The Supply Chain Matters blog call reader attention to a published report indicating the number two global auto maker Volkswagen is repositioning it global supply network sourcing strategies.
Included in our Ferrari Consulting and Research’s Group’s published 2022 Predictions of Industry and Global Supply Chains (Available for complimentary downloading in our Research Center) was a prediction indicating that restoring more direct control in strategic and tactical direct material sourcing will be the driving force for businesses and their supply chain management teams in the year 2022 and beyond.
A published report this week from The Wall Street Journal, Volkswagen Prepares for a Deglobalized World (Paid subscription required), indicates that VW has come up initial efforts for a supply chain resilience strategy that both revises geographic business strategy and is supported by means to garner more direct control of component supply networks.
The report specifically indicates: “VW’s resilience effort includes strategies to shore up access to components and raw materials and shorten supply chains to make its regional businesses less dependent on faraway suppliers, according to senior executives at the company.”
The global auto maker encountered manufacturing volume setbacks in 2020 and 2021 as a result of global wide semiconductor device shortages. According to the report, upwards of 25 percent of planned production over this two-year period had to be curtailed by either intermittent factory shutdowns or semiconductor supply shortages. Impacts have included production facilities globally and across China, the auto maker’s most profitable market. Last month, at the start of Ukraine hostilities, VW had to overcome a shortage of wiring harnesses supporting various German based production lines that were previously produced in Ukraine.
The notions of rising geo-political tensions reportedly have now captured the attention of the company’s managing supervisory board That has led to recommendations to “buttress the company’s fragile international supply chain and step-up investments in core Europe and U.S. markets to dilute the company’s dependence on China.” The China auto market currently accounts for 40 percent of VW’s annual revenues and a considerable portion of profitability.
The report further indicates that a business strategy change to reduce exposure to the China market includes an additional $7 billion investment in the U.S. market over the coming five years, and specifically in seizing more market share for electric vehicle sales. Reportedly, VW ranks second in overall U.S. EV sales to Tesla. The stated plan is to target a doubling of market share from a current level of 4 percent to upwards of 8 percent. An increased supply network presence in the U.S. region further provides the resiliency to be able to buffer supply network interruptions that may occur in other global regions.
A significant takeaway from this WSJ report is that this auto maker has concluded that solely seeking the lowest cost part, however the widespread geography will need to be balanced with supply network resiliency. A cited quote from Murat Aksel, VW’s Procurement Chief, is a testament: “We still want competitive prices, but my priority is securing supply. Without components, you can’t build cars.”
We highlight this report in that by our lens, this will not be an isolated effort and that across multiple industries, there will be similar forms of reexamination and reevaluation. Businesses will assess a new reality that the previous notions of what drove global-wide supply chain sourcing strategies, namely lowest cost, are now changing to factor and weight new realities of either added landed costs, geopolitical, climate based and other risks.
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