Coordinated purchasing with total cost in focus

Group purchasing is handled by a shared purchasing organisation. The objective of the purchasing work is to achieve the lowest possible total cost over time for the Group. During the year, Supply Chain Management was formed, which comprises the departments of productivity, logistics and purchasing.

The purchasing organisation has the task of finding cost-effective supply possibilities that provide or lead to productivity improvements and meet the company’s standards of quality, safety and the environment. Södra’s purchases comprise 190 different product groups and 200 investment procurements per year.

By gathering productivity, logistics and purchasing in the same organisation, the productivity work is reinforced, and the opportunities increase of developing new supply solutions that can compete with the existing ones.

Procurements during the year

During the year, several Group-wide procurements were conducted in the purchasing area of indirect materials and services. Examples of these are warehousing, telephony, valves, forklifts and wheel loaders. The majority of large input raw materials, such as diesel, bleaching chemicals and caustic soda were also purchased through procurement.

For transportation, focus has been on the transport of finished goods by road and rail. During the spring, wood transports were procured for the Southern and Western regions. In comparisons between competing hauliers, experience, quality and service, as well as price, were important in the final selection.

In terms of investments, several procurements were carried out within the scope of Södra Cell Mörrum’s dissolving project, which involves rebuilding one of the production lines for the manufacture of textile pulp. The main equipment was procured as early as January. Close cooperation between technical and commercial staff provided good results despite a tight timetable.

Much of the purchasing work involves calculating the total cost of the suppliers’ bids. The total cost extends over the lifetime of the investments and includes an evaluation of costs for equipment and services as well as parameters such as guarantees and technical solutions. In the selection of supplier, the calculation of the total cost is an important part of the decision documentation.

In the second half of the year, purchasing began by evaluating the possibilities of building a pulp mill in Russia.

Planned procurements

Within the strategic purchasing areas of input commodities, transportation and indirect materials and services, some 30 major central procurements will be carried out in 2012. The annual purchasing cost in these procurements totals SEK 1.9 billion, corresponding to 40 per cent of the areas' annual purchasing volume.

Examples of major procurements in 2012 include antifoam agents, fuel oil, wire, the distribution of finished products by boat, wood transports in Norway, forklifts and wheel loaders as well as electrical motors and operating materials.

In December 2011, the Board made a principle decision on investments of SEK 2 billion in 2012. These investments are the subject of focus for the purchasing organisation’s investment group, which prepares documentation for the boards of the business areas and for the selection of investment alternatives.

Category Management

The purchasing organisation is continuing development of strategic purchasing in the scope of Category Management. This means evaluating various supply strategies for commodity groups with a systematic approach and applying the method that minimises the total cost over time.

During the year, the purchasing officers were trained in this methodology and prepared 24-month operation plans. The plans comprise procurements and productivity projects for each commodity group. In 2012, work will intensify and be tied even more closely to Södra’s productivity work.