Group-wide Procurement Directive adopted
Supply management in construction generally occurs on a per-project, regional basis. However, with standardized products and services, international suppliers and easier access to the world’s procurement markets, HOCHTIEF’s global purchasing strategy is gaining in importance. In accordance with its corporate governance principles, HOCHTIEF adopted a Group-wide Procurement Directive in the year under review that lays down uniform rules on subcontractor and supplier management and on all pro- curement activities. The Directive fosters an entrepreneurial mindset with respect to procurement at HOCHTIEF by es- tablishing networks for interaction with clients and suppliers. The Procurement Directive also supports HOCHTIEF’s quality directives. Having purchasing specialists in place throughout the Group facilitates the introduction and im- plementation of high standards of quality for goods and services on an international basis. Altogether the Group employs 700 buyers.
The Procurement Global Network Team, which is made up of the divisions’ highest-ranking buyers, ensures ongoing coordination of the Group’s procurement activities. The in- creased cross-divisional cooperation in supply manage- ment supports uniform processes and generates purchas- ing advantages.
ProVis project: Transparency in supply management
The project ProVis was launched in 2005. The objective of ProVis is to make the company’s procurement processes transparent so that, for example, upcoming orders can be bundled with reliable subcontractors.
In performing its work, HOCHTIEF’s procurement network looks at and analyzes current information to ensure that good materials, services and suppliers are always available to HOCHTIEF clients at the best prices. ProVis will enhance the quality of the divisions’ procurement activities and de- liver direct value.
Focusing on optimum value for money
Looking at the life-cycle costs of a project means that pro- curement efforts focus not only on an attractive price, but also products that are durable and easy to maintain. Such lasting products reduce, for example, the maintenance and service expense incurred by HOCHTIEF Facility Manage- ment, whose properties and facilities under management in many cases include ones that were built by HOCHTIEF Construction or are operated by HOCHTIEF PPP Solu- tions. Our clients, thus, profit from our integrated approach to supply management.
Worldwide purchasing leverage
HOCHTIEF is concentrating on tapping synergies between its corporate divisions and building up its procurement net- work further as a means of continuing the internationaliza- tion of its supply management.
Efficient subcontractor management
Subcontractors are a vital part of what we do. HOCHTIEF Construction alone, for example, worked with some 15,000 subcontractors in the year under review. A special system of subcontractor management provides the operational units with comprehensive information, especially details about vendors in key trades like facade work, electrical work, heating, ventilation and plumbing. Such information includes a review of the subcontractors’ performance, spe- cialties and credit standing as well as ongoing market analy- ses. We ensure in this way that the subcontractors we em- Expenditure on the procurement of materials and subcontracted services accounted for around 75 p e r c e n t of tot a l o p e r a t i n g p e r fo r m a n c e i n t h e ye a r u n d e r r ev i ew, o r E U R 11.1 b i l l i o n . T h e c o m p a ny i n te n s i f i e d G r o u p -w i d e c oo p e r a t i o n i n t h e a r e a of p u r c h a s i n g to e n h a n c e t h e quality of products and services and, by combining order volumes, achieve optimum value for money. Supply management at the international level became increasingly important in 2005.
To O u r S h C o rp o ra te G o ve rn a n c e H O C H T IE F S to c k M a n a g e m e n t R e p o rt c ia l S ta te m e n ts a n d N o te s
Supply Management
Generating cost benefits, guaranteeing
superior quality
ploy have the requisite financial strength and skills and are able to deliver the high level of quality we require.
We also use lead buyers to handle procurement contracts in key trades like facade work. Lead buyers possess con- centrated knowledge about the demand for specific prod- ucts at HOCHTIEF and what fluctuations to expect in inter- national demand.
We set great store by working with our subcontractors in a spirit of partnership and transparency. Subcontractor management is a mandatory component of HOCHTIEF’s management system.
Turner Logistics sets standards for the entire Group
Through Turner Logistics our US subsidiary has been pro- viding comprehensive procurement services along the en- tire value chain for Turner projects and external clients since 2002. The overarching goal is to optimize product quality, generate cost savings by combining orders and ensure on- time delivery. To achieve this goal the company buys ma- terials directly from suppliers and distributors and delivers them straight to the job sites. Since its inception Turner Logistics has been involved in more than 700 projects. Sixty- five percent of Turner’s clients on projects over USD 10 million chose Turner Logistics to provide procurement serv- ices for their projects in 2005. Business with external clients was also dynamic and will be expanded further.
Turner Logistics succeeded during the year under review in sharply increasing the purchasing volume in all procure- ment segments, including smart building technology. In 2006 the company hopes to also boost the efficient pur- chasing of tenant build-out materials like flooring systems, light fixtures and the complete range of office furniture and works equipment. Turner Logistics has already become a specialist in the rapidly emerging field of hospital equipment and furnishings, including high-tech machinery and supplies, making the HOCHTIEF company the sole US provider ca- pable of delivering turnkey solutions including all equip- ment for hospitals and research facilities: a significant
competitive advantage in the extremely fast-growing health- care properties segment.
More than 100 individuals who combine an engineering back- ground with specific product knowledge work for Turner Logistics. Strategic partnerships with 80 key suppliers and relationships with another 200 vendors ensure the ability to use high procurement volumes to tap attractive savings potential without sacrificing quality.
Expansion of supply management activities creates upside revenue potential
HOCHTIEF Construction in Germany began applying its “HOCHTIEF direct” strategy in 2005. Modeled after Turner Logistics, the program involves purchasing large-scale components for electrical and mechanical installations plus products like light fixtures, ceramics and fittings for specific projects directly from suppliers and distributors throughout Europe. Subcontractors install the materials procured via “HOCHTIEF direct,” which are cost-effective because of the high purchasing volumes. The pilot phase for the new business model ran smoothly. Plans are to start using direct procurement in additional product areas.
Procurement consulting services expanded
Companies and clients benefit from HOCHTIEF’s well inte- grated global network and its resulting first-hand knowledge of regional procurement markets. They are able to take advantage of a package of services that can include stra- tegic procurement planning plus bid request, contract award and quality management in addition to direct purchasing. The year under review witnessed the successful comple- tion of the first series of projects, one being HOCHTIEF’s procurement of EUR 70 million in materials on behalf of the Chinese construction company in charge of expanding the international airport in Algiers. Savings of 14 percent were realized because of the high order volume. Supply management can help generate attractive double-digit mar- gins for HOCHTIEF, which is why we intend to develop this service further.