Audi is building partnerships between the company and suppliers. This is creating opportunities and putting more responsibility in the hands of the components industry. Audi board member for purchasing Erich Shmitt shares some of the opportunities and challenges:
Question: How is globalisation affecting the relationship between Audi and its suppliers?
Schmitt: We will have to change our expectations and attitudes. That is, we will have to change our expectations that suppliers are just waiting for us to tell them precisely where improvements should be made. Hasn’t this – at least to a certain extent – been the case in actual practice to date?
At present perhaps five or ten per cent of our suppliers have shouldered full responsibility in the meaning of what we are discussing. So that leaves a great deal of scope for future improvements.
Question: Will you be further reducing the number of direct contacts over the medium term?
Schmitt: This is not our aim. If it happens then that is alright, but we are not intentionally pursuing the aim of reducing the number of suppliers. We are far more concerned with ensuring that the parts that suppliers develop are characterized by a specific “Audi Feeling”.
Question: How will you go about ensuring that?
Schmitt: This will only become possible if the supplier’s staff are genuinely committed to producing parts and components for us. This also means that we have to find a way to transfer Audi know-how to suppliers, while still being able to exert some influence.
Question: Can you cite and example?
The Audi TT for example. We designed the sports car. Audi realized series production in cooperation with Steyr-Daimler-Puch. Top experts from Audi accompanied the project on site. Our staff were also involved when suppliers organized their sub-suppliers. I think we have struck the right balance with regard to supplier integration. On the one hand there is an ample measure of freedom on the supplier side, on the other hand we ensured that the finished product is an Audi specific, first class automobile.
Question: Where are there weak points in Audi’s buying procedures that would enable you to improve supplier relations?
Schmitt: To begin with we must find a different way of buying simpler parts than the procedures involved in the procurement of technically sophisticated components. We will have to find different structures in future.
With regard to more complex components I would like our purchasing staff to make even greater efforts in looking for innovations in future. In cooperation with suppliers we want to ensure that Audi will be able to make exlusive use of such innovations for a certain period of time.
The second point has to do with our purchasing staff. They should act more as independent entrepreneurs and comprehend their tasks in such a way that they strive to realize the best possible management of a given part over the entire life cycle.
Question: What kind of feedback are you getting from suppliers when you outline your future demands?
Schmitt: There is hardly anything to discuss as they are well aware of what needs to be done. They are also strongly committed to realizing joint objectives in cooperation with Audi.
Question: Haven’t you encountered any skepticism on the part of suppliers?
Schmitt: Companies that are less confident show a certain amount of reserve. But I feel that automobile manufacturers and suppliers are both facing an equal measure of challenges. Our customers expect something new from us all the time. And therefore we expect the same from our partners.
Question: Will you be assigning suppliers with more responsibility in future?
In the past we often had a procedure whereby the suppliers received design specifications and drawings and produced their parts accordingly. I think that we will be gradually withdrawing more and more from this kind of approach. Our suppliers will increasingly have to be in a position to assume responsibility for the necessary quality, the right scheduling, attaining cost targets and shortening development sequences on the whole.
Question: Every new vehicle model offers the possibility of modifying not only the flows and structures of manufacturing, but also administrative areas. In purchasing, are there new processes for the A6?
Schmitt: With the new Audi A6, we can offer our customers more vehicle for the same price. Together with our suppliers, we try to unlock cost potentials in order to turn this into value for our customers. I think that this is working very well for us with the A6.
Question: Which share, in terms of value, falls in the new A6, as well as the realization of the project to your suppliers?
Schmitt: With the new Audi A6, we have not substantially changed our manufacturing steps. The manufacturing steps for the new Audi A6 accounts for approximately 20% of the value.
Question: How many suppliers are used altogether for the Audi A6, and how is its regional distribution?
Schmitt: For the A6 specific parts, we have approximately 400 suppliers under contract. At the same time, a large part of the suppliers have a business or administrative seat in Germany with international manufacturing sites and corresponding cost structures.
Question: Which parts are made out of aluminium, and which aluminium suppliers do you have under contract?
Schmitt: Aluminium sheets are used, for example, in the manufacture of the front flaps and the fender. They are also in parts of the structure where, for technical manufacturing reasons, the material strength of steel sheets can no longer be reduced. Suppliers for the aluminium components are, amongst others, Corus in Belgium (for the aluminium sheets for the front flaps, fender, water box and the upper part of the rear wall), Lamier in Italy (for the stiff rear wall), Alcan, Singen (for the aluminium press profile, the barrier strenghthening, and the rear Aluminium Crash Management System), as well as Hydro Aluminium in Norway, for the front Aluminium Crash Management System.
Question: In this context, what role does Audi’s in-house manufacturing play?
Schmitt: Regarding the manufacturing steps, we have made no substantial changes in comparison to the previous model. Car body building, the paint shop and the assembly are the main processes that take place in-house. Regarding components, we make units and gear boxes, as well as nearly the total car body, outside of the coat, in house in the Group.
Question: How did you find the best suppliers?
Schmitt: Our suppliers are sourced according to a technical and qualitative suitability examination and a nomination process for the respective regions. In choosing a supplier, we place particular value on the profitability and the degree of innovation for the respective solutions. In the context of an optimization process, synergies are also realized in the group as a whole.
Question: What share does the Web-based purchasing have in the A6?
Schmitt: The Web always takes on an important role in our purchasing processes. For example, the inquiry process or the Web-based supplier platform would be named www.groupsupply.com.
In many cases, comparisons on different offers are carried out over the Internet. Our supplier partners are also convinced of the high effectiveness of goal-orientated, online negotiations. In the meanwhile, the platform has established itself in all the branches.
Question: At which point did you appoint the suppliers?
Schmitt: The point of decision occured at the required development duration of the respective regions. The first suppliers were appointed about three years before SOP.
Question: Were you satisfied with the achievements of your development partner and suppliers?
Schmitt: In our projects, we see to it that our supplier partners always continue to adpat themselves to our needs. The tight collaboration with our suppliers in the early stages of our project phases, is a deciding factor for the success of the products with our customers.
Question: Strict processes and tight inter-disciplinary teamwork between the different departments and the supplier are the stamp of the development of automobiles today. How do you roll this process of optimization out in the most cost effective manner?
Schmitt: We see great potential in this intensive collaboration. Our highest goal is to satisfy the interests of our customers. Our suppliers can help us to realise these customer values and to create worth. The optimization of our customers’ value in the early phases of the vehicle devleopment is a process that we focus on.
Do you you also employ suppliers for the new A6 who have so far not had any business relationships with Audi?
Schmitt: By our nominations, technical competency, quality and economy play decisive roles. If this is the case with new suppliers, then they are welcome anytime as our partner.
Question: How do you structure the purchasing steam for the new A6?
Schmitt: In the development phase, our products are aligned in a project organisation according to serial numbers. Of course, the purchase in this project organisation is representative of forward sourcing and project control. The tasks and competencies are stocked by an increasing state of development in the direction of the serial purchasing.
Question: The share of the vehicle electronics in the vehicle costs often intermittently reaches up to 30%. Does this magnitude also count with the new A6?
Schmitt: Certainly, the electronic share in the vehicle always becomes more important. Electronics offer innumerable possibilities to create our customer values. This reflects itself against the cost share of the vehicle electronics. Also, with our new Audi A6, the electronic share lies in the magnitude. Nevertheless, one should not fix the electronic achievement of a vehicle at the value share. The establishing of the electronics, and with that the connected scale effects, cause to lean towards the trend to moderately increase the electronics of our vehicles.
Question: The function and stability of the highly complex and networked electronic system always finds itself at the centre of criticism. Which contribution can purchasing render to secure the reliability of such systems?
Schmitt: In order to be able to offer our customers reliable solutions, we have already begun very early to create new processes and competencies. The electronic competencies and processes are bundled in-house in the “Audi-Electronic-Centre”. Also, our suppliers are bundled together with the Electronic Centre in the development process. The selection of the development and serial suppliers and the economic accompaniment of the development process are essential tasks of purchasing.