Procurement risks and opportunities

Current trends in the automotive industry such as e-mobility and automated driving are resulting in an increased need for financing among suppliers. The Volkswagen Group’s procurement risk management system assesses suppliers before they are commissioned to perform projects. Among other things, the procurement function considers the risk of insufficient competition if it concentrates on a few financially strong suppliers when awarding contracts.

The procurement risk management system continuously and globally monitors the financial situation of our suppliers and takes targeted measures to avoid supply bottlenecks.

The ongoing positive economic trend in Europe, North America and China strengthened our supplier base at an overall good level of capacity utilization and good margin situation. Consistently good financing opportunities and the attractive interest rates provided suppliers with favorable conditions. In the Russian and South American markets, demand grew for the first time in years, providing the possibility of stabilization after several years of consolidation of the supplier base.

In spite of this, the number of crises and insolvencies among suppliers worldwide increased in 2017. Specialists in restructuring and supply reliability are coordinating the measures to be taken on a Group-wide basis to safeguard production in a timely and sustainable manner.

The current trends in the automotive industry will also affect the availability of special raw materials, which are principally used in electrified vehicles. The raw material and demand trend was assessed last year to enable steps to be taken in a timely manner whenever bottlenecks arise.

Rising material prices, especially for steel, and shifts in the product mix towards petrol engines present challenges that must be overcome in conjunction with suppliers.

Quality problems may necessitate technical intervention involving a considerable financial outlay where costs cannot be passed on to the supplier or can only be passed on to a limited extent. It is not possible at the present time to rule out a potential further increase in recalls of a range of models produced by various manufacturers in which certain airbags manufactured by Takata were installed. This could also affect Volkswagen Group models.

In addition to financial difficulties, supply risks may, for example, arise as a result of fires or accidents at suppliers. Supply risks are identified without delay in the procurement function through early warning systems and mitigated immediately by applying appropriate measures.

Additional measures were taken to safeguard supply and avert future assembly line stoppages caused by suspensions of deliveries.

Monitoring of the antitrust investigations into suppliers by Risk Management on grounds of price-fixing agreements was expanded further in 2017. The effects on Volkswagen are being systematically reviewed.