HOCHTIEF Annual report 2008 - Management Report

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Procurement

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.