Procurement and production

Procurement

LANXESS uses its centrally managed global procurement organization – Global Procurement & Logistics – to ensure a reliable supply of raw and other materials and services. Global Categories closely coordinate with our business units to pool their requirements in the raw materials, technical goods, packaging materials, energy, services and logistics segments. 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 strategies like multiple sourcing. As a result, we experienced no delivery shortfalls or bottlenecks in the reporting period that had a material effect on our business development.

Procuring chemical raw materials is a significant priority at LANXESS. Our aim is to secure our supplies on the basis of long-term contracts. The availability of raw materials has always played a crucial role in upcoming facility location decisions. For our butyl rubber plant in Singapore, which came on stream as scheduled in the reporting year, we are already sourcing a large proportion of the most important feedstocks via nearby pipelines. We will take the same approach to sourcing the raw materials for our plant to manufacture neodymium-based performance butadiene rubber (Nd-PBR), which we are currently building in Singapore. 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. In this way, we not only minimize the costs and environmental impact of our transportation activities, but reduce the risk of delivery shortfalls caused by transportation issues in particular.

Our biggest suppliers of chemical raw materials in 2013 included BASF, Bayer, BP, Braskem, Enterprise Products, Evonik, ExxonMobil, INEOS, LyondellBasell, Nova Chemicals, Sabic, Shell Chemicals and Total.

Among the most important strategic raw materials by far for our production operations in 2013 were ammonia, butadiene, caustic soda, cyclohexane, ethylene, isobutylene, propylene, raffinate 1, styrene and toluene. In all, strategic raw materials accounted for a purchasing volume of about €3.2 billion in fiscal 2013 (2012: about €3.9 billion), or around 76% of our total expenditure for raw materials and goods in 2013, which amounted to approximately €4.2 billion (2012: about €4.7 billion). Around 83% of our total expenditure for raw materials and goods went to suppliers from countries in the upper third of the Country Sustainability Ranking. Our total procurement volume in 2013 was around €6.2 billion (2012: about €6.9 billion).

Across the LANXESS Group, a global procurement directive defines how our employees should behave toward 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.

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 2013, about 64% of all items ordered (2012: around 60%) were handled in e-procurement systems.

Our HSEQ management process begins when raw materials and services are procured. In the reporting year, our procurement transactions involved more than 20,000 suppliers. Based on the principles of the U.N. Global Compact, the International Labour Organization (ILO), Responsible Care® and other corporate responsibility codes, 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 a key role in our selection and evaluation of suppliers.

In 2012, we and five other international chemical companies founded the Together for Sustainability initiative to monitor compliance with our requirements, enhance supply chain transparency and minimize procurement risks. The goal of this initiative is to develop and implement a global audit process to assess and continuously improve sustainability activities along the chemical industry supply chain, focusing on human rights, child labor, working standards, occupational safety, environmental protection and business integrity. All members of the initiative have access to the growing number of assessment and audit results, which comprised 750 sustainability assessments and 150 audit reports at the end of 2013. These identified a greater need for action in respect of labor and human rights and occupational safety. In 2013, 103 follow-up audits were carried out to verify implementation of the corrective measures agreed with suppliers. These showed that the situation had improved.

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; Singapore; and Wuxi, China. LANXESS also has other production sites in Argentina, Australia, Belgium, Brazil, China, France, Germany, India, Italy, Japan, Russia, South Africa, Spain, the United Kingdom and the United States. For a detailed 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 2013:

  • Our Butyl Rubber business unit opened Asia’s most modern butyl rubber facility in Singapore. The plant entered its commissioning phase in the first quarter of 2013 and started production in the second quarter as planned.
  • The Keltan Elastomers business unit has converted its largest production line for Keltan® EPDM rubber at the site in Sittard-Geleen, Netherlands, to ACETM technology.
  • Our Advanced Industrial Intermediates business unit increased capacities for the intermediates cresol and dichlorobenzene at the site in Leverkusen, Germany, by 20% and 15%, respectively.
  • As scheduled, our Leather business unit brought a new facility for manufacturing leather chemicals on stream in Changzhou, China.
  • The Leather business unit also commissioned a new CO2 concentration plant at the Newcastle site in South Africa.
  • The Rhein Chemie business unit opened a new facility for high-performance curing bladders in Porto Feliz, Brazil.
  • In Lipetsk, Russia, the Rhein Chemie business unit also opened LANXESS’s first production facility in that country to manufacture rubber additives for the automotive and tire industries.
  • As part of our program to increase competitiveness, we closed our Rubber Chemicals business unit’s site at Isithebe, South Africa.

Including the measures described above, our cash outflows for capital expenditures came to €624 million in 2013. 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.