Economy

SUPPLIER MANAGEMENT

Volkswagen Group procurement mainly purchases production materials, services and capex centrally. In the reporting period, the purchasing volume – including the Chinese joint venture companies – increased by 7.7% to €145.5 billion. Suppliers in Germany accounted for a share of 36.1%.

Concept and Organization

To ensure that flows of goods and services remain stable and efficient, in 2006 the Volkswagen Group formulated its Sustainability in Supplier Relations concept and has continued to refine it ever since. Together with traditional priorities such as quality, price and delivery times, the concept had been thoroughly integrated in our procurement process. To us, applying and monitoring sustainability standards in the supply chain is above all a matter of minimizing risk – preventing potential supply shortages and damage to our reputation and ensuring that the quality of the procured supplies and services remains consistent. Both the Group and its suppliers profit from the long-term supplier relationships which result.
The concept, which is based on three main pillars, aims to minimize or prevent negative social, environmental and financial impacts along our supply chain:

  • An early warning system that identifies and minimizes risks along the supply chain.
  • Contractually mandated integration of the sustainability standards in the procurement process. These must be acknowledged by all suppliers before submitting a quotation on the Group Business Platform. Otherwise it is not possible to submit a quotation.
  • Supplier monitoring and development.

We regularly benchmark the effectiveness of our concept against other companies and intensively analyze the results of sustainability ratings. This allows us to gain valuable insights for continuing optimization and development.
In recent years we have systematically extended the Sustainability in Supplier Relations concept to all of the Group’s brands. In 2014 specific elements were still being rolled out at the Porsche, MAN and Scania brands.
We continuously train employees and raise their awareness to ensure that the concept is further anchored within the Company. Consequently, the concept is an established part of the qualification program at the procurement academies run by the individual locations. In addition, cross-functional training courses were again held in 2014. In the reporting year, more than 900 purchasing staff received training in Sustainability in Supplier Relations. To reinforce the communication of our concept internally and externally, in 2014 we also published a brochure and made it available on the Group Business Platform. 22

Risk Analysis

The Volkswagen Group subjects all potential new business partners and suppliers to an integrity check (Business Partner Check). Our aim is to reduce the risk of a relationship that could adversely affect the Group and its business by carefully examining the social integrity of the potential supplier. So suppliers who register on the Group Business Platform for the first time are subjected to the Business Partner Check before onboarding.

2014 Procurement Volumes By Commodity*

* The survey of procurement volumes does not include goods from suppliers to the Bugatti, Scania and ŠKODA India brands and the Chinese joint ventures.

Thousands of parts from all over the world must comply with the requirements of sustainable supplier management.

The Volkswagen Group uses a country risk analysis to obtain a clearer picture of social, environmental and human-rights risks in the region where potential suppliers operate before entering into negotiations with them. This takes both third-party information and in-house empirical data into account. The analysis has shown that there is an increased risk of non-compliance with our sustainability requirements in Brazil, India, China, Mexico and Russia. For this reason, in our supplier development activities we place a particular focus on these countries. To identify current developments as well as long-term structural challenges in each country, we rely on the ongoing exchange of information between the brands and the regions at the regular meetings and video conferences held by the Sustainability Procurement Network.

2014 Procurement Volumes
in € billion

Show table
   

By brand
­Volks­wa­gen Passenger Cars 85.5
Audi1 25.7
MAN2 7.8
ŠKODA 7.1
Scania 6.5
SEAT 4.4
­Volks­wa­gen Commercial Vehicles 2.6
Porsche 5.0
Bentley 0.8
­Volks­wa­gen Group 145.5

By region
Europe/Other markets 93.5
Asia-Pacific 39.1
South America 6.7
North America 6.2
Total 145.5

1 Audi including Lamborghini and Ducati.
2 MAN incl. MAN Truck & Bus, MAN Diesel & Turbo and MAN Latin America.

Procurement Risk Management

In 2013 we signed up to the Extractive Industries Transparency Initiative (EI-TI), which is supported by governments, NGOs, investors and businesses. The EITI aims to combat corruption by making payment flows related to raw materials transparent. We also demonstrate our commitment to more transparency in the supply chain as a standing member of the UN Global Compact Advisory Group on Supply Chain Sustainability. The Volkswagen Group supports the efforts of the European Commission to suppress the funding of armed conflicts through the raw materials trade. We play an active part in defining the position of the German and European industry associations, advocating the application of voluntary self-certification in the upstream segment of the supply chain.

Sustainability Requirements and Integration

Our supplier relations are based on the “Volkswagen Group requirements regarding sustainability in its relationships with business partners (Code of Conduct for Business Partners)”, which apply across the Group (see "Compliance“). They formulate our expectations for our business partners’ conduct with regard to central environmental and social standards. Among other things, they are based on the principles of the UN Global Compact, the International Chamber of Commerce’s Business Charter for Sustainable Development and the relevant conventions of the International Labour Organization. These principles are supplemented by Volkswagen’s Environmental Policy, the environment targets and regulations derived from it, the Group’s Quality Policy and the Volkswagen Declaration on Social Rights.
Before submitting a quotation, the supplier must acknowledge the sustainability requirements; this acknowledgement must be repeated every 12 months. The requirements have been contractually integrated since November 2013 for all suppliers to General Procurement, and since January 2014 for all suppliers of production materials as well. The requirements apply to all outsourced goods and services worldwide. We also expect our tier 1 suppliers to pass these requirements on to their own suppliers.
In addition, Volkswagen requires its main suppliers to put in place a certified environmental management system in accordance with ISO 14001 and/or EMAS. Such systems have been verified and documented at 87% of our main suppliers. As part of the EMAS and ISO 14001 environmental certification and auditing at the Volkswagen AG locations, the contractors and suppliers who work on the plant grounds and have an environmental impact are also subject to regular monitoring.
In the course of the business process, all suppliers are required to complete our sustainability questionnaire and to document their activities in the areas of environmental protection and social standards. By December 31, 2014, 15,405 Group suppliers had returned the questionnaire. In terms of procurement volume that equates to 87%.

Procurement volume-based proportion of environmental and social certification at main suppliers

Show table
  2014   2013   2012  

Environmental certification (EMAS, ISO 14001)
Verified1 48% 44% 30%
Self-assessed 39% 40% not taken into account
Total 87% 84% not taken into account

Social certification (OHSAS 18001, SA8000, AA1000)
Verified1 (total) 8% 6% not taken into account

1 Taking all suppliers into account, 77% have EMAS/ISO 14001 and 7% social certification.

Supplier Development and Qualification

In the interests of continuing supplier development, in the course of our business relations we make an electronic learning (E-Learning) module on sustainability available to all suppliers in all of the languages of the defined risk markets. After completing this task, the supplier has to perform a final test. By the end of 2014, 14,457 suppliers had completed the E-Learning module, which equates to 71% of procurement expenditures. The tool is made available to the supplier’s workforce as well as to employees of Volkswagen AG Procurement for qualification purposes.

Status Quo: Sustainability Questionnaire and E-Learning

Show table
  Number
completed in 2012  
Number ­additionally
completed in 2013  
Number ­additionally com-
pleted in 2014  
Total in
2014 + 2013 + 2012  
Status 2014,
based on
procurement
expenditures  
Procurement
volume-based
target for 2015  
Sustainability
questionnaire
7,812 3,937 3,656 15,405 87% 89%
Average score 90/100 89/100 90/100 92/100
E-Learning 2,420 6,232 5,805 14,457 71% 73%

In addition to this E-Learning format, we also conduct region- and topic-specific sustainability training courses and workshops with our suppliers. In the reporting period, courses were held in countries including Brazil, Argentina, Germany and Poland.
In addition, as part of the European Automotive Working Group on Supply Chain Sustainability, a supply chain forum took place in Istanbul in November 2014. In an intensive dialogue, suppliers and manufacturers discussed important challenges and solutions with the aim of improving sustainability along the supply chain. The event spotlighted social rights. Through these diverse measures, in 2014 we were able to qualify more than 900 suppliers.

Supplier Monitoring and Audits

The Volkswagen Group uses an internal system for sustainable supply chain management. It provides supplier-specific sustainability information, enabling the comprehensive analysis of suppliers. If there is reason to suspect that tier 1 suppliers or their suppliers are failing to comply with our sustainability requirements, we ask the party concerned for a written statement using a standardized report (6D Report). Based on the six points in the report, they can describe the status quo and any remedial measures. If the answers prove unsatisfactory, we take further appropriate steps, such as the examination of documents, visits to the supplier’s premises or other customized supplier development activities. These measures are coordinated by an ad-hoc expert team in Wolfsburg together with the expert teams from the relevant brands and regions. Depending on the situation, experts from specialist areas such as Occupational Health and Safety or Personnel Management may also be called in. Specific improvement measures were agreed with all such suppliers.

Sustainability training for Volkswagen Group suppliers in Argentina.

AD-HOC CASES IN 2014

Show table
Geographical distribution1   Context   Type of supplier  
Europe 15 cases Environmental protection 2 cases Direct supplier 23 cases2
Asia 6 cases Social standards 20 cases Sub-supplier 2 cases
North and South America 4 cases Environmental protection & social standards 2 cases
Africa no cases Compliance 1 case

1 In the case of sub-suppliers the geographical location of the sub-supplier was used for the geographical distribution.
In the geographical distribution, Russia and Turkey are allocated to Asia.
2 Includes one case involving both a direct supplier and a sub-supplier.

In 2014, for example, an unannounced visit to a supplier uncovered non-compliance with occupational safety requirements. Remedial measures were defined with the supplier on the spot, including the correct installation of emergency exit signs and fire-extinguishing equipment. The successful implementation of these measures by the supplier represented a sustainable improvement in working conditions for the supplier’s employees.

Through fair dialogue in a spirit of partnership and through supplier development we create sustainability in supplier relations.

The focus throughout all process steps and measures is on fair dialogue in a spirit of partnership and on development of the supplier in the interests of sustainable collaboration. At the same time, the Volkswagen Group reserves the right to have compliance with the sustainability requirements verified by inhouse experts or by an external audit at the supplier’s premises during regular business hours. In the event of non-compliance with our sustainability requirements we will terminate business relations, particularly if the supplier shows no interest in improvement. No such case occurred during the reporting period.
The internal and external point of contact for suspected cases of non-compliance with our sustainability requirements, particularly where violations of human rights in the supply chain are concerned, is the email address: sustainability@vwgroupsupply.com. In addition, employees and external parties can address possible cases of non-compliance via the Volkswagen Group’s national and international employee representation bodies as well as national and international trade union federations.