VW : Procurement's role in global performance programme

Volkswagen have published an update on their biggest performance programme and how procurement plays a key role

The performance programme is designed to optimise costs and performance in order to achieve the 6.5 percent profitability target for 2026 for the company.  The advancement of their procurement services, which will enable annual savings of over 320 million euros to be generated, is a part of the wider company strategy.  

The Volkswagen brand has achieved a milestone in their “Accelerate Forward/ Road to 6.5” global performance program, with management and employee representatives reaching agreement on key points to streamline the company, following intensive negotiations. The company says the objective of the three-year program is to secure the Volkswagen Group’s core brand competitiveness, ensure it is future-proof and sustainable in the long term. 

Balancing global cost pressure 

The Volkswagen brand is aiming to make a positive earnings contribution totaling ten billion euros by 2026, also to offset negative effects such as inflation and higher raw material costs. The operating return on sales is expected to improve sustainably to 6.5 percent in 2026. The Volkswagen brand projects that the program will deliver positive earnings contributions of up to four billion euros as early as 2024. 

The way they are hoping to achieve this is through performance-enhancement and cost-saving measures in the program’s three focus areas:

  • Optimising material and product costs 
  • Reducing fixed and manufacturing costs 
  • Increasing revenues.

What is the “Accelerate Forward/ Road to 6.5” program

The “Accelerate Forward/ Road to 6.5” program is being implemented in all areas and at all levels of Volkswagen. Measures that have already been adopted and are currently being implemented.

  • Development times for new Volkswagen models will be cut from 50 to 36 months so that vehicles are brought to market faster without sacrificing quality or safety. This will save more than one billion euros over the period covered by the planning round through 2028.
  • The number of test vehicles in Technical Development will be reduced by up to 50 percent as digitalization and technological advances enable more testing to be carried out on test rigs. This could save around 400 million euros per year without compromising quality.
  • Other measures include improved procurement services, which will enable annual savings of over 320 million euros to be generated, enhanced after-sales business, which will generate more than 250 million euros per year, and the optimization of production time along the agreed site pacts, which will save over 200 million euros each year. All of these measures will be implemented as early as 2024.

The Company and the employee representatives have also reached agreement on staff reduction measures to cut personnel and labour costs. These measures will apply throughout Volkswagen AG. As such, from January 2024 the Company will extend its partial retirement schemes to all employees born in 1967 (and for severely handicapped employees born in 1968), to reduce administrative staff costs in particular. The current hiring freeze and access freeze to the Tarif Plus salary group will continue until further notice.

Thomas Schäfer, CEO of the Volkswagen Passenger Cars brand and Group Board Member responsible for the Core brand group, said: “With its current and future car models, the Volkswagen brand is on track with executing on tis strategy. We will now strengthen our economic foundation to support our success in years to come. This will boost our efforts to make VW the world’s leading volume brand. In recent weeks we’ve made good progress in detailing the most comprehensive program the brand has ever launched. The precise contributions for all the action areas have been defined, the measures have been agreed and are already being implemented. Our efforts will in part start to bear fruit as early as 2024. This is crucial if we are to withstand the increasingly tough competition in extremely challenging market conditions. The agreement with the employee representatives is key to be able to rapidly advance on our chosen path. It is testament to how much commitment, solidarity and innovation are embedded in the VW brand and present in our teams.”

 

Make sure you check out the latest edition of Procurement Magazine and also sign up to our global conference series - Procurement & Supply Chain 2024 

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