BERLIN - Volkswagen AG plans to change the way its works with suppliers by involving them earlier and putting less pressure on them to cut prices.
The new approach is a radical change from the tough system imposed by Ignacio Lopez, the controversial former VW purchasing boss. Lopez was responsible for cutting supplier prices dramatically at VW in the mid-1990s.
'This is the end of the Lopez system,' said a source close to VW's management board. 'Price pressure just does not serve anymore. If you want innovative and advanced technology ahead of your competitors, you need motivated suppliers and relationships based on mutual trust.'
Francisco Javier Garcia Sanz, VW's current head of purchasing, said future supplier relations will be modeled on Tandem, DaimlerChrysler's technology-sharing program.
Similar to Tandem
'The future VW system will be very similar to the Tandem philosophy that focuses on long-term supplier relationships,' said Garcia Sanz at VW's Leading Edge Supplier Awards ceremonies here.
The former Daimler-Benz established close links with its main suppliers, based on innovation and technology sharing. Suppliers were involved in the development process at a very early stage, which allowed them to share development resources. Tandem is now used alongside the former Chrysler's Score philosophy, which focuses on supplier cost management.
'At Volkswagen, we want to win the race to develop new ideas and to be innovative with the help of our suppliers,' said Garcia Sanz. 'We intend to establish an innovation process between our suppliers and ourselves that will cut in at an early stage in product development.'
A small team, with members from all procurement departments, has developed the new Volkswagen Group procurement vision.
'Relationships, responsibility and innovation will be the key levels for the procurement strategy in the future,' said Garcia Sanz.
Garcia Sanz will make the plan final at the beginning of next year. Under it, suppliers would:
Accept greater responsibility for innovation and development cost.
Guarantee VW a first-to-market advantage for new technologies.
Grant VW a 'preferred customer' status, so VW is the priority partner for innovation and development.
Give VW exclusivity for joint developments - for a limited period.
VW is promising great prospects for suppliers willing to commit themselves to the innovation offensive.
'Our multibrand strategy and our sales volumes offer suppliers opportunities for future marketing and growth unmatched by any other manufacturer,' said Garcia Sanz.
'VW's top luxury brands - Bentley, Bugatti and Lamborghini - will open up fresh marketing strategies,' he said. So will VW's new luxury model, previewed at September's Frankfurt motor show as Concept D.
'We have the unique chance to establish innovation in the luxury class,' said Garcia Sanz. 'We will incorporate these benefits in other model segments at a later stage. That will give our suppliers further earnings potential.'
'Volkswagen will reap huge benefits from the new supplier strategy,' a VW insider said. 'It is not so much because of the lower prices you can negotiate with high volumes. But VW will quickly discover the advantage of shared development costs.'
Annual procurement spending by the Volkswagen Group has nearly doubled over the past five years, to 80.7 billion marks, or about $41.3 billion at current exchange rates, in 1998. About $2.9 billion of that was spent in North America and $3.3 billion in South America.