In 2014, purchasing focused on further improving DEUTZ’s competitiveness by reducing material costs. There was also a need to implement the more tightly drawn requirements for security of supply and supplier performance. Our global supplier base was put under the spotlight so as to identify any critical areas in the supply chain, quality or strategic positioning.

Raw material markets present a mixed picture

The price of cast-iron scrap – the most significant raw material for us – fell slightly in 2014. In contrast, the price of aluminium and nickel rose substantially while the copper price flatlined. Platinum has fallen slightly in price whereas the price of palladium increased significantly compared with 2013. This meant that, except for aluminium, average annual values lay within the range we had forecast. However, the increased cost of aluminium did not have any significant effect on the Company’s material costs.

The product categories of foundry products, fuel injection equipment and measurement & control devices made up the bulk of the overall volume of materials purchased.

Procurement from China stepped up

The proportion of procurement from emerging markets continued to increase. This was particularly true of China, where DEUTZ has been buying individual parts and components for many years. Sourcing projects were again implemented successfully, and new potential savings identified.

Security of supply ensured

Security of supplies for engines of up to four litres proved a challenge in 2014 because our requirements had increased significantly compared with 2013. However, much closer collaboration between strategic purchasing and logistics managed early on to reduce supply bottlenecks and delivery delays to a minimum.

Supplier management and material group strategies

As part of our supplier management, we stepped up the structured support we gave to problematic suppliers in 2014. Our aim is to reduce the negative effects of insolvencies and to achieve a sustained improvement in supplier performance. By the end of the year, we were able, for the first time, to achieve a figure of 94 per cent in the performance of these problematic suppliers. In future, this figure needs to be maintained and improved still further in order, in the long term, to minimise or avoid extra costs caused by short-term under-supply and delays. This is essential in order to further increase customer satisfaction.

Enduring improvement in supplier quality

Our parts per million (ppm) rate as a performance indicator for defective parts is at an historical low. For the third time in succession it was better than the strategic objective which, for 2014, had been tightened still further. This success is due to the consistent and sustained support and assistance provided to those suppliers with the poorest supplier quality.

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