02.3
Non-financial Performance Indicators
PROCUREMENT AND LOGISTICS
The procurement of high-quality raw materials and semi-finished products as well as the punctual delivery of our products to customers – patients, dialysis clinics and hospitals – are among the most important factors for the success of Fresenius Medical Care. Naturally, the products are constantly checked during production, and the manufacturing process is precisely monitored. But the desired end quality can only be achieved if the input – raw materials or delivered materials – meets our high quality standards. Equally important are optimum logistics processes to ensure that our high-quality products reach our customers intact and on time.
Our procurement strategy aims at obtaining the necessary materials and components through a fair, longterm and sustainable cooperation with our suppliers. We thus look for optimum economic conditions and the highest quality worldwide. This is why, in October 2007, our International segment launched the “Purchasing Excellence” initiative. The aim of the initiative is to re-centralize decentralized purchasing in Europe, to streamline and standardize processes, and to achieve additional savings by means of internationally coordinated product group management. The matrix organization has been implemented since January 2009. Today, centrally located specialists are responsible for the strategic purchase of the large product groups – for example, energy, consumables, chemicals, and plastic granulates, a primary product for dialyzers. In addition, a centralized purchasing control system monitors procurement performance. The improvement approaches implemented saved some €9 million in procurement costs in 2008. As a result, we managed to largely compensate the higher prices that some of our suppliers demanded due to the raw material boom in 2008. With respect to very large single items in procurement – such as polysulfone, the material the fibers in our dialyzers are made of – we took intensive measures last year to hedge our purchasing volume. Today, we obtain 60 % of all products on the basis of outline agreements.
Under the watchword supplier management, in the International segment all suppliers are regularly categorized and evaluated on the basis of strict quality criteria and standards. The resulting ratings are one of the principal foundations for supplier development measures and future supply decisions. Supply management is not yet harmonized in all plants and regions; that will be one of our tasks this year.
In the logistics area, our biggest project last year was preparing our new distribution center in Biebesheim, Hesse, for operation. The distribution center meets all modern logistics standards. Among other things, all processes are controlled electronically by using bar codes. In December 2008, Fresenius Medical Care acquired the center from an investor who built it to our specifications. In Biebesheim, we combine the former main warehouses of Gernsheim (the integration started last December and should be fully concluded by the end of the second quarter 2009) and Darmstadt (the move will take place in the fourth quarter 2009). The new high rack warehouse will initially cater for 55,000 pallets. Its capacity can, however, be increased to up to 75,000 pallets. This completely covers the forecast volume growth for the coming years. The new distribution center will reduce our annual logistics costs in Europe by €1.5 million as from 2010.
In 2008, we launched a second, cross-functional initiative called “P.XL – Packaging Excellence” to improve product packaging and packaging units. The new, standardized packaging should ensure a problem-free, cost-effective handling along the entire supply chain while meeting our customers’ requirements. Our standardized cardboard boxes give us the edge to better plan and utilize warehouse space. Simultaneously, the more efficiently used loading spaces bring down our transport costs.
The aim of our project “Supply Chain Landscape 2015”, introduced last year, is to develop a sustainable strategy for the Europe / Middle East / Africa region until the year 2015 that also takes Fresenius Medical Care’s growth expectations into account. The very core of the project is the creation of a flexible and cost-effective supply chain (particularly in terms of transport volume) for single-use products from our factories, distribution centers and warehouses to the end customer. Apart from the long-term improvement goals, we have identified measures for short-term optimizations and cost savings.
In the U.S., we primarily focused on optimizing processes and cutting costs in procurement last year. Still, quality remains one of our top priorities. Therefore, we always examine insourcing possibilities.
We operate 14 distribution centers in the U.S., and supply more than 6,000 clinics and around 7,800 home dialysis patients. Last year, 300 trucks moved 86 % of our transport volume – more than ever before. Our own fleet is not only more cost-effective, but offers a better transport quality than any external service provider. The fact that we continue to operate a fleet of trucks is one of the results of the Lean Six Sigma quality initiative launched almost four years ago. It allows us to analyze and better coordinate processes in logistics, among other areas. We recently started offering our transport infrastructure to external customers to improve the load capacity of our trucks. Now we can sell load capacity to more than 160 freight brokers – for example, when returning from the customer to the distribution center.
Due to the financial crisis, we have to contend with rising prices in both procurement and logistics. Our challenge is to find new suppliers to further enhance the safe supply of strategically important products. Another challenge is posed by the increasing costs for the transport of liquids such as dialysis concentrates and peritoneal dialysis solutions, which weigh more than, for example, bloodlines or dialyzers.
In an effort to counter rising procurement prices we intensively pursued an approach in 2008 to increasingly coordinate our procurement activities to meet the demand in North America, Europe and the Asia-Pacific region. To this end, we standardized a number of (raw) materials across regions. Moreover, we make greater use of supply sources in regions with favorable exchange rates. However, material savings and insourcing remain proven measures to counteract rising prices.
