8 Purchasing

The KION Group purchasing unit successfully overcame the challenges presented by the financial and economic crisis. Although many suppliers were still implementing structural measures at the start of the year in order to adjust to the reduced order level in the previous period, capacities had to be rapidly expanded again in the middle of the year as order intake shot up. This of course meant a sharp rise in the demand for input materials, causing temporary bottlenecks in supply until the end of the year, particularly for electronic components. Cooperating closely, the KION Group's operating units reached agreement with suppliers to safeguard their production programmes, which had to be repeatedly adjusted during the year in line with the rise in order intake.

The increases in raw materials prices recorded in 2010 did not fully impact on the cost of materials in the KION Group. As the KION Group mainly buys processed materials and components, fluctuations in the price of raw materials only have an impact in proportion to the amount of the overall value of those processed materials and components accounted for by raw materials. In addition, suppliers are bound by the agreed conditions for the period of time stipulated in the contract. As a result, increases in raw materials prices are only felt at a later date and only if it can be assumed that the increases will be sustained. As a rule, fluctuations in raw materials prices barely affect the cost of materials for the reasons mentioned above. In some cases, the cost of raw materials is passed directly on to end customers. Standard industry practice is to pass changes in battery prices, which are influenced significantly by the price of lead, directly on to customers.

The cost of materials in the KION Group increased by an average of 1.8 per cent in 2010 as a result of the change in commodity prices. In particular, steel, scrap and copper were more expensive than they had been in 2009. However, the KION Group still achieved cost savings of 2.4 per cent as a result of the KIARA performance enhancement programme and through close collaboration with suppliers. These suppliers form a supplier circle, in which they work with the KION Group on continuous improvement projects. In the fourth quarter, interdisciplinary teams joined forces with eight suppliers to identify potential for improvement in all aspects of cooperation. These supplier development projects will continue to play a key role in reducing the KION Group's costs in the future.

In the year under review, the cost of materials climbed by 16 per cent to €1,714 million (2009: €1,480 million) due to the increased volume of production resulting from higher order intake and owing to higher commodity prices.

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