06 July 2009

The economic crash has hit the car market hard. Rebecca Ellinor asks Volvo CPO Bernt Ejbyfeldt how he is dealing with the aftermath

Bernt Ejbyfeldt and Volvo go back a long way. The senior vice-president of purchasing began his career at the Swedish firm at the age of 20. He spent 25 years there, starting in the procurement department in 1988. He was the purchasing director on the Volvo S80 executive sedan and has previously been responsible for the firm's production buying.

Before joining the management team in March 2008, Ejbyfeldt did a spell on the other side of the fence as CEO at Swedish plastic component supplier Konstruktions-Bakelit.

In 2007 Volvo had a record year for car sales on volume, but as Ejbyfeldt was preparing to rejoin the organisation its fortunes began to change. The economy took a serious turn for the worse, and owner Ford Motor Company called for Volvo Cars to establish an independent procurement team so it could go it alone if it decided to sell.

Ejbyfeldt had a number of challenges that required his immediate attention. He spoke to SM from purchasing headquarters in Gothenburg, Sweden. Q: What's the procurement set-up?

About 400 people work for Volvo purchasing. That includes direct and non-production material and our quality section.

We spend $5 billion a year on direct materials and $2.2 billion annually on non-production material (indirect procurement).

Purchasing handles about 98 per cent of spend. We have a global marketing organisation and some buying activity is done locally, but we deal with almost all of it. Our aim is everything should be bought by purchasing people.

In our system it's not possible to purchase if you're not in procurement. For a lot of non-direct spend we work closely with stakeholders. For production material we work with manufacturing and product development and we decide on a supplier in a cross-functional team. Purchasing is responsible for the final decision, but still it's done in a team. We do assemblies in Gothenburg, as well as Belgium, Malaysia, Thailand and China. Our main location for purchasers is Gothenburg but to support local manufacturing we have a few people in each location. Q: How many suppliers do you have?

We have about 400 for production material and 3,200 for non-production. Of the 400, many have more than one production site so we get material from around 850 sites worldwide. The number of suppliers has been quite stable but the number of sites has increased in the past year because of our cooperation with Ford.

We're now working hard on restructuring, so we would like to reduce the number of suppliers. The first step is to reduce the number of sites, we would like to cut it by 10 per cent for this year. Probably we'll work on a 10 per cent yearly reduction, that is for non-production as well, it's exactly the same, because there are too many. Q: You mentioned that purchasing oversees a quality section, what do they do?

They work to support our suppliers in quality assurance in direct material. We also have a team that manages all the programmes for new models.

We have recently started a quality hub in the Czech Republic, which is much closer to suppliers manufacturing footprint in Europe. Today it's a small team of about 12 and it will grow to around 20.

We've done this because the salaries cost less and since it's closer to our supply base it's more efficient to travel around Europe from there. Attention on quality has increased a lot. We have a system called 'Q1' that our suppliers need to fulfil. It requires capable quality systems; stable performance; and includes a manufacturing site assessment. Systematic adherence to quality has improved supplier quality and launch performance over the past few years. Q: What challenges did you face when you returned to Volvo?

At the beginning of 2008 there was a big decline in volume in the market, it was really tough. Volvo had planned for higher volume, then we saw this drastic decline. I've never experienced such a fast drop-off.

So we had to ensure we created an affordable business structure for our department. We had around 460 purchasing people when I joined, we had to 'right-size' the department so some had to leave. We couldn't afford to keep them. We were pushed to find different ways to create an affordable structure in purchasing. And we are managing to deliver according to our objectives with this reduced number of staff, so we've had quite good results so far.

Q: What have you done to make savings?

Purchasing established the Czech Republic hub because of its nearness to the European supply base. This will support timely and more cost-effective activities towards supplier quality and efficiency. We also centralised more purchasing in Gothenburg, and offshored transactional work to Malaysia and India. And, as part of five-year plans, we work in multi-disciplinary teams on our objectives for material cost reduction.

Q: Renault and Nissan collaborate on buying to make savings - does Volvo?

We still belong to Ford Corporation so we work loosely with them and try to have the synergies on volume. But from last year (1 April) Volvo Cars created a standalone purchasing organisation. Ford is deciding whether to keep or sell Volvo, so it wanted us to be able to handle purchasing ourselves. Although we are separate organisations, we are still working closely together.

It's not easy to say what percentage of buying we do jointly. We work with them on our global commodity business plan where we set strategies for the next five years for different component areas.

We also have some common negotiation, and some people within the quality area who we call site engineers who we share. They travel around visit different supplier's sites track quality and teach our suppliers. If we split the company of course we'll have to split that organisation.

Q: What else will you need to change in purchasing if Ford sells - and what will happen to Volvo's buying power?

There are also a few areas within IT because today we use a few Ford IT systems within purchasing, so we'll need to have our own.

On buying power, it depends who buys us. If we have a new owner that has volume we will work with them to find a good solution.

If Volvo is sold it will likely lead to changes in the current supply base. The Volvo brand and its core value will most likely attract both current and new suppliers.

Q: Has your approach to suppliers changed as a result of having been one? It's tough to be a supplier to automotive, but it's also very inspiring because it's at the leading edge in everything. I saw that all the time you need to listen and work closely together if you want to increase your business.

As a supplier you need to understand the environment you're working in, and make sure you're competitive and investing in new technology because if you're not doing that it's extremely difficult to grow your business.

You have to create your own business strategy and find the right areas to invest in. If you do that you could have very positive, profitable business.

Relationships are crucial, we have to create and build on long-term relationships with our suppliers - that is something I learnt from the outside.

Also the supplier could have some sort of guarantee. If they're performing then they will keep the business and have the possibility to grow their business. Q: Has it made you a better buyer?

Absolutely. If you've not been on the other side it's very hard to understand when you are in negotiations, and so on. With that experience it's easier to create good relationships and win-win situations for both parties. Q: What can/are you doing to help vendors who are struggling?

We're now using a system to monitor the financial health of all of our suppliers. From that we create a 'hot list' [of vendors they've identified as potentially in difficulty]. I follow it every week others have daily meetings.

We're also working with the Swedish association for suppliers and talking to the government to try to make it easier for our suppliers to be loaned money. To get access to loans on the Swedish market is quite tough. Q: If the European Investment Bank (EIB) permits you the loan you want, could you use some of it to help vendors?

No, because we have to secure ourselves first, but we're trying to manage our suppliers getting loans as well. It's very hard for us to support them financially because we do not have the money either, we're in the same situation.

The best we can do is invest in new technology and increase volumes. Safety is core in Volvo so we work with suppliers in this area. It's important to have good relationships to secure access to new technology. For example, we're launching a safety system that slows vehicles down on low speed roads if they get too close to another driver. We would like to be first to the market with this.

The environment is very important so last year we launched cars we call 'Drive E'. They have very low fuel consumption and we see with these kinds of new products volumes are increasing. We also encourage suppliers to drive and buy Volvos. Q: Is automotive still at the forefront when it comes to attracting and training procurement talent?

Yes. People working for Volvo purchasing have opportunities to find other good jobs outside of Volvo, so we have to make sure we attract people and ensure they stay and grow within our organisation.

We work with our employees on development plans and there are also lots of chances to move around within Volvo - for example from purchasing to product development, marketing and sales and then come back.

It doesn't matter if times are tough, you should make sure you attract the right competence and keep the right people. The most important asset in purchasing is our people. They are still so motivated and empowered to deliver our objectives and I think that is amazing.

SMjul2009