Supply management

The Supply organization encompasses four functions: Commercial Supply Chain, Customer Service, Operations and Purchasing. Collectively, they represent around 61,000 Philips employees and are responsible for sourcing, manufacturing and delivering products and solutions.

Management of shortages and management of commodity price increases

The recovery of the global economy led to tight supply of semiconductor components, in particular, in the course of 2011. The scarcity of and increased prices for commodities like copper and phosphor led to upward price pressure. We were largely able to negotiate price decreases, delay price increases and reduce volatility through commodity hedging with our suppliers. Raw material price trends in the last quarter of the year started to move in the opposite direction; prices are trending down again in anticipation of a possible second period of economic turbulence with generally lower demand ahead. Supply achieved 4.9% savings on the Bill of Material (BOM) and 5.2% savings on Non Product Related (NPR) purchasing.  Forecast reliability and sales/operational planning processes have improved, for both the short and longer term, resulting in reduced risk. Increased efforts on local talent hiring and breeding in growth geographies are being made to secure the inflow of professionals into supply functions for the future.

Concentration and consolidation of supply base

Philips Supply continued its focus on leveraging the base of selected suppliers. In both BOM and NPR the number of suppliers continued to be reduced. Creating long-term strategic partnerships with suppliers is an important enabler of Philips’ growth ambitions. Further alignment and standardization of payment terms continued to positively influence Days Payable Outstanding (DPO).

Supplier risk management and business interruption

Our strategic buyers are constantly monitoring their supplier portfolio; risk parameters are measured and contingency plans are in place. Extreme circumstances impacted supply performance in 2011; the earthquake and tsunami in Japan in March 2011 exposed vulnerability in our complex global supply network. During the Japan crisis the complexity of the suppliers and indirect market effects such as hoarding were discovered. Dedicated teams worked both locally in Japan and internationally with suppliers and their suppliers to mitigate risks. Similarly, these experiences have been applied to help deal with the impact of the flooding in Thailand, where supply of a critical component was interrupted, resulting in a significant supply continuity risk, which was handled successfully.

Sustainability in the supply chain

Philips remains focused on improving working conditions and environmental performance in its supply chain and expects suppliers to share this ambition. We support suppliers in this journey and engage with governmental and civil society organizations and other business partners to further embed sustainability in the supply chain. For more information, refer to Supplier performance section (in the chapter Sustainability Statements).

New venture integration

Purchasing participates in the Philips New Venture Integration team. The focus is on creating value via spend savings and cash improvements and on risk mitigation related to sustainability and financial weakness of the supply chain of the newly acquired company.

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This is an interactive electronic version of the Philips Annual Report 2011 and also contains certain information in summarized form. The contents of this version are qualified in their entirety by reference to the printed version of the full Philips Annual Report 2011. This printed version is available as a PDF file on this website. Information about: forward-looking statements, third-party market share data, fair value information, IFRS basis of presentation, use of non-GAAP information, statutory financial statements and management report, reclassifications and analysis of 2010 compared to 2009.

Growth geographies are the developing geographies comprising of Asia Pacific (excluding Japan, South Korea, Australia and New Zealand), Latin America, Central & Eastern Europe, the Middle East (excluding Israel) and Africa.