Volvo’s powertrain purchasing strategies - sustainable revolutions

Global propulsion purchasing within Volvo Cars is seeing extraordinary changes, wrought by the shift towards EV and hybrid power at Volvo, and by the creation of the sister brand Polestar as Dieter Dehoorne, Vice President of Global Propulsion Procurement at Volvo Car Group tells Simon Duval Smith

With the shift towards EV and hybrid power at Volvo, and with the creation of the new standalone brand Polestar, there would seem to be the opportunity for considerable synergies for Dehoorne’s purchasing teams in powertrain/propulsion technology. He says that Polestar is a major part of the group's future in sourcing - and particularly in the capacity of the supply base: “To get the economies of scale for both Volvo and Polestar, we combine purchasing activities and Polestar is, of course, part of our future when it comes to sourcing, regarding capacities and the supply base for electrification. Polestar is part of Volvo's responsibilities, in order to get the greatest economies of scale both for Volvo and Polestar.”

The birth of the Polestar brand has caused and enabled a lot of changes in the Volvo purchasing organisation and has prompted some changes in the business unit’s structure, as Dehoorne says: "We have one global procurement team dealing with propulsion and that covers both Volvo and Polestar. Of course, within the Geely group, we also have cooperation with Geely itself and sister brands, working together to try and achieve those economies of scale."

Internal combustion versus electric and hybrid

Many industry experts predict that for heavier passenger vehicles and light and heavy commercials, the internal combustion engine has a solid future for some years to come; I ask Dehoorne if he dare make a prediction on this? "Of course I am also responsible for electric propulsion so I am in both the i.c. and EV worlds! Volvo has a clear strategy and roadmap in place to fulfil our promise that 50% of our sales in 2025 will be EVs. As to whether i.c. engines have a solid future, that will depend on how the market; how the customers see the i.c. engine versus electric and of course, hybrid and possibly fuel cell cars. I don't dare to make a prediction but we are working towards our vision of 50% electrification by 2025."

Volvo’s promise - to drive sustainability throughout the supply chain

I ask Dehoorne if there are any particular technologies that have impressed him; and which areas give him the greatest challenges? He says that batteries are of course an important area. “We have been putting a lot of focus on securing batteries for our electrification programmes; I think the technology evolution within the battery sphere and how it will influence the whole dialogue around CO2 and keeping automotive sustainability in the supply base is probably the most important development at present, more than on a product point of view this is the biggest challenge." He says that sustainability and environmental management is much more widespread than just the tailpipe emissions from vehicles: “As soon as we go to more and more electrification, the focus will, of course, no longer be simply on tailpipe emissions but on the emissions in the supply base and I think that this will be one of the most important and exciting transformations that we will see. We all [OEMs, suppliers and logistics providers] need to think about how all the players will have to put a lot more focus on being CO2 neutral within the whole supply base. This needs to be addressed in not only suppliers' production of components but also in the transportation of parts to us, and to all end users, also in the aftermarket.”

Total traceability - measuring CO2 throughout the supply chain

I suggest to Dehoorne that perhaps every component should have a barcode or RFID label that denotes not only its production date and batch number for traceability - as it often does presently - but also how many grams of CO2 its production and shipping created. He agrees and says that Volvo intends to act on this initiative: "Yes, that is something that we will actively pursue in the future," he says.

Balancing in- and outsourcing in motors

The balance of OEM core competence in electric motor, controller etc making versus sourcing from suppliers is undergoing a seismic shift, given that electric motors are or could be much more generic than petrol or diesel engines and Dehoorne feels that while OEMs’ policies on this area are still in development, there is likely to be some adoption of common (across different OEMs) technologies. “I think that many OEMs are still debating different tracks of thought on this because, as you say, the e-machines of the future will probably not be unique to each OEM but most likely to be more shared components. This is something that we are investigating.” I ask him if Volvo, and the wider Geely organisation, is devoting a lot of resources - cost and time - to developing their own electric motors or are they looking at the market to see what is available from suppliers? He says that there are different approaches within the whole Geely group, according to region. “At Volvo we are designing motors in-house and there will be a mix of making them in-house and outsourcing their manufacture. There may be different set-ups in this area, depending on the region we are working in.”

The great battery debate - make or buy?

As material resources for lithium-ion and other batteries are becoming scarcer, there is much debate as to whether OEMs should move into the battery cell making business. Dehoorne says that Volvo and Polestar are carrying out battery pack assembly themselves but won’t become chemists just yet. “We are buying battery modules from the supply base and then putting together the battery packs. We have no plans for us to go into battery cell making; there are many new cell suppliers coming up all the time and so we are happy with our cell supply base at present. We are heavily involved with our suppliers to understand the chemistry of cell making and how this affects our vehicles' performance and we are always looking at how we can work together with our suppliers to optimise and balance cost versus performance.”

Platform revolutions

Electric vehicle platforms give designers tremendous freedom in trying new vehicle architectures and I wonder how this might affect powertrain choices for EVs - is Dehoorne attracted to the possibility of in-hub motors, for example, to free off even more space in the vehicle? "The whole industry is going through enormous changes, not only due to the design freedoms afforded by the electrification of vehicles but also the movement towards autonomous driving and the subsequent changes in the layout of the passenger space in cars,” he says, adding: “It is a very exciting time to be in the automotive industry, because of these design and engineering 'revolutions', I would call them.”

The market is moving motor choices

With the public's shift of taste away from diesel-engined passenger cars in Europe and the US, there must be some profound changes in Dehoorne’s purchasing strategies? He says that suppliers need to demonstrate a lot of flexibility to accommodate the transition from diesel engines to petrol and on to EV powertrains. “We try to choose and develop our suppliers to be flexible and capable of supplying to both petrol- and diesel-engined programmes, it is optimum for us if they can handle the transition between both technologies smoothly. We also have been working with specific diesel engine suppliers, awarding them business on the petrol engine side, to try to compensate for the movement in the market.

"Also, we are in discussion with all of our suppliers to help prepare them for the next phase of propulsion technology - when electrification really comes to the fore. Those suppliers who are presently delivering i.c.-engine components need to be able to support our EV powertrain programmes. Our policy is that we would like to continue these business relationships and help our supply base grow into the new electric vehicle age.”

Supplier strategies - going global and acting local

With Volvo's increasingly global manufacturing footprint, I ask Dehoorne if Volvo’s powertrain purchasing strategies have followed the production plant locations in sourcing components from China, the US, and beyond. “We have been looking at local suppliers near our new manufacturing facilities and also encouraging our global supplier partners to follow us and locate plants and distribution centres near to our new locations. We have been in China, with a local Volvo purchasing team, since 2010. In the US, we have had a team in place since 2015, based in South Carolina. Both of these teams are part of our global purchasing organisation and our strategy is of course to source where we build, a strategy that is valid for Europe, China and the US. Our choice of local versus global suppliers is a mix of bringing existing suppliers with us and also establishing new supplier relationships.

“So we are quite open-minded on getting quotations from say, a locally-sited established vendor or a new local supplier who might start up in the southern states of the US for example."

Heavyweight shipping - factoring-in logistics costs

It would seem to make sense to procure procuring heavy and bulky engine parts close to production centres to avoid costly shipping; Dehoorne says that his teams take a holistic approach, factoring in all elements of total landed cost. “Our strategy is to source based on landed cost - or Total Cost of Ownership (TCO) and so we look at the total cost of the chain, from supplier to lineside. We always have the TCO as part of our sourcing decision so the logistics cost is an important part of the purchasing decision process. Those parts that are difficult to ship, not only from a shipping cost point of view but also from a quality and flexibility aspect, do influence our decision on whether or not to localise procurement.”

Maintaining Volvo’s powertrain quality standards globally

Many premium carmakers have long insisted that their engines are the heart of their cars and so must be made in their home country - Mercedes-Benz for example resisted building engines outside Germany for a very long time. Volvo has always been famous for the quality of its powertrains - very durable and long-lasting engines, transmissions, axles etc., and Dehoorne says that maintaining these quality levels comes down to duplicating processes across the globe. “Today we are building all of our engines in Sweden and in China, to feed global vehicle production. In China, we started production of engines in 2013 and we are producing the same engines in Sweden and China. We are confident that we can make the same motors anywhere in the world, to the same quality standards, in different regions, to support our global vehicle production.

“We are using similar, if not the same, machining centres and other machine tools in all our powertrain plants, and we are sourcing good quality raw materials and semi-finished parts, so we are confident about maintaining Volvo quality around the world.”

Working with Geely

I ask Dehoorne if his organisation receives interesting supplier offers through the Geely purchasing organisation's connections with new vendors, in China and elsewhere. He says that shared sourcing is not confined to motor parts. “We have a lot of cooperation with Geely, not only with the engine as shipped but also with the engine as installed, including the installation parts in the car, and also a great deal on the electrification side. Of course, we have found a lot of synergies with Geely. We have very intensive discussions on both the short- and long-term maximisation of these synergies and of course this will lead to greater economies of scale as we approach the supply base as one group.”

Logistics relationships - regional and local

With Dehoorne’s experience as a logistics engineer and engineering manager, he seems like the person to ask about the relationship between purchasing and logistics - how closely do the departments work together and are logistics considerations influential in purchasing decisions at Volvo? He says that there are regional factors to take into account: “Within Volvo we have an Inbound Logistics organisation which is responsible for the whole inbound supply chain, from the supply base to the plants and we work very closely with them to understand how and where we should concentrate our supply base to make very efficient logistics into our facilities. We take a regional approach on this in Europe, and also in China and the US but of course we have many intercontinental logistics operations - when we do not localise supply and we also have a way optimising logistics on each continent before we ship to another continent."

The new Silk Road/Belt Route

With this in mind, and considering Volvo’s operations in China, I am interested to know his opinion of the efficiency and future of the Silk Road/Belt Road overland route to and from China, as some industry insiders have said that there are not enough OEMs signed up to using the route. He says that Volvo was an early adopter of the route, "We were one of the first companies to ship cars from China to Belgium by rail. Of course, we are always looking at opportunities to reduce lead times and logistics costs; this route is definitely an interesting way to ship in the future and we are looking into using it even more.”

Another debate surrounding the Silk Road/Belt Route is who should make further investments in rolling stock, locomotives, personnel and so on; some logistics providers have said that OEMs need to show more commitment and some investment, and some OEM executives have told me that the onus should be on the logistics community to make the route more attractive by putting money into the infrastructure. Dehoorne feels that the market should offer a competitive solution to OEMs; “How to make this happen? Well, different players should be influencing the situation to make it happen more quickly and I think the logistics providers should be pushing this much harder, especially as one would assume that they can get a lot more business outside of automotive for this route.”

The buying balance at Volvo

With the fantastic growth of vehicles in the Volvo family, suppliers must see great opportunities with the carmaker in powertrain etc. I ask Dehoorne what he would like to see from existing and new suppliers - is the emphasis on the traditional elements of quality, cost, delivery, innovation and is this balance shifting in any way, as EVs come to the fore? “I think flexibility is also a very important element; since we have grown so much in the last few years, we need really agile and flexible suppliers. Quality, cost, delivery and innovation are still, of course, qualities we expect but additionally, as we have discussed, sustainability is and will be, a much more important area in the future."

Sustainability can have manifold meanings - as well as being environmentally friendly, suppliers need to show real corporate social responsibility (CSR) and demonstrate that they have a successful and sustainable business model, as Dehoorne says: "They need to show that they have a strong business and a lot of focus on the environment and CSR." 

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