Procurement and Logistics

WACKER’s procurement volume increased in 2014, primarily due to higher investment spending and the integration of Siltronic Silicon Wafer Pte. Ltd. in Singapore. Volumes are broken down into raw materials and energy, and into services, materials and equipment, with a high proportion for investments. WACKER spent € 3.19 billion (2013: € 3.08 billion) on raw materials, other materials and services. The 2014 figure includes investment project-related purchases of € 572 million (2013: € 504 million). Our procurement rate – the volumes purchased for raw materials, services and other materials in relation to sales – was 66 percent (2013: 68.8 percent). In 2014, we procured some 1,300 different raw materials, and numerous technical goods and services for plant-engineering and maintenance-related purposes. Our suppliers number about 11,500 (10,500 at Technical Procurement & Logistics and 1,000 at Raw Materials Procurement).

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

At € 1.65 billion, the Group’s energy and raw-material procurement volumes were slightly higher than in the previous year (2013: € 1.64 billion). Higher purchase quantities were largely offset by lower prices. The price trends of our most important raw materials varied. Production stops by several suppliers led to a strong increase in the price of vinyl acetate monomer (VAM) starting in March 2014. The price of methanol dropped back to 2013 levels during the year. Silicon metal saw a slight year-on-year increase in price, but the provisions of our contracts virtually offset this higher price level. Energy prices fell substantially in 2014. This was attributable to one of the Group companies no longer being subject to the German EEG levy (a renewables surcharge) and to lower market prices for electricity. On the other hand, WACKER is now subject to higher grid charges because of a change in applicable law. Natural-gas prices also fell as a consequence of the mild winter.

Procurement Volumes (incl. Procurement for Capital Expenditures)

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The markets for the raw materials that we require are so liquid that we generally sign medium-term contracts with terms of one to three years.

In North America, we connected a pipeline from our Calvert City site to a local ethylene producer in the fourth quarter. This will enhance supply security and substantially reduce transport risks relative to the previous solution (transport of refrigerated liquefied ethylene by rail).

Technical Procurement & Logistics

The order volume at the Technical Procurement & Logistics corporate department was slightly above the prior-year level. We were able to avoid price increases for technical materials and services. Delivery times were below the prior-year level. WACKER – including Siltronic – placed a total of around 420,000 orders worldwide. At Technical Procure-ment & Logistics, 10 percent of our suppliers cover 90 percent of our procurement volume.

In 2014, we signed major multi-year master agreements in particular segments such as logistics and graphite. The initiative launched in 2013 to lower the risk of dependence on individual suppliers is beginning to show measurable results and is being broadened out. Our Project Procurement unit handled ten projects at various stages of planning in 2014. The largest of these were the polysilicon expansion project in Tennessee (USA) and the new dispersion reactor in Kentucky (USA).

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. In doing so, our goal is to optimize our procurement costs, delivery times and quality, as well as to tap additional supply sources quickly.

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 375 suppliers in 2014.

Percentage of Electronic Procurement Transactions Continues to Rise

Electronic procurement is of crucial importance at WACKER. This includes the entire procurement process – from initial inquiries at suppliers through to payment of invoices. The number of orders created through automated processes is a key measure. Technical Procurement’s activities at our major sites account for some 460,000 order items out of a total of more than 600,000 worldwide at Technical Procurement and Raw Materials Procurement (2013: around 600,000). In 2014, we created roughly 70 percent of these order items through automated processes at the German sites. We obtain a particularly high degree of automation through the use of e-catalogs for procurement. Electronic ordering processes make up a consistently large share of procurement activities at our larger sites. Accordingly, we are now seeking to achieve similarly high levels at our smaller sites within and outside Germany. Additional e-catalogs have been introduced in the USA and China. Around 160 suppliers currently use e-catalogs.

Direct Contact with Our Suppliers

At WACKER, we have always valued direct contact with our suppliers. About 320 companies participated in our 19th Supplier Day in Nünchritz. FEAG Sangershausen GmbH was chosen as the best supplier in the Process Innovation category. Josef Riepl Hoch- und Tiefbau GmbH of Burghausen took the honors for Best Long-Term Partner. The award for Best Global Collaboration at all WACKER sites went to Endress+Hauser Messtechnik GmbH & Co. KG. 170 freight forwarders converged on Burghausen for WACKER’s Logistics Day. For its outstanding performance in the transport of hazardous goods, Tralo GmbH was named Safest Shipper for 2013. The Best Freight Forwarder award was conferred on Karl Schmidt Spedition GmbH & Co. KG. Wies Holzwerk GmbH convincingly won the title of Best Packaging Supplier for 2013. WACKER values its long-term collaboration with suppliers, and at the same time, focuses on reducing its dependence on individual ones. In Germany, which remains our largest procurement market, we cooperate with some 6,500 suppliers. The average length of business relationships between Technical Procurement & Logistics and its suppliers is ten years. In 2014, for the first time, WACKER organized a Supplier Day in Shanghai for its Chinese suppliers.

Shipping Volume Up

Shipping volume rose year on year. As the Group’s largest logistics hub, Burghausen alone increased its shipping volume by about 2 percent to around 762,000 metric tons (2013: 750,000 metric tons), with a slight rise in the number of truck loads and overseas containers – up to 40,700 and 12,500, respectively.

Transport Volumes for the Burghausen Logistics Hub

Transport Volumes for the Burghausen Logistics Hub (graphic)Transport Volumes for the Burghausen Logistics Hub (graphic)

Burghausen’s Combined Road and Rail Terminal Now in Operation

At the Charleston site in Tennessee, polysilicon expansion continues. Project logistics is playing a central role in ensuring that plant components arrive for assembly at the right place and right time. In parallel to this, the logistical processes for start-up and production are being developed. At the Zhangjiagang site, a new storage and distribution center is being constructed to handle the growing volumes of incoming raw materials and outgoing finished products even more efficiently. It is scheduled for completion by mid-2015. Operations at the new public combined road/rail terminal commenced in the fall of 2014. In addition to expediting container traffic for exports, we are working with the operator to shift more freight from road to rail using the new terminal. Since fall 2014, the combined road and rail terminal has also been linked to the plant via the new North Gate for trucks, which will make shipments into and out of Burghausen quicker and easier.