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Procurement and production

Procurement

LANXESS uses its centrally managed global procurement organization – Global Procurement & Logistics – to ensure a reliable supply of materials and services. Global Categories coordinate with our business units to pool requirements. Our worldwide procurement network helps them leverage purchasing synergies, so that we can move efficiently in the market and exploit price advantages. We avoid delivery bottlenecks or reliance on individual suppliers using techniques like multiple sourcing. We systematically apply best-practice processes. These include e-procurement tools, such as e-catalogs and electronic marketplaces, many of which are integrated into our internal IT systems. In 2012, about 60% of all items ordered (2011: around 55%) were handled through e-procurement.

Our HSEQ management process begins when raw materials and services are procured. We expect our suppliers to comply with all applicable national and other laws and regulations on safeguarding the environment, ensuring health and safety in the workplace and using appropriate labor and hiring practices. These criteria, which are defined in our Supplier Code of Conduct, play an important role in our selection and evaluation of suppliers. Regular audits, especially of selected suppliers, are conducted in Germany and abroad to help us verify compliance with these regulations. In 2012, we performed a total of 29 audits, which corresponds to 7% of our suppliers.

In order to minimize our procurement risks and enhance supply chain transparency, we and five other international chemicals companies founded the Together for Sustainability initiative in 2012. The principal goals of this initiative are the standardization of supplier evaluations and audits, the institutionalization of neutral risk assessment of suppliers by a recognized independent partner and creation of a shared pool of qualified auditors. We expect this concerted approach to further raise the level of awareness among our suppliers and inspire them to make continuous improvements. In the pilot phase, which started in the reporting year, more than 1,850 suppliers are being evaluated and some 150 audited.

Across the LANXESS Group, a global procurement directive defines how our employees should behave towards suppliers and their employees. An internal training academy supports the training and ongoing professional development of our employees and ensures the high quality of our procurement processes. The training content includes our seven-step strategic procurement process, negotiating techniques and intercultural awareness, as well as time, supplier and risk management.

Procuring chemical raw materials is a significant priority at LANXESS. Most of our sourcing in this area is done on the basis of long-term supply contracts. The availability of chemical raw materials has always played a crucial role in our facility location decisions. In Singapore, for example, we will source the most important feedstocks for our two new rubber plants via nearby pipelines. We procure key raw materials like butadiene and utilities like steam and biomass from the immediate vicinity at several of our other production sites, too. This not only minimizes the costs and environmental impact of our transportation activities but also reduces the risk of delivery shortfalls caused by transportation issues.

Our biggest suppliers of chemical raw materials in 2012 included BASF, Bayer, BP, Braskem, Chevron Phillips, Enterprise, Evonik, Exxon Mobil, INEOS, LyondellBasell, Nova Chemicals, Sabic, Shell Chemicals, Texas Petrochemicals and Total/Petrofina.

Among the most important strategic raw materials by far for our production operations in 2012 were ammonia, butadiene, caustic soda, cyclohexane, ethylene, isobutylene, propylene, styrene and toluene. In all, strategic raw materials accounted for a purchasing volume of about €3.9 billion in fiscal 2012 (2011: approx. €3.9 billion), or around 83% of the LANXESS Group’s total expenditure for raw materials and goods in 2012, which amounted to approximately €4.7 billion (2011: approx. €4.6 billion). Our total procurement volume in 2012 was around €6.9 billion (2011: about €6.8 billion).

We are still not dependent on individual suppliers. Furthermore, no delivery shortfalls or bottlenecks occurred in the reporting period that had a material effect on our business development.

Production

LANXESS is one of the world’s major producers of chemical and polymer products. Our production facilities make anywhere from very small batches of custom-synthesized products to basic, specialty and fine chemicals and polymers in quantities of several ten thousand tons.

Each of our production facilities is organizationally assigned to an individual business unit. The most important production sites are at Leverkusen, Dormagen and Krefeld-Uerdingen, Germany; Antwerp, Belgium; Sittard-Geleen, Netherlands; Orange, United States; Sarnia, Canada; Triunfo and Duque de Caxias, Brazil; Jhagadia, India; and Wuxi, China. LANXESS also has other production sites in Argentina, Australia, Belgium, Brazil, China, France, Germany, India, Italy, Japan, South Africa, Spain, the United Kingdom and the United States. For a complete breakdown of our production sites by segment, please see “The segments in brief” in this combined management report.

The following significant changes occurred in our global production network in 2012:

  • In May 2012, as scheduled, we opened our NBR rubber production plant in Nantong, China, which was constructed in a joint venture with Taiwan-based TSRC Corporation.
  • Our Performance Butadiene Rubbers business unit completed the second phase of an expansion of its production plant for high-performance rubber products in Orange, United States.
  • The Technical Rubber Products business unit expanded its production capacities for the high-performance synthetic rubber Therban® by 40% each at the sites in Leverkusen, Germany, and Orange, United States. Effective January 1, 2013, this business unit was split into the new Keltan and High Performance Elastomers business units. The facilities described here will be assigned to the High Performance Elastomers business unit in future.
  • Technical Rubber Products significantly expanded EVM capacities at the site in Dormagen, Germany, as well. This facility will also be assigned to the High Performance Elastomers business unit in future.
  • In September 2012, the High Performance Materials business unit opened our first U.S. compounding plant in Gastonia, North Carolina.
  • Together with our partner, U.S. chemical company DuPont, we doubled the capacity of our joint compounding facility for polybutylene terephthalate (PBT) in Hamm-Uentrop, Germany.
  • With Bond-Laminates GmbH, our High Performance Materials business unit acquired a production plant for highly specialized composite materials.
  • In the Advanced Industrial Intermediates business unit, we completed the project to double production capacities for synthetic menthol at the site in Krefeld-Uerdingen, Germany, as scheduled.
  • Our Functional Chemicals business unit increased the capacity of its production network for phosphorus chemicals at the site in Leverkusen, Germany, by 10%.
  • With Tire Curing Bladders, LLC, our Rhein Chemie business unit acquired a production facility for vulcanization bladders in Little Rock, United States.
  • In addition, the Rhein Chemie business unit raised its production capacities for vulcanization bladders at the site in Burzaco, Argentina, by 40%. In this context, production in Uruguay was relocated to Argentina and the United States in the reporting year.

Including the measures described above, our cash outflows for capital expenditures came to €696 million in 2012. Details are given under “Capital expenditures” in the “Statement of financial position and financial condition” section of this combined management report. For additional information about the acquisitions made in the year under review, please see “Additions to the Group portfolio” in this combined management report.

Service

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