Warehousing Case Study Examples

The Volkswagen Group Canada (VGCA) is a subsidiary of the Volkswagen Group, a Global Brand that sells and distributes cars across the world. VGCA was founded in 1952 and is located in Ajax, Ontario in Canada. VGCA supports 176 Volkswagen and Audi franchised Canadian Dealers across the country. The Ajax location houses national operations, technical training center, regional parts distribution center, and support functions. The location also hosts customs and logistics, human resource as well as purchasing and accounting services for the company. This paper is going to analyze the warehousing strategy at VGCA as well as what is needed to better the process.
IVEY (2012) indicates that the Toronto PDC company owns a warehouse facility that is 160,000-square-foot. The facility is 400feet long: 400 feet wide and 30 feet high. Racks stacked to the ceiling occupy 20% of the total warehouse space. Wide aisles help the staff to pick products throughout the facility. The warehouse has an additional 40,000 cubic feet that can be used for expansion. The VGCA has a master service legal agreement with the Canadian dealerships that commits them to deliver parts within 24 hours of receiving the order. The Toronto PDC supplies parts to 122 Volkswagen and Audi car dealerships across the country. It also holds an average of $20 million in inventory at any one time.
The racking used for storing parts in the warehouse consists of two bin sizes. 75% of the all the bins are made up of the small bins. Each of the small bins has a capacity of 10 cubic feet. The remaining 25 per cent of the bins consist of the large bins, which have a capacity of 100 cubic feet. One bin is usually sufficient to store enough parts for each type of SKU. 64,000 bins of the 80,000 bins available in the warehouse are occupied.
On the problem of capacity, expansion is the best solution to offer more room. Expanding the new warehouse will be a great idea, as it would increase the value of the companies fixed assets. Expanding the existing warehouse also offers the opportunity for customizing it since it is their facility and can model it to suit their needs, (Sople, 2009). Using while expanding an existing warehouse does not necessitate relocation thereby saving the company time and resources.
Leasing has lower-cost financing. This is because with leasing the company is able to utilize tax benefits that come with it (Ross 2003). A tax advantage equally accrues from leasing and helps with off-balance-sheet financing. Leasing the warehouse is a liability that does not reflect on the balance sheet therefore it does not affect the company’s borrowing ability. However, leasing requires relocation, which is costly and time consuming, (Sople, 2009). Leasing has a limited ability for customization of the warehouse. There are limits of customization of the warehouse to a leaser’s product unlike the when the product is stored at the owners warehouse. Leasing is expensive in the end as it is a recurrent expenditure while expansion is a capital expenditure.
Outsourcing would have the advantage of risk sharing. The company shifts some responsibilities to the outsourced vendor. Since in most cases the outsourced vendors are specialists, they have better risk mitigation plans. Outsourcing reduces operational and recruitment costs. On the other hand, Outsourcing creates the risk of exposing confidential data. There are hidden costs involved, such as in, contract signing especially across borders. There is lack of customer focus since the company providing the service may be catering for other companies at the same time, (Ross, 2003).
In conclusion, VGCA needs to examine all the three available options for expansion, critically. Considering all the tree options have their advantages and disadvantages, VGCA should pick the solution that gives them optimum results at a relatively low cost.

References

IVEY. (2012). Warehousing strategy at Volkswagen Group Canada Inc. (VGCA). Richard Ivey School of Business Foundation
Ross, F. D. (2003). Distribution Planning and Control: Planning and Control: Managing in the Era of Supply Chain Management. New York, NY: Springer Science & Business Media.
Sople, V. (2009). Logistics Management. India: Pearson Education.