Annual Report 2010 - Outokumpu

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Procurement Excellence
General procurement activities
Under the pressure of a global downturn in economic activity, cost control has continued to play a crucial role in
Outokumpu's sourcing operations. As an element of the Group's Supply Chain Excellence, Procurement Excellence is
pursued as a key driver in reducing Group purchasing costs. Procurement Excellence aims at building capabilities for
continuous improvement in procurement activity and reducing Outokumpu's total cost of purchasing by eliminating the
losses that result from fragmented purchasing volumes, lack of alternative sources, untapped supplier know-how, and
uncontrolled expenditure. This is a long-term project and a key driver for continuous improvement in the overall
procurement function. Procurement Excellence is based on a category management approach leveraging knowledge of
suppliers, products and services, development of professional procurement capabilities, optimal use of materials,
products and services, and leveraging of the Group's purchasing power.
During 2010, steps were taken to intensify the efforts to realise sustainable cost savings in the area of general
procurement. The number of sourcing categories to be pursued at a Group level has been increased to cover some 45%
of the Group's general procurement spend. A new Group-level category-manager organisation was established with the
responsibility for managing and coordinating the group's sourcing activities in accordance with strategies and plans
developed in collaboration with the Group's business units. A revised general procurement policy was also issued in
2010, confirming the principles to be followed in connection with Outokumpu's sourcing activities, including the goal of
dealing with those suppliers who operate to similar standards as Outokumpu when it comes to ethics and corporate
responsibility.
Raw material procurement
The majority of Outokumpu's costs are associated with the purchase of raw materials. The primary raw materials used in
stainless steel production – nickel, ferrochrome, recycled stainless and carbon steel – are purchased on the open
market, but a proportion of the Group's ferrochrome needs are sourced internally.
Following the economic downturn in 2008–9, stainless steel volumes increased significantly in 2010 compared with 2009.
Most of the raw material prices also increased and the average nickel price in 2010 was 21 809 USD/tonne, up about
Outokumpu Annual Report 2010 – Business – Supply Chain Management