Procurement

In 2015, purchasing continued to focus on improving the competitiveness of the engine portfolio by reducing material costs. We took decisive action as part of our defined material group strategies, primarily in relation to the model series in the segment for engines with capacities of up to four litres. Requirements for security of supply and supplier performance were further tightened, too.

Fall in commodity prices

The price of cast-iron scrap continued to fall sharply in the year under review. The decrease in aluminium and copper prices was less pronounced. Platinum prices were significantly lower compared with previous years. The price of palladium followed a similar trajectory in 2015, although this element is far less important to DEUTZ than platinum. All average annual values lay below the range we had forecast. Overall, commodity prices have only a limited influence on the procurement prices for parts from suppliers because there is a very high element of value added.

Since the introduction of Tier 4, the proportion of product categories accounted for by EAT components has been rising. Nonetheless, foundry products (particularly cylinder heads and engine blocks), fuel injection equipment (predominantly pumps and valves) and measurement & control devices (for example mechanical and electronic regulators and sensors) make up the bulk of the overall volume of materials purchased.

Last year, we particularly focused on the procurement strategies for fuel injection, ECU, EAT and AGR. The more technology-intensive components have developed rapidly in recent years. Price structures have therefore changed over the past five years, and what were once new market players are becoming established suppliers. A structured process for selecting suppliers, conducting negotiations and awarding contracts has enabled us to avoid competitive disadvantages and ensure we have chosen the right strategic partners.

We have stepped up our level of procurement from emerging markets because prices in the manufacturing sector are coming under slight pressure as a result of the Chinese economic slowdown. We took advantage of this situation and were thus able to further reduce costs.

Supplier performance stabilised at a high level with further improvements

Close collaboration between logistics and purchasing enabled us to improve average supplier performance over the year, with this metric rising by three percentage points compared with the previous year to over 97 per cent. This meant we largely avoided extra costs caused by short-term under-supply or delays.

Enduring improvement in supplier quality

Our parts per million (ppm) rate as a performance indicator for defective parts was below 1,000 ppm for the fourth year in succession and thus remained at a historical low. This success is due to the rigorous and ongoing monthly evaluation of suppliers as well as the implementation of measures to improve supplier quality.