Supplier Management

The Volkswagen Group fosters sustainability along the entire value chain, thereby ensuring stable and efficient flows of goods and supplies. With this in mind, in 2006 we formulated our Sustainability in Supplier Relations concept, which we have since been implementing step by step. 22
It is based on four main pillars:

  • Sustainability requirements for direct suppliers (tier 1) that have to be acknowledged by all suppliers before submitting a quotation. Since November 12, 2013, in all agreements newly concluded by General Procurement, these have formed part of the General Terms and Conditions of Purchase and are thus contractually integrated.
  • An early warning system for identifying and minimizing risks along the supply chain.
  • Integration into the procurement process, for example by means of the sustainability questionnaire.
  • Supplier monitoring and development.

Supplier Requirements

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. Other binding parts of the contract include the Environmental Goals, as defined in VW Norm 01155 and VW Norm 99000. For example, when wood from rainforests is used a seal of approval from the Forest Stewardship Council (FSC) must be provided. The requirements apply to all outsourced goods and services worldwide. We expect our tier 1 suppliers to not only respect these requirements but also pass them on to their own suppliers. Our main suppliers are also required to put in place a certified environmental management system in accordance with ISO 14001 or EMAS. Such systems have been verified or documented at 84% of our main suppliers.

Risk Analysis

In order to obtain information about the importance attached to sustainability in the respective region before entering into negotiations with potential suppliers, Volkswagen has performed a country risk analysis with the assistance of independent institutions. This analysis showed that there is an increased risk of non-compliance with our sustainability requirements in Brazil, India, China, Mexico and Russia. In 2013 this led to supplier audits being conducted in India and Mexico. In 2014 these will be extended to other high-risk countries and groups of suppliers.
With the introduction of the Dodd-Frank Act in 2014, the US government is also intending to prevent armed groups in the Congo benefiting from mineral mining and trade. The Act will require disclosure of conflict minerals contained in products. The Volkswagen Group is not, however, directly affected by the Act.

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

  2013   2012  
Environmental certification (EMAS, ISO 14001)      
Verified1 44% 30%
Self-assessed 40% not taken into account
Total 84%2 not taken into account
Social certification (OHSAS 18001, SA8000, AA1000)
Verified1 6% not taken into account
Self-assessed from 2014 not taken into account
Total 6%2 not taken into account

1 Verified by Volkswagen. Certificates archived in an internal database.
2 Taking all suppliers into account, 75% have EMAS/ISO 14001 and 5% social certification.

2013 Procurement Volumes

in € billion
 
   
By brand    
Volkswagen Passenger Cars 79
Audi1 23.6
MAN 8.8
ŠKODA 6.5
Scania 6.4
SEAT 3.9
Volkswagen Commercial Vehicles 2.4
Porsche 3.7
Bentley 0.7
Volkswagen Group 135
   
By region    
Europe/Other markets 87.9
Asia-Pacific 31.9
South America 8.9
North America 6.3

The survey of procurement volumes does not include goods from suppliers
to the Lamborghini, Bugatti, Porsche, Scania and MAN brands, ŠKODA India
and the Chinese joint ventures.
1 Audi including Lamborghini and Ducati.

2013 Procurement Volumes by Commodity

in %
     
Metal 30
Powertrain 22
Electrical 19
Interior 15
Exterior 14
Volkswagen Group 100

In 2013 we signed up to the Extractive Industries Transparency Initiative (EITI), which is supported by governments, NGOs, in- vestors and businesses. The EITI aims to combat corruption by making payment flows related to raw materials transparent. The Volkswagen Group also demonstrates a commitment to transparency in the supply chain as a standing member of the UN Global Compact Advisory Group on Supply Chain Sustainability.
The Volkswagen Group subjects all potential new business partners and suppliers to an integrity check (Business Partner Check), thereby reducing the risk of a relationship that could adversely affect the Group and its business. In 2013 this business partner check was carried out in respect of more than 12,000 potential new suppliers worldwide.

Procurement Risk Management

Integration in the Procurement Process

To become a business partner of the Volkswagen Group, our suppliers must first register on the Group Business Platform and then complete the following process:

  • Sustainability requirements: Before submitting a quotation, the supplier must acknowledge the sustainability requirements. Since November 12, 2013, for all suppliers to General Procurement, the requirements have been contractually integrated as part of the General Terms and Conditions of Purchase.
  • Sustainability questionnaire: In the course of the business process, the supplier is required to complete a sustainability questionnaire: by December 31, 2013, 11,749 tier 1 suppliers had done so. In terms of procurement volume that equates to 82%.
  • E-Learning: In the interests of continuing supplier development, in the course of our business relations we make available to all suppliers an electronic learning module in eight languages, including Chinese and Russian. After completing this task, the supplier has to perform a self-check. The sustainability learning module is not regarded as “passed” until this check is successfully completed. By the end of 2013, 8,652 tier 1 suppliers had successfully completed the E-Learning module, which equates to 50% in terms of procurement volume.

Training Tool for All Supplier Employees

Supplier Monitoring

If we receive information or our early warning system gives reason to suspect that tier 1 suppliers or their suppliers are failing to comply with our sustainability requirements or the answers to our sustainability questionnaire are not satisfactory, we ask the party concerned for a written statement using a standardized 6D Report. Based on the six points in the report, they can describe the status quo and any remedial measures. If the answers again 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 expert teams from the relevant brands and regions. Depending on the situation, experts from specialist areas such as Occupational Health and Safety or Human Resources may also be called in. In 2013 there were 29 ad-hoc cases in all, eight of which involved tier 2 suppliers. Eleven cases occurred in Europe, 13 in Asia, four in North and South America and one in Africa. The increase compared to the previous year is due not least to the fact that quality process auditors and field service staff from Procured Component Management are continuously being made more aware of the need to look out for non-compliance by suppliers.
Sustainability courses have been integrated into the curriculum at the procurement academies at the various production sites and also take place at specialist department level. At the Wolfsburg site, for example, some 1,200 employees from Procurement, Quality Assurance, Compliance and related specialist departments were trained in 15 separate courses.
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, internal and external parties can address possible cases of non-compliance via national and international employee representation bodies (such as the General and Group Works Councils or the European and World Works Councils) and the national and international trade union federations (such as IG Metall or IndustriALL).

Audits and On-Site Inspections

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 long-term collaboration. At the same time, the Volkswagen Group reserves the right to have compliance with the sustainability requirements verified by experts at the supplier’s premises during regular business hours. In the event of non-compliance with the sustainability requirements we will, however, terminate business relations particularly if the supplier shows no interest in long-term improvement. No such case occurred during the reporting period.
In the monitoring process, the Procurement function is also supported by our field service staff. In particular, in the course of their supplier audits, the quality process auditors focus on whether the supplier has answered the sustainability questionnaire and understood the contents, and they inform Procurement if this is not the case. The next step is to launch an escalation process which includes the use of the 6D Report.

Status Quo: Sustainability Questionnaire and E-Learning

  Number
completed in 2012  
Number additionally
completed in 2013  
Total in 2012 + 2013   Equates to % of
procurement
volume in 2013  
Procurement
volume-based
target for 2014  
Sustainability
questionnaire
7,812 3,937 11,749 82% 88%
Average score 90/100 89/100 90/100
E-Learning 2,420 6,232 8,652 50% 70%

AD-HOC CASES IN 2013

Geographical distribution1   Context   Type of supplier  
Europe 11 cases Environmental protection 1 case Direct supplier 21 cases2
Asia 13 cases Social standards 26 cases Sub-supplier 8 cases
North and South America 4 cases Environmental protection & social standards 2 cases
Africa 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.


Supplier Training Courses

As in previous years, workshops or sustainability training courses were staged in various regions in the reporting period with and for local suppliers. In June 2013, for example, Volkswagen Argentina met up with its 45 largest suppliers for an exchange of ideas and concepts as to how sustainability could together be realized along the value chain. The aim was to arrive at a common understanding of the various ecological and social challenges involved. In São Paulo (Brazil), Volkswagen do Brasil organized a workshop with some 70 strategically important suppliers. Using examples of best practices they discussed the practical implementation of sustainability requirements and prepared the ground for anchoring responsible business processes in the strategic planning of the business partners.
Also in 2013, as part of the “Automotive Industry Action Group” and “European Automotive Working Group on Supply Chain Sustainability” initiatives in which we are involved, training courses for tier 1 suppliers were held in Mexico, Brazil and Romania. These focused on basic requirements such as occupational safety and environmental protection, adapted in each case to the local legal context. Here, together with other automobile manufacturers, 129 persons from 87 Volkswagen Group suppliers were given training in respect of sustainability requirements. They were also encouraged to pass on the lessons learned to their own suppliers. 23

Status Quo and Outlook

One central goal for 2013 was the integration of the Porsche, Scania, MAN and Ducati brands into the “Sustainability in Supplier Relations” concept, a goal that – subject to implementation of individual elements – we were able to meet. We also expanded our supplier monitoring and training as planned. We are aiming to continue with this in 2014 as well as making our E-Learning tool available to the employees of additional tier 1 suppliers. Our aim in this respect in 2014 is to reach 70% (procurement volume-based) coverage for the E-Learning tool and 88% for our sustainability questionnaire among tier 1 suppliers.
Our core concern is to ensure that the sustainability requirements are integrated into all of the Group’s agreements. Since January 2014 the sustainability requirements have been integrated into the agreements with suppliers of production material. At the same time we are also planning to expand our external CSR audits as well as CSR training for our direct suppliers.

Training courses were held for tier 1 suppliers
in Mexico, Brazil and Romania.