WACKER’s procurement volume declined in 2013. This is primarily due to lower investment spending. Volumes are broken down into raw materials and energy, and into services, materials and equipment, with a high proportion for investments. WACKER spent € 3.08 billion (2012: € 3.49 billion) on raw materials, other materials and services. The 2013 figure includes investment-project-related procurements of € 497 million (2012: € 907 million). Our procurement rate – the volumes purchased for raw materials, services and other materials in relation to sales revenue – was 68.8 percent (2012: 75.4 percent). In 2012, we procured some 1,300 different raw materials, and numerous technical goods and services for plant-engineering and maintenance-related purposes. Our suppliers number 10,300 (9,200 in the Technical Procurement & Logistics department and 1,100 in Raw Materials Procurement).

Energy and Raw-Material Procurement Volumes Slightly Below Prior-Year Level

At € 1.64 billion, the Group’s energy and raw-material procurement volumes remained at the prior-year level (2012: € 1.64 billion). Minimal growth in volume was compensated by lower prices. The prices of the most important raw materials that we require have – with the exception of methanol – remained slightly below or at the prior-year level. Due to scarcity and to trade restrictions imposed on Iran and Libya, methanol prices have risen considerably. In the area of energy procurement, we profited from the fact that some of our production facilities were exempted from the German EEG levy (a renewables surcharge). At the same time, electricity prices were lower than in the previous year. The prices we paid for natural gas were also lower year on year. Of the approximately € 225 million in cost savings achieved in 2013, around € 100 million was attributable to energy and raw-material price effects.

Procurement Volumes (including Procurement for Capital Expenditures)

Because the markets for the raw materials we need are so liquid, new procurement contracts are often short-term in order to achieve greater price flexibility.

In 2013, we signed one- to three-year contracts for our strategic raw materials silicon, methanol and vinyl acetate monomer (VAM), thereby securing a medium-term supply in most regions. In North America, we negotiated a long-term supply contract for ethylene that, effective January 1, 2015, will replace the previous short-term supply contract for more costly cryogenic ethylene (i.e. frozen ethylene transported in tank cars). As of that date, the majority of the ethylene we require will be supplied via a pipeline.

Technical Procurement & Logistics

The order volume at the Technical Procurement & Logistics department remained below the prior-year level. There were no further price increases for technical materials and services. Delivery times were at the prior-year level. WACKER – including Siltronic – placed a total of some 350,000 orders worldwide. At Technical Procurement & Logistics, 10 percent of our suppliers cover 90 percent of our procurement volume.

In 2013, we signed major master agreements for installations as well as for logistics services. To lower the risk of dependency on individual suppliers, we launched an initiative that aims to reduce the number of these procurement orders. Our Project Procurement unit handled 20 projects at various stages of planning in 2013. The four largest were the polysilicon expansion projects in Nünchritz (Germany) and Tennessee (USA), as well as the polysilicon purification facility and the new lab building at Burghausen (Germany).

During investment projects in the USA, Asia and Europe, we worked with a large number of qualified local suppliers. We will continue this collaboration, so that WACKER benefits from the advantages of a global procurement market and from enhanced competition among our long-standing suppliers. Our goal is to thereby optimize our procurement costs, delivery times and quality, as well as to quickly tap additional supply sources.

Systematic review of supplier risks is an important tool at WACKER for correctly evaluating our supplier relationships. Reviews are conducted using analyses from rating agencies, our own supplier assessments and, increasingly, direct contact with our partners. With the assistance of Technical Procurement, we reviewed 358 suppliers in 2013.

Percentage of Electronic Procurement Transactions Continues Rising

Electronic procurement continues to gain in importance for WACKER. This includes the entire procurement process – starting with the initial inquiry received by the supplier and ending with payment of the invoice. Once again, the percentage of electronic procurement transactions has risen. The number of electronic inquiries placed by WACKER is twice as high as the chemical industry average as determined by the German Association of Materials Management, Purchasing and Logistics (BME). One of the reasons is the increase in electronic tenders through the internet for all services with a services catalog stored in SAP. Additional e-catalogs were introduced for the automated order processes, mainly in the USA and China. Out of a total of around 600,000 orders, some 480,000 were processed electronically, compared with 500,000 in 2012. Broken down, these figures account for some 80 percent of all purchasing transactions in Germany, over 45 percent in the USA, and 15 percent in China. Procurement via e-catalogs remained constant, with the number of suppliers using them rising slightly to 200. There are nearly 2 million e-catalog articles, and at about 200,000 orders, the amount placed using this system was nearly the same as in 2012 (205,000).

Direct Contact with Our Suppliers

At WACKER, we have always valued direct contact with our suppliers. About 270 companies participated in our 18th Supplier Day in Burghausen. Karl Ley GmbH & Co. KG received the product award for the high quality and purity of its heat exchangers. The best supplier in the repairs and maintenance category was WISAG Produktionsservice GmbH. VEGA Grieshaber KG was recognized for its strong customer focus and continual process optimization. 170 freight forwarders converged on Burghausen for WACKER’s Logistics Day. At this event, DB Schenker Logistics received an award for superior achievement in hazardous goods transportation. Lengerich-based Bischof & Klein GmbH & Co. KG was honored as the best packaging supplier. The best logistics partner was UTi in Kelsterbach. WACKER values its long-term collaboration with suppliers and, at the same time, focuses on reducing its dependency on individual ones. In Germany, which remains our largest procurement market, we cooperate with some 6,900 suppliers. The average length of business relationships between Technical Procurement & Logistics and its suppliers is ten years.

Shipping Volume Up

Shipping volume rose year on year. Our Burghausen logistics hub shipped some 750,000 metric tons (2012: 740,000 metric tons) of finished products to customers. There was a slight rise in the number of both truck loads and overseas containers. That volume involved about 39,800 truck loads and 12,100 overseas containers.

Ethylene Pipeline South Started Operation

We are responsible for all of the project logistics entailed in the construction of the new polysilicon facility at Charleston (Tennessee, USA). The infrastructure that was put in place will be used during plant start-up, and for subsequent supply and waste-disposal operations. A road connecting the Burghausen plant and the new public freight terminal (combined road/rail terminal) is being built at the same time as construction work on the terminal, which commenced in December 2012. To this end, we started to build a new freight gate in the northern area of the plant. We will use this gate to expedite container traffic between the plant and the combined road/rail terminal completed in late 2013 and scheduled to officially start operation in mid-2014. The Ethylene Pipeline South (EPS) was started up in 2013. It enables the safe and economical transport of ethylene between major southern German chemical sites and on up to Rotterdam (Netherlands). The ethylene can be transported without emissions and at very low energy costs.