Procurement volume reaches EUR 14.25 billion
Procurement accounts for approximately 75 percent of Group sales
Supplier management optimized further
Shared procurement platform expanded

Procurement as a key success factor

In the year under review, HOCHTIEF spent 74.6 percent of Group sales on the procurement of supplies and services, amounting to a procurement volume of EUR 14.25 billion. Our procurement strategy, which we pursue rigorously, is key to the success of HOCHTIEF. It gives us a competitive edge that goes far beyond mere price advantages. We focus on optimum procurement processes, professional supplier management and systematic bundling of demand by the lead buyers.*

This puts us in a position to react to changes and events on the procurement market quickly and comprehensively. This will be to our advantage in the current financial crisis: For example, we optimized the prequalification of subcontractors in good time and expanded our internal lead buyer organization. We also sustainably reduced our indirect costs with the KaufPilot project. Based on the model of our US subsidiary Turner, we have introduced safeguards in Europe against the consequences of the loss of subcontractors**.

Expansion of cross-divisional supplier management

HOCHTIEF places high demands on its suppliers and subcontractors. The careful selection of our partners is crucial to the success of our projects and the development of a reliable, trustworthy supplier base. This benefits all parties involved. Since 2005, we have been working hard on continuously expanding and improving Group-wide supplier management with the ProVis project. With ProVis, HOCHTIEF is seeking to increase transparency within the Group and to improve the relationship with our suppliers. Group-wide access to the supplier base creates security of supply and minimizes procurement risks. The main elements of HOCHTIEF's supplier management in 2008 were as follows:

Prequalification via a supplier portal

Our Internet-based supplier portal, rolled out in 2007, is a crucial interface to HOCHTIEF for suppliers and subcontractors. Anyone wishing to offer their services to HOCHTIEF can access the portal and register. Over one thousand subcontractors and suppliers registered in the reporting year. For HOCHTIEF, the portal is a central component of risk management. Registered subcontractors and suppliers are regularly required to enter information such as financial indicators in the portal. This provides a basis for validated prequalification, which is a binding requirement if they are to be engaged.

HOCHTIEF observes a Code of Conduct. We also expect our subcontractors and suppliers to comply with these ethical, ecological and social standards. External partners must therefore acknowledge and agree to be bound by a special Code of Conduct for HOCHTIEF subcontractors and suppliers as a prerequisite for qualification.

Cross-divisional supplier assessment

In addition to prequalification, another central element of our integrated supplier management system is supplier assessment. Since 2008, this has been based on standardized criteria. We used the results of the assessments to optimize the integration of suppliers' expertise and capabilities into our range of services. As a component of ProVis, the supplier assessments afford all buyers fast access to information about partner companies with which we have a good working relationship.

Cross-divisional contract management

In the reporting year, HOCHTIEF began to hold all master agreements negotiated by the lead buyers centrally, as with supplier assessments. In this way, we enable local buyers throughout the Group to obtain the best possible terms and give suppliers easier access to the relevant contact persons. In the period under review, utilization of master agreements intensified, resulting in a substantial increase in sales-related refunds.

Lead buyers

Our lead buyers are responsible for process-critical product categories, mostly with high volumes – for example, facades, electrical and mechanical installations, lifts or concrete. They coordinate their product categories and bundle orders to obtain better terms. In addition, they negotiate prices, conclude master agreements and closely follow the development of the market and prices. Thanks to their intimate knowledge of the market and long-term approach, they make a major contribution to HOCHTIEF's early warning system for risk management. HOCHTIEF successfully expanded the lead buyer organization in 2008 and extended it Group-wide to cover further item groups.

For example, HOCHTIEF is involved in the construction of a research facility in northern Germany. One of the special challenges this project poses is the integration of highly-specialized technical equipment that is suitable for use under the strictest biosafety conditions. The only manufacturer of this highly innovative technology is a US company. Our subsidiary Turner Logistics specializes in procuring medical and research equipment and already works with this manufacturer. Hence a lead buyer from Turner Logistics carried out the negotiations, achieving a saving of about 15 percent as well as much better contractual terms and a customized risk management plan with the manufacturer. As the project progresses, Turner will ensure that the equipment is installed on schedule and monitor all of the manufacturer's acceptance testing on site.

Supplier park

During the reporting year, the lead buyers at HOCHTIEF Construction expanded the supplier park for the key trades technical building systems, facades, steel and concrete. This means that suitable subcontractors can be involved at an early stage. Close cooperation with these strategic partners improves risk management and saves costs. Our efforts have certainly paid off: Integrated supplier management is an efficient way to secure HOCHTIEF against procurement risks.

KaufPilot makes a saving of EUR 3.1 million

In 2008, HOCHTIEF benefited from optimized procurement terms in 16 product categories over the electronic procurement

platform KaufPilot. These categories included tools, health and safety equipment, office supplies and energy. In addition to Germany, Poland and the Czech Republic, the UK also has an electronic marketplace in local language and currency. In the reporting year, 1,800 users ordered 130,000 articles. The savings achieved through improved terms totaled some EUR 3.1 million.

Direct purchasing harnesses additional potential

Through our trading companies HOCHTIEF Global Trade and HOCHTIEF Procurement Asia, we are stepping up international procurement of favorably priced yet high-quality supplies direct from manufacturers. By purchasing directly in this way, HOCHTIEF is harnessing additional potential – for example, by eliminating premiums charged by wholesalers or subcontractors. It also reduces the risk of bottlenecks in the supply of materials because HOCHTIEF can order larger volumes in good time. In 2008, for instance, HOCHTIEF Procurement Asia purchased natural stone in China for a building construction project in Hamburg, making a saving of 30 percent.

Turner Logistics continues growth

Our US subsidiary specializes in innovative procurement management services, concentrating on specialist procurement, for example, in the field of medical equipment. Turner optimizes the value chain by purchasing directly from manufacturers, similarly to Global Trade and HOCHTIEF Procurement Asia. In the year under review, the procurement volume came to over EUR 320 million. This is mainly down to the economic situation in the USA putting an ever greater squeeze on the deadlines and budgets with which our clients have to comply. Turner Logistics offers the necessary procurement solutions to these problems. In 2008, the healthcare and education segments performed particularly well. For instance, Turner Logistics planned for and procured medical products to a value of EUR 150 million – an increase of 43 percent on 2007. Two examples: For the University of Kentucky Hospital, the company procured hospital equipment worth approximately EUR 16 million. Yale University commissioned Turner Logistics to purchase mechanical and electrical products for some EUR 12 million.