In fiscal year 2017, the main task for Procurement was once again to safeguard the necessary supplies and to help create competitive, innovative products and optimize cost structures. We also continued to digitalize procurement processes and expand cooperation with suppliers under the Volkswagen FAST (Future Automotive Supply Tracks) initiative.
The Group-wide procurement strategy with the vision, TOGETHER – best in customer value and cost, was put into operation in 2017. Six goals were agreed in consultation 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
To achieve these goals, more than 100 measures had already been drawn up by the end of 2017 as part of the following initiatives and are now being implemented:
- “Value sourcing” aims to systematically integrate suppliers into the development process from an early stage.
- “Greenfield costs” refers to commercial and technical activities to optimize component costs.
- “Innovation & partnerships” ensures that procurement is an integral part of the processes and decisions related to both topics.
- “Software” is driving the necessary changes to processes, structures and competencies resulting from the purchase of software and its increasing importance to the Group’s added value.
- “Digital supply chain” encompasses an IT system integrating all core procurement processes into a single solution and forming the basis for a digital network including all procurement partners.
- “Sustainability” supports the Group’s objective of leading the automotive industry in this area, including the supply chain.
- “Employees, strong team, organization” directs attention inward and lays the foundation for the strategy’s success with flat hierarchies, freedom for employees and a culture of respect and trust.
The first successes of these initiatives are already apparent. Integrating suppliers into several vehicle projects at an early stage, for example, has enabled faster achievement of material cost targets whilst also improving quality from the market and customer perspective. We have also ordered implementation of specific innovations for our products from several suppliers to enable customers to take advantage of them at an early stage. In addition, it was decided to separate hardware and software in the procurement processes and establish a new organizational division, Connectivity Procurement. The first pilot projects with new IT solutions were launched in 2017 as part of the “Digital supply chain” initiative. These are gradually being rolled out throughout the Group. Pilot projects to factor sustainability aspects into the contract award process have also already been initiated.
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.
From 55 FAST suppliers in 2016, the network grew to 64 suppliers over the past fiscal year. We presented the Group’s key topics and projects at the FAST Summit, which took place in the reporting year for the third time. In addition, at the FAST Forum, relevant decision makers discussed how FAST can be made even more effective for Volkswagen and suppliers.
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 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. Since the successful launch of our new Group business platform ONE KBP in April 2017, we have been working together with our suppliers on one platform. A cloud-based, Group-wide data strategy was also agreed in 2017. This will enable us to identify supply risks in the supply chain even faster in future.
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 emerging 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 avoidance of bottlenecks was a constant focus of procurement. Natural disasters such as earthquakes and tornadoes impacted the availability of upstream materials. We were able to avoid adverse impacts on the Group’s production thanks to Group-wide management of capacity and demand.
Management of purchase parts and suppliers
Purchase parts management is a core component of the global procurement organization. With our experts in tools and industrialization, along with standardized processes and approaches, purchase parts management makes a substantial contribution to ensuring successful production start-ups for vehicles and powertrains all around the world. Against the backdrop of increased complexity in the automotive industry, we also help to safeguard supplies for series production. As part of the pre-production process, we simulate series production at suppliers to identify any gaps in production or quality at an early stage and take countermeasures. Purchase Parts Management works closely with Quality Assurance at the production sites and conducts multi-stage performance testing.
Sustainability in supplier relationships
Global compliance with sustainability standards in human rights, occupational safety, health and environmental protection and combating corruption is our basic requirement for successful collaboration with our suppliers. It is also a contractual stipulation of the underlying business relationship. We continuously enhanced the concept of sustainability in our supplier relationships in 2017. We have added detail to our Volkswagen Group requirements for sustainability in relations with business partners (Code of Conduct for Business Partners) concerning human rights and occupational safety and extended the reporting options for infringements by suppliers.
Another focus in 2017 was to raise awareness of sustainability risks among Procurement staff and our suppliers and to inform them on options for averting risk. By the end of the reporting period, around 29,000 supplier locations had completed our online training program. In the Asia-Pacific, South America and European regions, among others, we also trained more than 700 employees at 356 suppliers in face-to-face events on the topic of sustainability and informed them about region-specific challenges. In addition, we raised awareness of sustainability risks in the supply chain with face-to-face events for over 2,000 Procurement employees.
We also substantially intensified our supplier checks in the reporting year with regard to sustainability. We commissioned sustainability audits from an external service provider at 321 suppliers. In 60 cases, the findings resulted in an action plan to improve the suppliers’ sustainability performance. In addition to these local audits, more than 25,000 supplier locations submitted a self-declaration on the topic of sustainability. In around 1,500 cases, their sustainability performance was improved through specific measures.
Setting the course for the future
In 2017, procurement was defined by vehicle connectivity and e-mobility, which have led to new groups of materials. The amount of software in our purchase parts is constantly increasing. Procurement is taking on an important role here with cost-effective structuring of licensing agreements and the standardization of software modules. We reacted early by pooling competencies to make our structure even more effective.