Procurement

The main task for Procurement is to help steer the Company’s success in the areas of efficiency, sustainability and resilience. 2024 was mainly devoted to safeguarding the supply of vehicle parts and optimizing costs in order to make a contribution to the Group’s result.

Procurement Strategy

The procurement organizations at the Volkswagen Group make an essential contribution to the Group strategy. A key task is to strengthen the procurement network and intensify cooperation across brands and regions. Making use of global synergies also creates potential for a long-term reduction in costs for raw materials, components and services.

The frequency, duration and intensity of crises and the associated supply chain disruptions have risen significantly since the beginning of the 2020s. As a consequence, the procurement organizations intend to work together with internal interface partners and suppliers to strengthen supply resilience. By establishing strategies and tools and providing additional capacity for strategic and risk analyses, the aim is to enable forward-looking and comprehensive monitoring of supply chains in line with defined criteria, such as political influencing factors, economic developments, or environmental risks.

The transformation of the automotive industry toward e-mobility means that the procurement organizations must adapt their supplier network. Collaboration with these suppliers will be designed on an individual basis through strategic partnerships, treating the transformation as a joint undertaking. Expansion of partnerships is generally another area of focus in Procurement, both internally in the form of collaboration across brands and departments and externally with the Volkswagen Group’s suppliers. Digitalization and efficient processes are the foundation for all such strategic measures. In particular, the use of a new digital supplier platform and the future main data ecosystem, Catena-X, is a prerequisite for data-driven value chains. It is also a core element within this area of action.

E-mobility

Technology is evolving exceedingly rapidly. A key task for Procurement is to meet the changing requirements in a way that is sustainable and cost-efficient. Sustainable actions, transparent supply streams and energy- and carbon-optimized supply chains are important elements of our contract awards. We support our partners with active management of the supplier transformation, as the industry moves from internal combustion engines to all-electric vehicles, and with a lasting reduction in CO₂ emissions along the entire supply chain. To put our Company in a leading cost position, we award Group contracts that pool global demand from the markets of Europe, North and South America and Asia-Pacific. To reduce economic and geopolitical risks, we use diversified supply chains in conjunction with a dual-supplier strategy as well as localization of the supplier portfolio for all core components of our all-electric vehicle fleet.

Digitalization of Supply

We are working to implement a completely digitalized supply chain. This is intended to support us in safeguarding supply, leveraging Group-wide synergies, and creating transparency. 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. An important element of these efforts is the integration of Catena-X, the data network for the automotive industry. It will allow possible supply risks to be identified at an earlier stage and appropriate measures and alternatives to be jointly developed faster. With Procurement’s digitalization strategy we are not only eliminating the weaknesses of Procurement’s IT system environment but also increasing the organization’s effectiveness, efficiency and future viability. The new IT landscape for procuring production and general materials is being rolled out throughout the Group and has already been implemented at some brands.

Structure of Key Purchasing Markets

Procurement at the Volkswagen Group is responsible for ensuring cost-efficient, resilient and sustainable supply chains. Procurement is organized at a global level, with a presence in the most important purchasing markets. Alongside local bodies and decision-making structures, Group Procurement manages the brands and regions. This helps us to jointly implement potential cost savings and to control risks. Organized networking of the procurement organization in the brands will enable us to leverage Group-wide synergies and purchase production materials, investments in property, plant and equipment, and services worldwide at the quality required and on the best possible terms. In addition to the brands’ procurement units, Procurement operates regional offices in strategic purchasing markets. Working together in the procurement organization, these constantly identify and qualify new local 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 involves providing support in our suppliers’ industrialization processes, monitoring series production and managing supply crises, which could occur, for instance, as a result of geopolitical crises or natural disasters. The Volkswagen Group has realigned itself by introducing the strategic semiconductor management system. In doing so, the Volkswagen Group maintains direct business relationships with strategically relevant semiconductor manufacturers and directly influences the selection of components for the electronic architecture. This aims to keep the Group’s product portfolio competitive in the long term and to safeguard supplies of core components at the semiconductor level.

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 on-site support from our supplier management team. Finally, an acceptance test of production capacities is carried out to facilitate the timely commencement of series production of the vehicles at our plants.

In addition, regular checks are carried out during series production, for example, checks relating 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 tackle complex challenges along the supply chain and utilize a wide range of locations and technologies. Cross-divisional work among Procurement, Quality Assurance, Development, Production and Logistics largely prevented looming losses due to supply risks and, in cases where a reaction was required, maintained production capability.

Sustainability in Supplier Relationships

Successful relationships with our suppliers in the upstream and downstream value chain are based on respecting human rights, compliance with occupational health and safety standards and active environmental protection. These sustainability standards are defined in the Volkswagen Group Requirements for Sustainability in Relations with Business Partners (Code of Conduct for Business Partners), which business partners are required to acknowledge in a binding confirmation when the contract is entered into. In order to extend the requirements of the Code of Conduct for Business Partners further down in the supply chain, we require our suppliers to extend our requirements to their direct business partners. The sustainability rating (S-Rating) is a Group-wide tool to measure and assess the degree of compliance with the Volkswagen Group sustainability requirements by direct suppliers with a high sustainability risk relating to the environment, social aspects and integrity. The S-Rating is based on the sustainability requirements of the Code of Conduct for Business Partners and has been a condition for the award of contracts since 2019. The relevance of a supplier 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 the S-Rating process, we determine the degree of compliance with the Volkswagen Group’s sustainability requirements by means of the standardized Self-Assessment Questionnaire and a risk-based evaluation process involving audits. By the end of the reporting year, 14,709 S-Ratings for suppliers were received. The proportion of revenue contributed by direct suppliers with a positive S-Rating amounts to 83% of the total procurement volume. Both the validation of the questionnaire and the performance of the audits are carried out by selected service providers. If a supplier does not meet our requirements for compliance with sustainability standards, it is in principle not eligible for the award of contracts. Linking award decisions to sustainability criteria is one of the strongest levers for enforcing these criteria. We address existing sustainability risks and violations of sustainability principles by systematically defining and implementing measures to mitigate or eliminate these, including within the deeper supply chain. To enable continuous supplier development, we invite our suppliers to attend sustainability training courses and workshops on specific topics at selected sites or online and offer web-based training. In the reporting year, 9,818 suppliers received such training.

With regard to decarbonization, the Volkswagen Group strives to continuously avoid or reduce greenhouse gas emissions over the entire vehicle life cycle. In particular the transition towards e-mobility is 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. In the MEB, we have incorporated the use of renewable energy, among other things, into the contracts with cell manufacturers. For new vehicle projects, CO₂ emissions will be a technical feature for relevant components for the Volkswagen Group in the future. This means our suppliers will be given binding CO₂ targets, with which they must be able to demonstrate compliance at any time. One example is the new SSP on which the batteries are assigned a CO₂ limit. To be able to adhere to these limits, suppliers need to implement measures in their own production processes and upstream chains, for example, the use of renewable electricity. Measures like these are designed to reduce the carbon footprint of many electric vehicle models. For the ID. models, the Volkswagen Passenger Cars brand uses additional sustainable components, including battery cases and wheel rims made of CO₂-reduced aluminum. In this way, the ID. family’s carbon footprint is to be improved by around two tonnes per vehicle by 2025.

As part of our sustainable supply management, the Volkswagen Group is also dedicated to protecting groups of people who may be adversely affected along the upstream and downstream supply chain. In order to achieve more impact here, we introduced the Human Rights Focus System (HRFS). With the HFRS we identify and work on issues that can be associated with human rights and environmental risks and that require more in-depth analysis. The objective is to implement suitable prevention and remedial measures that take into account the diverse and often structural causes of human rights violations. We continued to implement our activities as part of the raw materials due diligence management system in 2024 to manage the sometimes extensive risks in the upstream raw material supply chains. The management system currently comprises 18 high-risk raw materials, for which we use risk-based specific measures to identify, measure and, in particular, reduce sustainability risks. For our battery suppliers, transparency requirements constitute an important basis for responsible raw material purchasing. Within the framework of these contractual requirements, we require, for example, that our battery suppliers disclose their entire upstream supply chain before we award new contracts.