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Procurement and Production

Procurement and Production

As the industry leader with many years’ experience in dialysis, we can call on considerable internal resources in the area of production. These include manufacturing capacity in all regions as well as expertise in complex production technologies and processes. Furthermore we have extensive skills in quality management, procurement and logistics for sophisticated medical products.

Worldwide network of production sites

Our largest sites in terms of production volume are in the U.S., Germany and Japan. Chart 2.1.1 presents an overview of our main production sites.

We manufacture dialysis machines at two sites: Schweinfurt (Germany) and Walnut Creek (U.S.). In November 2012, Fresenius Medical Care produced its 500,000th dialysis machine. The device that belongs to the multi-award-winning 5008 series rolled off the production line at the Schweinfurt plant and was donated to the German Kidney Foundation. Further information can be found in our magazine.

We manufacture most of our other products directly in the regions in which they are needed. For example, we produce and assemble dialyzers and the corresponding hollow fibers at our facilities in Ogden (U.S.), St. Wendel (Germany), L’Arbresle (France), and Buzen (Japan), among others. Concentrates for hemodialysis are manufactured at different sites across the globe, for example in Germany, Italy, Turkey, Morocco, the U.S., Argentina and Australia.

Most of the solutions used for peritoneal dialysis are supplied by our production sites in St. Wendel and Ogden. In terms of production volume, our plant in Reynosa (Mexico) is the largest facility for bloodline systems both within the Company and worldwide.

Global manufacturing operations division strengthened

The Global Manufacturing Operations division (GMO) bundles our expertise in production methods and processes, quality management, strategic purchasing, and supply chain management across all regions. The central GMO division enables us to:

  • further increase the efficiency of our processes,
  • better manage risks, and therefore costs,
  • improve returns on our invested manufacturing-related capital.

At the end of 2012, the division comprised 13,175 employees (2011: 12,600) and more than 40 production sites in around 30 countries. The functions and activities of the GMO division in the reporting year are set out in the sections below.

Production facilities expanded

Some of our production sites have longstanding experience in manufacturing certain products. As Company-wide centers of excellence, they use their expertise in core technologies and materials to advise our local production sites on harmonizing their processes. With this approach, GMO encourages the exchange of particularly successful procedures and methods between the different regions and sites.

At the same time, we are continuously assessing new opportunities for the different regions to supply each other with products and components, thus further increasing the efficiency of production. For example, in 2012 we started manufacturing empty bags for hemodialysis for the Latin American market at our site in L’Arbresle (France). These bags are then filled with dry concentrate in Colombia and Brazil.

Furthermore, we expanded and optimized many of our production sites in the reporting year. For instance, several new production lines as well as a new high-bay warehouse were put into operation at our St. Wendel facility in 2012. At our plant in Ogden, we raised our dialyzer capacity from 37 M to 48 M and added another production line for hollow fibers for dialyzers in the reporting year. This enables us to meet the growing global demand for dialyzers. We also boosted production of our dialysis machines in Schweinfurt by approximately 20%.

Quality management initiatives continued

In the area of quality management, we continued initiatives to improve quality, cut costs, and reduce processing times in production as part of implementing a cross-regional program.

Quality management systems for safe products and procedures

To offer our patients and customers worldwide products and treatment of the highest quality, we have installed comprehensive quality management systems in all our business regions. These ensure that all of our products and procedures comply with quality and safety standards from development and production to market approval and use in clinics, right up to training customers and dealing with complaints. The quality management systems used in our production unite internal regulations, processes and procedures that do not only meet the demands of generally recognized external standards and guidelines but also represent best practice. Our plants apply recognized quality management tools such as “Lean Six Sigma”, a quality management system to describe, measure, analyze, improve and monitor processes with the aim of boosting quality in production.

Our quality and production management teams work closely with local authorities in the respective regions. Some of our production sites are certified according to several regional quality standards. Therefore linking quality issues throughout the Company is so important to us. This multiple certification enables us to be flexible and supply markets worldwide with our products while minimizing potential risks relating to potential supply shortages.

To ensure compliance with the defined quality levels and legal requirements for production in all regions, we have established similar processes worldwide. This enables us to ensure minimum standards for guidelines and processes relating to quality management systems at all Fresenius Medical Care production facilities. In addition, we aim to further harmonize our internal audit processes in quality management in the next fiscal year.

Improving quality and efficiency with the global “FOSY” initiative

We made further progress with the global “FOSY” initiative in our regions in the reporting year. FOSY stands for Fresenius Operating System. It is a management philosophy with which we aim to improve quality in production, cut costs and reduce processing times, thus enhancing our operational efficiency. In the reporting year, we incorporated all operating units as well as quality management in FOSY. GMO finance and GMO administration will follow in 2013. FOSY is based on the efficient processes of Lean Management and process control as part of the Six Sigma method, but goes significantly further. We are guided by the following four principles of this philosophy:

  • Customers’ needs and quality are our top priorities.
  • We rely exclusively on sound business processes.
  • The just-in-time principle applies in all our operations.
  • We ensure an efficient flow of information, materials and processes.

To achieve the efficiency and quality objectives of FOSY, staff undergoes appropriate training courses, for example, taking part in workshops, called Kaizen events.

Strategic purchasing and materials management integrated further

In the area of strategic purchasing, it is becoming increasingly important to closely observe regional as well as global developments in the procurement markets and their individual currencies. Only in this way can we benefit from international price advantages and compensate for dependencies on individual suppliers when purchasing raw materials and components. Our employees in strategic purchasing in Europe, the U.S. and Asia therefore work closely together to coordinate procurement and further expand our competitive, globally balanced supplier network. The key objectives are to ensure the supply of raw materials from different currency areas and manage our relationships with the Company’s main suppliers as effectively as possible.

Securing an efficient and flexible supply of raw materials

We coordinate tenders and negotiations for the purchase of raw materials or components that are needed by more than one site centrally in cross-regional project teams. To enable us to manufacture products at several sites throughout the Company in line with demand, we also enter into partnerships with suppliers that provide us with components of a consistently high quality. They also need to meet strict production specifications and comply with the principles of our codes of conduct. These also include multinational suppliers that can produce and deliver raw materials in more than one region.

Based on recent developments in the financial and real markets, we assume that prices will continue to fluctuate to some extent despite easing of tension in the commodities markets in the short and medium term. Therefore, in the reporting year, we focused our instruments for market development partly on forging even stronger links with our strategic partners and further diversifying our supplier portfolio.

Managing relationships with the Company’s most important suppliers

Our procurement strategy is geared to purchasing high-quality materials and components at optimum economic conditions through long-term mutual relationships with our suppliers. We select our suppliers very carefully according to their suitability and performance, and develop innovative products and processes together with key suppliers. At the same time, we avoid risks relating to our supply of raw materials, for instance by ensuring that we are not dependent on one or just a few suppliers for core materials or components. Comprehensive risk management allows us to monitor our supply of components and raw materials as well as our relationships with strategic suppliers across regions according to uniform criteria, and thus identify potential risks at an early stage. These criteria include consistently high delivery quality, availability in the short, medium and long term, currency risks, and the likeliness of natural disasters. In 2013, we will introduce further forecasting and analysis tools to enable us to further minimize potential procurement risks.

Supply Chain Management in the regions

Within the North America segment, GMO manages the entire supply chain, from distributing raw materials to our production sites all the way to delivering finished products to our customers. In the other regions, GMO’s responsibility only goes as far as delivering finished goods to our central distribution centers; the regions themselves are responsible for the further stages of the supply chain.

Planning system for demand assessment and inventory management expanded

In the reporting year, we stepped up cooperation between GMO, our regional supply chain management teams, and sales and marketing. This enabled us to align our production capacity and inventory management more closely with medium-term demand patterns. In addition, we continuously expanded our planning system for demand assessment and inventory management with respect to our most important disposable products: Whereas it was initially limited to bloodline systems, it can now also be used for dialysis solutions, dry concentrates and dialyzers. The system enables us to centrally plan and manage all tasks along the supply chain for these products across all regions and production sites within the International segment. A special distribution logic ensures that production orders for the same products and manufacturing methods are efficiently spread between the relevant production sites.

Automated replenishment management introduced in other countries

Our system for demand assessment and inventory management is based on the SCALE (Supply Chain Alignment EMEALA) initiative. We are gradually implementing this program in the EMEALA (Europe, Middle East, Africa, Latin America) region. SCALE comprises numerous measures to improve and harmonize the flexibility, service quality and cost efficiency of supply chain management. In 2012, we introduced automated replenishment control in additional national warehouses, including those in Switzerland, Turkey and Russia; thereby we already integrated the system in 15 countries in the EMEA region. This ensures that our national warehouses are refilled when their inventory reaches a defined minimum level. We plan to link our subsidiary in Serbia to the system in 2013.

New processes create transparency

In December 2011, we also integrated our production of hemodialysis devices for the EMEALA region in Schweinfurt into the processes developed as part of the SCALE project. However, unlike in the case of disposable items, a production order for HD devices is not triggered by demand planning (“make to stock”), but by a customer order, whereby the device is configured according to the customer’s specifications (“make to order”). Thanks to the transparency created by the new process, we have increased the supply capability of this facility.

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