Volvo Car Group will establish a new global Purchasing and Manufacturing function to reduce complexity and costs, the automaker said in press release today. The new division will be headed by Lars Wrebo, currently Senior Vice-President of Manufacturing. Commenting on the development, Håkan Samuelsson, President and CEO of Volvo Cars, said, “This change is part of our efforts to reduce complexity. We need to strengthen the substantial processes within the company at the same time as we strive to reduce bureaucracy. Lars Wrebo will have a central and comprehensive role through this new function which will be a natural hub together with Research & Development and Product Strategy." In connection with this organisational change, Axel Maschka, Senior Vice-President Purchasing, will leave Volvo Cars. The new unit will be operational from 1 July.
Significance: Through integrating purchasing and manufacturing under a single, the automaker is targeting to achieve more distinct governance, quality assurance and cost control throughout the entire value chain. The new unit will be responsible for optimising the value chain, from procuring components from supplier to manufacturing, through material planning and logistics, the press release said. Wrebo said, “It will be even more vital in the future to view manufacturing at our suppliers as one part of the whole value chain. There is big potential in reducing waste by having a more integrated way of working," says Lars.
The move towards reducing cost is understood considering the automaker’s financial performance in 2012. Volvo Cars’ earnings came under pressure during 2012 on the back of slackening vehicle demand. For the year ending 31 December 2012, the company’s operating profit was down from SEK2,017m to just SEK18m as R&D costs and administrative expenses increased. Its net income fell from a profit of SEK1,024m to a loss of SEK480m.
Nevertheless, the automaker is hoping that by taking some pain now, it will be well-placed going forward. For example, recently appointed president and CEO Håkan Samuelsson is already cutting the headcount, which will address some administrative costs. It has also refinanced its loan agreements, which should help with previously positive cash flow. Earlier this month, Samuelsson was quoted by Reuters as saying that on an operating level, the company is intending to reach breakeven during 2013, but it could take another couple of years for this to take place at a net level.
