Volvo Group - a new open-minded approach to supplier partnerships

With the demands of sourcing and transporting high mass and high value components for the time-critical industrial sector combined with the challenges of integrating many new technologies, Andrea Fuder, Executive Vice President Volvo Group and Chief Purchasing Officer in the Volvo Group has some considerable tasks ahead as she tells Lawrence Davies

Andrea Fuder

Andrea Fuder

While the Volvo Group's core activity is the production, distribution and sale of trucks, buses and construction equipment, it also supplies marine and industrial drive systems and financial services. Brands in the Group include Volvo Trucks, Volvo Penta, UD, Terex Trucks, SDLG, Renault Trucks, Prevost, Nova Bus, Mack, Eicher and Dongfeng Trucks. With its headquarters in Gothenburg in Sweden, it employs about 100,000 people, has production facilities in 18 countries and sells its products in more than 190 markets.

Leadership in purchasing

Volvo Group purchasing is one of the largest procurement units in the truck and heavy machinery industry. I ask Andrea Fuder what special qualities she has had to inspire in her purchasing team to manage such large budgets, and indeed such large components. "My background is as an engineer, with an MBA and experience in quality, logistics and purchasing around the world, in many different positions which include being head of purchasing at Bentley in the UK for some years. I guess I can personally tick all the boxes but, importantly, to inspire my team I feel I must drive the business with the ethos of such things as no waste, no policy - bureaucracy - and no restrictive rule-based behaviours. 

"Running a successful department such as purchasing is about creating value for the business and our customers. This is what motivates me to inspire my team."

Global and local sourcing models

As a producer of large machinery, from trucks to earth-movers and other large-scale off-highway vehicles, it has made sense for the Volvo Group to build close to its markets and as such Volvo Group has many production sites in different countries. This creates some very different challenges for its purchasing team when compared to many automotive producers, as sourcing must often be more local due to the sheer size and mass of components used in heavy vehicles. Fuder explains how the responsibility for the different regions is divided up: "In general we have a business model of steering purchasing operations through what we call a Strategic Line and also through an Operational Line. The Operational Line is made up of fully-empowered teams in the various regions. For example in North America, we have a head of purchasing who is fully responsible, from 'A to Z', for procurement in that region. On the other hand, the Strategic Line makes sure that we 'keep the family together' on a centralised basis here in Sweden. Our mantra could be said to be: be close to our customers and our partners, to Mack in the US, to UD in Japan, to Renault Truck in France and so on. This local philosophy is something that we established last year and we are already seeing the impact in the business. Our people are starting to think in terms of customer needs and in the profit and loss of the brand which again is exactly what is driving the business in the right direction but we are also very clear on what is in our Strategic Line - our strategic thinking globally, to maintain the synergies in the Volvo Group."

Bearing in mind the large scale of the vehicles and machines made by the Group, and thus the need for localised purchasing, I press Fuder on the level of autonomy afforded to local purchasing operations. She outlines the responsibilities of the local teams. "The local purchasing team has the responsibility of ensuring that we have the right level of localisation, for example, to ensure we comply with the legislation in the region, and even more importantly to make sure we have short lead times to react to our customers' requirements. "Our local teams also need to push our suppliers into the Volvo Group global system and to develop the local supply base. However, the final sourcing decisions are made centrally because this is how we compare the different situations around the world and find the right strategies in such things as global investment with global suppliers. 

"The centralised sourcing decision is also how we carry out benchmarking against our competitors and check technology, quality and delivery position aspects. Also very important for us is to get a global view of the sustainability of our whole supply chain and carry out risk management." 

A different kind of vehicle off road urgency

By the very nature of the Volvo Group's products, destined as they are for farming, construction and other time-critical industries, there is an urgency to the phrase Vehicle Off Road or VOR, on a service part when compared to a passenger car with a VOR status - the harvest, bus service or civil engineering project will not wait. I ask Fuder how this changes the Group's OEM and service parts sourcing strategy. She concurs that this creates a different mindset. "Yes indeed, the Volvo Group product owned by our customer is their 'production plant' and is expected to run, in its ultimate usage profile, 24 hours a day, seven days a week and we have a special unit in purchasing called the Uptime Team who have to find solutions in hours, not days or weeks, to bring VORs back into service. The team works with sales, technical and production colleagues to find a solution. Speed is the key in these situations and sometimes our cost has to be a secondary consideration to getting our customer back in business. 

"We are also looking at using 3D printing, to get our customers back on the road, field or construction site as quickly as possible. We may also duplicate our own tooling, to ensure that we have the facilities to make parts quickly."

New suppliers for new technologies

Volvo Group was established in 1927 and has built up a set of loyal suppliers over the years. I ask Fuder how open the company is to approaches from new supplier partners and what do they need to do to get her department's attention. She stresses suppliers' contribution to the overall business. "We want to have the best partner for our value chain and to say that we might have had a long-term partnership does not have a value in itself - it has to bring the right performance. We have to continually scout the market for new suppliers, especially in the area of new technologies. It would be quite naive to think that the best partners from yesteryear are the best for tomorrow's needs. Our global network helps us research new suppliers in the field of, say, a new electromobility in China or autonomous driving and robotics in Japan and South Korea."

Nurturing a sustainable supplier base

With the longer lifecycles of heavy vehicles, as compared to passenger cars, it might be thought that long supply contracts would help assure providers and encourage to invest in plant and machinery to satisfy demand from an OEM like Volvo Group but I put it to Fuder that along with the long production life of each heavy vehicle goes the higher cost to the supplier of tooling up to meet the demand and ask her how much she thinks of helping the supplier community to remain healthy. She says that the Group is very concerned that supplier partners are strong. "Of course we want our providers to have a robust business model but there is not a 'one size fits all' model. In some areas, where you have very high investment, the length of the contract is very important and we are always looking into this and may award contracts that are longer than usual. For some other areas, we might discuss the flexibility which is built into our production system and award shorter contracts. "The key is that we maintain an ongoing dialogue with our partners. In the case of suppliers who do get into financial difficulties, very often we see that the management of the supplier has not talked to us in good time. We need open two-way communication with our partners, in good time.

"I think our partners need to better understand that a purchasing department is not a cost reduction machine and this is very apparent when you meet purchasing people who just talk about productivity and cost reduction. When you hear this, you should just walk away. Quality, delivery precision and flexibility are vital factors, along with sustainability, care for the environment and how the supplier treats its employees and we have to assess all possible risks on both sides of the relationship.

"We must also consider the demands of the new technologies; what is the strength of a supplier's efforts and achievements in innovation, in delivering value-add in new tech?"

Economies of scale from the wider Group

Volvo Group's Indirect Purchasing has been centralised with the vehicle and machinery group since 2012 and this, along with synergies in purchasing for Volvo Construction Equipment Purchasing, Bus Purchasing and Volvo Penta has helped with increased economies of scale with major (and minor) suppliers and raw material providers. I ask Fuder how effective these partnerships are and what more can be done in this area. "We have always been looking, via benchmarking and bundling purchasing in a smart way, to get the best economies of scale. In the component area, I have the clear position of being the Chief Purchasing Officer (CPO) of the Volvo Group so while I am the head of trucks purchasing, I am also CPO of all activities. Again, the progress of new technology is very influential in our decision making; while looking at synergies and volume leverage is important, harnessing the power and innovation of new tech partners is really vital for the future."

EV battery technology - purchasing policies

It is fitting that we talk about new technology as Volvo Group has just announced that, as part of an innovative partnership with California’s South Coast Air Quality Management District (SCAQMD) and industry leaders in transportation and electrical charging infrastructure, Volvo Trucks will introduce all-electric truck demonstrators in California next year, and commercialise them in North America in 2020. There is a great debate on how deeply OEMs might move into battery, battery cell, electric motor and controller production and I ask Fuder for her take on this. She says that the Group has teams working on this but will not be drawn on which components the Group will make and which it will buy-in. "We have cross-functional teams, working in the same location as much as possible in the Volvo Group. We also have representatives from purchasing and we work together as a group and not in the different divisions. We have a similar initiative for autonomous driving and connectivity."

Car and heavy vehicle synergies

While Volvo Group and Volvo Cars are separate companies, our talk of exploiting new technology leads me to ask Fuder about working with the carmaker, particularly in the new tech field where Volvo Cars could be said to be leading the world in EV, hybrid, autonomous driving and connectivity development. "We are always open to collaboration outside Volvo Group. We deal with Volvo Cars as we would with any third party. We collaborate whenever we see a value for us and for them. We do it at arm's length, as we would with any company."

High and heavy transportation

I ask Fuder how she balances local and global sourcing given that many of the Group's purchased components are so large and so heavy to transport and ask her if the total cost of ownership equation is very different from purchasing for car production. "We make all our sourcing decisions on total cost of ownership but, as you say, the weight of components leads to much higher transport costs both in OE fitment and for service parts. I think that we probably look more closely at the cost of shipping aftermarket and service parts than a car maker might. Overall, while the numbers may be different, we tend to follow the same total cost of ownership model as the passenger car purchasing guys."

Supplier partnerships and the cost of new technology

Volvo Group has talked of how 'bringing suppliers into closer partnerships is one way to speed up the ongoing development of new technologies.' Where electromobility innovation for heavy vehicles is concerned, this requires considerable investment by suppliers, something that might be alleviated by more joint ventures on technology development. Fuder says she has a clear message to the supplier community. "Our policy is that we are open to everything so come and talk to us, we are sincerely inviting you to discussions and we have created a lot of different forums, even at the highest levels of management. For example every month, together with Lars Stenqvist, member of the Volvo Executive Board and Executive Vice President of Volvo Group Trucks Technology, and Volvo Group Chief Technology Officer, we have a strategic dialogue with interested partners and we have discussions on technical and commercial topics. I would stress that we are not limiting ourselves to any particular solutions, to any one business model.

“My message to suppliers would be that the days have passed when one could limit one's company to saying 'this is our way of working, this is our way of cooperation and this is our business model'. The technology of today's and tomorrow's vehicles and machines is such that there is no longer room for a 'one size fits all' strategy, you have to look into every contract on its own merits.

"We recently held a Volvo Group Purchasing Summit with a lot of potential partners. The feedback from this event was very encouraging, suppliers said that they felt that we take the spirit of openness and collaboration very seriously - which is key for us if we want to stay competitive in the future." 

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