Procurement

In 2015 the focus of procurement was essentially on safeguarding the provision of our needs, safeguarding vehicle start-ups and opening up new procurement markets for the best possible implementation of the procurement strategy in a targeted way and implementing our “Volkswagen FAST” initiative.

Procurement strategy

We are working systematically to further optimize the Volkswagen procurement organization and build on our abilities and strengths together with our suppliers. Our objective is to have the most competitive and highest performing procurement organization. This is underpinned by the four strategic procurement targets derived from the Group strategy’s corporate goals and the global trends of our procurement markets: firstly, to actively shape technical and environmental innovation processes and thus to provide market-centric top quality and innovations at competitive conditions; secondly, to meet all cost targets in order to ensure the profitability of our products over their entire lifecycle; thirdly, to safeguard the global procurement volume through the permanent availability and consistently high quality of procured components and guarantee a stable and efficient movement of goods; fourthly, to further increase the attractiveness of the business area of procurement and the satisfaction of our employees by creating optimal working conditions.

Organizational structures were created in the brands to establish defined processes and new methods. There are specific work packages and contacts at all management levels. We regularly report and review the implementation status of the measures agreed. For example, we ensure that the changes initiated contribute to reaching and permanently establishing our goals.

Volkswagen FAST – Future Automotive Supply Tracks

FAST is the central initiative of Group procurement for developing the Volkswagen Group and its supply network in a future proof way within the framework of Future Tracks. The goal of FAST is to successfully implement the key topics of innovation and globalization through involving suppliers earlier and more intensively. We will work even more closely and quickly with our most important partners in the FAST initiative. In addition, some processes in the field of innovation and globalization that are available to all suppliers will be revised as part of the program. After the start of the program at the beginning of 2015, the suppliers who had an excellent record in their field of expertise were selected in a systematic and standardized qualification process. Global strategies and technological focuses are coordinated even more closely with these partners, with the common goal of making impressive technologies available to our customers even faster and implementing worldwide vehicle projects more effectively and efficiently.

We continuously review these strategic partnerships and change who is included among our FAST suppliers as required. For example, suppliers not previously selected continue to have the opportunity to qualify for the initiative.

Procurement’s process optimization program

Since the end of 2015, almost all the Group’s brands and companies have been working within procurement with uniform and fully digital processes. In 2014, we began including external partners in our digital networks. They can access our systems at any time to receive the necessary and updated information. The goal is to connect a global standardized digital network of all procurement’s work processes with suppliers within the next four to five years. In order to optimize and completely digitalize points of contact in the work with our suppliers, the “Supplier Interaction Management” program was created.

Supply situation for procured components and raw materials

Because component standardization within the Volkswagen Group is increasing, the importance of global safeguarding of procured component capacities increased further in 2015. Procurement’s demand capacity management was again able to successfully manage all critical incidents and supply bottlenecks, for example brought about by production problems, fires, or natural disasters, through close, digitally supported cooperation with the suppliers in the year under review. We are driving forward digital networking, which has already reached a high level, with the latest technologies.

As a consequence of the economic slowdown in China, the global economy lost some of its momentum in the reporting period. In 2015, the commodity markets showed high sensitivity to political uncertainties. This contributed to the prices for many raw and input materials, such as crude oil, steel and rare earths, moving sideways or downwards.

The reporting period was dominated by political tensions, particularly in Russia and Ukraine, and by the depreciation of the euro. As a consequence, we were only able to benefit to a limited extent from the downward movement of commodities traded in dollars. Thanks to the use of procurement strategies individually adjusted to the commodity markets, it was possible to minimize risks arising from volatile commodity prices.

Digitalization of supply

The Group Business Platform as the central interface between the Volkswagen Group and its partners forms the basis for the digital network of the future. Our external partners have the opportunity to access the business areas’ systems and process knowledge centrally via the Group Business Platform. Every supplier, at the same time as employees in procurement, has the same view of the current supply situation regarding its parts. This is the basis for the global coordinated work for safeguarding supply in a dynamic network. This network is thus able to react to every external influence in every part of the world at the same time.

Procured component management and supplier management assure quality within the supply process

Procured component management, as the technical area of procurement, employs tool and process experts who safeguard new vehicle start-ups and aggregate projects worldwide in terms of both prevention and response. In addition, the experts safeguard series production. In line with the Group-wide growth strategy, procured component management is focusing in particular on knowledge transfer at the start of global projects. Procured component management is globally networked. This means that synergy effects can be achieved in both production and process optimization at suppliers. In the “Quality in Growth” program, procurement focuses on safeguarding start-ups and on managing the subcontractor structure.

The ever-growing requirements placed on suppliers to be ready for the start of production will lead to a stronger focus in particular on the suppliers’ industrialization processes as part of a continuous further development of the organization.

In order to safeguard our vehicle start-ups, further performance tests across all business areas are carried out at suppliers at various milestones of the product development process in addition to “two-days production”. As a result, risks for vehicle start-ups can be recognized even earlier in terms of production and quality and appropriate countermeasures can be initiated.

In some production plants, start-up experts are additionally employed to further strengthen the local project organization and implement projects even more efficiently.

Developing new procurement markets

Procurement is organized globally and with its presence in 39 locations across 23 countries ensures that the production facilities are sustainably supplied with production materials in the required quality and quantity at competitive conditions. Access to relevant and inexpensive procurement markets is thus also guaranteed against a background of increasing globalization.

Establishing local supply streams is a core element of our growth strategy. Low logistics costs, purchase prices in line with the market, import duties levied and independence from fluctuating exchange rates all strengthen competitiveness. At the same time, people in the regions benefit. We create skilled jobs and contribute to economic development by attracting supplier businesses to the area around our production locations.

In Pune in India, for example, 69 new supplier businesses were founded and thus around 13,500 direct and indirect jobs created. Thanks to the sustainable development of partners at the Kaluga site, the plant there can now draw on more than 60 local suppliers for the models produced.

In addition to established sources of supply, the number of qualified suppliers and also suppliers able to export in the growth regions is increasing. Experience working with local suppliers will be carried over into new projects via the regional procurement organization. What is more, specially focused and cross-business-area project teams work in the emerging and inexpensive procurement markets on gradually increasing the export share of qualified local suppliers. We are thus increasing the size of our global supplier base and exploiting the relevant cost advantages.

Thanks to these approaches, procurement is able to marshal a reliable supplier base for new locations quickly and efficiently.

Sustainability in supplier relationships

In 2015, we continuously worked on the “sustainability in supplier relationships” concept across all brands and regions. The focus here was on expanding our third-party audit program for suppliers. We audited a total of 26 suppliers in the reporting period with our external partners.

After a walk-through of the results, action plans were developed jointly with suppliers where necessary, implementation of and compliance with which has been checked. Environmental and working conditions could thus be improved with the suppliers concerned and risks minimized.

In addition, in the reporting period we trained both our own employees and our suppliers on the topic of “sustainability in supplier relationships”. Over 1,900 new employees received training and had their awareness of the issue raised in training sessions.

In addition, as of December 31, 2015, over 19,500 of our suppliers have completed an e-learning module on sustainability on our Group Business Platform. This program is supplemented by classroom training, which in 2015 also took place in some cases in cooperation with other automotive manufacturers in India and South Africa. Our business partners provide us with information on their sustainability status. In addition to the already established questionnaire on the Group Business Platform, which had been completed by over 18,000 of our suppliers as of December 31, 2015, we began to introduce a new, more comprehensive questionnaire in 2015. We make this questionnaire, which was developed jointly with other automotive manufacturers, available to our suppliers on an external online platform.

Our actions are guided by the “Volkswagen requirements for sustainability in relations with business partners (Code of Conduct for Business Partners)”. If we discover that individual suppliers may not be complying with these requirements, a Group office initiates improvement measures in dialog with the supplier in question. The aim is to implement these improvements as part of a dialog in the spirit of partnership. For example, the “sustainability in supplier relationships” concept helps us to create the necessary conditions for fulfilling our sustainability standards together with our business partners and to secure volume flows for the long term.

Volkswagen Group purchasing volume

Volkswagen Group procurement mainly purchases production materials, services and capex centrally. The volume procured in the reporting period amounted to €149.1 billion (+2.5%). These figures include the figures for the Chinese joint ventures. Suppliers in Germany accounted for a share of 36.2 (36.1)%.