2007 reference document - Legrand

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THE GROUP’S BUSINESS
Legrand’s business
More specifi cally, the industrial divisions continuously aim to
increase their industrial profi tability and reduce capital employed
by:
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optimizing and streamlining industrial sites;
specializing plants by product line or technology to reach
critical mass. These specialized plants allows Legrand to
centralize know-how and act as a benchmark for the rest of
the Group with respect to their specifi c industrial processes;
systematically applying a “make or buy” approach for all new
projects to determine when capital should be invested in new
production assets as opposed to outsourcing production to
subcontractors;
creating lean manufacturing workshops on sites in order to
optimize productivity and capital employed; and
transferring production to other units within the Group which
carry lower production costs. In 2007, 54% of the Group’s
production employees are located in low cost countries, as
compared with 31% in 2002.
As a result of the continuous optimization policy of its industrial
divisions, Legrand has closed or sold 25 plants over the past
fi ve years (notably in Austria, Brazil, South Korea, France, Italy,
Morocco, Mexico, the Netherlands, Peru, the United Kingdom
and the United States).
The savings realized from Legrand’s industrial optimization
policy have helped to fi nance:
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strengthening of the Group’s front offi ce operations, particularly
in the increase of its sales force;
the design and launch of new products; and
acquisitions.
■ 5.1.6.1.2 - RESEARCH AND DEVELOPMENT
On a recurring basis, Legrand’s research and development
expenses (before purchase accounting charges relating to
the acquisition of Legrand France and including capitalized
development expenses) as a percentage of net sales represented
between 4% and 5% of net sales. In particular, our research and
development staff increased by 19% between 2004 and 2007. Thus,
Legrand launched more than 50 new product ranges for 2007
alone and more than 80 new product ranges between 2005 and
2006 (see section 5.1.5 of this reference document)
■ 5.1.6.1.3 - PURCHASING
As part of its industrial reorganization starting in 2003, Legrand
implemented a more centralized purchasing organization to
optimize its purchasing and improve its purchasing profi tability.
This purchasing organization now reports directly to the head of
purchasing and is characterized by:
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a purchasing structure that is adapted to the Group’s suppliers’
worldwide organization, which puts it in an equal bargaining
position (locally or by geographical zone) with them so that the
Group may benefi t from economies of scale;
REFERENCE DOCUMENT 2007 - legrand
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purchasing management led by user/buyer teams which aim
to maximize the value of the Group’s purchasing by making
pricing a criterion of supplies selection; and
the involvement of buyers in the research and development
process to capture savings at the very beginning of product
development.
Through the channels of the Group’s new purchasing organization,
purchasing is optimized through the following means:
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consolidating purchasing for all divisions of the Group;
purchasing of raw materials and components from lower cost
countries. Since 2003, Legrand has opened an international
purchasing offi ce in each of Asia, Latin America and Eastern
Europe, which allows it to purchase raw materials and
components from lower-cost countries and to purchase certain
raw materials and components for the entire Group at a global
level;
adapting the Group’s consumption of raw materials and
components to fi t with those materials readily available on
the market;
continuously optimizing the Group’s supply specifi cations for
raw materials and components to meet the Group’s actual
needs;
adapting industrial processes to optimize the Group’s cost
structure; and
adapting its corporate habits, including those relating to
transportation (personnel and materials), supplies, facilities,
offi ce management and information technology, to conform
with best practices.
■ 5.1.6.1.4 - LOGISTICS AND INVENTORY
MANAGEMENT
Legrand’s primary logistical concern is ensuring timely product
delivery to its customers by adapting the volume and nature of
customer shipments to the storage, preparation and transport
costs. Recent initiatives to streamline inventory management
have helped the Group to decrease its ratio of inventory value to
consolidated net sales from an historical level of 17% on average
between 1990 and 2001 to 15% on average between 2002 and 2007.
To this end, Legrand developed and refined its industrial
management methods, such as Kanban, the Group’s just-in-time
production management system that manages parts required
for product assembly, and Manufacturing Resources Planning 2,
a production management system that enables the Group to
optimize the use of all manufacturing resources.
In each market where it distributes its products, Legrand
maintains logistics, inventory management and distribution
systems adapted to local market conditions. The Group’s operating
subsidiaries take orders and ship products out of their own
inventory. These inventories include both products manufactured
locally and products manufactured in other jurisdictions. The
Group has implemented automated and computerized systems for
the majority of its warehouses. The Group’s principal warehouses
(located in France and Italy and which supply most of the countries
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