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Improve gross profit margins

Although 2009 was a difficult year, it was successful from a gross profit margin perspective. This was largely due to a combination of our strong product portfolio, a disciplined margin management program – which we began implementing prior to the economic downturn – and an increasingly professional approach to procurement.

From a procurement perspective, the emphasis as we move forward will be on rolling out processes across the company. Procurement best practice is not just about unit cost reduction, but also implementing programs to ensure suppliers will be able to support AkzoNobel in meeting the future demands of our customers. The AkzoNobel Vendor Policy sets out the environmental and social standards we expect.

We are also planning to go beyond implementation of our existing best practice margin management and procurement processes and take a more cross-functional, proactive approach to rationalizing our product architectures in order to deliver appropriate products to our customers at lower cost levels. An example from Decorative Paints is shown below.

Product architectures approach to gross profit margin improvement

We are in the process of analyzing our Decorative Paints formulations using a rigorous product architecture approach. Early results indicate that there may be potential to reduce our portfolio of tens of thousands of formulations to fewer than 100 architectures. Reducing our formulations will allow us to operate with a far less complex mix of raw materials, as well as eliminating duplicate development efforts. It will also allow us to deliver faster roll-out of new products at competitive margins into our global markets.

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