Philips 2011 Annual Report Download - page 50

5 Group performance 5.3.3 - 5.3.3
50 Annual Report 2011
decreases, delay price increases and reduce volatility
through commodity hedging with our suppliers. Raw
material price trends in the last quarter of the year started
to move in the opposite direction; prices are trending
down again in anticipation of a possible second period of
economic turbulence with generally lower demand ahead.
Supply achieved 4.9% savings on the Bill of Material (BOM)
and 5.2% savings on Non Product Related (NPR)
purchasing. Forecast reliability and sales/operational
planning processes have improved, for both the short and
longer term, resulting in reduced risk. Increased efforts
on local talent hiring and breeding in growth geographies
are being made to secure the inflow of professionals into
supply functions for the future.
Concentration and consolidation of supply
base
Philips Supply continued its focus on leveraging the base
of selected suppliers. In both BOM and NPR the number
of suppliers continued to be reduced. Creating long-
term strategic partnerships with suppliers is an important
enabler of Philips’ growth ambitions. Further alignment
and standardization of payment terms continued to
positively influence Days Payable Outstanding (DPO).
Supplier risk management and business
interruption
Our strategic buyers are constantly monitoring their
supplier portfolio; risk parameters are measured and
contingency plans are in place. Extreme circumstances
impacted supply performance in 2011; the earthquake and
tsunami in Japan in March 2011 exposed vulnerability in
our complex global supply network. During the Japan
crisis the complexity of the suppliers and indirect market
effects such as hoarding were discovered. Dedicated
teams worked both locally in Japan and internationally
with suppliers and their suppliers to mitigate risks.
Similarly, these experiences have been applied to help deal
with the impact of the flooding in Thailand, where supply
of a critical component was interrupted, resulting in a
significant supply continuity risk, which was handled
successfully.
Sustainability in the supply chain
Philips remains focused on improving working conditions
and environmental performance in its supply chain and
expects suppliers to share this ambition. We support
suppliers in this journey and engage with governmental
and civil society organizations and other business partners
to further embed sustainability in the supply chain. For
more information, refer to Supplier performance section
(in the chapter Sustainability Statements).
New venture integration
Purchasing participates in the Philips New Venture
Integration team. The focus is on creating value via spend
savings and cash improvements and on risk mitigation
related to sustainability and financial weakness of the
supply chain of the newly acquired company.