Electrolux is leveraging its global strength and scale to increase efficiency and reduce costs. Modularization and global optimization of production unlocks resources for investment in product development, design and marketing.
Electrolux continually strives for operational excellence by leveraging its global scale advantages, optimizing production, reducing tied-up capital, improving efficiency within sales and administration as well as becoming more resource efficient.
The Group’s global economies of scale are clear advantages in purchasing raw materials, components and finished products. The global purchasing function coordinates and administers about 60% of all purchasing. The Responsible Sourcing program supports the Purchasing function worldwide in making the right decisions on suppliers and upholding the sustainability performance of our supply base. Furthermore, global product development, design and marketing projects across all units contribute to a faster and more efficient product development process.
An extensive modularization program is ongoing that reduces product costs and the product development spend through standardized global modular platforms for new products. The aim is to increase the leverage from the global economies of scale. In 2015, a new phase in these efforts was implemented called Modularization 2.0. This entails expansion of the project from its initial focus of reducing product complexity and savings on the direct cost of materials, to improvements in four primary areas:
Automation. To a greater extent, new products are designed to allow a higher degree of automation in their manufacture.
Reduced material and labor costs. Through an increasing number of products being built on a number of shared modules within the Group, savings can be made at the purchasing stage and, in parallel, increased automation will lead to reduced direct labor costs.
Increased pace of innovation. Modularization unlocks resources for investment in product development.
Time to market reduced for new products. Experience demonstrates that modularization means that the time to market for a new product is reduced by 20% - 30% and that the investment cost decreases by 15% - 20%.
In addition, modularization leads to increased manufacturing flexibility by allowing customization of products at late stages of production. This is supported by an increased digital supply chain focus involving the implementation of systems to further improve communication with suppliers and retailers.
Modularization is driven by a global team of mixed nationalities with experience from various key positions at Electrolux.
The efficiency initiatives continued to yield clear results during the year. Modularization increased in the various product groups and led to increased efficiency in terms of product development, marketing and production.
For more than a decade, Electrolux has gradually restructured its production through a program for optimizing the manufacturing footprint. About one-third of the Group’s manufacturing has been moved, primarily from Western Europe and North America, to new production centers. Electrolux has closed some 20 plants, downsized many others and opened new production centers, mainly in low-cost areas. These new production centers have been established both to reduce costs and to support strategic growth markets in Asia, Latin America, Eastern Europe and Northern Africa. The manufacturing program is expected to be completed in 2016. In 2015, about 65% of manufacturing was carried out in low-cost areas, compared with about 30% in 2004.
During 2015, the transfer of refrigerator production from Australia to Thailand continued. A decision was also made to relocate manufacturing of refrigerators in Sweden to Hungary. A new cooker plant was inaugurated in Egypt to strengthen the Group's competitiveness in the region.
A number of other programs aimed at enhancing efficiency are ongoing within the Group. The Electrolux Manufacturing System (EMS), which was launched in 2005, has been implemented at all production units. The program focuses on continuous improvements in terms of product quality, costs, inventory optimization, occupational health and environmental impact.
The EMS continued to make a positive contribution in 2015. The manufacturing cost for major appliances has declined significantly since 2011 and energy use per unit produced has decreased by 41% since 2005. Through the Green Spirit program, which is an integral part of the Electrolux Manufacturing System, targets are set to continuously reduce resource utilization. Improved energy efficiency lowers annual energy costs by more than SEK 400m a year, and entails a reduction in carbon dioxide emissions of 200,000 tons compared with 2005. The Green Spirit program aims to cut energy usage by more than 50% by 2020 as part of the target of reducing the CO2 impact by 50% by 2020.
For a number of years, Electrolux has worked intensively to reduce tied-up capital in the Group. In addition to groupwide measures to streamline and optimize manufacturing, each business area is working on reducing working capital to release resources that can instead be invested in growth activities. The work focuses primarily on four areas: trade receivables, accounts payable, inventory and purchasing. The working capital program has resulted in an increase in the capital-turnover rate and a reduction in structural working capital.
The structure of Group capital expenditure has also changed in recent years to more expansionary investments and fewer maintenance investments. Investments in product development have more than doubled and investments in plants have been reduced.
Efficiency within sales and administration is driven by items including shared IT systems and service centers for finance and accounting. Efficient, shared processes are being developed for the launch of new products. Legal entities are reviewed and merged continuously to create shared infrastructures for all regions.
The product life cycle perspective guides the Group in reducing its environmental impact by indicating the degree of impact in raw-material extraction, manufacturing, transportation, use and end-of-life treatment.
The most significant environmental impact for Electrolux is energy and water consumption when products are used. Accordingly, the design and development of products with increased efficiency is a top priority. While the impacts from manufacturing and transportation are significantly smaller, they are still addressed.
Electrolux is committed to sustainable growth and, accordingly, efficient use of resources comprises a key component of its streamlining initiatives. Through the Green Spirit program, which is an integral part of the Electrolux Manufacturing System, targets are set to continuously reduce resource use and waste.
The materials used in household appliances comprise primarily steel, plastic and electronic components. Savings in materials are achieved by optimizing the use of materials, without compromising product performance and quality.
Electrolux is phasing out chemicals of concern. New scientific findings and stakeholder requirements are used to update the restricted materials list (RML).
The aim is to increase the proportion of recycled materials in new products. Up to 70% post-consumer recycled plastic is used in selected vacuum-cleaner models.
Energy use and carbon dioxide emissions have high priority, and Electrolux has targets for absolute and relative reductions. The average energy consumption per unit produced in comparable plants has decreased by 18% during the last five years. A new target has been set to achieve a 20% improvement in energy efficiency in plants and warehouses by 2020 compared with 2015.
For society as a whole, over 25% of global carbon dioxide emissions derives from the transport sector. Electrolux has set a target for its core markets to annually reduce emissions by 3%.
Water shortages are a major problem in many regions. Electrolux has a long-term commitment to help improve management of limited water resources.
Together with the World Wildlife Fund, Electrolux mapped water-related risks associated with Group plants. As a result, the Group is implementing water management systems throughout operations to reduce water consumption in manufacturing by 5% each year in areas of water stress.
-18
%
The average energy consumption per unit produced in comparable plants has decreased by 18% during the last five years.
-33
%
The average water consumption per unit produced in comparable plants has decreased by 33% during the last five years.
| 2011 | 2012 | 2013 | 2014 | 2015 | |
| Energy per standard unit | 100 | 92 | 89 | 89 | 82 |
| Energy consumption | 100 | 112 | 111 | 107 | 104 |
| Waste generation (excluding recycling) | 100 | 113 | 108 | 98 | 76 |
| Water consumption | 100 | 110 | 94 | 86 | 80 |
The Group’s global modularization platforms facilitate the spread of successful launches from one market to another, with adaptations to local preferences. The share of product development that encompasses global projects is increasing.