Management of relationships with suppliers and payment practices
MATERIAL IMPACT AND THEIR INTERACTION WITH STRATEGY AND BUSINESS MODEL
Impact in the area of management of relationships with suppliers including payment practices
The Volkswagen Group’s business partners play a role in shaping the Group’s success. The spirit of partnership creates long-lasting business relationships characterized by mutual benefit.
The Volkswagen Group has identified an actual and potential positive impact through the double materiality assessment in connection with the management of relationships with suppliers. The Volkswagen Group’s fair business conduct has a positive impact on the partnership- and trust-based business relationships with suppliers along the value chain. This trust is to be maintained in the long term.
Interaction with strategy and business model
The Volkswagen Group endeavors to be able to show by 2040 that, in terms of sales revenue, over 95% of direct suppliers have a positive sustainability rating (S-Rating). The framework for this is provided by the Group´s regenerate+ sustainability strategy, which aims to design the Volkswagen Group’s supply chain responsibly, minimize risks and provide positive input for all partners.
The impacts identified in the materiality assessment have an influence on the Group’s business model, strategy and value chain.
The Volkswagen Group uses various actions in the area of management of supplier relationships to respond to the influence of its material impacts on the business model, strategy and value chain. These enable the positive impact to be maintained and reinforced, particularly through the Code of Conduct for Business Partners, specifications and the S-Rating.
All actions in the area of supplier relationship management are described in detail in “Policies, actions and targets: Management of relationships with suppliers and payment practices”.
POLICIES, ACTIONS AND TARGETS: MANAGEMENT OF RELATIONSHIPS WITH SUPPLIERS AND PAYMENT PRACTICES
As one of the world’s largest automotive manufacturers, the Volkswagen Group has a great responsibility toward its partners, stakeholders and society. The Volkswagen Group not only recognizes its responsibility, it also considers it important to have a positive impact. The holistic approach of the Group’s regenerate+ sustainability strategy provides the basis for advancing sustainability in conjunction with partners and stakeholders.
Responsible supply chain system
A key approach in the Volkswagen Group’s procurement strategy is the responsible supply chain system (ReSC system). It begins before a contractual relationship is entered into, i.e. before the negotiation of specific delivery times and purchase prices. This policy aims to avoid and minimize human-rights, social, or environmental risks and to counteract them with preventive and reactive mitigating measures. The ReSC system and its components are described in detail in the “Workers in the value chain” chapter.
The ReSC system is based on the following standard measures:
Risk analysis in accordance with the responsible supply chain system
The ReSC system’s first step is regular risk analysis. This is performed before contract award on the basis of direct suppliers’ business models and takes account of internal and external data on human-rights and environmental risks. Based on the risk classification, the supplier is assigned a package of measures to prevent and mitigate the negative impacts identified.
Business Partner Due Diligence Process
Activities for checking the integrity of business partners are described in detail in “Actions: Corruption and bribery”.
In the first third of the 2024 fiscal year, procurement was also still within the scope of the BPDD. The process was adjusted as of April 2024 and replaced by continuous media screening for procurement.
Ordering products and services is the responsibility of the relevant procurement organization of the brands and companies and must be mapped and coordinated in the Group committees and systems in accordance with applicable regulations.
Code of Conduct for Business Partners
The Code of Conduct for Business Partners is a key action to promote fair business conduct at the Volkswagen Group. The Group creates transparency and reliability by setting clear expectations for the conduct of business partners with respect to human-rights, environmental, social, and compliance standards. This reinforces trust in business partnerships and ensures their long-term stability.
The Code of Conduct for Business Partners is binding for suppliers, sales partners and all other B2B business partners who maintain a business relationship with the Volkswagen Group. Sustainability topics identified as material can then also be taken into account in the supply chain.
Specifications
In addition to the Code of Conduct for Business Partners, there are additional product-specific requirements for suppliers. These are set out in the specifications and stipulate the way in which certain products must be manufactured. The requirements of the specifications include, for example, achieving maximum transparency in the supply chains for cobalt, nickel, lithium and natural graphite used in battery cells.
For new vehicle projects, the Volkswagen Group intends to make CO2 emissions a technical feature for relevant components in the future. This means that suppliers are given binding CO2 targets, compliance with which must be proved on request. Only suppliers who manufacture products in accordance with the requirements of the specifications are considered eligible for the award of contracts.
The specifications are regarded as an ongoing measure.
Sustainability Rating
The S-Rating has been an established process in the Volkswagen Group since 2019. It is a Group-wide tool used to assess the sustainability performance of suppliers with a high sustainability risk in the fields of the environment, social aspects, and integrity, and to mitigate risks.
The Volkswagen Group endeavors to be able to show by 2040 that, in terms of sales revenue, over 95% of direct suppliers have a positive S-Rating. The framework for this is provided by regenerate+. The aim of the strategy is to design the Volkswagen Group’s supply chain responsibly, minimize risks and provide positive input for all partners. This includes being able to report that more than 95% of suppliers have a certified environmental management system, such as ISO 14001 or EMAS.
The Volkswagen Group has set an intermediate target that direct suppliers with a positive S-Rating must represent 85% of the total procurement volume by 2025. Target achievement is continuously reviewed and monitored as part of the Group TOP 10 program.
METRICS: PAYMENT PRACTICES
The standard procurement conditions of Volkswagen AG and the other Group companies govern the terms of payment vis-à-vis suppliers. These are publicly available at https://www.vwgroupsupply.com/one-kbp-pub/en/kbp_public/information/procurement_conditions_new/procurement_conditions_new.html. For Volkswagen AG suppliers, payment shall be made within 30 days. The conditions for the brands and companies in the markets and regions with relevance for the Volkswagen Group have different payment terms, in each case in compliance with national legal requirements. The periods here range from 30 to 120 days. The standard payment terms are generally applied; however, individual deviations as part of a negotiated supplier agreement are possible. There is no standard deviation for a particular group of suppliers. The Volkswagen Group settles its liabilities within the payment periods described.
On average, the Volkswagen Group takes 53 days to pay invoices. This information was calculated for the Volkswagen Group using the following definition of days payable outstanding (DPO), which is also used for internal control purposes:
As of December 31, 2024, a small number of court-ordered summary proceedings for late payment were pending against the large, publicly traded German companies of the Volkswagen Group, against which no objection has yet been filed. Pending legal proceedings due to late payment are handled by the Legal department and the amounts involved at year-end were not significant.