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"We need knowledgeable workers who can focus their energies on high-value activities and driving new efficiencies, spending as little time as possible seeking and wading through information." - Dr. Martin Hoffman, Group Executive Director for Purchasing Process and Information Management, Volkswagen AG

Speed and simplicity have also grown in importance for the company’s underlying business processes. Driven by relentless industry competition, the need for maximum employee productivity, shorter cycles and lower costs has never been greater. At the same time, achieving these efficiencies has become an increasing challenge. One big reason is a shift in consumers’ buying practices, with more and more buyers customizing their cars at the dealership—from upholstery and color to engines.

As a result of this trend, car manufacturers’ business processes—already complex—have become even more so. Once an order is placed at a dealership, it flows through a variety of systems, to the production ordering system, to the production assembly system and finally to the logistics system, which closes the loop when it delivers the car to the customer. While more options means more choices for Volkswagen’s customers, it also means an exponential increase in the variations of parts moving through the assembly process, each of which needs to be ordered, shipped and tracked. In many ways, this order-to-delivery cycle represents the frontline of the competitive battle being waged in the auto industry. As part of this battle, Volkswagen and its competitors need to maximize the efficiency of every stage of this cycle in order to reduce their costs and to speed delivery of new vehicles to customers. However, with Volkswagen’s processes becoming more and more complex, optimizing the efficiency has in turn become even more of a challenge. The industry’s incessant pressure to control cost compelled the company to face this challenge.

Complexity: the looming challenge
To get on a higher plane of efficiency going forward, the company needed to fundamentally change its core processes. Within Volkswagen, the efficiency of processes is defined by how well these processes operate under “normal,” predictable conditions and, perhaps more importantly, their ability to dynamically adapt to key changes in its environment and still deliver the best possible outcome. Given the sheer scale of Volkswagen’s procurement activities—global purchasing volume approaches $80 billion annually—the company is constantly buffeted by external events. Forecasts change. Commodity prices rise and fall. Suppliers go out of business. And for every one of these events, Volkswagen’s ability to respond rapidly and correctly is a key measure of its process efficiency and, ultimately, its long-term competitiveness. In addressing the challenge, Volkswagen focused on a basic, yet critical, truth—that the root of business processes is the use of information to trigger action. The key to more effective procurement practices, says Dr. Martin Hofmann, VW’s Group Executive Director for Purchasing Process and Information Management, was to redefine the way employees and suppliers access knowledge, thereby unleashing their potential to add value. “Knowledge management has become one of the most critical success factors in the auto industry,” says Hofmann. “We need knowledgeable employees who can focus their energies on high-value activities and driving new efficiencies, spending as little time as possible seeking and wading through information.”

The order-to-delivery cycle represents the frontline of the competitive battle being waged in the auto industry. Volkswagen and its competitors need to maximize the efficiency of every stage of this cycle in order to reduce their costs and to speed delivery of new vehicles to customers.

Speed through sense and respond capability

Working with IBM, Volkswagen began putting in place a new system designed to simplify and automate the process by which employees and suppliers capture, access, analyze and use information. According to Dr. Hofmann, the aim of the new system is to reverse the current application paradigm, under which the burden of seeking information falls entirely on end users. “Our vision was to leverage technology to create a sense and respond capability that would support more effective decision-making," says Hofmann. “This means the right intelligence and workflow automatically goes to the right user in response to an outside event—the very definition of an end-to-end adaptive process.” Volkswagen’s new On Demand Workplace solution is comprised of four main components:

• Sensing capability, to automatically identify and capture external events such as price changes, competitive issues or supplier-related developments
• Personalized information delivery, using a portal to send the right information to the right business user
• Integrated analytics, using business intelligence to analyze and contextualize the event-driven information
• Business process automation, which employs advanced workflow technology to trigger automatic actions across a range of relevant business process areas

The dramatic impact on procurement productivity is most evident when compared with the way the process had formerly been conducted. In a typical day, procurement staff are bombarded with unstructured information. Telephone calls come in about supply shortages, or a procurement officer might read about a supplier going under in the trade press. For these and other events, procurement staff need to assess what the event means for Volkswagen’s production needs, what business processes will be affected and what actions will be required to work through the situation. The new system alerts Volkswagen of an event that could cause a parts shortage, and triggers an automatic checking of parts inventories, alternative sources and the impact on vehicle production, as well as the overall financial impact on the balance sheet. Tasks that used to take days or hours now take minutes. Freed of information overload, procurement staff can now focus their time and effort on producing the optimal outcome—minimizing the downside and making the most of cost-saving opportunities.

Volkswagen and IBM team up for smarter procurement

To build the solution, Volkswagen selected IBM WebSphere technology to not only connect employees and suppliers to information and applications throughout the company but also enable the kind of automated, data-enriched workflow environment it envisioned. Since the new solution would have to integrate with a wide range of systems—both off-the-shelf and home-grown—strong support for open standards was a must, as was the ability to personalize information and push it out to the right user at the right time. To meet this need, Volkswagen selected IBM WebSphere Portal to provide employees and suppliers with a single point of access to critical supply chain data and applications. To transparently integrate the procurement system with various backend systems—a critical element of the solution—Volkswagen employed IBM WebSphere MQ. To perform the business process integration underlying the solution’s automated workflows, the company chose IBM WebSphere Business Integration. Running on a cluster of IBM eServer xSeries servers, the portal solution also employs IBM DB2 Universal Database to house key information and IBM Tivoli Access Manager for authentication. Load balancing within the cluster is performed by IBM WebSphere Edge Server.

With Volkswagen’s solution uniting a huge, heterogeneous infrastructure, ease of integration and standards support were immeasurably important. But with the requirement that the solution ramp from a handful of pilot users to more than 35,000 in a matter of months, Dr. Hofmann notes that scalability and resiliency were also top-tier concerns. “We felt that the overall flexibility and scalability of the WebSphere architecture would allow us to grow smoothly,” says Hofmann.

IBM’s role in the project was to provide the technology and the expertise needed to make Volkswagen’s sense-and-respond vision a reality. IBM Business Consulting Services worked with the company’s internal consulting organization on business process design and integration, while staff from the IBM Software Group defined functional requirements, designed the solution and played a key role in legacy integration. The IBM Böeblingen Development Laboratory assisted in defining the solution’s future needs as well as troubleshooting. While the solution went into production a year after the start of the project, Volkswagen’s strategy called for an incremental rollout, with new features and elements added continuously.

Driving toward an on demand future
After targeting the initial phase of the deployment in the procurement area, Volkswagen plans to expand its sense-and-respond On Demand Workplace framework to the company as a whole. By relying on the WebSphere platform to link all of Volkswagen’s business processes—inside and beyond the enterprise—Dr. Hofmann expects similar levels of productivity improvements for the company’s 300,000 worldwide employees. “Eventually, Volkswagen will be fully connected both inside and outside of the company, based on well-defined business events and business scenarios,” says Dr. Hofmann. “We will be able to respond rapidly—in some cases simultaneously—to critical events in our business environment. Having a faster, more productive set of processes will also help us keep our costs down and stay competitive.”

Dr. Hofmann also sees IBM playing a key role in Volkswagen’s increasingly on demand future by continuing to help the company redefine and connect business processes. “We hope to leverage IBM’s vast knowledge of industry best practices, as well as their knowledge of on demand technology to identify and implement our key processes faster,” explains Dr. Hofmann. “This will make us much faster in terms of order-to-delivery cycles, product development and our ability to connect to the outside world.”

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