Procurement
In fiscal year 2018, the main task for Procurement was once again to safeguard the supplies and to help create competitive, innovative products and optimize cost structures. In addition, we continued to digitalize procurement processes.
Procurement strategy
A global network of strong business partners and suppliers is paramount for achieving the goals of the Group strategy known as TOGETHER – Strategy 2025. We are implementing our Group-wide vision TOGETHER – Best in Customer Value and Cost with our procurement strategy 2025. This involves using our strengths to deliver products with a high customer value and optimum cost structures that meet the needs of the market. We integrate knowledge from our global supplier networks, secure expertise for the global procurement markets of the future and ensure well-timed industrialization and market implementation in line with cost requirements. Six goals were agreed upon with the brands and regions:
- Access to supplier innovations
- Active cost structures
- Forward-looking structures
- People, expertise and attractiveness
- Supply chain excellence
- Group-wide synergies
We intend to achieve these goals with initiatives that accomplished noticeable results in 2018.
By simplifying technical component concepts and bringing these into line with global standards, we generated significant savings. Based on these results, we are now rolling out the approaches to other regions and vehicle projects. Over half of our purchasing projects have already benefited from an extended cost analysis.
We have secured important innovations for the Company with our innovation contracts. In the case of new technologies, we selected suitable partners early on to allow innovations to be implemented in the market.
We are tackling the challenges of the transformation in our procurement markets by setting up a Connectivity, eMobility & Driver Assistance Systems division. The redesign of our procurement process for software and data will pave the way for partnerships that are secure for the future.
Implementation of the Group Procurement Suite is a means of revamping our procurement systems, automating procurement operations and facilitating the support of strategic procurement activities through analyses and artificial intelligence.
Volkswagen FAST – Supplier network as the basis for success
FAST is the central initiative of Group procurement, introduced in 2015 with the aim of making the Volkswagen Group and its supply network future-proof. The goal of FAST is to successfully implement the key topics of innovation and globalization by involving suppliers at an earlier stage and more intensively. The FAST initiative enhances the quality and speed of collaboration with our key partners, and thus enables us to coordinate global strategies and points of technological focus even more closely. The common goal is to make impressive technologies available to our customers more quickly and to implement worldwide vehicle projects more effectively and efficiently.
After incorporating additional partners into the FAST program in 2017, we worked with these partners in the reporting period to exploit the benefits of the strategic integration.
Digitalization of supply
We are working systematically to implement a completely digitalized supply chain. This will help us to ensure supply, leverage synergies throughout the Group and become a leader in terms of cost and innovation. We are therefore creating a shared database and using innovative technologies to enable efficient, networked collaboration in real time – both within the Group and with our partners. The cornerstone for the future of Procurement was laid in 2018 in the form of Group Procurement’s digitalization strategy. This strategy aims not only to eliminate the weaknesses of Procurement’s IT system environment but also to increase the organization’s effectiveness, efficiency and future viability.
Structure of key procurement markets
Our procurement is organized at global level, with a presence in the key markets around the world. This ensures that production materials, investments in property, plant and equipment, and services can be procured worldwide to the quality required on the best possible terms. Networking of the brands’ procurement organizations enables us to leverage synergies across the Group in the various procurement markets.
In addition to the brands’ procurement units, the Volkswagen Group operates eight regional offices. In growth markets, we identify and train local suppliers to generate cost advantages for all the Group’s production sites. In familiar and established markets, the regional offices support access to the latest technologies and innovations.
Supply situation for purchase parts and upstream materials
Systematic safeguarding of the supply of purchase parts is one of Procurement’s goals. As a result of the new WLTP test procedure and the related changes in the production programs, we required a high degree of flexibility from our suppliers. Adverse effects on production in the Group caused by unforeseeable events such as natural disasters were minimized to the best of our ability.
Management of purchased parts and suppliers
The importance of managing purchased parts and suppliers is steadily growing due to the continued globalization of supply chains. We support and supervise the processes from development to series production of the purchased parts, making a substantial contribution to ensuring production start-ups for vehicles and powertrains all around the world. Our activities in purchased parts management focus on safeguarding component quality and the industrialization process at the individual supplier locations. At the same time, increased complexity in the automotive industry requires regular monitoring and safeguarding of supplies for series production. In order to identify any disruptions at an early stage and take necessary countermeasures, we simulate series production at suppliers as part of the pre-production process. Purchased Parts Management works closely with Quality Assurance at the production sites and conducts multi-stage performance testing.
Sustainability in supplier relationships
Successful relationships with our business partners are based upon observance of human rights, compliance with occupational health and safety standards, active environmental protection and combating corruption. These sustainability standards are defined in the contractually binding Volkswagen Group requirements for sustainability in relations with business partners (Code of Conduct for Business Partners).
Especially in view of the more stringent sustainability requirements being imposed worldwide, training and professional development for our suppliers is a key aspect of our sustainability in supplier relationships concept. By the end of the reporting period, more than 31,000 supplier locations had completed our online training program since 2012. In the Asia-Pacific, South America and European regions, we trained over 900 employees from more than 550 suppliers at face-to-face events addressing topics such as sustainability, and informed them of region-specific challenges. In addition, we raised awareness of sustainability risks in Procurement with face-to-face events attended by over 2,000 Procurement employees.
Our supplier checks for verifying compliance with sustainability requirements retained their importance in 2018. For this reason, we once again considerably increased the number of checks performed year-on-year and conducted local audits at 947 supplier locations. In 551 cases, an action plan was agreed upon that led to an improvement in suppliers’ sustainability performance. Furthermore, checks of more than 28,000 supplier locations were carried out by means of questionaires relating to sustainability since 2012, allowing improvements in sustainability performance to be achieved in more than 2,100 cases during the reporting period.
In 2018, we also decided to introduce a comprehensive sustainability rating for the awarding of contracts in which the criteria environment, society and compliance will be systematically reviewed prior to the conclusion of all contracts starting in 2019. Only suppliers with a positive sustainability rating will have the opportunity to enter into a business relationship with us.