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The Distribution Network of Volvo Cars Customer Service (VCCS)

Research Paper (postgraduate) 2010 16 Pages

Business economics - Supply, Production, Logistics

Excerpt

content

1 Introduction
1.1 Purpose

2 The distribution network of VCCS
2.1 Logistic goal and strategy
2.2 Actors
2.3 Resources
2.3.1 Warehouses
2.3.2 Transportation resources
2.3.3 Goods
2.3.4 Information Technology
2.4 Activities
2.4.1 The LDC Process
2.4.2 Ongoing transformations

3 Analysis
3.1 The logistics strategy and transformation
3.2 Actors
3.2.1 Control
3.2.2 TPL providers
3.3 Resources
3.3.1 Warehouses
3.3.2 Information technology
3.4 Activities

4 Conclusions

List of references

Appendix

Appendix 1 – Interview questionnaire

1 Introduction

The current distribution reality is characterized by increased actor specialization and great geographical dispersion. Consequently the number of gaps that needs to be bridged between companies and their customers increases, which in turn calls for more efficient distribution. When the number of transactions increase, so does the need for distribution. The paradox in this context is that customers require improved service levels and at the same time decreasing distribution costs. However, the development of information technology and transportation facilities has provided new opportunities, which are now put in practice (Ford et al., 2003).

The role of manufactures and intermediaries is not limited to only sell and distribute products. Due to low profits made through product sales, they rather have to take an active role in the more profitable after-sales services. The automotive sector traditionally offers wider after-sales business opportunities with higher profit margins than other industries (Saccani et al., 2006).

This paper focuses on the distribution practices used by the company responsible for Volvo Cars’ spare parts and after-sale services, Volvo Car Customer Service (VCCS). VCCS has more than 1500 sales units in Europe, 400 in North America and 500 in rest of the world, with about 23000 employees at its dealers and workshops. The two main goals of VCCS are to increase customer satisfaction and to increase the volume of part sales.[1] The empirical part in this paper is used for illustration of current distribution practices with special focus on spare parts in the automotive industry.

1.1 Purpose

The aim of this paper is to increase the understanding of current distribution practice by describing and analyzing an empirical case. This paper focuses on the distribution network in which VCCS is involved. An analysis of the distribution network will be made in relation to the current distribution literature.

2 The distribution network of VCCS

Based on interviews performed in distribution and central warehouse following empirical findings are achieved.

2.1 Logistic goal and strategy

The goal of the logistics operation of VCCS is to support customer satisfaction, have a world-class distribution system, and to support business growth. The strategy used to reach these goals is to “provide customer order fulfillment, as defined by the market, at the lowest possible cost, by controlling the entire material flow from supplier through dealer network to the end customer”. In order to be able to use this strategy, there are some enablers that need to be in place at all points in the network. Global Stock Control is vital for planning and execution of replenishing the different warehouses in the network. A Global Logistics Process is needed for coordination and consolidation of transports and warehouses. A Global IT system provides support for Stock Control and order management, enabling the dealers to maximize utilization and efficiency.

2.2 Actors

In defining the actors in the network around VCCS, a broader scope is needed. A total focus on distribution would lead to an omission of actors that play a great role in the network. The main actor, and also the focal company in this study, is VCCS. The approximately 1200 suppliers to VCCS are also important, since the lead-time of delivery greatly influences the performance of the distribution network. The transportation into the Central Distribution Center (CDC) from the suppliers is purchased from Volvo Logistics, a part of Volvo Group. Various transport companies, appointed by VCCS, conduct the transportation from the CDC to the different warehouses.

In warehousing, Third Party Logistics (TPL) providers are used. The control of these TPL providers is an important issue for VCCS, as their performance is vital for the success of the distribution network. This control manifests itself in the way TPL providers are chosen, trained and monitored. One of the main enablers in the distribution network, the IT system, must also be implemented at the TPL provider’s warehouse. The monitoring is done through specific Key Performance Indicators (KPI). If the service of the TPL provider is not satisfactory, VCCS may terminate the contract.

The different dealers, who serve the end customer, are independent from Volvo, but often part of a chain of workshops and stores. The spare parts are nowadays subjected to competition, since the European Union decided to force the industry to allow suppliers to sell “original” parts to competitors. This has lead to increased competition, where chains have started to sell service without purchasing parts from VCCS. However, the complexity of the supply gives VCCS a competitive advantage since a single dealer may have problems dealing with over a thousand different suppliers. The option, to deal with VCCS seems much more feasible in this respect.

2.3 Resources

The distribution network of VCCS consists of several resources, the most obvious ones being warehouses, trucks and goods. This section will give a description of the different resources.

2.3.1 Warehouses

While VCCS makes use of a number of warehouses, they own few warehouses on their own. However, the heart of the distribution network is the CDC, which is located in Gothenburg, Sweden. This warehouse is owned and run by VCCS. Nearly all of the goods flowing in the network are being routed through this warehouse, with exceptions being goods that are assigned for a specific car, for example a key or a painted bumper.

A number of other warehouses are being used in the distribution network, all owned by TPL providers. Warehouses are situated in all regions of the world to supply the best possible service to the customers. It is however not possible to justify warehouses in all countries since the lack of customers in some areas would make such a strategy very expensive. The map below shows the location of the warehouses being used in the distribution network.

illustration not visible in this excerpt

Figure 1, Warehouses in VCCS’ distribution network

2.3.2 Transportation resources

Trucks, vehicles and other means of transportation are used extensively throughout the distribution network but none are owned by VCCS. Instead, the different transportation providers own these resources.

2.3.3 Goods

The goods being transported and warehoused in the distribution network are owned by VCCS until it reaches the dealers. The reason for this is that they want to keep control over the distribution network and maintain the determined service level.

2.3.4 Information Technology

To support the logistic processes of VCCS, the company has incorporated a global IT system called Puls, a system that supports all activities conducted regarding logistics and sales. All of the warehouses in the distribution network are connected to Puls and controlled centrally from VCCS. This allows the company to replenish the warehouses to exactly what has been used, and also change inventory levels according to forecast on future sales. VCCS believes that they know better how to control the inventory levels, and thus, the dealers' inventories are also controlled by VCCS through the Volvo Inventory Management (VIM). VIM suggests to the dealer what he should order, although the dealer also has the chance to manually edit orders. In return for the required trust to VCCS, dealers are allowed to return goods that they do not need.

2.4 Activities

Historically, the automotive industry in general, and VCCS in particular, has used centralized warehouses as a distribution strategy. In the case of VCCS, the large central warehouse in Gothenburg has served a couple of support distribution centers (SDC) located strategically in regions across the globe. From these SDCs, over-night shipments have been sent out to dealers. Because of relatively infrequent deliveries and orders based on forecast, large inventories needed to be kept.

In large markets with a great dispersion, other strategies than SDCs must be used. In VCCS' case, national distribution centers (NDC) are used. NDCs work in a similar way as SDCs, the main difference being that they are more geographically dispersed and serving one specific country with spare parts.

In 2002, VCCS started to implement a new distribution strategy based on the “Logistic Strategy” mentioned in section 2.1. As illustrated below, VCCS utilizes three levels of warehouses combined with different transportation routes before it reaches the dealer.

[...]


[1] Stina Mimer and Christina Möller, Volvo Cars Customer Service, Interview April 15th 2009.

Details

Pages
16
Year
2010
ISBN (eBook)
9783656166214
File size
1.1 MB
Language
English
Catalog Number
v191668
Institution / College
Chalmers University of Technology Foundation Göteborg
Grade
5/5
Tags
distribution network volvo cars customer service vccs

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Title: The Distribution Network of Volvo Cars Customer Service (VCCS)