Procurement risks and opportunities

The trend in procurement is to bundle contracts to a greater extent and to ensure worldwide availability of uniform components. This is resulting in an increased need for financing and further consolidation in the supply industry. The Volkswagen Group’s procurement risk management system therefore assesses suppliers before they are commissioned to perform projects. Among other things, the procurement function considers the risk of there being 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 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. Financing offered on attractive terms and low interest rates provided suppliers with favorable conditions. This reduced the number of insolvencies among our suppliers.

Consolidation of the supplier base continued at the same time, fueled by the globalization of regional suppliers, especially from China, as well as the trends toward e-mobility and increasing connectivity between the vehicle and its equipment. The political and economic tensions in Russia and South America led to capacity adjustments by suppliers and to a concentration in the supplier base.

Quality problems may necessitate technical measures 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 the 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. The supplier risks are automatically identified without delay in the procurement function through early warning systems and mitigated immediately by applying inferred measures.

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