Continental and Schaeffler: Purchasing Cooperation

April 3, 2009 · Filed Under Companies, Suppliers

Through a global purchasing agreement, the automotive supplier Continental and the Schaeffler Group have started the first large joint project in the history of cooperation between the two companies. The purchasing cooperation was contractually agreed as of March 27, 2009. Its goal is to optimize cost of materials and achieve a savings potential of 350 to 400 million euros for the period between 2009 and 2011. The number of suppliers of production materials is to be cut from 5,600 to 2,800.

According to the companies, their goal is to optimize cost of materials and achieve an annual triple-digit million benefit through access to the steel markets and component suppliers as well as investments and non-manufacturing materials. The combined purchasing volume of Continental and Schaeffler totaled approximately 20 billion euros in 2008. The annual purchasing volume capable of benefiting from synergies would come to about 6.6 billion euros, they stated.

In the purchasing cooperation, both companies follow the principle of acting in the market as independent entities but creating synergies through cooperative actions. Purchasing is an ideal area for this cooperation because this is where the strengths of Continental and the Schaeffler Group complement one another. While Schaeffler’s annual purchasing volume of as much as 1 million tons of steel brings it direct access to steel producers, a high level of competence in this segment and also very good purchasing conditions, Continental’s strength lies in the purchase of mechanical and electronic components.

Both companies announced that they had a well established portfolio of suppliers. The joint access to the partner’s purchasing expertise would make it possible for them to benefit from the improved purchasing conditions. And what is more, Continental’s suppliers would obtain far better access to global steel markets than they had separately. In return, the Schaeffler Group would benefit from Continental’s large supplier portfolio which would then also be available to that company.

“The purchasing cooperation will offer everyone involved – the Schaeffler Group, Continental and our suppliers – the opportunity to benefit. The mutual build up of our purchasing activities will enable us to achieve significantly improved cost structures. This is a first important step into a successful future,” pointed out Dr. Jürgen M. Geißinger, President & CEO of the Schaeffler Group. Dr. Karl-Thomas Neumann, Chairman of the Executive Board of Continental AG, underscores the potential of the cooperation: “Continental and the Schaeffler Group will now operate in the market with a single purchasing strategy, uniform quality standards and a common supplier base. This will enable us to purchase the most advanced technology with maximum quality from the best suppliers. This is an important element in maintaining the leading position of our companies in the market and transforming ourselves into a global champion of the automotive supplier industry.”

One of the goals of purchasing management both companies mentioned was to also achieve cost advantages by exchanging technology expertise and establishing value added supply chains in the most important automobile manufacturing regions of Western and Eastern Europe, North and Central America, Asia and Brazil. At the same time, they are striving toward concentration in the supplier segment.

Future plans are to cooperate with 2,800 suppliers of production materials rather than 5,600 as in the past. Based on the high production competence of the Schaeffler Group with its brands INA, FAG and LuK in the manufacture of precision engine, transmission and drivetrain components, both companies would pursue new opportunities in make-or-buy decisions in the future, as stated by Continental.

In addition to the purchasing volume for commodities and components, expenditures of up to 4 billion euros are generated by investments and non-manufacturing materials. These include, for example expenses for logistics services, energy, office materials, IT hardware, telephone, travel and marketing. As these areas normally overlap to a high degree, cooperation could bring noticeable savings here as well. Joint negotiations could result in higher volume and accordingly improved conditions. The joint use and consequently more efficient planning of parts logistics would also result in significant cost benefits.