The Study Of Building Procurement System Of FAW-VW To Support 1 Million Cars Production

The automotive industry has gone through 120 years from the late nineteenth century when automobile was invented. The automotive industry can promote the development of a country. Countries which have strong industry are always strong in automotive. These countries have formed more than a million vehicles production.In the modern automotive industry, vehicle manufacturers no longer produce all parts of a car. In order to share risk, reduce costs while improving the core competence, a large number of parts are produced by suppliers. The average rate of self-made parts has been reduced to 30%. So competitions among car manufacturers have extended to their supply chain.Chinese automotive industry was in a rapid development after the reform and opening. Especially into the twenty-first century the demand of vehicles grows rapidly. Chinese auto consumption becomes increasingly important to the world automotive industry. In the meantime As one of the first automobile joint ventures, FAW-Volkswagen Automotive Company, Ltd. witnessed the rapid development of Chinese auto market.FAW-VW Automobile Co., Ltd. is a major passenger sedan joint-venture of FAW Group Corporation and Volkswagen AG, Audi AG and Volkswagen Automobile (China) Investment Co., Ltd. It is China's first modern passenger sedan industrial base of considerable economic scale. FAW-VW Automobile Co., Ltd. was formally established on February 6, 1991, and officially received by the State in August 1997. The company's Plant II for passenger cars officially began production on December 7, 2004. Through its continuous expansion, FAW-VW has become a company with a daily production capacity of over 1000 motor vehicles, with additional capacity for export of assembled vehicles; powertrain and component parts. Beginning with the production of the first batch of Jettas in 1991, FAW-VW's vehicle production capacity has also improved rapidly. It is planned that FAW-VW will get a 1 million production capacity per year in 2012.For the whole supply chain and parts procurement system, there are big challenges because of the upgrading production. Procurement organizations and processes have been optimized since FAW-VW founded, and successfully supported FAW-VW to reach the 600,000 production platform. But they are not suit for 1 million productions.For supplier management, there are also some problems. FAW-VW paid more attention to price competitions among suppliers, did not control the whole abilities of suppliers. It cause the numbers of supplier increased but there are not enough loyal suppliers.For cost control, it becomes a very important way to reduce costs and increase profits for vehicle manufacturers. But a successful cost control is not the same with the lowest prices. Only focusing on prices, ignoring quality and other abilities of supplier, caused the actual increase in cost of procurement. For IT systems, It is not suit for 1 million production. Although in 1996, FAW-VW took the lead of automotive industry and installed a modern ERP system, SAP R/3. However, there was not a useful IT system to support supplier management which can analyze kinds of procurement data and give some analyses to help making procurement decisions.So FAW-VW the future of one million people in order to meet the scale of production, need to optimize procurement organizations and processes, and enhance supplier management, build a new procurement system with IT systems'strong support to suit for one million production.Internal re-sort the procurement process, and optimizing the work flow in accordance with specific procurement functions of the organization. Establish a fair and impartial procurement environment. Enhance the control of the procurement process. At the same time the IT system gives more support. These will improve the procurement efficiency, reduce management costs and make a more scientific and effective management of the procurement process. Together with suppliers, FAW-VW will develop cost-optimized programs to continuous reduce procurement costs and provide competitive advantage for the company.A procurement strategy should be established to enhance supplier management. FAW-VW will develop a fair assessment standard, and review suppliers with it, reduce the number of suppliers and build a core team of suppliers.Based on the above study, this new procurement system will be successfully support FAW-VW to reach one million productions. And any processes, systems are not static. The success of FAW-VW depends on continuous improvement. When the environment changes, there will be some new development, even suit for the upgrade to 2 million productions in the future.