Procurement

Procurement focused its activities in 2014 in particular on safeguarding new vehicle start-ups, developing new procurement markets and ensuring continuity of supply to production.

Procurement strategy

Our goal to have the most competitive and attractive procurement organization is underpinned by four procurement goals derived from the Group Strategy 2018: first, to actively shape our technical and environmental innovation processes in order to provide market-centric premium quality and innovations at competitive conditions; second, to meet cost targets and ensure the profitability of our products over their entire lifecycle; third, to ensure stable and efficient flows of goods and safeguard global volume growth through the permanent availability and consistently high quality of procured components; and fourth, to create optimal working conditions so that we can continue to raise employee satisfaction and the attractiveness of the procurement function.

We have assigned action areas to each of these goals and derived concrete programs from these. Each program comprises defined measures and responsibilities for all brands and regions which ensure that the procurement goals are achieved and will have long-term benefits. We pool our strengths throughout the Group and take advantage of opportunities across all brands and all regions.

Volkswagen FAST – Future Automotive Supply Tracks

The “Volkswagen FAST – Future Automotive Supply Tracks” initiative was launched together with suppliers in order to strengthen the working relationship we have with them. We will work even more closely and quickly with our most important partners on the strategic issues of globalization and innovation. As a result, our global plans will be coordinated ahead of schedule and innovations will be implemented more efficiently and effectively.

Procurement’s process optimization program

The optimization and standardization of our processes and systems for all Group brands and regions was pursued with high priority in fiscal 2014. This enables us to achieve maximum transparency and a high degree of consultation and integration within the Group. In order to ensure the sustainability of these optimization measures, we regularly conduct process and system audits.

The next step will be to strengthen our focus on the interface to suppliers. The goal is also to work together with them on the basis of optimal processes and systems.

Supply situation for procured components and raw materials

The supply of procured components to our component and vehicle plants remained stable in 2014, despite a greater number of unplanned events. After the first nine months of the reporting year, the number of major disruptions impacting supply, such as fires, floods and strikes, had already reached the prior-year level. The further increase in production volumes and the need to continuously adapt equipment to meet market requirements also dominated the supply situation. Together with our suppliers, we have overcome all of these challenges and supplied all areas of vehicle production with procured components.

The critical success factors for a secure supply situation are an efficient global early warning system based on continuous big data analyses, the globally available MQB and MLB modular toolkits with alternative sources of supply, the availability of all information on facilities, tool capacities and locations relevant to supply, and the processing of information on local risks.

Processes relating to Technical Development, Quality Assurance, Sales, Production/Logistics and Procurement across the business were further optimized, with the aim of securing capacity and removing bottlenecks. This will minimize response times and speed up troubleshooting.

Good cooperation with our procured component suppliers ensures that we achieve our supply goals. We once again strengthened this cooperation in the reporting period with a supplier symposium.

Over the course of 2014, the global economy registered slower growth with weaker economic signals seen in China, among other places. This also affected the prices for many raw and input materials such as crude oil, steel and rare earths, which stagnated or declined. In addition, the reporting period was dominated by political tensions, particularly in Russia and Ukraine. They had increasingly international repercussions, which were also reflected in prices on the sensitive raw materials markets. In order to counter risks associated with high volatility, specific and more long-term procurement strategies were used and will continue to be used in Volkswagen procurement.

Procured component 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 underpin 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. We hold cross-business area discussions with our suppliers to ensure that supplier training corresponds with Volkswagen’s quality and growth targets. The best practice approaches that we defined together enable us to continually improve and are anchored in common aims. The preventive safeguarding of start-ups is not only enhanced by simulated series production at the suppliers, but also by integrating performance tests across all business areas at various stages of the product development process prior to new vehicle start-ups. This enables us to identify problems related to supply volume and quality in good time and to counteract them.

Developing new procurement markets

Procurement works in 39 locations across 23 countries, ensuring that the production facilities are supplied with production materials of the required quality and amount for the long term and at competitive conditions. This ensures access to the relevant procurement markets against the background of increasing globalization.

In addition to established sources of supply, the number of qualified suppliers in new growth markets such as the ASEAN region is increasing. Our experience working with local suppliers, for example in Pekan, Malaysia, will be carried over into new projects via the regional procurement organization. This is increasing the size of our global supplier base.

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

Sustainability in supplier relationships

In the reporting period, we further developed our existing “sustainability in supplier relationships” concept from 2006 by integrating the “Volkswagen requirements for sustainability in relations with business partners (Code of Conduct for business partners)” into contracts with our suppliers. Where justified, we conduct specific sample tests to check our suppliers’ compliance with sustainability standards.

In 2014 we again gave our suppliers intensive training in order to provide them with in-depth knowledge on sustainability, for example through topic-specific discussion events in Argentina, Brazil and Mexico. In Poland, Russia and Turkey, among other countries, our suppliers also received further classroom training, which was held together with other automobile manufacturers. Our own employees are continually informed about and trained on the issue of sustainability in supplier relationships.

We have also continued working with our suppliers on this issue via the Group Business Platform, where an Internet-based training module on sustainability is available, among other things. All suppliers who are registered on the platform are also requested to complete this training module with a final performance review.

In addition, our business partners provide us with information about their sustainability status using a questionnaire available on the Group Business Platform; if necessary, a corporate unit will introduce improvement measures at the supplier.

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. In the reporting period, the purchasing volume – including the Chinese joint venture companies – increased by 7.7% to €145.5 billion. Suppliers in Germany accounted for a share of 36.1% (37.3%).