Volkswagen is looking at production growth strategy for the future. This calls for a 30 percent increase in productivity worldwide by 2025 compared to 2018. Production is therefore making a major contribution to achieving the profitability target of over 6 percent for the brand.
“We want to rank among the best for productivity. We need to generate competitive returns to enable us to make key investments in the future and thus safeguard today’s jobs tomorrow and beyond. Together, we are ushering in a new era in production for the Volkswagen Passenger Cars brand. This is about nothing less than a paradigm shift: from a product-oriented company to a production-and process-oriented company. For production, that means our department will be more important than ever going forward,” said Dr Andreas Tostmann, the Volkswagen Brand Board Member for Production, at an event held at the Berlin Motorwerk location attended by 500 managers from Volkswagen’s 17 vehicle manufacturing plants.
Leveraging efficiencies, sustained productivity increases
The new ‘Transform.Together’ production strategy with its eight central action areas lays down the roadmap for leveraging existing efficiency potential and achieving a sustained increase in productivity.
“Volkswagen is currently in the midfield compared with our most important competitors when it comes to production and labor costs as well as margins, making overdue investments more difficult. Our processes and structures are too complex. And there is also room for improvement in standardizing our global production network. That is why we are now introducing uniform structures at all factories along with uniform and comparable key performance indicators. In production alone, we have efficiency potential of 2.6 billion euros through 2025,” Tostmann aded.
In order to realise these ambitious goals, Volkswagen Production has defined eight main action areas containing concrete measures to drive the progress of the production strategy at all Volkswagen sites:
- Team of the future
- Rework-free products and processes
- Sustainable structures
- Stable sales order process
- Ramp-up excellence
- Low-expenditure factories of the future
- Think Blue.Factory
Process and production optimisation plays a key role in the success of the strategy in all action areas. Complexity is being significantly reduced. “Our factories must become faster, leaner and more efficient: in terms of factory costs per vehicle, investments in new resources and products, as well as hours per unit, i.e. the number of hours spent by production and non-production-related units on building a vehicle. We will be making massive reductions in factory costs and investments, for example by reusing existing resources and factory structures and through systematic standardisation. That is how we will be cutting investment by 1.5 billion euros compared with today’s level,” said Tostmann said.
‘We will be one of the best in productivity’
Q&A: Dr. Andreas Tostmann, Member of the Board of Management responsible for Production, and Dr. Robert Cisek, Head of Production Strategy.
From left: Dr. Robert Cisek, Head of Production Strategy and Dr. Andreas Tostmann, Member of the Board of Management responsible for Production.
Why is Volkswagen repositioning itself in production with the Transform.Together strategy?
Tostmann: Volkswagen has become a very product-oriented company in recent decades. The strong focus on products is fundamentally good because it has resulted in better vehicles. We will definitely continue to focus on this aspect. But it has also cost us efficiency and returns. Examples of this include making changes to vehicles literally at the last minute, and a vehicle development process that hasn’t often really taken production optimisation into account. That is why we are introducing a paradigm shift to a more pronounced production and process orientation.
Can you give us an example?
Tostmann: Let’s take the T-Cross: it was developed with almost the same design as the Volkswagen Polo and can therefore be integrated in the existing production processes without major adjustments. The T-Cross is produced with the same tools, on the same production line, and in the same cycle as the Volkswagen Polo. In this case, we already had a very strong process and production orientation in the development phase and thus considerably reduced the investment. This does not lead to a disadvantage for customers: both the Polo and the T-Cross are of the highest quality and are markedly distinct from one another.
Why the paradigm shift now?
Tostmann: We must invest heavily in our future. Electromobility, autonomous driving, new mobility services, and digitalisation all require significant efforts. To do this, we need a competitive return of at least 6 percent. For only then are we able to finance key future investments from operating activities and thus secure today’s jobs for the future. Today our operating margin is around 4 percent, which is not enough. That is why we need to intensify our efforts and leverage efficiency reserves. And production plays a key role in that.
Under the Volkswagen brand, Production is responsible for 19 factories with over 100,000 employees outside of China. Compared with annual factory costs of approximately 10 billion euros, the annual investment volume is approximately 2.5 billion euros. This is where we see a powerful production efficiency lever.
What are the key fields of action in the new production strategy?
Cisek: With Transform.Together, we will get started where we can quickly make a large impact. Our guiding principles are: FOCUS.IMPACT.SPEED. We are focusing on improvements in eight key fields of action including product launches and rework in our factories.
What is changing in practice?
Cisek: A prime example is the ‘fit for finish’ project under the field of action ‘Rework-free products and processes’. Through this project, we have already been able to significantly reduce the effort required to ensure our high quality standards, and since 2016, we have achieved approximately 130 million euros in annual savings. Other Group brands are now implementing this initiative as well.
At the beginning of this year, we have stepped up our efforts and identified an additional savings potential of around 200 million euros per year. Another initiative is called ‘best of copy’, where we quickly and pragmatically transfer effective solutions from one factory to other factories around the world. In this way, we reduce planning costs and leverage the strengths of our large production network to an even greater extent.
How are you implementing the new strategy?
Tostmann: For each of the action areas, we have appointed a responsible individual who will devote their energy to driving the strategy forward. In saying that, it is a team effort to which each and everyone can and should contribute. The only way for us to fully take advantage of all existing potential is to all do our part.
We are also redefining our production processes: In the future, we will get involved in vehicle development much earlier to ensure that the requirements for efficient production are taken into account from the get-go. Together with Procurement and Sales, we will also improve our processes so that our customers receive their ordered vehicle much faster.
What will the change mean for employees?
Tostmann: All employees at each plant must take the lean principles to heart and act accordingly. We will change or eliminate inefficient processes. At the same time, we will prepare our team for new production methods and jobs that will come about through electrification and digitalisation. This is why we are investing heavily in the qualification of our employees.
Alongside that, the ergonomic design of the workplace is also changing. Already during planning, we ensure workflows are ergonomically correct and can also be easily managed by an aging workforce. This is how we are preparing for demographic change.
How will you measure the success of the new strategy?
Cisek: For each action area, we have defined KPIs that apply uniformly across all factories. In this way, we establish a high level of comparability, also among our plants. At any given time, we can see where progress is being made and where setbacks occur. KPIs include factory costs per vehicle or hours per unit, i.e. the hours needed to produce a vehicle. Furthermore, we measure the strategy’s success in terms of how quickly we transfer effective solutions and best practices to other factories.
Tostmann: Our goal is clear: By 2025, we want to increase productivity by 30 percent in comparison to 2018 in all plants of the Volkswagen brand. We also hope to achieve a marked improvement in our environmental indicators – by 45 percent compared with the reference year 2010. What’s important here is that further efforts are needed to remain competitive post-2020. In an industry comparison we are currently mid-range with our production processes. With Transform.Together, we intend to catch up and be one of the best in the industry in productivity.