in supply chains. Markus Duesmann, Oliver Blume, Thomas Schäfer, Gunnar Kilian, Ralf Brandstätter Procurement department,
legal department, Volkswagen Group Services board of directors
November 30, 2022
3. Adopt combined continuous and ‘breakthrough’ supply chain and operations management improvement paradigm to benefit from both approaches to improvement, such as increased customer satisfaction and employee engagement. The board of directors The board of directors, Volkswagen Group Services board of directors, HR department December 31, 2022

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