Procurement helps Volkswagen drive €1.1 billion cost savings

12 March 2012

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12 March 2012 | Adam Leach

Volkswagen cut its costs by €1.1 billion (£920 million) last year as it implemented a number of procurement strategies such as material substitution and more local purchasing.

The automotive manufacturer, which also owns the Audi, Seat and Lamborghini brands, reported an increase in operating profit of more than 50 per cent to €11.3 billion (£9.5 billion), largely driven by record revenues of €159.3 billion (£133.5 billion). Key to its strong performance was €1.1 billion in savings primarily delivered by procurement.

“An improvement in product costs due primarily to optimised procurement activities again had a positive effect on operating profit. We reached a contribution of €1.1 billion in the course of 2011,” said CFO Hans Dieter Pötsch in a statement accompanying the announcement of the company’s annual results. “This clearly shows how systematically we are working on our cost structures and improving our margins so that we can meet future challenges in the automotive industry.”

Reporting on a volatile year for commodities prices, the company revealed by adopting measures such as longer term contracts for crude oil-based products and rare earth materials, it was able to avoid a significant hit from the price rises.

Further measures to mitigate price increases included establishing a supplier portfolio to get a range of prices, structuring contract times strategically, and using material substitution particularly for rare earth materials.

The car manufacturer also explained it is expanding local procurement to produce further cost efficiencies. Its local procurement strategy aims both to drive savings by identifying cost effective suppliers in local markets, and also identify suppliers or components suited to the group's global operations.

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