Quality-preserving storage of genuine parts

Detlef Bonsack, Head of K-GVO-Q /quality management

Zagreb, 19th June 2008

Agenda

1 - Data and facts on genuine parts business 2 Genuine parts horizon 2018 3 Quality-preserving storage 4 - Outlook/Next steps

K-GVO QM Conference, Zagreb

19. Juni 2008

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Supply of genuine parts for the Volkswagen Group represents one of the most complex challenges in the automotive industry.
Total European market approx 6.7 bn.

Supply for approx. 200,000 workshop cycles per day for 15,000 operators worldwide. 650,000 product items in logistics network. 96% availability of parts before dealer. Two deliveries per day in Europe in some cases. 15 years supply after EOP for road-worthiness range 10 central depots and 52 regional depots with subdepot structures (90% stock all high-volume brands). approx. 9,000 staff for operation of logistics network. 2.2 billion stock value across all warehouses worldwide. 2,000,000 m total warehouse area worldwide.

41%

45% 14%

Sales via authorised workshops 3.0 billion = 45% VW/Audi on open market 0.93 billion = 14%

> 650,000 product items in network Exclusive parts 40%

60% Identical parts

325 HGVs and 140 freight cars per day plus 45 containers from central depot to regional depot level

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19. Juni 2008

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Responsibility for market and sales lies with group brands

Implementation of board decisions from 2006: GP reorientation

Mex

Bra

RSA

Responsibility for market and sales

Sales, marketing, product management, pricing (exclusive parts)

Brands/ production companies

Responsibility for supply of GP

Supply chain in network: Product definition (catalogue), procurement of GP, stock management, GP logistics/depots, IT systems,

Group-market responsibility
GP group planning, management group service/parts for NSCs/importers, product management, pricing (identical parts)

Group

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19. Juni 2008

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Tasks and responsibility for genuine parts sales (K-GVO) QM-relevant points are shown in red

Responsibility for Global GP marketing global GP supply chain - Worldwide GP sales and profit
K-GVO

Control of worldwide GP logistics within group network

Master depot Kassel

- Operational logistics - Centre of competence

- Global goods flows - GP product definition - GP catalogues - GP purchasing - Top parts stock control - GP storage planning and construction - GP processes - GP systems - GP quality management

planning - Worldwide NSC/importer control with cross-brand GP-specific questions - GP marketing concepts for free trade (TPS, NORA etc.) - GP product management identical parts - GP price management identical parts - Price harmonisation for GP within group

Cross-brand synergies in group

Global synergies in group

Customer service and genuine parts synergies

K-GVO QM Conference, Zagreb

19. Juni 2008

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Agenda

1 - Data and facts on genuine parts business 2 Genuine parts horizon 2018 3 Quality-preserving storage 4 - Outlook/Next steps

K-GVO QM Conference, Zagreb

19. Juni 2008

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Complexity within genuine parts business will increase massively by 2018.

Increasing carpark with an additional 35 million vehicles (total > 100 million vehicles) more than 50% rise in service contacts/volume Massive product range growth of approx. 70% due to increasing variety of models and variants Rising proportion of identical parts (see MQB) Globalisation of vehicle flows due to increase in number of production locations and CKD locations worldwide (currently: 60 production sites). Development of new markets with heterogeneous customers and supply requirements Increased competition in wholesale trade of parts Diminishing customer loyalty due to increased competition in workshop sector Increasing importance of parts business for independent workshops Increasing quality of vehicles and parts Increasing cost pressure on logistics

K-GVO QM Conference, Zagreb

19. Juni 2008

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Agenda

1 - Data and facts on genuine parts business 2 Genuine parts horizon 2018 3 Quality-preserving storage 4 - Outlook/Next steps

K-GVO QM Conference, Zagreb

19. Juni 2008

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Requirements for quality-preserving storage

Requirements Quality is a company objective within the Volkswagen Group Adherence to the contractually-agreed storage standards Orientation towards quality in all areas of GP business Clear definition of responsibilities and communication structures Partnership collaborations

Ongoing optimisation and improvement

Active work to reduce deficits New logistics standards for dealers have been worked out and agreed (data of introduction: 3rd quarter 2008)

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Storage regulations in dealership trade

Extract - Partner certification checklist
Are all original parts and accessories stored in a way which preserves their quality?
- Existing regulations on entry into storage must be observed for the relevant parts

1. Parts must be protected from dust and stored within enclosed spaces 2. Expiry date must be observed 3. Parts must be protected from damp and corrosion 4. Stretched storage where required (brake pipes, speedometer cables, trim strips etc.) 5. Products must be protected from damage by heavy parts 6. Sheet metal parts must be stored in suitable retainer systems 7. Storage system and location systematics

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19. Juni 2008

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1. Parts must be protected from dust and stored within enclosed spaces
Genuine parts must not be stored in open air Warehouse must be a separate room The room must be protected from dust The room must be dry The parts must be protected for other hazards and damage such as dirt, destruction, damp etc.

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2. Expiry date must be observed

Storage shelf not marked with expiry date. Expiry date is passed.

Storage shelf clearly colour-coded

Example: Expiry date

Special marking of shelves/fixtures for parts at risk of being out of date. Only parts with an expiry date should be stored here. Entry into storage after expiry date has passed not permitted.
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2. Expiry date must be observed

Principles for monitoring expiry date
Locations for parts at risk of becoming out of date must be marked
(e.g. coloured dots) Parts with expiry date and parts without expiry date may not be stored in the same location Storage locations for genuine parts without expiry date must not have the expiry data marking Genuine parts for which expiry date has passed may not enter storage or be used Regular monitoring and documentation (at least every six months) Observe FIFO principle (first in first out)

In case of problems/questions, use the communication path: Dealer > Importer >
Genuine parts sales (K-GVO-G/R)

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2. Expiry date must be observed

Improvements in expiry date process for 2008:

List of expiry dates shown in Service Net (D)

This is sent by e-mail to logistics managers in Germany and Europe List of expiry dates can be expanded to show shelf life in days Clear marking by suppliers of production date or expiry date on the genuine part (conversion already 88% complete)

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3. Parts must be protected from damp and corrosion

Genuine parts must not be stored in open air The room must be dry No exposure to moisture (e.g. leaky roof) Parts must be protected from damp since this causes corrosion which in turn damages the genuine parts rendering them unusable

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4. Stretched storage (brake pipes, speedometer cables, trim strips etc.)

If genuine parts are not stretched and stored in a way which retains their shape, their functioning may be impaired and they will be rendered unusable!

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4. Stretched storage (brake pipes, speedometer cables, trim strips etc.)

Example: Preformed hoses

Shape-retaining storage without concentrated load points. Preformed hoses must be protected against UV rays and direct sunlight

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5. Basic protection of products from damage by heavy parts

Example: Disc wheels

Steel wheels: May be stored horizontally or upright depending on storage system. Direct steel-on-steel contact is to be avoided by means of suitable intermediate layers.

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19. Juni 2008

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5. Basic protection of products from damage by heavy parts

Example: Discs
Flat stacking not allowed - danger of pressure and breakage! Retention of original packaging (film packaging with protected edges) Upright and horizontal storage allowed depending on available storage system
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6. Storage of sheet metal parts in suitable retainer systems

Example: Sheet metal parts

If the original packaging on large-sized steel and plastic parts has to be removed for reasons of space, suitable retainer systems are to be used which ensure shape-retaining and damage-free storage of parts
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7. Storage system and location systematics

Storage location

Example: Storage system

In the warehouse management system used, a unique storage location is to be assigned to each genuine part. This prevents genuine parts getting mixed up. It also enables them to be tracked down quickly and according to their purpose
K-GVO QM Conference, Zagreb 19. Juni 2008 Page 21

Agenda

1 - Data and facts on genuine parts business 2 Genuine parts horizon 2018 3 Quality-preserving storage 4 - Outlook/next steps

K-GVO QM Conference, Zagreb

19. Juni 2008

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Outlook
All importers/D:OTLG must actively implement quality-preserving storage together with dealers in accordance with standards

Communication must be actively made use of in both directions

Importers have an obligation here towards dealers (i.e. their contract partners) Parts with expiry dates must be cleared out regularly every six months and this must be documented. The revised logistics standards will be distributed to importers after coordination with brands (from 3rd quarter/2008) New logistics standards can be divided up into general and specific storage regulations for certain product groups This represents a new instrument for ensuring storage meets required standards in dealerships

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19. Juni 2008

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Thank you for your attention!