Since January 2010, our production sites that were previously organized at a regional level have been fused into an integrated production network, coordinated by GMO. This should allow the individual facilities to coordinate their activities more closely. In a first step, we analyzed our global production capacities and competencies to see how transferring knowledge and technologies, harmonizing processes, as well as aligning our terminology and reporting could help us to further improve our overall cost management and production performance.

Facilities with long-standing experience in manufacturing particular products have now become Company- wide competence centers. In future, they will use their know-how in core technologies and materials to advise our decentralized production sites on synchronizing their processes. The sites at St. Wendel (Germany) and Ogden (U.S.), for example, will be responsible for hollow fibers, and the plants in Reynosa (Mexico) and Cremona (Italy) for bloodline systems. GMO intends to use this approach not only to transfer best practice between the regions and sites but to provide an even more effective interface with research and development.

At the same time, we are assessing new opportunities for regions to supply each other with products and components, thus further increasing the efficiency of production. However, the intention is not to standardize our production lines worldwide. On the contrary, we want to retain our competitive advantage of being able to tailor our products to different needs. If, however, our products can be adapted to local requirements while using the same core materials and technologies, this will allow us to use our production capacities worldwide more flexibly and efficiently to meet customer demands. For instance, our Reynosa facility as a competence center for bloodline systems now closely coordinates its production with that of the Jiangsu site in China. Thanks to harmonized processes as well as standardized materials and product components, the entire Company will now benefit from production capacities and comparatively low production costs in China.

Our regions are already closely involved with the GMO team, for example in the annual and longrange production planning processes. We also want to continue aligning our processes worldwide by setting up standard IT systems for production at our plants in the next few years. GMO has also given new impetus to our efforts to coordinate HR development in production across regions: By creating attractive development perspectives for employees in our global production network, we hope to benefit from the expertise of our highly qualified engineers, process technicians, site and production managers for as long as possible. In addition, by cultivating promising young employees with targeted measures, we should be able to retain qualified candidates for succession planning in production and process development.

We want to offer our patients and customers worldwide the best possible product and treatment quality. To this end, Fresenius Medical Care applies extensive quality management systems in its regions. These regulate and monitor compliance with quality and safety standards for all of our products and technologies – from their development and production to market approval and use in clinics, right up to training customers and dealing with complaints. The quality management systems combine internal rules and processes with the requirements of external standards and guidelines, which are relevant for our business both in the individual regions and internationally. These include the ISOISOInternational Organization for Standardization. norm 9001:2000 for quality management systems and the related ISO norm 13485:2003 for the manufacture of medical products, the guidelines of the U.S. Food and Drug Administration (FDA), the EU Medical Device Directive (MDD) or Good Manufacturing Practices (GMP), the latter being sets of rules to ensure the safe and high-quality production of pharmaceuticals and medical devices. In addition, our plants have been applying recognized tools such as Lean Management and Six Sigma in their quality management for years, helping us to further improve the quality and efficiency of our manufacturing operations.

We work closely with the local authorities in the regions to solve potential problems related to quality management in a timely manner. In addition, efforts to link quality issues Company-wide have long played an important role: Some of our production sites are certified according to multiple regional quality standards. This allows us to deliver our products flexibly to markets worldwide while minimizing potential risks related to supply security. Thanks to our GMO division, we will be able to pursue this strategy even more intensely than before to obtain multiple certifications for further sites. In addition, we intend to harmonize quality management for all of our products. If we use similar processes and systems to assure and improve quality in all regions and exchange our knowledge, we will be able to manufacture our products more flexibly and more efficiently around the world, as well as controlling risks in complying with both our own standards and external regulatory requirements even more effectively. This approach, too, will help to avoid costs and create value for the Company as a whole.

In the year under review, we created for the first time the positions of a global quality manager and a central manager for Lean Management and Six Sigma projects for production. One of the projects we have been pursuing since setting up GMO has been to coordinate our complaint management: We have developed standard criteria in all regions for recording and evaluating customer complaints; in addition, we introduced a new reporting structure that will allow us to report consistently on the results. This should enable us to identify areas for improvement faster and more easily, and to develop new methods and targets to solve potential problems. As a next step, we plan to set up a cross-regional data management system for complaint management as well as for documenting our quality processes internally.

GMO’s tasks also include standardizing our internal quality management audit process and integrating Lean Management and Six Sigma resources and activities across the world to further enhance our operational efficiencies. In the year under review, we initiated cooperation between all regions in this area, which had previously been the responsibility of the individual regions, in the form of benchmarking and sharing best practices.

As we continue to consistently pursue our growth strategy, and because the markets are becoming more and more international, it is increasingly important that strategic purchasing at Fresenius Medical Care closely observes regional as well as global developments in the procurement markets and individual currencies. This allows us to benefit from international price advantages when sourcing raw materials and components for our production and to better compensate risks, i.e. potential costs, for instance in conjunction with currency fluctuations or dependency on individual suppliers. In future, we want to make greater use of these advantages with our new GMO division through increased collaboration between our strategic purchasing teams.

To this end, our two centers for strategic purchasing – one in Germany (Bad Homburg) and the other in the U.S. (Ogden, Utah) – closely aligned their procurement strategies in the year under review. In doing this, they are pursuing two main objectives: to ensure an efficient and flexible supply of raw materials from the different currency areas and to manage our relationships with the Company’s most important suppliers even more effectively. A particular focus was placed on the projects described below in the year under review.

Cross-regional project teams systematically assess which raw materials or components are required by more than one production facility or region, and coordinate tenders and negotiations for their procurement. Our two sites for dialysisDialysisForm of renal replacement therapy where a semipermeable membrane – in peritoneal dialysis the peritoneum of the patient, in hemodialysis the membrane of the dialyzer – is used to clean a patient’s blood. machines in Schweinfurt and Walnut Creek are prime examples by better aligning their raw material requirements and supplier network, enabling them to capture synergies to a greater extent than before. Moreover, to manufacture products flexibly throughout the Company, we intend to supply all of our plants with raw materials and components of a consistent quality. To achieve this, we will continue to seek suppliers who consistently demonstrate high quality performance and the ability to meet strict product specifications, including multinational suppliers who can produce and provide raw materials in more than one region.

We want to provide our customers with medical products of the highest quality and, at the same time, at the best price. To this end, our procurement strategy is aimed at purchasing high-quality materials and components in a long-term mutual relationship with our suppliers and at optimal economic conditions. Aided by supplier management, we carefully select our suppliers according to their suitability and performance, develop innovative products and processes together with key providers, and simultaneously avoid risks relating to our supply of raw materials, for instance, avoiding dependency on one or a few suppliers for key raw materials or components. Furthermore, in the year under review we introduced a new risk management system within GMO for our most important sources of materials, components and parts worldwide. This allows us to proactively monitor our supply of key raw materials as well as our relationships with strategic suppliers across regions, according to uniform criteria, and thus identify potential risks even earlier. Among these criteria are: consistency in quality, short- and medium-term supply availability, the likeliness of natural disasters as well as currency risks.

In supply chain management, GMO is responsible for all activities within the North America segment – from the distribution of raw materials to our production sites all the way through customer delivery of our products. Within the International segment, GMO is responsible for a part of the supply chain, from raw materials through finished goods delivered to our central distribution centers, such as Biebesheim (Germany). Further steps lie within regional responsibility. We also intend to strengthen the cooperation between the GMO production network and our regional supply chain managementSupply chain managementManagement of all tasks along the supply chain, ranging from supplier selection, procurement and warehousing to the transport of goods to customers with the goal of improving efficiency in the value chain. teams. The aim is to make our supply chain management altogether more efficient by avoiding as far as possible risks such as planning production quantities insufficiently or distributing production orders to our sites inefficiently.

In the International segment, for example, we introduced a new forecast and demand planning system in 2010 for our most important disposable products, initially for bloodline systems; from 2011, it will be extended to dialysisDialysisForm of renal replacement therapy where a semipermeable membrane – in peritoneal dialysis the peritoneum of the patient, in hemodialysis the membrane of the dialyzer – is used to clean a patient’s blood. solutions and dialyzers. Thanks to the new system, we can for the first time plan and manage all tasks along the supply chain for these products across all regions and locations within the International segment. The demand reported by sales is continuously coordinated with production capacities and inventory management within the GMO network. A special distribution logic ensures that production orders for the same products and manufacturing methods are efficiently spread between the relevant production sites. Thanks to standardized technologies and quality systems, the plants are able to flexibly adapt the quantities of the individual products they manufacture to the requirements of sales. If, for example, demand for a product primarily manufactured at one particular site goes up temporarily, a second facility can increase its capacities for this product at short notice and help produce it.

The new system for forecast and demand planning is based on the SCALE initiative. In 2009, we commenced work on SCALE in the EMEALA region (Europe, Middle East, Africa, Latin America) and we will continue working on it until the end of 2011 with different measures to boost and harmonize the flexibility and cost-effectiveness of supply chain management. Apart from standardizing the planning of production demand and inventory management, these measures also encompass automatic supply management, ensuring that our national warehouses are refilled when their inventory reaches a defined minimum level. In this way, we intend to further enhance the service quality as well as the cost efficiency of our supply chain and achieve savings in the millions.