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Interview with Dr. Garcia Sanz on the transformation of procurement departments

The meaning of procurement has changed fundamentally. Nowadays, it plays an important strategic role for the entire Volkswagen Group by safeguarding our innovation in the long term.

“The best supplier network wins”

The transformation of the automotive sector means major new tasks for procurement departments too – modern procurers must not only act as negotiators – they must also ensure that suppliers are involved in the development of innovative products as partners early on. In this interview, Francisco Javier Garcia Sanz, Procurement Director for the Volkswagen Group, explains the changes within his area of responsibility.

Buyers are traditionally seen as merciless price cutters. Is this still a realistic picture?

Not at all. Naturally, price negotiations are still an important part of our work but procurement nowadays is much more than that. In order to understand this, you have to look beyond the transformation in the automotive industry: megatrends such as digitization, autonomous driving and e-mobility pose never-before-seen challenges for the entire sector. We can only cope with these challenges if we work closely with new and existing suppliers. Because of this, the meaning of procurement has changed fundamentally. Nowadays, it plays an important strategic role for the entire Volkswagen Group by safeguarding our innovation in the long term.

What does that mean specifically?

For example, one of the tasks of procurement nowadays is to come up with promising ideas and innovations for our Group brands early on. We therefore go on scouting trips to the world’s leading technological centers such as Silicon Valley or China. And our procurement offices all over the world work together with partners on the ground to establish contacts with local companies offering interesting products or services. For example, we organized a scouting fair in the Baltic States from Budapest because there are lots of potential partners for us there.

How will this transformation affect your internal structures and processes?

Naturally, we have developed along with the changes in the sector. And it is the great speed of development in the automotive industry that makes our work so exciting. On the one hand, you still have the “classic” world of cars and a network of traditional suppliers that has grown over many decades. On the other hand, we need to approach new partners as well, for example from the world of digitization and consumer electronics.

How are your staff coping with the changes?

The changes nowadays necessitate new skills and a new way of thinking. When working with a software supplier for example, the development cycles are much shorter. And with particularly innovative companies, you have to ask whether acquiring a stake in the companies would be the best way to safeguard our strategic interests. These examples show the wide range of tasks facing procurement nowadays. The days of simply negotiating prices are long gone.

The days of simply negotiating prices are long gone.

Are your traditional suppliers feeling these changes too?

Yes, because our long-standing partnerships in particular are developing all the time. We have been working with a number of suppliers for decades. Naturally, we not only want to maintain these established relationships but move them onto a new level. That is why we are now involving our suppliers in pre-production development processes. In “concept competitions”, they can present their ideas and thus play a key role in helping us to launch new vehicles more quickly in the future. We involve our partners at this early stage not only in the context of products but also the strategic focus of our companies. This so-called strategy dialog is at the heart of our FAST Initiative (“Future Automotive Supply Tracks”) and 64 top suppliers have already qualified for it by now.

How does this new type of working relationship work?

In the past, our developers produced specifications and the suppliers then named their price. Nowadays, we produce the specifications together with our suppliers. Through the competition, the production experts’ perspective and the knowledge of our suppliers are taken into account in development work from the very beginning. Working together in this way is the only way to ensure that we can launch more than 80 new electric vehicles by 2025. Almost 50 of these will be purely battery driven and 30 will be plug-in hybrids. We call this approach “Value Sourcing” and together with our “Value Engineering” it results in a procedure which we call “Design to Source”. Everyone benefits from this: Volkswagen, our suppliers and, ultimately, our customers in particular. Naturally, this new form of working relationship requires a great deal of mutual trust and absolute dependability. These criteria will therefore become even more important for our supplier network of the future.

Everyone benefits from this: Volkswagen, our suppliers and, ultimately, our customers in particular.

What is your vision for the procurement department of the future?

For me, one thing is absolutely clear: in the future, the company which can establish the best supplier network will win – not the company with the best negotiating skills. And this complex network will be made up of established as well as new partners. As the procurement department, we are a strategic node where numerous threads come together – not only from our external partners but also from other Group divisions such as Development and Finance.

This sounds like a fundamentally new role for procurement...

That is exactly what it is. Our role has evolved from simply procuring to being an innovative procurer and shaper of value creation chains. And that is not the end of this transformation process yet: in the future, the management of the entire value creation network will become more and more important for us. It will then be a question of who should become part of the network and which aspects will play a role – sustainability for example. In short, the transformation taking place in the entire sector is more obvious in procurement than in almost any other area.

Our role has evolved from simply procuring to being an innovative procurer and shaper of value creation chains. And that is not the end of this transformation process yet.

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Volkswagen AG: FAST Summit 2017

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