Volkswagen Wants Suppliers to Go FAST

Volkswagen purchasing chief Mahesh Kodumudi says more than 100 parts makers have been selected for the automaker’s global preferred-supplier program, launched last year as the Future Automotive Supply Tracks initiative to speed innovative products to market and shore up working relations.

Rollout of the FAST program, which reached its first milestone with a supplier summit in Berlin two months ago, comes at a time when Volkswagen is trying to trim $1 billion in capital spending next year as it wrestles with fallout from its emissions-cheating scandal.

Speaking at a recent industry conference in Traverse City, MI, Kodumudi pledged VW would not squeeze suppliers to hit its spending target, a step down to $12 billion from about $13 billion historically, although a battle last week with a pair of single-source European parts makers suggests the automaker’s pledge to soften its antagonistic approach in the wake of Dieselgate will not come quickly.

The dispute, where VW reportedly resisted the suppliers’ compensation claim for lost revenue over a cancelled contract, stalled six assembly plants in Germany building the automaker’s most popular products before a deal was struck the following day.

The suppliers, seat-maker CarTrim and transmission-parts provider ES Automobilguss, subsequently restarted shipments to the plants and production was expected to normalize by the end of the week.

The suppliers will continue working with VW for six more years, although the automaker will be allowed to source 20% of the same parts from other suppliers over that time, according to reports.

Volkswagen says its FAST program de-emphasizes those sorts of carrot-and-stick negotiations in favor of an optimized supplier network, where member companies serve as “beacons” for the rest of the supply base and relationships are intensively collaborative. The FAST program also is seen making more efficient use of VW’s capital outlay on new technologies.

Neither CarTrim nor Autombilguss are FAST participants.

Industry insiders consider the FAST initiative a break from tradition for VW, a confessed “tough customer” as Kodumudi says, and one that subsequently occupies the bottom rungs of third-party supplier-relations studies. It is typically seen as a commodity buyer rather than an innovation seeker, which rankles suppliers.

The automaker calls FAST a critical component of its post-scandal business model, which will be predicated on being first-to-market with the latest technical innovations, especially in the digital, electrified and connected-car space. VW plans 20 new electric models by 2020 and significant revenue contributions in the future from expanded activities in car-sharing and on-demand transportation services.

Kodumudi underscores the expected growth in supplier-sourced innovation by estimating value-added content from parts-markers will increase to 69% in 2025 from 30% in 2012.

“The partnerships between the suppliers and the OEMs are going to be strengthening, definitely,” he says.

However, VW’s FAST program is reserved for suppliers demonstrating outstanding performance in their respective fields. The systematic selection process is rigorous but rewarding, Kodumudi says, and could be particularly attractive to North American suppliers because VW is growing its business here and looking for partners on innovative technology spanning from the R&D phase to production.

Grow With Us, VW Says

“What we are planning for is significant growth,” he says, citing $7 billion of investment in the region since 2011, including $300 million alone for a planned B-segment SUV in Chattanooga, TN. The 5-year outlay has fed $300 million in capital investments for suppliers.

In addition to the 1,400-acre (567-ha) Chattanooga facility, VW’s luxury unit Audi is opening a 1,137-acre (46- ha) assembly plant near Puebla, Mexico, where the automaker’s first North American car- and engine-production site opened 50 years ago.

But the region also is home to technology companies such as Apple, Google and Facebook, making North America an innovation hub, Kodumudi adds.

“It offers tremendous opportunities to suppliers here in North America, particularly with all of the new technologies coming and this part of the world being the lead on these new technologies,” he says. “I think more and more FAST suppliers will get nominated in the U.S.”

It pays to be FAST, too. FAST participants receive access to VW’s innovation base, where the automaker conducts open discussions around future technologies, as well as cooperative and partnership opportunities.

“We talk extensively about how to partner, what are the responsibilities, and it could be more than one supplier. It could be Volkswagen along with two or three different partners on a particular technology,” Kodumudi says. “I see this happening on many fronts, and I think it will accelerate going forward.”

FAST suppliers also get premium support from the VW Group, as well as dedicated call-in access to resolve issues and exclusive previews of VW strategies and new platforms and vehicles. A new purchasing innovation unit is being established to enhance collaboration with FAST suppliers aimed at weeding out potential hidden costs so technical innovations are brought to market cost-effectively.

In addition, VW plans to enable globalization of FAST supplier so they can provide the automakers with materials at its site around the world.

“It’s about taking our suppliers and making them global in terms of where Volkswagen is at present,” Kodumudi says.

The executive dismisses notions of VW as a commodity buyer, citing innovative group brands such as Audi, Porsche, Bentley and its namesake, Volkswagen.

“You cannot be a technology driver in the market and at the same time be a commodity buyer. It’s not possible,” he says. “We have tremendous partnerships going on with suppliers, whether it is stamping or high-technology parts coming to connected cars. Our suppliers have stayed very constant and grown with us very significantly.”

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