ZF targets Rs 3,370 crore savings in purchasing by 2015, calls on suppliers to fulfill their duties

October 4, 2012: German component major ZF Friedrichshafen AG is reorganizing its production materials purchasing. In the next two years, the Group wants to save half a billion euros (Rs 3,370 crore) together with its suppliers. To achieve this, the number of suppliers will be cut down significantly, purchasing volumes bundled, and processes harmonised. Until 2015, the automotive supplier is aiming at sales growth of over 20 billion euros (Rs 134,800 crore), today this figure is at 15.5 billion euros (Rs 104,470 crore). "In order to be able to meet the strong customer demand, we have to make substantial investments into new plants and production facilities," said ZF's CEO Dr. Stefan Sommer (pictured), who is also in charge of Corporate Materials Management. "These considerable advance payments put our results under more pressure – and this pressure has to be passed on moderately to our suppliers."

Owing to the healthy growth at ZF, the volume of manufactured products is rising – and, for the suppliers, this also increases the purchasing volumes. "Here, economies of scale take their effects, and they must be reflected in our purchasing prices as well", is the explanation of ZF's CEO Sommer in view of the bulk discounts expected from the suppliers.

Lower prices for production materials are just one lever ZF wants to use. Standardised supplier and cash management is another one. To this end, the previously decentralised negotiation of purchasing conditions will be standardized throughout ZF. As a result, purchasing at the ZF Group follows the company's realignment: Early in 2011, five divisions and several independent business units were merged into four ZF Divisions, and the number of contacts for the customers was significantly reduced. Instead of having several decentralized purchasing contacts, the suppliers now have standardized purchasing conditions and one central negotiation partner each. This also includes consistent payment terms that have varied considerably in the past.

For the globally operating ZF Group, it is also becoming increasingly important that the suppliers are capable of delivering worldwide, i.e. production materials can be supplied in the same quality not only within Europe but also in Asia or North and South America. "When selecting our suppliers in future, we will pay more attention to their global approach", says Sommer. "In the context of reorganizing our supplier relations, we will also clearly reduce the number of our suppliers. Overall, we call for our suppliers to make tangible contributions to our growth which will orient itself more towards profitability in the future – sales growth itself is not a value."