Quality management agreement

between the companies of the

VOLKSWAGEN GROUP and
its suppliers of Economy parts

Economy

Economy Formula Q-Concrete contains contractually

agreed specifications for companies of the
VOLKSWAGEN GROUP in order to assure the quality of
parts and processes in the procurement and supply
chain.

September 2010
Version 1

Page 1
Version 1 – September 2010

Only the German version of Economy Formula Q-Concrete is legally binding.

Duplication, use and distribution are permitted only for suppliers within the supply
chain of companies in the VOLKSWAGEN GROUP.

Protected by copyright. All rights reserved by Volkswagen AG.

Published by: Volkswagen AG

Genuine Parts and Service Division, Quality Assurance K-VO-Q
Brieffach 4905/0, 34219 Baunatal

Page 2
Address

Dear Sir / Madam,

Increasing demands of customers, global competition and pricing pressures require
products that are ready for series production and robust production processes. It is
essential that we work together in facing up to this challenge to ensure the market
success of our products.
This brochure provides the first version of Economy Formula Q-Concrete, which
contains the basis quality requirements for Economy parts that you, as a supplier of
Economy parts must meet for repairs appropriate to the current market value of ve-
hicle for vehicles 5 years and older. The Economy Formula Q-Concrete and the
other applicable documents form the basis for all enquiries and therefore must be
taken into account when tenders are submitted.
To ensure that our collaboration is successful, it is essential that the requirements
described in this contract are met within the supply chain and that all suppliers pro-
vide open communication and meet the cost targets and deadlines that are set.
As a potential supplier, you agree when submitting your tender that you have read
and understood the requirements described in Economy Formula Q-Concrete, that
you recognise, unreservedly respect and comply with these requirements and that
these will be implemented in your supply chain.

You can view Formula Q-Concrete and any updates on the Internet at the following
address: www.vwgroupsupply.com

Wolfsburg, September 2010

Dr F. J. Garcia Sanz F. Tuch

Group Board Member for Procurement Head of Group Quality Assurance
Volkswagen AG Volkswagen AG

Page 3
Quality Management Agreements Purchased Parts

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Applicable documents in their current versions

Group quality documents at www.vwgroupsupply.com:

• Current information on requests for defective parts from the field for the brand
VW PKW (VW Passenger Cars)
• Formula Q capability
• Formula Q capability software
• Form TF/Parts dispatch control
• Manual for Genuine parts suppliers
• Group basis requirements software
• Group Guidelines: Wiring harness product audits
• Group Packaging Guidelines (engine units and vehicle)
• QA Guidelines: Logistics and CKD
• Design management framework agreement
• Rules regarding the passing on of costs for field and 0km complaints caused by
suppliers
• Quality capability target agreement
• Specifications for Economy parts
• New Parts Qualification Programme - Maturity Level Assurance for Economy
parts (QPN-RGA)

Page 4
Group standards directory at www.vwgroupsupply.com
(FE online standards):
• High-strength connection elements, screws and bolts (VW 60250)
• Machine capability testing for measurable characteristics (VW 10130)
• Process capability test for measurable characteristics (VW 10131)
• Accuracy – Measuring accuracy in testing processes (VW 10119)
• Overall requirements for providing service as part of the development of com-
ponents (VW 99000)

VDA (German Automobile Association) publications and automotive standards at

www.vda-qmc.de:
• VDA (German Automobile Association) publications “Quality Management in
the Automotive Industry” [Qualitätsmanagement in der Automobilindustrie] and
“Mutual Quality Management within the Supply Chain” [Das gemeinsame Quali-
tätsmanagement in der Lieferkette] (Series of documents by the VDA)
• ISO/TS 16949, alternatively VDA 6.1

Group environmental and social sustainability documents at

www.vwgroupsupply.com

These are also supplemented by the technical delivery specifications and VW

standards for each product, for example the minimum durability of components and
statutory regulations, requirements, etc.

Page 5
Table of contents

1. REQUESTS AND PREPARATION OF TENDERS FOR ECONOMY PARTS ... 7

1.0 DEFINITION OF ECONOMY PARTS....................................................................... 7
1.1 TENDER REQUIREMENTS................................................................................... 7
1.2 TENDER DOCUMENTS ....................................................................................... 7
1.3 SUPPLIER CONCEPT CREATION ......................................................................... 7
1.4 QUALITY FRAMEWORK AGREEMENT ................................................................... 8
2. QUALITY CRITERIA FOR CONTRACT AWARDS FOR ECONOMY PARTS ... 9
2.1 ELEMENTS OF THE SUPPLIER ASSESSMENT ........................................................ 9
2.2 QUALITY CAPABILITY TARGET AGREEMENT ......................................................... 9
2.3 DESIGN MANAGEMENT FRAMEWORK AGREEMENT (KVV) .................................. 10
3. WORKING WITH SUPPLIERS IN THE PRODUCT ..............................................
IMPLEMENTATION PROCESS ........................................................................ 11
3.1 NEW PARTS QUALIFICATION PROGRAMME - MATURITY LEVEL ASSURANCE
(QPN-RGA) FOR ECONOMY PARTS ................................................................ 11
3.2 IMPORTANT MILESTONES FOR QPN MATURITY LEVELS FOR ECONOMY PARTS .... 11
4. SERIES QUALITY MEASURES ........................................................................ 12
4.1 CONTINUOUS GUARANTEE OF PROCESS CAPABILITY ....................................... 12
4.2 PRODUCT SAFETY, PRODUCT LIABILITY........................................................... 12
4.3 INTERNAL AUDITS........................................................................................... 13
4.4 CONTROL CIRCUITS ........................................................................................ 13
4.4.1 Complaints manager .............................................................................. 13
4.4.2 Early warning system ............................................................................ 14
4.4.3 Requirement for internal field testing with reporting obligations ............. 14
4.5 CONTINUOUS IMPROVEMENT PROCESS (KVP) ................................................. 14
4.6 CHANGE MANAGEMENT................................................................................... 15
4.7 REQUALIFICATION .......................................................................................... 15
4.8 LESSONS LEARNED ........................................................................................ 15
4.9 ADDITIONAL COSTS INCURRED DUE TO DISCREPANCIES .................................... 15
4.10 TECHNICAL REVIEW OF SUPPLIERS (TRL) ........................................................ 15
4.11 "ESCALATION OF PROJECT AND PRODUCTION SUPPLIERS" PROGRAMME............ 16
TERMS USED AND ABBREVIATIONS ....................................................................... 17

INDEX ........................................................................................................................... 21

Page 6
1. Requests and preparation of tenders for
Economy parts

1. Requests and preparation of tenders for Economy parts

1.0 Definition of Economy parts

The Economy strategy is an additional guideline integrated into the Genuine Parts
Division for vehicles 5 years and older. The basis quality requirements for these “re-
pairs appropriate to the current market value of vehicle” are described in this Econ-
omy Formula Q Concrete.

1.1 Tender requirements

Before a tender is prepared, suppliers must enter their full details via the
www.vwgroupsupply.com website for all production and development sites. If any
information is missing, the supplier in question will not be included in the tender pro-
cess.

1.2 Tender documents

The contractor is obliged to check all requirements contained in the tender docu-
ments for completeness, absence of contradictions, feasibility and technical state
(see also VW 99000, Section 2.5) and inform the customer in writing of any devia-
tions (escalation).
If any amendments/additions are required, for example with regards to paint quality,
residual dirt, safety equipment, airbags, etc., must be clarified with the respective
technical departments before the tender is prepared (e.g. product and process re-
quirements) and must be documented in writing.
For certain product groups, such as high-strength screws and cable sets, special
Group requirements must be met. These are published on the "B2B" platform and
are included with each enquiry.

1.3 Supplier concept creation

Three categories of development level are defined in the companies of the
VOLKSWAGEN GROUP:
• Economy part developer (or technical development)
• Economy parts supplier

Depending on the development level applied (construction state); the supplier must
prepare a tender in consultation with the buyer's respective technical department
that contains the following minimum elements. This must be presented by the sup-
plier when requested by the respective quality officer (e.g. Quality Assurance, Prod-
uct and Supplier Quality, K-VO-Q/1) before the tender process.
• Description of structural design (e.g. geometry, materials, functions, software)
• Planned project organisation with the relevant contacts for the development
and production sites
• Explanation of planned production processes, factory layout and supply chains
• Explanation of project schedule for target forecasts for parts approval
• Concept of testing and approval planning (supply chain including buyer)
• Explanation of subcontractor and change management
• Explanation of measures for achieving quality targets

Page 7
1. Requests and preparation of tenders for
Economy parts

• Plausibility and agreement of targets (0km and field)

• Approval of target costs, deadlines, unit quantities
• Risk assessment of deadlines, costs and quality
• Definition, in accordance with the principle of causation, of cost bearer for
chargeable special measures
• Binding feasibility statement based on the agreed-upon specifications (QPN-
RGA for Economy parts)
• Logistics and packaging concept

Any remaining discrepancies with regard to the requirements must be reported in

writing to the quality assurance officer of the respective company of VOLKSWAGEN
GROUP, and these escalated if necessary.

1.4 Quality framework agreement

The companies of the VOLKSWAGEN GROUP generally demand a zero-error
strategy. In addition to the supply contract regulations on defects and other liability
claims, the supplier must agree with the responsible Quality Assurance department
in writing to a quality improvement programme in the case of any defects occurring.
If no written agreement exists, the supplier is obliged to an annual halving of the er-
ror quota.
The supplier is responsible to the companies of the VOLKSWAGEN GROUP for the
supplied quality of components/modules/systems. The supplier shall manage and
coordinate the subcontractors in the production and supply chain. The supplier en-
sures, using relevant contractual regulations, that documentation valid for the rela-
tionship between the Volkswagen Group Company and the supplier is likewise ob-
served in dealings with subcontractors in the production and supply chain.
If suppliers or sub-contractors are defined within the production and supply chain for
a component/module system by a Group company i. e. set parts suppliers, the set
part supplier must conclude a quality framework agreement with its direct customer
(i. e. the buying supplier in the production chain). In this relationship too, the 1st tier
supplier is fully answerable to the companies of the VOLKSWAGEN GROUP for the
quality supplied.

Page 8
2. Quality criteria for contract awards for
Economy parts

2. Quality criteria for contract awards for Economy parts

Before a contract is awarded each supplier is assessed based on the preven-

tion evaluation for quality capability and proven quality performance. If no rat-
ing is available, a process evaluation of the respective production sites must
be carried out before the contract is awarded in the CSC process. Non-
suitability (C-rating) in one of the two criteria will result in the supplier being
excluded from the tender process. In addition, the companies of the
VOLKSWAGEN GROUP reserve to right to conduct a project-specific risk as-
sessment which can also result in a “C-rating”.
The supplier is obliged to inform the certification company of a C-rating (busi-
ness on hold). The buying company of the VOLKSWAGEN GROUP must be
involved in subsequent steps between the certification company and the sup-
plier.

2.1 Elements of the supplier assessment

a) Parts relevant to safety and parts requiring documentation:
• Evidence of a fully-functioning quality management system certified by an
IATF-registered certifier in accordance with ISO/TS 16949 alternatively VDA
6.1.. Without this certificate, a quality capability assessment cannot be carried
out for stage A.
• Assessment of process suitability according to Formula Q capability and/or
Formula Q capability software. Results are expressed based on the ratings A, B
and C.
• Assessment of quality performance based on experience from previous pro-
jects and delivery and field quality. Escalation to the C-rating is carried out in
the "Escalation of project and production suppliers" programme.
• Product-specific and project-specific risk assessment involving experts, if re-
quired.

b) All other parts

• Evidence of a fully-functioning quality management system certified based on
the DIN EN ISO 9001:2008 standard.
• Assessment of process suitability according to Formula Q capability and/or
Formula Q capability software. Results are expressed based on the ratings
“accepted for Economy” and “not accepted for Economy”.
• Assessment of quality performance based on experience from previous pro-
jects and delivery and field quality. Escalation to the C-rating is carried out in
the "Escalation of project and production suppliers" programme.
• Product-specific and project-specific risk assessment involving experts, if re-
quired.

2.2 Quality capability target agreement

a) Parts relevant to safety and parts requiring documentation:
In order to ensure the quality of the components/modules/systems, the companies
of the VOLKSWAGEN GROUP require the supplier to produce the components /
modules / systems at an A-rated production site.

Page 9
2. Quality criteria for contract awards for
Economy parts

If the quality capability of the supplier's production site is rated "B" at the time the
contract is awarded, the supplier is obliged to qualify the relevant site so that it ob-
tains an A-rating. If this requirement is not met, an escalation will be carried out. De-
tails of this are set out in the nomination letter or in the quality capability target
agreement.

b) All other parts

If the quality capability of the supplier's production site is not rated at the time the
contract is awarded, the supplier is obliged to qualify the relevant site so that quality
capability is attained by no later than the first delivery (product and process approval
QPN-RGA 4 - Economy parts). If this requirement is not met, an escalation will be
carried out. These are individually regulated in the quality capability target agree-
ment.

2.3 Design management framework agreement (KVV)

To bindingly define responsibilities between the contracting company of the
VOLKSWAGEN GROUP and the supplier early during development of the compo-
nents / modules / systems, a design management framework agreement (KVV) is
used. Unambiguously defining the responsibilities for component design gives sup-
pliers greater influence on products developed together with Group companies. The
KVV comprises a design management framework agreement, which is concluded
with the supplier each time a new contract is awarded for components / modules /
systems plus an accompanying design management quota agreement (KV Quota)
which is concluded for each component.

The KV Quota is always based on the development level of the component. The fol-
lowing rule of thumb applies:
The more design specifications made by the Volkswagen Group, the lower the KV-
Quota. The fewer design specifications made by the Volkswagen Group, the higher
the KV-Quota.
The KVV is primarily based on the length of the business relationship between the
group company and the supplier.
The component-specific KV-Quota agreed upon is used to process unsatisfactory
deliveries by the supplier whenever an analysis of the defective components / mod-
ules / systems indicates the defect is due to its design or development.
The KVV and the KV-Quota are not applied when dealing with campaigns, particu-
larly recalls, series defects or product liability claims. The KV-Quota is also not ap-
plied when the assessment of the defective components / modules / systems re-
turns a “Trouble Not Found” (kFf / tnf) result.

Page 10
3. Working with suppliers in the
product implementation process

3. Working with suppliers in the

product implementation process

3.1 New parts qualification programme - maturity level assurance

(QPN-RGA) for Economy parts
This new parts qualification programme - maturity level assurance for Economy
parts, which is based on the VDA maturity level (QPN-RGA) must be applied con-
sistently by the supplier throughout the entire supply chain to meet the requirements
for a robust production process for Economy new parts (see also Formula Q new
parts).
This method allows users of the QPN maturity level at Volkswagen to identify
scopes of delivery that are critical to maturity levels and to take any necessary
measures promptly. As a result, the status in the product design process can be as-
sessed across a number of disciplines based on standard maturity levels at defined
project milestones. The companies of the VOLKSWAGEN GROUP reserve the right
to review the current project status of projects at any time (subject to prior arrange-
ment) at the supplier/subcontractor.
Fixed rules, including the introduction of so-called "Round tables", involve both the
suppliers (and subcontractors, if any) of maturity-critical deliveries and the custom-
er's internal organisation at an early stage in the product creation process (see also
VDA maturity level new parts).

3.2 Important milestones for QPN maturity levels for Economy parts
• RGA 0 (PB): Evaluation of potential

• RGA 1 (TS): Technical Specification and Supplier Requirements

• RGA 2 (LN): Supplier nomination

• RGA 3 (TB): Technical component approval

• RGA 4 (PPF): Product and process approval

• RGA 5 (DF): Material schedule release

• RGA 6 (ME): Market launch

• RGA 7 (SV): Series monitoring and verification

The quality assurance officer shall define the criteria for acceptance of “2-day pro-
duction” (2-TP) based on the applicable documents. If 2-TP and prototyping are
successful this will be the outcome of the new parts qualification programme.

Page 11
4. Series Quality Measures

4. Series Quality Measures

4.1 Continuous Guarantee of Process Capability

Process capability is a measure of the quality of a process based on the specifica-
tion of the products created by the process.

a) Parts relevant to safety and parts requiring documentation:

On-going process capability is established and guaranteed (PFU) (see also ISO/TS
16949, sections 7.5.2 and 8.ff) in accordance with VW standards 10131 10119 (see
also VDA 4.1).
The scope of the special characteristics that are measured to determine the Cp-,
and Cpk values must be defined in the FMEA for the product and the process. The-
se documents can be viewed at any time by the buyer.
The supplier must establish, document and, on request, notify the respective
quality officer of any critical attributive characteristics (e. g. from process
FMEA).
A draft protection agreement must be presented and agreed with the buyer for criti-
cal attributive characteristics (may result in A and B errors). This can be achieved,
for example, using multi-level protection with Poka Yoke, occupational organisation
measures, line measurements, audits, 100-percent testing, etc. for the acceptance
criteria zero errors in accordance with ISO/TS 16949, section 7.1.2.
At least one method/ tool must be applied as described in VDA Books 4 and 14 for
each identified process or product risk (e. g. by FMEA) in order to achieve the quali-
ty targets in accordance with the state of the art.

b) All other parts

Where it is not possible to verify process capability (e. g. re-working), special char-
acteristics specifications for the testing of parts must be agreed by the supplier. Lot
sizes are to be agreed based on the shelf life of parts and availability of the suppli-
er’s own, appropriate warehouse space.

4.2 Product Safety, Product Liability

The companies of the VOLKSWAGEN GROUP accept the final production lia-
bility if using purchased parts and general liability for the end product, the ve-
hicle.
The primary production liability for the purchased parts used in the end product lies
with the supplier or sub-contractor. The supplier must therefore take all organisa-
tional and technically feasible and reasonable measures to increase the product
safety of its parts and the parts of its subcontractors and to minimise the risks of
product liability.

The supplier shall ensure and require its subcontractors to ensure that:
• A highly-developed appreciation of quality exists throughout the company,
• The required product safety is guaranteed when components are developed,
• Special consideration is given to product safety during the quality planning
stage,

Page 12
4. Series Quality Measures

• The quality capability of the production processes is guaranteed and proven,

• Likelihood of defective products is minimised using appropriate quality assur-
ance measures,
• Defective products are identified early on in the production workflow using ap-
propriate measures (to minimise costs/waste of added value),
• Quality data and the legally required compliance tests are documented in suffi-
cient detail in order to prove that the products have been manufactured in ac-
cordance with all relevant laws and safety standards,
• A material tracking system can be used to pinpoint the effects of any faults that
occur if required,
• Detailed information and training for the relevant staff on "Product safety and
product liability" and
• Similar systems with the buyer's requirements similar to formula Q-concrete,
etc. are used by all subcontractors,
• A product safety officer (PSB) is appointed for each stage in the supply chain.
The 1st tier PSB must be entered in the supplier database (LDB). This must be
kept up to date at all times.
• Components with a limited durability that meet special labelling requirements,
particularly in accordance with the manual for original parts suppliers.

4.3 Internal Audits

To be able to assess and improve the quality capability of various divisions, the
supplier must carry out regular internal audits in accordance with the requirements
of ISO/TS 16949 (section 8.2.2) and formula Q-capability / formula Q-capability
software.
In addition, the supplier must carry out a D/TLD self-audit at least once a year
based on formula Q-capability for scopes of delivery marked as D parts.
The audit results of the D/TLD- audit must be archived for at least 15 years.
The companies of the VOLKSWAGEN GROUP reserve the right to carry out a pro-
cess and product audit at any time.

4.4 Control circuits

4.4.1 Complaints manager
The companies of the VOLKSWAGEN GROUP maintain a comprehensive defect
management system. The supplier is obliged to systematically rectify any defects
that occur as quickly as possible within the framework of existing regulation and
demonstrate the sustainability of its measures to the Quality Assurance department
responsible.
The supplier must notify the respective quality officers, logistics centres and any
other partners in the supply chain of any faults that occur.
A and B faults must be remedied by the supplier with immediate effect, in some
cases on request (see also formula Q-capability, section 5.3) in other words at
least:

• Immediate sorting / re-working of supplies at the buyer's site

• Use of a 100% firewall to prevent further slips.

Page 13
4. Series Quality Measures

If this cannot be carried out by internal staff, the supplier must commission a third
party to carry out the work.
If an A fault occurs the supplier must send a high-level representative to the relevant
quality assurance department of the buying company of the VOLKSWAGEN
GROUP within 24 hours, or if requested.

4.4.2 Early warning system

Complaints management allows the group company and its supplier to obtain
important early warning information about new and unknown product prob-
lems.

Guidelines on handling problems at the supplier's factory:

If the significant discrepancies are noted with regard to the defect figures for the
supplier's products (e. g. rejects and re-working) the supplier must immediately re-
port to the relevant quality officer.
This also applies if defects are identified on similar products manufactured by com-
petitors.

Guidelines on handling problems at the buying company of the VOLKSWAGEN

GROUP (production hall failures):
The supplier must work through the information supplied by the buying com-
pany of the VOLKSWAGEN GROUP immediately to avoid faulty parts being
sold to end customers. Consequently, the quality information on production
hall failures and ppm must also be classified and evaluated regularly and
promptly.

Guidelines on handling problems in the field:

The supplier must play an active role in early warning system (hotline, commercial
task force, etc.), for example with resident experts on site, to assist with the early
identification of field faults. The supplier is required to assist with the fault elimina-
tion process on site for new product launches and damaged parts with a 100% obli-
gation to report if noted by the observation group.

4.4.3 Requirement for internal field testing with reporting obligations

As part of its product monitoring obligation the supplier must also carry out a
market observation for the products it sells directly and to notify the buying
company of the VOLKSWAGEN GROUP of any transferable knowledge ob-
tained as a result.

4.5 Continuous improvement process (KVP)

The supplier is required to provide evidence of a continuous improvement pro-
cess in accordance with ISO/TS 16949 ISO/TS 16949 section 8.5. Through
this process the suppliers aims to take suitable measures to reduce internal re-
ject and re-working quotas. This information must be presented to the compa-
nies of the VOLKSWAGEN GROUP when requested. Deviations to this regula-
tion can be agreed in writing with the companies of the VOLKSWAGEN
GROUP.

Page 14
4. Series Quality Measures

4.6 Change management

The supplier is required to notify the buying company of the VOLKSWAGEN
GROUP of all changes to the process chain (site, product, process) prior to
implementation and to obtain the approval of the relevant quality officer. If a
new model is required, this must be agreed with the relevant quality officer
from the buying company of the VOLKSWAGEN GROUP. Failure to observe
these requirements will automatically result in a C-rating (business on hold,
see section 2). Any additional costs incurred for the new approval process
shall be borne by the supplier.

4.7 Requalification
The supplier must guarantee quality by carrying out a regular prequalification of its
scope of supply in accordance with ISO/TS 16949 (section 8.2.4.1) and in accord-
ance with VDA Robust Production Processes (section 5.3.4). Any deviations in the
contents of this re-qualification must be agreed between supplier and recipient. The
companies of the VOLKSWAGEN GROUP require a full re-qualification at least eve-
ry five years. Deviations to this regulation can be agreed in writing with the buying
companies of the VOLKSWAGEN GROUP.

4.8 Lessons Learned

Feedback on previous and ongoing projects, e.g. from field failures, production hall
failures, project management, etc. must be used as "lessons learned" for new pro-
jects/developments and must demonstrate a measurable reduction based on previ-
ous indicators for start-ups.

4.9 Additional costs incurred due to discrepancies

Additional costs incurred as a result of field and production hall failures shall be paid
for by the companies of the VOLKSWAGEN GROUP based on the originator princi-
ple.
The supplier's liability in relation to field failures is calculated using a technical factor
(TF) defined between the companies of the VOLKSWAGEN GROUP and its suppli-
ers in accordance with the corresponding documentation on quality assurance for
purchased parts of the respective group company (e.g. Managing costs for field and
0km complaints caused by suppliers). Failures are generally caused by process or
design faults.
Technical factors are defined for a specified period.

4.10 Technical review of suppliers (TRL)

In principle the companies of the VOLKSWAGEN GROUP pursue the following
global aim together with the TRL (see formula Q-capability:
• Guarantee of specified part and component requirements
• Review of series production on site and all other controlling activities
• Effectiveness check of corrective measures and verification of agreed quality
management standards
The companies of the VOLKSWAGEN GROUP reserve the right to carry out a
TRL at any time. The TRL shall be announced one working day before it is
performed.
The TRL is assessed using a traffic light system. The TRL is assessed using a traf-
fic light system. A red traffic light equates to a level 2 rating in the "Escalation of pro-

Page 15
4. Series Quality Measures

ject and production suppliers" programme and will be followed up immediately with
a quality meeting with the quality officer of the buying company of the
VOLKSWAGEN GROUP responsible for TRL with the involvement of the supplier's
top management; at this stage a decision will also be made regarding the supplier's
C-rating (business on hold; section 2).

4.11 "Escalation of project and production suppliers" Programme

If there are serious discrepancies in quality requirements, such as standard of deliv-
ery, prototyping and red TRL assessment, the quality officer at the buying company
of the VOLKSWAGEN GROUP will escalate the supplier in the "Escalation of pro-
ject and production suppliers" programme. The programme consists of four defined
levels:
Level 0: The supplier has problems
Level 1: Supplier is not successful in solving the problems
Level 2: Supplier requires external help to guarantee supply availability,
C Warnung
Level 3: Supplier does not meet group quality, C-rating (business on hold;
section 2)

As a rule, the ratings have a time limit. Suppliers who can provide evidence of the
sustainability of the measures taken are deescalated.
The group quality officer reserves the right to enforce a direct level 3 rating in ex-
ceptional circumstances.

Page 16
Terms used and abbreviations
Terms used and abbreviations
0km Fault
0S (Pilot series)
1st Tier supplier
2-day production (2 TP)
A, B, C faults
Attributive characteristics
B2B
Design type approval
Fault that occurs when delivering or installing the part on the as-
sembly line.
A pilot series (0S) indicates the time at which the first new vehicles
are constructed on an assembly line under series production con-
ditions. A first model rating of "1" is required at this point for the
purchased parts. Parts pre-production for vehicles is at least 4
weeks, or at least 6 weeks for components. Parts are used in cus-
tomer vehicles.
A direct supplier to a receiving plant of a company of the
VOLKSWAGEN GROUP.
The process parameters are verified as part of "2dayproduction" to
ensure the start of production in terms of quality and unit quanti-
ties.
Faults are classified according to severity using the following clas-
ses:
A1 Safety risk, breakdown
A Unacceptable, will almost certainly result in a customer com-
plaint
B Annoying, disturbing, customer complaints expected, dis-
crepancy from specifications, possible disruption to the buy-
er's operating procedures
C Requires improvement, customer complaints and disruption
to the operating procedures expected if frequency increases
Attributive characteristics are characteristics that only determine
the number of faults:
• Proportion of faulty units (e.g. 1.8% faulty screws)
• Average number of faults per unit
(e.g. 3 paint faults per vehicle)
Business to Business (e-commerce platform on the internet for
communication between suppliers and the companies of the
(VOLKSWAGEN GROUP).
Internet: www.vwgroupsupply.com
Phone Germany: 0800 - 193 30 99
Phone International: +49 - 5361 - 93 30 99
Email: supplierintegration@vwgroupsupply.com
Parts that require a design type approval (BMG) are individual
parts or assemblies with special development and/or manufactur-
ing expertise, and their characteristics and mode of operation
cannot be completely described in drawings and/or delivery speci-
fications and/or whose dimensions need to be coordinated with
other components
as well as safety parts. The developer will designate parts that re-
quire a design type approval (BMG) as such.
To document the release of these parts for use in production
and/or sale of Genuine parts samples will be created along with
the technical documents which receive a design type approval
once they have successfully completed the testing process.
Standard parts are exempt from this.
Page 17
Terms used and abbreviations

Critical and function-relevant product, process and test features

are to be specified using the “System FMEA Product” in cross-
divisional teams. Other special features may arise from the sub-
Special characteristics
sequent “System FMEA Process”. Besides statutory, safety-
relevant, design and process-oriented aspects, these also include
key customer-oriented aspects.

Business on hold A supplier production site is blocked for further orders  "C" rat-
ing or "not O.K. for Economy"

B- Frei (Procurement approval) Procurement approval

Process Capability Index; This describes the distribution of a pro-

Cp
duction process.

Process Capability (correct); In addition to the distribution of the

production process the process capability index also takes into
account the median frequency distribution at the specification lim-
Cpk
its. If the Cpk value is less than the Cp value, the median distribu-
tion will lie outside of the tolerance centre and therefore the pro-
cess is not centred.

DE Design Decision

Design freeze Conclusion of detailed design and planning approval.

Characteristic requiring documentation of a product

D feature
(see also ISO/TS 16949 section 7.3.2.3).

Part with a characteristic requiring documentation

D part
(see also ISO/TS 16949 section 7.3.2.3).

Requiring documentation/Technical guideline documentation

D/TLD
(see formula Q-capability, section 8, page 1).

DF Disposition approval

Economy parts (marketing term for parts appropriate to current

Economy parts
market value, see also „ZWG“)

Safety element, which prevents faulty (not O.K.) parts being

Firewall
passed on to end customers based on a define firewall- rule book.

Failure Mode and Effect Analysis; Analysis of potential failure ef-

FMEA
fects and their consequences.

IATF International Automotive Task Force (see ISO/TS)

ISO/TS International Standard Organisation / Technical Specification

KE Concept decision

Kick-off discussion Initial discussion of fundamental issues

Cannot be established: Faulty parts for which the cause(s) of the

KFf
defect are not explained.

KVP Continuous improvement process

Page 18
Terms used and abbreviations

KV-Quota KV-quota agreement

Design management agreement

KVV
(see applicable documents)

LDB Supplier database

LN Supplier nomination

ME Market launch

OEM Original Equipment Manufacturer

Parts Approve Procedure (Supplier availability of gauges and test-

PAP
ing methods)

PB Potential evaluation

P- Frei Planning approval

PFU Continuous process capability

Poka Yoke System for preventing unintentional mistakes

PPF Product and process approval

ppm Parts per million

Escalation of project and production Escalation process for suppliers exhibiting inadequate perfor-
suppliers mance in the production hall (0km) or field. The process can lead
to the supplier being temporarily blocked for new contracts (Busi-
ness on hold, see applicable documents).

PSB Product safety officer

Production test series is used as the last approval stage for the
assembly of individual parts. Assembly must take place using rep-
PVS
resentative series production processes with parts directly from
the tool. A rating of at least 3 is required for purchased parts.

Q Quality

QM Quality management

Qualification program for new parts

QPN
(see Formula Q-new parts integral)

QS Quality management

RGA Maturity level assurance

Robust production prozess

RPP
(see VDA product manufacture and supply)

A core stage in supply chain communication is the introduction of the

Round table so-called "round table" at the level of the respective scope of delivery in
the supply chain with the relevant division representative.

Page 19
Terms used and abbreviations

There is a documentation requirement for all objects and products

Component relevant to safety
subject to laws and/or internal Volkswagen provisions which could
prove life-threatening to the user of the product in the event of fail-
ure. All objects/products with a documentation requirement are
outlined in the "TLD (Technical guideline for documentation)".
Parts relevant to safety are usually subject to a design type ap-
proval.

SOP Start of Production

SV Series monitoring and verification

Supply Chain 1st Tier to "n-Tier"

Task Force Task force commissioned to resolve a problem.

TB Technical component approval

The technical factor is calculated on the basis of a jointly agreed

technical analysis and determines the proportion paid by the origi-
nator for any damage events.

TF
Suppliers for any damage events
TF = Originator for any damage events

(See rules regarding the passing on of costs for field and 0km
complaints caused by suppliers)

Catalogue in which all characteristics requiring documentation are

TLD (catalogue)
listed. (See ISO/TS 16949 section 7.3.2.3).

Trouble-not-found parts. Faulty parts for which the cause(s) of the

tnf
defect are not explained.

TRL Technical review of suppliers

TS Techical Specification and Supplier Requirements

VDA German motor industry association

VO Genuine Parts division

Technical standards in the companies of the VOLKSWAGEN

VW Standard
GROUP (e. g. VW 10540 Manufacturer Codes for Vehicle Parts)

Components appropriate to current market value (Additional

guidelines integrated into the Genuine Parts Division for vehicles 5
ZWG years and older which are subject to the full scope of the process-
es according to Economy Formula Q-konkret and QPN-RGA
Economy of VO.

Page 20
Index

Index

Effectiveness check ....................................................... 16

Escalation of project and production suppliers ......... 16, 19
0
0km ............................................................... 8, 15, 17, 19 F
Fault management ......................................................... 14
1 Field failures .................................................................. 15
Final production liability.................................................. 12
1st tier ....................................................................... 8, 13 Firewall .................................................................... 14, 18
1st Tier .................................................................... 17, 20 First-piece inspection ..................................................... 12
FMEA ................................................................ 12, 17, 18
2 Formula Q capability ............................ 4, 9, 13, 14, 16, 18
Formula Q capability software ................................ 4, 9, 13
2-day production (2 DP)................................................. 12
2-day production (2 TP) ................................................. 17
G
A General liability .............................................................. 12
Group Packaging Guidelines ........................................... 4
Added value .................................................................. 13
Additional costs ............................................................. 15
Applicable documents ........................................... 3, 4, 12 H
Attributive characteristics ......................................... 12, 17 Halving of error quota ...................................................... 8
Audit .............................................................................. 13

B I
IATF........................................................................... 9, 18
B2B ........................................................................... 7, 17 ISO/TS 16949 .................................5, 9, 12, 13, 15, 18, 20
Bauteilfreigabe .............................................................. 11
Business on hold ......................................9, 15, 16, 18, 19
K
C Konstruktionsstand .......................................................... 7
KV-Quota....................................................................... 10
C-rating ............................................................... 9, 15, 16
Complaints manager ............................................... 13, 14
Component...................................................... 5, 8, 10, 13 L
Component requirements .............................................. 16
Continuous improvement process (KVP) ....................... 19 Laws .............................................................................. 13
Continuous Improvementprocess (KVP) ........................ 15 Lessons Learned ........................................................... 15
Controlling activities....................................................... 16 Lieferantennominierung ................................................. 11
Cp values ................................................................ 12, 18
Cpk values .............................................................. 12, 18
M
D Manual for Genuine parts suppliers.................................. 4
Market observation ........................................................ 14
D part ...................................................................... 13, 18 Markteinführung ............................................................. 12
D/TLD...................................................................... 13, 18 Material tracking system ................................................ 13
D/TLD Self audits .......................................................... 13 Maturity level ........................................................... 11, 20
Design fault ................................................................... 16 Maturity Level Assurance ................................................. 4
Design management agreement (KVV) ......................... 19 Method .................................................................... 11, 12
Design management framework agreement (KVV) ........ 10 Module....................................................................... 8, 10
Design type approval ..................................................... 20
Development level ..................................................... 7, 10
DIN EN ISO 9001:2008 ................................................... 9 N
Dispositionsfreigabe ...................................................... 11
Durability ................................................................. 12, 13 New approval process ................................................... 15
New parts qualification programme (QPN) ......... 11, 12, 19
Nomination Letter .......................................................... 10
E
Early warning system .................................................... 14
Economy ......................................................................... 3
Economy parts ............................................................ 4, 7
Economy parts supplier ................................................... 7
Economy rating ............................................................... 9
Economy strategy ............................................................ 7
Economy Teile Entwickler................................................ 7

Page 21
Index
P
Part ......................................................................... 16, 18
Parts dispatch control ...................................................... 4
Parts provision deadline (TBT) ...................................... 20
Pilot series..................................................................... 17
Poka Yoke ............................................................... 12, 19
Potenzialbewertung ....................................................... 11
ppm ......................................................................... 14, 19
Process capability.................................................... 12, 19
Process fault.................................................................. 16
Product creation process ............................................... 11
Product design process ................................................. 11
Product liability .................................................. 10, 12, 13
Product monitoring obligation ........................................ 14
Product safety ......................................................... 12, 13
Product safety officer ............................................... 13, 19
Production hall failures ............................................ 14, 15
Production liability.......................................................... 12
Production Test Series (PVS) ........................................ 19
Produkt- und Prozessfreigabe ....................................... 11
Project milestones ......................................................... 11
Protection agreement .................................................... 12
Q Tender documents ........................................................... 7
QPN ................................................................................ 4
QPN maturity level......................................................... 11
Quality assurance measures ......................................... 13
Quality capability ............................................. 4, 9, 10, 13
Quality capability assessment.......................................... 9
Quality data ................................................................... 13
Quality framework agreement .......................................... 8
Quality performance ........................................................ 9
R
Relevant to safety .....................................9, 10, 12, 17, 20
Repairs appropriate to the current market
value of vehicle............................................................ 3, 7
Requalification ............................................................... 15
Review .......................................................................... 11
Reworking ..................................................................... 12
Robust production processes ........................ 3, 11, 15, 20
Round table ................................................................... 11
S
Security standards ......................................................... 13
Serienüberwachung und Verifizierung............................ 12
Slips .............................................................................. 14
Software ...................................................................... 4, 7
Special characteristics ............................................. 12, 17
Special Group requirements ............................................ 7
Special labelling requirements ....................................... 13
Specification .................................................................. 11
Standard parts suppliers .................................................. 8
Start of production (SOP) ............................................... 20
Supplier database (LDB).......................................... 13, 19
Supplier requirement...................................................... 11
Supply chain ...................................... 2, 3, 7, 8, 11, 13, 14
System ................................................................ 8, 10, 13
T
Technical factor (TF) ................................................ 15, 20
Technical review of suppliers (TRL) ......................... 16, 20
Tool ............................................................................... 12
V
VDA 6.1 ....................................................................... 5, 9
VDA maturity level ......................................................... 11
Verband der Automobilindustrie (VDA) (German motor
industry association) ................................................. 20
Verification tests ............................................................ 13
W
Warehouse spaces ........................................................ 12
www.vwgroupsupply.com............................... 3, 4, 5, 7, 17
Z
Zero-error strategy ........................................................... 8
Page 22