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In the year under review, HOCHTIEF spent 74.6 percent of Group sales on the procurement of supplies and services, amounting to a procurement volume of EUR 14.25 billion. Our procurement strategy, which we pursue rigorously, is key to the success of HOCHTIEF. It gives us a competitive edge that goes far beyond mere price advantages. We focus on optimum procurement processes, professional supplier management and systematic bundling of demand by the lead buyers.*
This puts us in a position to react to changes and events on the procurement market quickly and comprehensively. This will be to our advantage in the current financial crisis: For example, we optimized the prequalification of subcon- tractors in good time and expanded our internal lead buyer organization. We also sustainably reduced our indirect costs with the KaufPilot project. Based on the model of our US subsidiary Turner, we have introduced safeguards in Europe against the consequences of the loss of subcon- tractors**.
([SDQVLRQRIFURVVGLYLVLRQDOVXSSOLHUPDQDJHPHQW HOCHTIEF places high demands on its suppliers and sub- contractors. The careful selection of our partners is crucial to the success of our projects and the development of a reliable, trustworthy supplier base. This benefits all parties involved. Since 2005, we have been working hard on continuously expanding and improving Group-wide sup- plier management with the ProVis*** project. With ProVis, HOCHTIEF is seeking to increase transparency within the Group and to improve the relationship with our suppliers. Group-wide access to the supplier base creates security of supply and minimizes procurement risks. The main elements of HOCHTIEF’s supplier management in 2008 were as follows:
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Our Internet-based supplier portal, rolled out in 2007, is a crucial interface to HOCHTIEF for suppliers and subcontrac- tors. Anyone wishing to offer their services to HOCHTIEF can access the portal and register. Over one thousand sub- contractors and suppliers registered in the reporting year. For HOCHTIEF, the portal is a central component of risk management. Registered subcontractors and suppliers are regularly required to enter information such as financial indicators in the portal. This provides a basis for validated prequalification, which is a binding requirement if they are to be engaged.
HOCHTIEF observes a Code of Conduct. We also expect our subcontractors and suppliers to comply with these ethical, ecological and social standards. Suppliers and sub- contractors must therefore acknowledge and agree to be bound by the Code of Conduct as a prerequisite for prequalification.
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In addition to prequalification, another central element of our integrated supplier management system is supplier assessment. Since 2008, this has been based on standard- ized criteria. We used the results of the assessments to optimize the integration of suppliers’ expertise and capabili- ties into our range of services. As a component of ProVis, the supplier assessments afford all buyers fast access to information about partner companies with which we have a good working relationship.
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In the reporting year, HOCHTIEF began to hold all master agreements negotiated by the lead buyers centrally, as with supplier assessments. In this way, we enable local buyers throughout the Group to obtain the best possible terms and give suppliers easier access to the relevant contact persons. In the period under review, utilization of master agreements intensified, resulting in a substantial increase in sales-related refunds.
*For further information, please see page 61.
**For further information, please see page 34.
***See glossary on page 194. Further information on the subject of procurement is available on the Internet at www.hochtief.com under Purchasing.
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Our lead buyers are responsible for process-critical prod- uct categories, mostly with high volumes—for example, fa- cades, electrical and mechanical installations, lifts or con- crete. They coordinate their product categories and bundle orders to obtain better terms. In addition, they negotiate prices, conclude master agreements and closely follow the development of the market and prices. Thanks to their intimate knowledge of the market and long-term approach, they make a major contribution to HOCHTIEF’s early warn- ing system for risk management. HOCHTIEF successfully expanded the lead buyer organization in 2008 and ex- tended it Group-wide to cover further item groups. For example, HOCHTIEF is involved in the construction of a research facility in northern Germany. One of the special challenges this project poses is the integration of highly- specialized technical equipment that is suitable for use under the strictest biosafety conditions. The only manufacturer of this highly innovative technology is a US company. Our subsidiary Turner Logistics specializes in procuring medi- cal and research equipment and already works with this manufacturer. Hence a lead buyer from Turner Logistics carried out the negotiations, achieving a saving of about 15 percent as well as much better contractual terms and a customized risk management plan with the manufacturer. As the project progresses, Turner will ensure that the equip- ment is installed on schedule and monitor all of the manu- facturer’s acceptance testing on site.
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During the reporting year, the lead buyers at HOCHTIEF Construction expanded the supplier park for the key trades technical building systems, facades, steel and concrete. This means that suitable subcontractors can be involved at an early stage. Close cooperation with these strategic partners improves risk management and saves costs. Our efforts have certainly paid off: Integrated supplier manage- ment is an efficient way to secure HOCHTIEF against pro- curement risks.
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In 2008, HOCHTIEF benefited from optimized procurement terms in 16 product categories over the electronic pro-
curement platform KaufPilot. These categories included tools, health and safety equipment, office supplies and energy. In addition to Germany, Poland and the Czech Re- public, the UK also has an electronic marketplace in local language and currency. In the reporting year, 1,800 users ordered 130,000 articles. The savings achieved through improved terms totaled some EUR 3.1 million.
'LUHFWSXUFKDVLQJKDUQHVVHVDGGLWLRQDOSRWHQWLDO Through our trading companies HOCHTIEF Global Trade and HOCHTIEF Procurement Asia, we are stepping up international procurement of favorably priced yet high- quality supplies direct from manufacturers. By purchas- ing directly in this way, HOCHTIEF is harnessing additional potential—for example, by eliminating premiums charged by wholesalers or subcontractors. It also reduces the risk of bottlenecks in the supply of materials because HOCHTIEF can order larger volumes in good time. In 2008, for instance, HOCHTIEF Procurement Asia purchased natural stone in China for a building construction project in Hamburg, mak- ing a saving of 30 percent.
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Our US subsidiary specializes in innovative procurement management services, concentrating on specialist procure- ment, for example, in the field of medical equipment. Turner optimizes the value chain by purchasing directly from manufacturers, similarly to Global Trade and HOCHTIEF Procurement Asia. In the year under review, the procure- ment volume came to over EUR 320 million. This is mainly down to the economic situation in the USA putting an ever greater squeeze on the deadlines and budgets with which our clients have to comply. Turner Logistics offers the necessary procurement solutions to these problems. In 2008, the healthcare and education segments performed particularly well. For instance, Turner Logistics planned for and procured medical products to a value of EUR 150 million—an increase of 43 percent on 2007. Two examples: For the University of Kentucky Hospital, the company pro- cured hospital equipment worth approximately EUR 16 million. Yale University commissioned Turner Logistics to purchase mechanical and electrical products for some EUR 12 million.
For the outlook on procure- ment, please turn to “Looking Ahead: Outlook and Opportu- nities” on page 121.