In fiscal year 2022, the main task for Procurement was to make a decisive contribution to the Group’s result in five areas: costs, supplies, sustainability, quality and innovation. The challenges related to supplies and costs were the area of focus. 2022 was mainly devoted to safeguarding the supply of parts. Through pinpointed task force work, we minimized impending vehicle losses due particularly to the shortage of parts in connection with the Russia-Ukraine conflict. In the second half of 2022, the focus was additionally on rising energy prices, the resulting supplier receivables, and safeguarding the energy supply at the company’s own plants and at those of its suppliers.
The NEW AUTO Group strategy also stands for more speed, focus and stringency within the Procurement division, accelerating change even more. In 2022, we continued to drive forward and improve our functional area strategy. Alongside short-term cost targets, our strategy seeks to improve our supply situation, increase product quality and boost innovativeness and sustainability. The goals are based on the NEW AUTO Group strategy and are driving Volkswagen’s transformation also from within the Procurement division. In addition, we are also creating optimized structures for our procurement staff and establishing further focus areas with the digitalization of our processes and increased employee orientation.
A key task for Procurement is to safeguard supplies for the continually growing requirements of the e-mobility offensive over the next five to ten years in a sustainable way, while optimizing cost structures.
When awarding contracts to our electric mobility partners, we lay down requirements as regards sustainable supplier practices, transparent, traceable supply streams, and energy- and carbon-optimized supply chains. Global demand from the European, American and Asian markets is bundled in the awarding of Group contracts with the aim of achieving cost leadership for electric mobility solutions. To this end, we consider diversification in conjunction with dual-supplier strategies as well as localization of the supplier portfolio for all core components of the electric vehicle fleet in an effort to reduce economic and geopolitical risks.
Digitalization of supply
We are working systematically to implement a completely digitalized supply chain. This is intended to help us to safeguard supply and leverage synergies throughout the Group. 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 Procurement division aims to standardize transactions with our suppliers in the future and automate them where possible. This will not only reduce transaction costs but will also accelerate business processes. The integration of Catena-X, the data network for the automotive industry, is one important part of this. It will allow possible supply risks to be identified at an earlier stage and appropriate measures and alternatives to be jointly developed faster. Procurement’s digitalization strategy is being consistently followed with the specific aim of not only eliminating the weaknesses of Procurement’s IT system environment but also increasing the organization’s effectiveness, efficiency and future viability. The initial systems or modules such as a cloud-based module for automating procurement activities in the vehicle project phase and an acclaimed online negotiation tool have already been implemented and integrated into the existing system environment.
Structure of key purchasing markets
The procurement process is organized at a global level, with a presence in the key markets around the world. This allows us to purchase production materials, investments in property, plant and equipment, and services worldwide at the quality required and on the best possible terms. Networking among the brands’ procurement organizations enables us to leverage synergies across the Group in the various purchasing markets.
In addition to the brands’ procurement units, the Volkswagen Group operates seven regional offices. In growth markets, we identify and train local suppliers to generate cost advantages for all Group production sites. In this context, we are also focusing on start-ups and software suppliers.
Supply chain management in Procurement
Supply chain management activities at Procurement are focused on safeguarding supplies during start-up phases and for series production. This entails providing support in our suppliers’ industrialization processes, monitoring series production and managing supply crises, for example energy and raw material shortages related to the Covid-19 pandemic and the Russia-Ukraine conflict.
Even in the early stages of new projects, we conduct audits to ensure that our suppliers will be able to deliver. Furthermore, we provide support for purchased parts along the individual project milestones up to the start of production. Complex components in particular frequently require onsite support from our supplier management team. Finally, an acceptance test of production capacities is carried out to facilitate the timely start of series production of the vehicles at our plants.
In addition, regular checks are carried out during series production, for example related to the continuous matching of demand and capacity or possible capacity adjustments at suppliers. This also safeguards the capacity at suppliers when using existing components in new projects.
Thanks to our established crisis management structure and global supplier network, we are able to overcome complex challenges along the supply chain and have access to a wide range of locations and technologies. This structure has been instrumental in helping us cope in particular with the impact of the Russia-Ukraine conflict, which has necessitated the construction of backup sites. Cross-divisional work among Procurement, Quality Assurance, Development, Production and Logistics reduced short-term losses and successfully industrialized the backup sites.
The measures pursued as a consequence of the Russia-Ukraine conflict demonstrate that global supplier management is working effectively. However, the precarious supply situation, especially for semiconductors, resulted in limited vehicle availability for customers.
Sustainability in supplier relationships
Successful relationships with our business partners are based on respecting 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). The Code of Conduct for Business Partners also sets out the expectation that business partners will take steps to ensure compliance in their supply chain. We review compliance with the requirements, which has been an explicit condition for the award of contracts since 2019, using sustainability ratings for relevant suppliers. The relevance of a business partner for this rating depends, among other things, on the size of the company or the risk exposure arising from the type of service provided.
In our sustainability rating, we determine suppliers’ sustainability performance by means of self-disclosures and risk-based on-site audits. By the end of the reporting period, we had obtained 12,660 ratings for suppliers, covering 75% of the total order volume. Both the validation of the questionnaire and the on-site audits are carried out by selected service providers. As a rule, contracts are not awarded to suppliers who fail to meet our requirements concerning compliance with sustainability standards. Tying award decisions to sustainability criteria is one of the strongest levers for enforcing these. We address existing sustainability risks and violations of sustainability principles by systematically defining and implementing measures to correct the violations; this also includes the upstream supply chain. In the reporting period we continued to offer advanced and continuing training for suppliers. In fiscal year 2022, more than 2,900 suppliers took advantage of our training programs such as digital supplier training courses and e-learning.
With regard to decarbonization, the Volkswagen Group is striving to continuously reduce greenhouse gas emissions or avoid them altogether over the entire life cycle of a vehicle. The Group’s transformation into a provider of sustainable mobility solutions and in particular the trend towards electric mobility are shifting the action required from the service life of the vehicle to supply chains and the manufacture of vehicles and components. We are aware of our social responsibility and are committed to the Paris Climate Agreement. We have therefore incorporated the use of renewable energy, among other things, into the specifications for cell manufacturers.
In our sustainable supply management, we are also involved in protecting groups of people who may be subject to a high risk of potential human rights violations at any point in our supply chain. We implemented a human rights focus system in 2022 to comply with international frameworks and requirements and specifically the Lieferkettensorgfaltspflichtengesetz (German Supply Chain Due Diligence Act). The system aims to identify particularly high risks in our supply chain in connection with human rights violations and the environment and to manage these appropriately. We continued to implement our raw material due diligence management system to manage the sometimes extensive risks in the raw material supply chains. This sets out in detail the prioritization and processing of the raw material supply chains that we classify as particularly high risk. Transparency requirements for our battery suppliers constitute an important basis for responsible raw material purchasing. Within the framework of these contractual requirements, we ask, for example, that our battery suppliers disclose their entire upstream supply chain before we award new contracts.
For more information on human rights, please see the section on Supply Chain and Human Rights in our 2022 Sustainability Report.