AutoRevista.- How does VW Group Procurement contribute to meeting the objectives of the Together 2025 strategy?
Francisco J. García Sanz.- Group Procurement supports the corporate strategy with a subordinate procurement strategy based around the vision “TOGETHER – best in customer value and cost”.
The procurement strategy has six main goals: access to supplier innovations; active cost structures; forward-looking structures; people, expertise and attractiveness; supply chain excellence; and Group-wide synergies.
More than 100 measures already drawn up by mid-2017 as part of the individual initiatives are now being implemented. A set of “6+1” initiatives have been adopted for strategy implementation and goal attainment as follows.
The first initiative, “value sourcing”, aims to systematically integrate suppliers into the development process from an early stage. Secondly, “Greenfield costs” describes methods and roadmaps toward attainment of a zero-based cost target.
In third place, “Innovation and partnerships” ensures that procurement is an integral part of the processes and decisions related to the two thematic areas. In fourth place, “Software” drives the necessary changes to processes, structures and competencies resulting from the purchase of software and its increasing importance.
In fifth place, “Digital supply chain” encompasses an IT system integrating all core procurement processes into a single solution and forming the basis for a digital supply network including all procurement partners. In sixth place, “Sustainability” supports the Group’s ambition to be top performer in this area and to lead all OEMs.
The final initiative, “employees, strong team, organization” – the “+1” – directs the focus inward and lays the foundation for the strategy’s success, and that of procurement, with flat hierarchies, freedom for employees and a culture of respect and trust.
Initial successes from these initiatives are already apparent. Integrating suppliers into a number of vehicle projects at an early stage, for example, has enabled faster achievement of material cost targets while also improving quality from the market and customer perspectives. Several supplier innovations have already been nominated as part of the innovation process and will be quickly incorporated into products for a first-to-market advantage. An internal decision has been made to separate hardware and software, including in procurement processes, and to establish a new organizational division, Connectivity Procurement. The first pilot projects with the new IT solutions are underway and are being progressively rolled out throughout the Group. Pilot projects have also been launched to factor sustainability aspects into the contract award process.
“An internal decision has been made to separate hardware and software, including in procurement processes, and to establish a new organizational division, Connectivity Procurement”
The above-mentioned elements of the Group procurement strategy have been agreed in consultation with the brands and regions. Through their implementation, Procurement makes a decisive contribution toward attainment of the goals under the Group strategy and to the success of the Company.
AR.- How is the Volkswagen Future Automotive Supply Tracks (FAST) initiative progressing and how do you assess the response from suppliers?
F.J.G.S.- The Future Automotive Supply Tracks (FAST) initiative aims to develop a future-proof, strong and sustainable supplier network. FAST and the processes within it target an optimum joint response with suppliers to the core fields of globalization and innovation while further enhancing effectiveness and efficiency in supplier collaboration. In 2017, the initiative’s third year, the program continued its systematic onward development and added further new suppliers.
“The Future Automotive Supply Tracks (FAST) initiative aims to develop a future-proof, strong and sustainable supplier network”
The network grew from 55 FAST suppliers in the prior year to 64. All FAST partners were invited to the third FAST Summit, at which key Group topics and projects were presented. This event also saw the launch of the FAST Forum. Here, decision makers discussed in small groups how the FAST program can be made even more effective for Volkswagen and suppliers. Feedback from suppliers was valuable to the program’s ongoing progress and success.
AR.- How does global sourcing combine with programs to strengthen sourcing in specific regions?
F.J.G.S.- We see no contradiction here. In principle, global sourcing, too, leads to a lasting strengthening of the regions where we produce. It is not uncommon for global players to build local production facilities near our plants as part of a location strategy adapted to our Group.
We ourselves as a company have a very strong interest in taking localization as far as possible – meaning local production – and even in taking it to maximum depth, that is to say, by locally sourcing even subcomponents and raw materials. As well as the obvious logistical effects, we see various benefits from this, including the use of local materials and technologies, and also natural hedging against exchange rate movements.
AR.- What does the VW Group expect from suppliers with regard to the changes in terms of Industry 4.0, electric vehicles, the connected car, autonomous driving and car sharing?
F.J.G.S.- Given that three-fourths of value creation takes place outside of factory boundaries, it makes sense for a similar proportion of innovation to take place at our trading partners. It is our clear ambition to have suppliers and trading partners involve us from an early stage with regard to the trends referred to (Industry 4.0, electric vehicles, the connected car, autonomous driving and car sharing).
“Given that three-fourths of value creation takes place outside of factory boundaries, it makes sense for a similar proportion of innovation to take place at our trading partners”
We also link suppliers early into our processes so we together can be first to market with customer-relevant technologies or jointly decide and implement the best approach.
Of course, the trends referred to also entail differing focuses and challenges: Industry 4.0 heavily relies on interconnection along the entire length of the value chain. The challenge here will be organizing in such a way that information flows/interconnections can be optimized across multiple enterprises and value stages.
The central factor regarding electric vehicles doubtless relates to battery technology and related disciplines. Questions here include raw material/capacity availability. How can supplies of raw materials at one end and recycling at the other best be organized from both a commercial and a sustainability perspective? When can we expect the technological leaps that are needed? Who is going to organize the charging infrastructure? And so on.
With the connected car, autonomous driving and car sharing, the question is who owns specific platforms/data and who integrates specific technologies. Another basic question is where and how to position ourselves along the new business models and possibilities. One issue that heavily affects suppliers is product/data security and also whom data belongs to, for what purpose, etc.