The KION Group understands sustainability as covering the entire value chain and including both suppliers and business partners. In order to strengthen this understanding even further, the KION Group created a new role in central technical purchasing in the reporting year, which mainly deals with sustainability issues.
In 2018, a consistent segment orientation was implemented in purchasing. The KION Group’s purchasing organisation is now globally positioned in the ITS and SCS segments, operating with a cross-brand, cross-regional material group structure. Centrally managed and controlled, the organisation aims to identify cross-functional synergies, for instance by pooling purchasing volumes, expertise or resources.
In future, cross-functional commodity group strategies will be adopted by the Global Commodity Strategy Committee established in 2018. The Global Sourcing and Awarding Committee was also set up in the year under review for cross-departmental contract-awarding decisions. The two new committees are intended to promote coordinated decisions in the segments and achieve one-voice communications in all departments. Furthermore, strategic commodity management was strengthened in 2018.
For example, combustion and electric drives, accumulators, industrial tires or hydraulic parts as well as auxiliary and operating materials and various financial and logistics services or information technology are purchased. The largest share of the purchasing volume consists of approximately €3.7 billion (€3.6 billion in 2017) cost of materials.
The goal: working together as partners
The KION Group strives for long-term business relationships with strong and competitive suppliers to ensure products are of a high quality and innovative. Comparable products must always be sourced from the country with the most cost-effective package of costs, technology, innovation and service. This comprehensive view also includes shipping costs and customs duties. The KION Group therefore strives to use local supplier structures to reduce transport distances and optimise the availability of materials and parts (just-in-time, just-in-sequence). This approach also minimises the environmental impact of goods in transit.
The KION Group sources a large proportion of its material and component requirements locally, from the respective domestic market. Depending on the production location, the share stands at between 30 and 95 per cent. Around 91 per cent of the purchasing volume comes from Europe and North America, and the remainder from Asia and other regions around the world.
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. The key components of KION forklift truck and warehouse technology equipment in the ITS segment are 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 SCS 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.
Challenges in purchasing
The challenges for KION purchasing lie mainly in managing global and increasingly complex supply chains. This requires countering geopolitical, environmental 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. To address these challenges systematically, relevant programmes are already being developed throughout the Group.
Further information can be found in the KION Group Annual Report 2018 – Procurement risks.
Clear rules for supplier management
The KION Group’s specific guidelines and regulations also set out the company’s sustainability requirements for its suppliers. The KION Group’s Principles of Supplier Conduct, approved by the Executive Board in 2015, establish the framework for this. Focused on the most important procurement markets, these specifications are available in eight languages and set out clear environmental and ethical guidelines for KION’s supplier management activities. They also comprise the expectation of all suppliers to respect human rights and uphold international social standards, including 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. It stipulates that purchasing decisions must be strictly aligned with the company’s interests.
The General Terms and Conditions of Purchase were supplemented or updated at both Group level and the level of the largest operating units to include regulations on product-related environmental protection and avoiding the use of conflict minerals. They contain detailed guidelines on, for instance, compliance with notification requirements under the European REACH chemicals regulation and the EU Restriction of Hazardous Substances Directive (RoHS). It furthermore includes regulations on responsible procurement (see General terms and conditions of purchase). Compliance with the relevant regulations and laws is a given for the KION Group and will gradually also become an integral part of the new framework agreements with suppliers from 2019 on.
Since December 2018, a new Group-wide purchasing guideline has served as orientation for the actions of all purchasing staff. Modular in structure, it will be further substantiated in individual areas in 2019. At that point, sustainability aspects will also be incorporated into the standard purchasing processes and become an integral part of the contract awarding and evaluation criteria.
Each purchasing department is responsible for monitoring compliance with guidelines in its area. Dedicated Commodity Managers play a key role in these efforts, helping to consider sustainability factors even more strongly and devise specific solutions in the event of deviating standards among suppliers.
In 2018, all Global Commodity Managers in the ITS segment and staff in the relevant sales and service areas in Europe were included in the sustainability assessment and trained in the application of the EcoVadis tool (see Supplier assessments to step up sustainability performance). Further training courses are scheduled for the first six months of 2019.
Supplier assessments to step up sustainability performance
The KION Group relies on the EcoVadis platform, which provides CSR ratings on suppliers for global supply chains, to objectively and reliably evaluate the sustainability performance of its most important suppliers. This way, 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. In doing so it generates competitive advantages and added value for the company. The evaluation process requests suppliers to describe their processes for securing the individual sustainability criteria – especially with regard to the environment, working conditions, human rights, fair business practices and sustainable procurement. At the same time, suppliers are made aware of sustainability issues and have an opportunity to improve their performance by taking appropriate action.
The KION Group’s goal is to cover 25 per cent of the purchasing volume of each operating unit through the EcoVadis assessment. Once the individual supplier has undergone its initial assessment, the evaluation is to be updated every three years. The intention is to improve performance in relevant aspects in line with KION’s materiality analysis. In 2018, the evaluation already covered up to 20 per cent of the purchasing volume of the operating units. More than a third of the KION Group’s top 100 suppliers have already undergone the evaluation process.
However, the current database is not yet sufficient for a comprehensive picture. While large, globally operating suppliers respond well to the request, there is still need for action at small and medium-sized companies.
Irrespective of the EcoVadis system, the KION Group carried out a Group-wide categorisation of suppliers last year to evaluate their commercial, qualitative, logistical and technical performance. This classification is now being expanded in the risk assessment in Supplier Capacity Management.
Both measurable factors and subjective assessments are included in the analysis. The objective is to achieve greater transparency concerning suppliers and their performance, and in doing so to enable Purchasing to improve its market development activities.
To date, the majority of strategically important suppliers has been assessed. The risks identified were then jointly transferred to corresponding action plans for risk minimisation, which are now being implemented by the suppliers. In future, sustainability criteria will also be included in this process.
Audits at the beginning of a business relationship with a particularly important supplier also help to minimise risks. In 2019, an audit template will be developed to supplement the existing questionnaire in order to pay greater attention to sustainability criteria.