VOLKSWAGEN WAREHOUSING STRATEGY Harvard Case Solution & Analysis

Warehousing Capacity (in cubic feet):

Currently Toronto PDC has 80,000 bins available, 75% of which are small bins having capacity of 10 cubic feet and 25% are the large bins with capacity of 100 cubic feet. Adding additional 40,000 cubic feet in the space, this becomes the total capacity of storage 2.64 million cubic feet.

Additionally; in next five years, space of 67,594 units is required as per the growth forecasts. Which means that a total of 2.19 million cubic feet will be required in the next five years.
After adding both capacities, at the end of fifth year Toronto PDC requires total storage capacity of 4.836 cubic feet.

Exhibit # 4:

Sample Budget for the Expansion of the Typical Warehouse:

Sample budget for the expansion of a warehouse would look like as following:

Exhibit # 5:

Expansion is Necessary:

In the light of given situation, Volkswagen Canada Inc. has to expand its capacity to meet the future growth of the company. As the sales will increase so it has to keep the required inventory in proportion to the total inventory needs. In addition, its strategy of new vehicle launch and facelifts will also increase the demand for more storage capacity. Given all these drivers of inventory increase, Toronto PDC has to evaluate the options available and choose the best option which will be both, operationally and financial feasible.

So in the case of Toronto PDC, sample budget for expected expansion would look like as following:

Expanding the Existing warehouse:

It will take 6 to 8 months for expanding the existing warehouse facility at the cost of $80 per square foot with 10-year extension in lease term. Moreover its helps Toronto PDC to have full control over the management, which is very important to fill the efficiency gap of 2%.
Total cost of expanding the existing facility is $5,858,137. As the existing free space is of 16,000 bins and first year demand increase is of 17,175 bins, which means this option is feasible because after nearly 10 months company will need a space and till that time they can expand the facility.

Leasing a New Warehouse:

This options will cost Toronto PDC to incur $120 per square foot and will also provide full management control. In addition, it will take 2 years to build the facility at the cost of $8,787,206, which is much higher than expanding the facility but, this will give 20-year lease extension period. This is not much feasible because company needs the production facility at the end of the year and can’t wait for 2years for the facility to complete.

Outsourcing to 3rd party:

By outsourcing, company has saved much of its time, but with cost of low control over management and this can be harmful to the company as its efficiency is below target. Moreover this will also cost same as building a new facility, which is much costly than  the expansion option.

Exhibit # 6:


Exhibit # 7:

Contingency Planning in Case Sales Fall Short of Forecasts:

As it’s not necessary that, predictions, whether they are based on realistic assumptions, sometimes fall short or surpassed with great margins. In case of Toronto PDC, the company should also devise some contingency plans for the future. In case it fails to meet the sales forecasts then, what will be the alternative strategy?

  1. VGCA shouldn’t hastily go for purchasing a new storage facility, because this will cause additional free space at a higher cost if the sales fall short of forecast.
  2. It should expand its production facility gradually as per the demand increases, because this is both less costly and more efficient for management control. As, Toronto PDC already has free space for next 10 months, if sales increase as per the forecasted rate. Therefore it shouldn’t carefully invest in expansion strategy................

 

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