Volkswagen Overhauls Semiconductor Sourcing Strategy Amid Supply Challenges

Volkswagen Group has announced a significant revamp to its procurement strategy for semiconductors and electronic parts. The automaker is shifting towards direct purchasing from manufacturers, a move designed to better manage its supply chain in the face of ongoing global chip shortages. In the past, Volkswagen procured electronic components like control units, and its Tier 1 suppliers had considerable autonomy in deciding which parts to use. However, the new strategy will involve Group procurement working closely with Tier 1 suppliers to define which semiconductors and other electronic parts are to be used. The company is also establishing a semiconductor sourcing committee, which will include representatives from the procurement and development departments of its various brands, such as Porsche, Audi, and Volkswagen. Members from its components and software units will also be part of the committee. The global semiconductor shortage, exacerbated by the COVID-19 pandemic, has severely impacted the auto industry, highlighting the risks associated with sourcing and supply chain strategies. At Volkswagen, the chip shortage led to a 7% decline in vehicles delivered in 2022. While the shortage has somewhat eased due to a decrease in global demand and increased manufacturing capacity, Volkswagen is preparing for future production disruptions. The company believes that the new semiconductor sourcing committee will allow it to identify and implement technical alternatives more quickly in the event of supply bottlenecks. Semiconductors are indispensable in the automotive industry, not only for mass production but also as innovation drivers and key components for launching new products. As the production of electric vehicles ramps up, the demand for semiconductors is expected to increase. In addition to semiconductors, major auto brands are also taking steps to secure future supplies of materials needed for electric vehicles. For instance, Ford has invested in an Indonesian nickel supplier, and General Motors has financed a new manganese sulfate plant, securing 32,500 metric tons of the mineral.