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Procurement

Cost of materials up by 29 percent

The purchase of raw materials and components plays a crucial role for LEONI and entailed significant price increases in the past financial year. Group-wide, the cost of materials was up by 29 percent to € 2,238.5 million (previous year: € 1,738.4 million), which equated to a slightly higher, 60.5 percent proportion of consolidated sales (previous year: 58.8 percent).

The Wiring Systems Division’s cost of materials rose by 21 percent to € 980.7 million in 2011 (previous year: € 808.0 million), which, similar to the previous year, equated to roughly 48 percent of the division’s sales. The most significant group of materials was connectors, followed by cables and conductors, fastening parts, injection moulded parts and electrical components.

 

In the Wire & Cable Solutions Division, the input of materials was up by 35 percent to € 1,257.8 million (previous year: € 930.4 million) and equivalent to 75 percent to the division’s sales (previous year: 70 percent). Above all, this reflected the further increase in the price of copper. There was little year-on-year change in the breakdown of our procurement: copper is the most important raw material for making wire/cable products and systems. We processed well over 100,000 tons of this metal in 2011. PVC compounds constitute the second-largest group of materials with more than 50,000 tons. In addition there are other standard plastics like polyethylene, polypropylene and special insulation materials as well some other metals like nickel, silver and tin.

Cost of copper up by an average of 11 percent in 2011

LEONI sources copper from major strategic suppliers, with the price geared to that quoted on the London Metal Exchange. In 2011 the average price of copper increased by another 11 percent on the previous year to € 6.41 per kg. This entailed further appreciation in the price of the metal early in the year, followed by a substantial drop in value during the third quarter, however. The highest price was recorded on 14 February at € 7.63 per kg, while the low was on 20 October at € 5.09 per kg. The price of silver plotted a similar trajectory and was, on average, significantly higher than in the previous year. By contrast, the industrial metals tin and nickel depreciated considerably in course of 2011.

 

Major shortage of special insulation materials

On the market for standard plastics like polyvinylchloride and polyethylene as well as the standard plasticisers there was a considerable degree of excess demand in the first half of 2011, which did, however, weaken perceptibly in the third quarter and culminated in balanced supply and demand in the fourth quarter. Since then the prices for these commodities have been down slightly, but a fundamental turnaround is not yet discernible. The situation pertaining to special insulation materials like polyurethane, polyamides and fluoropolymers is still one of shortage, on the other hand. In this segment the markets are more than sold out beyond 2012. There is a distribution fight on the market for these materials, which has led to major price increases in the past two years. Whereas we were still able to avoid the consequence in the previous year thanks to existing contracts, this development considerably affected LEONI in the year under report. An end to these price trends and the persistently difficult supply situation is not in sight. To counteract this, we invested in the ongoing expansion of our global supplier network.

Ongoing rise in the price of components

The Wiring Systems Division sources cables and conductors mostly from within the Company, i.e. from the Wire & Cable Solutions Division. Components like connectors, fasteners as well as plastic and rubber moulded components are procured from outside sources. In 2011 we did business with roughly 50 A, 200 B and 650 C suppliers worldwide, many of which are already stipulated when our customers in the automotive industry award contracts. Due to the further cost increases involving commodities like metals and plastics, the upsurge in prices of components also persisted during the year under report. We were able to partially offset this trend with continuous negotiations with our suppliers, changed technical solutions and substitute products. At the same time, the greater demand from the automotive industry and shortages of some raw materials as well as the natural disasters in Japan and Thailand resulted in supply bottlenecks. Thanks to efficient allocation mechanisms within its global production network LEONI was able to ensure its supply.

Close collaboration with our key suppliers

As the cost of materials accounts for a large proportion of our value chain, relationships with suppliers (‘supplier capital’) are of major importance to LEONI. To ensure our continuing growth, broadening our worldwide collaboration with key suppliers is of crucial significance. We launched a supplier development and improvement programme in 2011 to further improve our supply of important components. Alongside close collaboration at the global level, above all early involvement in new projects is essential in this respect.

 

The complete Annual Report 2011
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