Demand-related supply shortages at our suppliers – e.g. as a result of the sustained economic upturn – may lead to production downtime and delays in our own deliveries if there are no alternative sources of supply. This would adversely affect our earnings. These potential risks arise specifically in connection with the procurement of components and input materials from third parties. This could have a negative impact on DEUTZ’s net income and on its capacity utilisation.
We seek to mitigate these risks by carrying out intensive supplier management and ongoing monitoring of the market.
Besides these global activities, there are three cornerstones to our procurement strategy for strategic and production-critical components: firstly, long-term supplier relationships and supply agreements; secondly, increased dual sourcing; and, thirdly, where appropriate, allocation of production to subcontractors. These proven approaches together minimise the procurement risks and secure the required capacity to the greatest possible extent.
In view of the measures in place, we categorise the procurement risks with regard to the attainment of our financial targets as ‘low’ in 2018.
Fluctuations in capacity utilisation in production that result from our level of dependency on the general economic situation can, just like breakdown-related production delays, have a negative impact on profitability.
In order to avoid mistakes in planning and capital expenditure, the necessary production capacity is regularly reviewed and planned using different timescales: over a number of years as part of the medium-term planning process, which is revised each year, and for the following financial year as part of the budget planning process, which is then updated quarterly for the current year. Production programme meetings and capacity planning meetings are held monthly to ensure that our capacity is adjusted in line with orders on hand. We are also increasingly making use of temporary employment contracts in order to ensure greater flexibility.
In view of the measures in place to avoid or minimise these risks, we continue to categorise the level of production risk with regard to our financial targets as ‘low’.