Between 2020 and 2023, the height of the pandemic, Volkswagen’s supply chain saw production declines to the tune of 2.3 million vehicles due to a global chip shortage. However, the company still turned a profit and came out stronger.
The question is, how was the company able to pull it off? This article explores what they did and how other African supply chains can learn from the company’s supply chain response.
Global Semi-Conductor Shortage Rips Auto Manufacturing
Here are some of the impacts of the global chip shortage between 2020 and 2022 on VW’s supply chain in numbers:
- VW’s production volume dropped by over 2.3 million units in 2021.
- Sales in China, the company’s largest market, fell by 14% in 2021 alone.
- Entire assembly plants across Germany, Spain, Mexico, and the U.S. were paused or shut down.
The global semiconductor shortage exposed deep cracks in supply chains across every major industry. For automakers, it brought production lines to a standstill. The impact was particularly brutal for Volkswagen, the world’s second-largest car manufacturer.
Here are some of the impacts of the chip shortage on the Volkswagen supply chain.
Sudden Supply Collapse
In early 2020, automakers wrongly assumed the pandemic would kill car demand. Don’t blame them. Those few months were really dark. Nonetheless, automakers slashed chip orders. Fortunately or unfortunately, depending on how you look at it, demand came roaring back by mid-year.
Chipmakers, who had already sold capacity to consumer electronics firms, couldn’t meet auto industry needs. According to VW CEO Herbert Diess, in 2021, the company was unable to build about 100,000 cars due to the chip shortage.
VW’s Global Production Disruptions
- Europe: Factories in Wolfsburg and Martorell slowed or stopped production.
- North America: VW’s Chattanooga and Puebla plants were idled multiple times.
- China: VW reportedly lost over 600,000 vehicles in one quarter due to localized shortages.
Across all markets, the company faced erratic chip deliveries, missed targets, and frustrated customers.
Volkswagen’s Supply Chain Was Able to Turn a Profit
Even with fewer vehicles built and sold, Volkswagen’s supply chain was able to boost profitability by:
- Reducing promotional discounts
- Delaying low-value models to save chips
- Prioritizing high-margin vehicles (like Audi and Porsche)
The lesson? A crisis doesn’t always lead to financial collapse if your supply chain can manage it well.
Strategies Volkswagen’s Supply Chain Used to Manage the Crisis
Volkswagen ended 2022 with €22.5 billion in operating profit and an improved operating margin of 8.1%. Volkswagen’s supply chain’s ability to survive and thrive is no accident. It resulted from bold strategy shifts, agile operations, and long-term investments
Here are some of the strategies that made all the difference:
1. Direct Sourcing; No Suppliers
Historically, Volkswagen’s supply chain sourced electronic components from Tier-1 suppliers like Bosch or Continental. However, these suppliers also depended on a handful of global chipmakers. When the crisis hit, Tier-1s couldn’t meet demand, and Volkswagen had little visibility into where or why shortages were occurring.
To fix this, the company took control of procurement. It established direct sourcing agreements with over 10 semiconductor manufacturers, including Infineon, NXP, Renesas, and others. This was a dramatic shift, but it allowed the supply chain:
- Cut out intermediaries, giving VW better forecasting and allocation visibility.
- Start early negotiation for future chip capacity, similar to how companies book vessel space in ocean freight.
According to Dirk Große-Loheide, VW Head of Procurement, it was necessary because “a high degree of transparency in the semiconductor value chain is now indispensable”.
2. Built a Dedicated Semiconductor Task Force
Volkswagen’s supply chain assembled a cross-functional war room of procurement, engineering, software, and logistics leads. The idea of the task force was to ensure a more proactive approach. To do that, the group:
- Developed backup sourcing strategies.
- Monitored chip availability at the component level.
- Built early warning systems for chip disruption, alerting production teams before a line stopped.
- Worked on real-time reallocation decisions, redirecting chips from low-priority models to high-value ones.
This allowed the supply chain to shift from a reactive to a more proactive approach, enabling decisions to be made across multiple continents.
3. Prioritizing High-Margin and Strategic Models
With chips in short supply, VW had to decide which vehicles to build and which to pause.
- High-margin models like the Audi Q series, Porsche Taycan, and the ID.4 electric SUV got first access to chips.
- Low-trim models like the ID.3 Pure were removed from the market temporarily.
- VW also prioritized electric vehicles (EVs) to align with its long-term electrification strategy.
Embracing this strategy during a global shortage is what allowed VW’s EV deliveries to jump 26% in 2022, hitting 572,100 units.
4. Temporarily Removed Non-Essential Features
The average Volkswagen contains way more features than most people need. Now, that is all good because they pay for it but when there is a chip shortage, people don’t really care. They just want the car. Volkswagen knew this and started removing such features from some of the vehicles. These deletions allowed VW to build more cars with fewer chips. For example:
- Audi dropped keyless entry on some models.
- No blind-spot monitors, adaptive cruise control, or wireless phone charging on select trims.
5. Flexible Manufacturing and Just-in-Time Adjustments
Volswagen’s supply chain rewrote how its factories operated. In many cases, this means that instead of planning weeks in advance, factories like Martorell (Spain) and Wolfsburg (Germany) began producing vehicles based on daily chip availability.
- If a shipment of ECUs arrived, the plant built cars that required them.
- If not, they shifted to models with fewer chip requirements.
- Stored partially assembled cars until missing parts arrived.
- Adjusted daily production targets based on real-time chip deliveries.
This dynamic planning prevented full plant closures. Some cars were also partially built and parked, with missing components to be installed later once the chips arrived — a move that maximized labor and reduced idle time.
6. Redesigning Components and Electronics
Another quiet revolution happened in VW’s engineering departments. The company’s supply chain partnered with the engineering and production teams to redesign their vehicle systems. This way, they were able to:
- Standardize chips across models, reducing reliance on multiple unique semiconductors.
- Allow chip substitutions, where engineers rewrote code or adjusted hardware to work with whatever chips were available.
The redesign helped reduce VW’s dependence on rare or custom chips, but it also enhanced Volkswagen’s long-term goal of moving toward centralized computing systems (a few large chips instead of many small ones).
What African Supply Chains Can Learn From Volkswagen
Shortages of raw materials, spare parts, or packaging continue to plague African supply chains, whether in key industries such as agriculture or in developing industries such as the automotive. Volkswagen’s supply chain playbook offers practical guidance for many business owners and supply chain leaders.
1. Prioritize Output With the Highest Strategic Value
From infrastructure to raw materials, it is common for supply chains on the continent to deal with limited resources. However, following the VW blueprint tells us that not all products are equal when resources are scarce.
Volkswagen prioritized EVs and high-margin cars, not just the easiest ones to build. African supply chains should look at their product portfolios and ask which lines are most profitable or strategically aligned. In shortage scenarios, serve your strongest markets or customers first, and pause or scale back lower-value output.
2. Flexibility is Crucial In Today’s Landscape
African supply chains must be ready to rethink their product or services when necessary. VW removed the chips from their vehicles. More African supply chains must be flexible enough to rethink packaging, sizing, features, or delivery options.
For example, a beverage company in Nigeria might ship concentrate instead of finished drinks to save on packaging. A delivery company might bundle more orders per trip to save fuel during a shortage. Redesigning the logistics and supply chain process isn’t a failure. It’s strategy. In a crisis, supply chain agility matters more than perfection.
3. Invest During the Crisis
Volkswagen used the chip shortage to accelerate investment in new systems and partnerships. Notice that the supply chain did not wait for stability. The company built it. VW invested in chip R&D, supplier partnerships, and flexible production.
African supply chains must apply the same playbook to their situation. Use the crisis to upgrade forecasting systems, expand sourcing networks, or localize more inputs. Even modest investments like stock monitoring software or digital procurement tools can create lasting value.
4. Simplify and Standardize
Before the crisis, Volkswagen used hundreds of chip variants. Now, they’re reducing that number. African manufacturers should streamline input materials, consolidate vendors, and reduce over-customization. VW showed us that the more uniform your operations, the easier it is to manage stock, find substitutes, or scale production under pressure.
5. Build Risk Planning Into Daily Operations
Finally, risk should no longer be a quarterly exercise. After the impact of the pandemic, Volkswagen’s supply chain now runs real-time tracking of supply bottlenecks. And African supply chains should do the same. Treat risk management like a daily metric.
This includes answering critical questions such as which routes are blocked? Which suppliers are delayed? What’s the next weakest link? By building risk dashboards and playbooks, you can shift from reacting to planning and stay ahead of the next disruption.
Obinabo Tochukwu Tabansi is a supply chain digital writer & ghostwriter helping professionals and business owners across Africa explore various strategies that work and learn from the success and failures of various supply chains across the globe. He also ghostwrites social content for logistics & supply chain businesses
