Drive functional and
operational excellence

Throughout our integration and restructuring period, we pursued a series of projects to incrementally increase efficiency in our support functions. This has undoubtedly improved our cost position and will stand us in good stead as volumes recover, but we recognize that further improvements in effectiveness and efficiency will require a different approach.

Historically, we have focused on a business unit structure and run both our front office and support functions in a fragmented manner. This has led to considerable market focus and success, but it has also led to sub-optimization of support activities. To reach the next level of performance, we now see the need and potential for more integration of these support functions. We will therefore be taking an approach which allows us to fully benefit from our scale.

We have decided to focus on four key areas for building functional excellence – Supply Chain (including Sourcing), Finance and Information Management (IM), Research Development and Innovation (RD&I) and Human Resources (HR) and Organizational Development (OD). The RD&I approach was covered in the Innovation initiative described earlier, while the HR/OD approach is outlined in the following Talent Factory initiative. Below is a summary of achievements and plans in the two remaining areas of Supply Chain/Sourcing and Finance/IM.

Supply Chain (including Sourcing)

We have successfully built the basics of an AkzoNobel-wide Sourcing program over the last few years, with strong results in terms of both cost control and security of supply. We are now stepping up to take a company-wide approach to the supply chain. This does not mean that we will be centralizing all of our sourcing, manufacturing and distribution activities. Instead, it means that we will be leveraging our expertise and scale to achieve both our value and values ambitions.

Specific areas of focus in 2010 and going forward in terms of supply chain have been around delivering on our safety ambitions and improving our eco-efficiency levels.

  • While we know we must do better with regard to improving our safety performance, we are proud of what we have achieved so far. The implementation of a company-wide behavioral-based safety program is nearing completion and our safety leadership training program has now been completed for all managers. The latter is focusing on understanding risks, leadership, individual responsibility and the need for visibility or “walking the talk” for all our managers.

    In addition, local employee safety programs and training have been supplemented by a global e-learning module for all employees and new starters. Furthermore, a global AkzoNobel Safety Day was held in October, which included encouraging our employees to submit a pledge in which they promised to implement a simple solution to improve the safety of themselves or those around them. More than 14,000 responded.

    Despite these efforts, the total recordable injury rate remained around 3.6 in 2010, compared with 3.7 in 2009. We are still not at industry-leading levels and did not reach our target of 2.0 in 2010. This will continue to be an area of special focus in 2011.

  • An additional area of focus will continue to be operational eco-efficiency, or using less resources to make and distribute our products. An example of the type of improvement we have made, and will continue to make, is the innovative use of energy at one of our Pulp and Paper Chemicals facilities in Sweden. Heated cooling water generated by the chlorate electrolysis process is now being used for district heating in the nearby municipality of Ånge. This displaces oil and biomass combustion in our business and reduces the CO2 emissions at the municipal burners by 1.8 tons of CO2 per capita in Ånge. It also reduces the heat load on the local river where the cooling water is discharged.

    Another example is that of our Surface Chemistry plant at Forth Worth in the US. We have reduced calcium sulfate waste from filter cake by 2,000 tons by improving the control of the neutralization process – which creates the calcium sulfate – and optimizing the filtration process.

    The improvements we have made are not limited to our Specialty Chemicals businesses. For example, an online energy management system at Decorative Paints’ Wapenveld site in Germany has helped to identify improvements in heating, lighting and compressed air use which have resulted in a 30 percent reduction in gas consumption in eight years, and a 12 to 15 percent reduction in electricity consumption in four years.

Beyond safety and operational eco-efficiency, additional areas of focus for 2011 in the Supply Chain function will be on process safety, product stewardship, raw material strategies and development of repeatable models to drive continuous improvement aimed at further optimization of the company’s overall manufacturing footprint.

Finance and Information Management (IM)

Over the last few years, we have invested significantly in both improving the control environment and increasing efficiency through restructuring and the integration of ICI. While this has led to a strong performance on governance and compliance in the Dow Jones Sustainability Index, as well as some incremental performance improvement, we still have significant opportunities for increased efficiency and effectiveness.

With this in mind, we launched a OneFinance initiative, which is designed to simplify our processes and systems, as well as focusing strongly on people and organization. We have already made some progress. In 2010, we successfully implemented a new SAP ERP system across many parts of the Decorative Paints organization and have completed the scoping for a similar single ERP approach in Car Refinishes. We are also working on several standardized enabling processes as we increasingly reduce multi-local complexity.

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