Volkswagen Scandal – Supply Chain Impact and Corporate Values

Clearly, as a highly influential website in the procurement and supply chain world, we feel we should have a view about the Volkswagen emissions scandal. The problem is, it seems quite difficult to write 600 words about it. It is relatively easy to write six words (“F****h***, what the f*** happened”?) And probably reasonably easy to do 6,000, getting into all the engineering, technical and cultural issues around the scandal. But saying something useful in one short article is quite tough, really.

It’s certainly not a great advert for capitalism, the benefits of a free market and so on. On the other hand, VW is one of the most “socialist” firms around, being part owned by the state of Lower Saxony and with very strong worker representation on the Board. But we don’t know yet whether other car firms are going to be dragged into the headlines too; as we write this, it look as if they may well be. There are also suggestions that some governments may have colluded in the deception, which would bring another dimension to the story.

The problems will reverberate down the supply chain and up the value chain too. Consumers may sue the firm for the loss in value of their cars, bought in good faith and now worth much less than they were a month ago. VW dealerships will be similarly affected.  Commercial buyers will be reviewing their preferred supplier lists. And in the supply chain the major suppliers to the firm will be worried too – those that are well diversified around different manufacturers will be better placed of course than those that are heavily dependent on VW. There may be more legal action amongst the supply side too.

But one aspect of the story struck me. We’ve read something that suggested the software used to (in effect) falsify the test results was not bespoke to VW, although other commentators suggest it could easily have been developed in house. If it was bought-in, then who was the supplier of that product? Did they know they were making a product that was going to lead to the biggest scandal in motor manufacturing history? And which procurement person in VW bought that software – did they know what it was being used for?

One final point. I have worked for a couple of firms that I could absolutely imagine doing something like this, if it made them some money. I’ve also worked for one firm – Mars – that I absolutely could not imagine deliberately deceiving customers and regulators. That‘s because of the values held by the firm, coming directly from the owners, the Mars family. That demonstrates the importance of values, but as buyers, we very rarely try to really establish the true “values” of our suppliers – because it is very difficult to do so.

Yet those values can make such a difference to the way firms think about their customers. So maybe we need to work a bit harder and come up with some better way of looking at that when we make buying decisions.

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