The KION Group understands sustainability as covering the entire value chain and including both suppliers and business partners. In 2017 the global purchasing volume of the KION Group and its operating units amounted to €4.3 billion (2016: €3.7 billion). The Company has around 46,000 suppliers in total, and sources parts and components through well in excess of 235,000 part numbers. Over half of the KION Group’s purchasing volume is attributable to direct production materials, with just under a quarter accounted for by auxiliary materials and operating supplies. The remaining quarter includes insurance policies, services and expenditure on IT, for instance.
The KION Group’s purchasing organisation is global and operates with a cross-brand and transregional material group structure. Centrally managed and controlled, the organisation aims to identify overarching synergies such as by pooling purchasing volumes, know-how or resources. To achieve this, the purchasing organisation is also present at the individual locations, supporting them with ongoing business as well as with developing new projects. Clear principles in the KION purchasing policy, which was redefined in the reporting year, govern the Company’s procurement process.
Stable partnerships with suppliers are essential to the KION Group to ensure products are of a high quality and innovative. The KION Group strives for long-term business relationships with strong and competitive suppliers. Suppliers are only changed if the changes bring commercial, technical or quality improvements, or if delivery risks are minimised. The Best Cost Country Sourcing approach is always followed, which states that comparable products must always be sourced from the country with the most cost-effective bundle of costs, technology, innovation and service. The KION Group therefore strives to support and promote local supplier structures within a partnership-based framework. However, the selection of the technically and commercially best-positioned partner is always decisive in sourcing decisions. In view of the complexity of products this principle cannot always be fulfilled locally or regionally; the purchasing structure of the respective plant therefore depends to a large extent on that particular plant’s production and product structure.
Depending on the production location the KION Group sources between 30 and 95 per cent of its material and component requirements locally, from the respective domestic market. The KION Group sources around 80 per cent of its purchasing volume from Europe, around 13 per cent from North America, 5 per cent from Asia and 2 per cent from the world’s other regions.
For the KION Group’s Purchasing departments, steel sheets and metal components (e.g. cast and forged parts) account for the largest types of material in terms of quantity. Around 80 per cent of the Company’s net purchasing volume is sourced from 1,050 key suppliers. The key components of KION forklift truck and warehouse technology equipment in the Industrial Trucks & Services segment is manufactured by the Company itself, specifically the lift masts, axles, counterweights and chassis. This means customers can expect high quality, prompt supply and dependable availability of spare parts. Further components, such as hydraulic and electronic components, rechargeable batteries, engine components and industrial tyres, are purchased through a global procurement system.
In the Supply Chain Solutions segment, the precisely specified system components for each customer project – such as automated guided vehicles, palletisers or storage and picking equipment – are primarily manufactured in-house but also partly by quality-audited third-party suppliers approved by KION.
The challenges for KION Purchasing lie mainly in managing global and increasingly complex supply chains. This requires countering geopolitical or reputational risks and responding flexibly to fluctuations in production or exchange rates. On top of all this, the KION Group has to compete for the most capable and innovative suppliers.
Sustainability in supplier management
The KION Group’s specific specifications and regulations also set out the Company’s sustainability requirements on its suppliers. The KION Group’s Principles of Supplier Conduct, approved in 2015 by the Executive Board, establishes the framework for this. Focused on the most important procurement markets, it is available in eight languages and sets out clear environmental and ethical guidelines for KION’s supplier management activities. It also includes the expectation on all suppliers that they will respect human rights and uphold international social standards. These include the ban on child and forced labour in accordance with International Labour Organization (ILO) conventions, as well as the enforcement of statutory minimum health and safety standards (see the KION Group Principles of Supplier Conduct).
The KION Group was not notified of any significant violations of these principles in the reporting year. Furthermore, the Company has no evidence that its individual suppliers may have infringed human rights, in particular the right to freedom of association or collective bargaining, as well as the ban on child and forced labour. If the KION Group becomes aware of violations of these principles, such as through audits or notifications, this can lead to the barring of the supplier concerned.
The KION Group Code of Compliance contains a section with specific rules of conduct for the area of purchasing and procurement. According to this, purchasing decisions must be strictly aligned with the Company’s interests, which exclusively concern objective criteria such as quality, technology, price, production requirements, or logistics. Purchasing employees are explicitly banned from seeking personal benefits in return for preferential treatment, with the acceptance of gifts and invitations also restricted to an absolute minimum.
General Purchasing Terms at Group and brand level supplement these principles and provide detailed guidelines such as on how to meet transparency requirements under the European REACH chemicals regulation as well as the EU Restriction of Hazardous Substances Directive (RoHS). Compliance with the respective regulations and laws is essential to the KION Group and an integral part of supplier framework agreements.
Each Purchasing department is responsible for monitoring compliance with guidelines. Going forward, dedicated Commodity Managers for each product group will play a key role in helping to integrate sustainability factors even more deeply, and devise specific solutions in the event of deviating standards among suppliers. As a first step, in 2017 Linde Material Handling’s purchasing executives were trained on relevant sustainability aspects.
To avoid delivery bottlenecks due to raw-material shortages or economic difficulties with key suppliers, the KION Group ensures it has an adequately diversified pool of suppliers. Currently, suppliers are being categorised across the Group according to their commercial, qualitative, logistical and technical capabilities, with both measurable factors and subjective assessments included in the analysis. This can also provide clarity on how suppliers are meeting their obligations under the KION Group Principles of Supplier Conduct with respect to their work practices, environmental criteria and the upholding of human rights. On the one hand, the objective is to achieve greater transparency concerning suppliers and their performance, also with regard to sustainability aspects, and in doing so to enable Purchasing to improve its market development activities. On the other hand, a supplier portfolio is to be created for each material group to further optimise supplier and sourcing strategies.
Another objective is to evaluate existing risks and take preventative and targeted steps to counter these through a corresponding supplier assessment. Specific measures, particularly in regard to the monitoring of reputational and compliance risks, geopolitical risks, environmental risks and other potential outage-related risks (such as strikes, logistics-hub failures, etc.) along the supply chain are planned for 2018. As a first step, discussions were held with EcoVadis in the reporting period. It operates a collaborative platform that provides CSR ratings on suppliers for global supply chains. With EcoVadis’s ratings, the KION Group aims to increase the transparency of individual suppliers’ sustainability performance, manage risks and opportunities in a more targeted way with regard to the sustainability of their supply chains, and in doing so generate competitive advantages and added value for the Company. In 2018 the process of rating the strategic suppliers by EcoVadis will be launched. Individual topics, such as the integration of sustainability aspects into the product group strategies are already being expanded upon in working groups. Furthermore, purchasing management is assisting suppliers to improve their production processes and ensure they have efficient and capable structures.