PROCUREMENT

Efficient management of the value chain is important for Group profitability. Global procurement management, which assures the availability of goods and services as well as the consistent quality of the raw materials used in production, is a key element. In an environment characterized by ongoing cost-containment pressure from health insurers as well as price pressure, security of supply and quality play a crucial role. For this reason we are constantly striving to optimize our purchasing processes, to tap new procurement sources, and to achieve the best possible pricing structures while remaining flexibility and maintaining our strict quality and safety standards.

Within the Fresenius Group global procurement is coordinated centrally by competence teams, enabling us to bundle similar requirements and negotiate global framework agreements. These central coordinating offices organize purchasing for the production sites and arrange comprehensive quality and safety checks of purchased materials and goods. Current market and price developments are analyzed on an ongoing basis. In 2007, the cost of raw materials and supplies and purchased components and services was € 3,769 million (2006: € 3,709 million).

in million €	2007	2006
Cost of raw materials and supplies	3,266	3,250
Cost of purchased components and services	503	459
Total	3,769	3,709

Fresenius Medical Care

In 2007, Fresenius Medical Care introduced standard procurement guidelines for Europe. Their aim is to further harmonize and increase the efficiency of the procurement processes.

As expected, the costs for oil and other raw materials rose further in 2007. In the United States alone, the costs for gasoline and diesel have more than doubled compared to the levels in 2004. Cost savings have been achieved through continuous improvements in distribution and warehouse logistics. In addition, a new management system was introduced in the United States in 2007 which analyzes and coordinates all the logistics operations. However, these measures were not sufficient to offset the high fuel costs.

No savings were achieved in 2007 in our sourcing of plastics – plastic granulate is used in the production of dialyzers – resulting in slightly higher material costs than in 2006 despite larger volumes and bundling effects. 

Fresenius Kabi

At Fresenius Kabi sharply increased raw material prices were also a central focus of strategic purchasing negotiations in 2007. Fresenius Kabi had anticipated the price increases and extended the global bundling of requirements in coordination with other Fresenius companies. This strategy helped optimize the supplier portfolio and further standardize product specifications. Long-range sourcing strategies were also formulated with a view to improving Fresenius Kabi’s purchasing position in relevant markets. The strengthened demand power again led to good negotiating outcomes in individual areas in 2007 despite the difficult environment. Procurement logistics are to be further improved long-term through the successive introduction of online procurement processes (e-purchasing).

The rise in raw materials prices of agricultural origin witnessed in 2006 continued in 2007. This applied especially to corn and milk, which are used as a basic material for various processed products used in infusion therapies and enteral nutrition. For both materials there was increased global demand, while supply was unchanged or even lower in some cases.

The prices of energy and oil-based products as well as all products based on energy-intensive production processes, such as glass for packaging or aluminum for fastenings, were increased in 2007. The multiyear agreement concluded at the end of 2003 for cardboard boxes was not able to compensate for this market trend. In 2006, we had to accept moderate price rises for cardboard boxes; in 2007, prices developed in line with the market. However, the bundling of requirements and strategic sourcing of active substances used in our drugs produced good results in 2007.

Further regional synergy projects within the Fresenius network were initiated in 2007. In Germany, for instance, opportunities for cutting gas and electricity costs are currently under consideration and are being successively implemented.

Fresenius Helios

At HELIOS, high medical standards go hand in hand with an efficient, economically sound management of available resources. Its procurement management system combines the know-how of its doctors and nurses with the commercial competence gained in other areas from the various clinics and disciplines. This know-how and our standards of medical quality are channeled into all procurement decisions to the benefit of the patient. Today, 85% of the medical supplies are standardized. A system of 280 product groups promotes transparency, planning efficiency, and competition. The electronic configuration of all purchasing processes (e-procurement) – from ordering to billing – results in even greater efficiency and transparency. The HELIOS clinic in Erfurt, for example, a maximum care clinic with over 1,200 beds, already conducts 75% of its ordering in this way.

In 2007, HELIOS equipped all trauma surgery departments with fixed-angle-implants and implemented a company-wide concept for chronic wound management. Group standards were defined for surgical drapes on the basis of routine treatment data, the costs were calculated, and a budget drawn up. The surgical drapes include drapes while the patient is undergoing surgery, drapes for the interior of the operating rooms, and surgical gowns for the surgeons and the team. In 2006, the HELIOS clinics were purchasing 318 products from six suppliers. Today, 26 clinics already procure 54 products from one supplier. Product standards were also defined for surgery departments based on the various procedures. Only 21 product standards now cover 95% of all surgeries at HELIOS.

The increase in value-added tax to 19% had an appreciable impact on costs in 2007. The three percentage point increase impacted fully on expenses, with no compensation on the revenues side for the increase in VAT. It was, however, offset by cost savings through optimized product group management and the systematic bundling of volumes within the HELIOS Group.