Procurement risks and opportunities
The procurement risk management system continuously and globally monitors the financial situation of our suppliers and takes targeted measures to avoid supply bottlenecks.
Economic recovery in Europe has contributed to the further stabilization of our supply base at an overall good level of capacity utilization and good margin situation. Large and innovative suppliers in particular have benefited from this. However, there has been an increase in the number of insolvencies globally due to highly volatile individual markets. The unfavorable economic developments in South America and Russia in 2015 led to capacity adjustments by suppliers and, in some cases, to demands for higher prices. At the same time, there was consolidation in the market.
In China, the lower economic growth and increasing competition led to a consolidation of the supplier base. We are therefore now also looking more closely at suppliers in this region from the point of view of preventive risk management.
The trend in procurement is to bundle contracts to a greater extent and to ensure worldwide availability of uniform components. This is resulting in an increased need for financing and further consolidation in the supply industry. The Volkswagen Group’s procurement risk management system therefore assesses suppliers before they are commissioned to perform projects. Among other things, the procurement function considers the risk of there being insufficient competition if it concentrates on a few financially strong suppliers when awarding contracts. Quality problems may necessitate technical measures involving a considerable financial outlay where costs cannot be passed on to the supplier or can only be passed on to a limited extent. In addition to financial difficulties, supply risks may, for example, arise as a result of fires or accidents at suppliers. The supplier risks are automatically identified without delay in the procurement function through early warning systems and mitigated immediately by applying inferred measures.
Our modular toolkit strategy enables us to bundle volumes of vehicle parts and harmonize and synchronize requests for proposals and procurement processes. We systematically enhanced this strategy in the A0 vehicle class, which allowed us to consolidate worldwide volumes into a single global request. In the process, we consider regional market requirements with the aim of maximizing customer satisfaction. This enables us to exploit transregional synergies while at the same time minimizing start-up risks within the Volkswagen Group, one-time expenses and internal process costs.
Optimum use of the possibilities of a worldwide procurement system is a central theme of the Group initiative “Future Automotive Supply Tracks – Volkswagen FAST”. To ensure that we choose the best possible suppliers, we always weigh transregional synergies and the opportunity of acquiring a qualified partner for innovative projects against the risks of dependency.