Volvo Case

VOLVO TRUCKS ALLIANCE WITH DONG FENG MOTOR GROUP

a. Recommend how purchasing (at both companies) can take best advantage of the new venture with Dong Feng (500 words). Please consider all aspects: source, contract, supply, develop.

For both companies that signed this agreement, purchasing will benefit of some interesting opportunities.

1. Source

Category/segment strategy: Dong Feng and Volvo already have their own segmentation. The best way to take advantage of the new venture is to streamline the purchasing segments and make the new organization very efficient by aggregating the products' families of Dong Feng and Volvo. This segmentation should be set up after a study on profit impacts for both parties (impact on potential growth, dependency, impact on value chain…)

Supplier assessment, selection and qualification: in order to be as efficient as possible, both companies should standardize their qualification plans and audit processes because the new venture cannot be efficient if there are two different ways to do, with maybe different requirements. Dong Feng can benefit of the expertise of Volvo especially for the foreign markets, per contra, Volvo will benefit of Dong Feng domestic know-how in China.

Hedge strategy: the new venture between Dong Feng and Volvo will allow to those companies to set up a hedge strategy. The new venture will permit to the two partners to ensure the prices and to monitor the risks. Thanks to the new venture, the partners will benefit of a higher bargaining power due to the increasing volumes and development opportunities. In order to succeed in setting up the hedge strategy, the partners shall standardize the references, try to aggregate the families and introduce competition between Volvo historic suppliers and Dong Feng one's.

2. Contract