  A crucial point for the understanding of the von-K\'arm\'an-Sodium (VKS)
dynamo experiment is the influence of soft-iron impellers. We present numerical
simulations of a VKS-like dynamo with a localized permeability distribution
that resembles the shape of the flow driving impellers. It is shown that the
presence of soft-iron material essentially determines the dynamo process in the
VKS experiment. % An axisymmetric magnetic field mode can be explained by the
combined action of the soft-iron disk and a rather small $\alpha$-effect
parametrizing the induction effects of unresolved small scale flow
fluctuations.
