Costs

Increased investment in product development and brand communication presupposes lower production costs and less capital tied up in manufacturing. The extensive restructuring program and the greater proportion of procurement from low-cost areas (LCA) of recent years must be viewed against this backdrop. Now, the objective is global Optimization of operations to reduce costs further and to increase the growth rate.

Competitive manufacturing footprint

The need for cost-efficient manufacturing has become increasingly important due to globalization and the emergence of manufacturers from low-cost areas. In 2011, Electrolux will complete the extensive restructuring program commenced in 2004, and on its conclusion, Electrolux will have a competitive production structure with modern and efficient production units, all of which apply the same high labor and environmental standards, across the globe. Savings realized by the program are estimated to amount to approximately SEK 3.4 billion with a full yearly effect from 2013.

Approximately 60% of the Group’s household appliances will be manufactured in low-cost areas that are near rapidly-growing markets for household appliances. During 2010, Electrolux acquired a washing-machine plant in the Ukraine and signed a preliminary agreement to acquire the Egyptian Olympic Group, a leading manufacturer of household appliances for the North African and Middle Eastern markets.

Program for more efficient production

In parallel with the move of production to low-cost areas, the Group has implemented various programs to increase the efficiency and quality of products and production. The Electrolux Manufacturing System (EMS) is built on various tried and tested production improvement methods, developed internally in the Group and externally, and is a program that has been implemented with great success in all Electrolux plants. By continuous improvement, EMS targets employee safety, product quality, costs and environmental impact.

The success of EMS has led to the program being linked together with other larger Group investments and projects, including procurement and product development. Lower costs and more efficient production have resulted in Electrolux being profitable despite low utilization of capacity. Only about 20% of the Group’s total costs are fixed over time, which provides the flexibility to adapt the business to changes in demand.

Greater procurement levels from low-cost areas

A number of activities have been implemented to lower costs for materials, which account for just over half of the Group’s total costs. The proportion of procurement from lowcost areas increased from 30% in 2004 to approximately 62% in 2010 and is expected to reach approximately 70% in a couple of years. Since procurement from Asian suppliers is increasing, an Asian procurement organization has been established. The aim is to strengthen the Group’s global ability to interact with suppliers, conduct quality controls and responsible sourcing and increase efficiency.

Production remains in high-cost areas

There are still production units that must remain in high-cost areas (HCA). The production of hobs and ovens for the built-in segment in Europe must be near the end-market due to the advanced technology utilized and high transportation costs. Proximity to end-market is also important for the profitability of refrigerators, since these products are bulky and, therefore, expensive to transport. In addition, labor costs form just a small portion of total production costs. Products intended for professional users are always manufactured close to the market in which they are sold. Smaller products such as vacuum cleaners are inexpensive to transport long distances and all production of the Group’s vacuum cleaners is in low-cost areas.

Next step – shared global strength

Having achieved a competitive production structure, a strong global brand and a profitable process for consumer-driven product development, the next step in the Group´s efficiency program is ready to be taken. Global initiatives will enable Electrolux to continue to reduce costs by drawing on the advantages provided by the global strength and reach of the Group. This will be achieved through leveraging synergies within modularization, manufacturing and procurement. The total estimated savings provided by the initiative amount to approximately SEK 2–2.5 billion per year and full effect will be achieved in 2015. The initiatives will further strengthen the competitiveness of Electrolux and lead to increased speed and precision in product launches for the mass-market and premium segments; thus contributing to profitable growth. The cost of these global initiatives is estimated to amount to approximately SEK 500m per year during 2011 and 2012.

Greater production synergies

Electrolux possesses the prerequisites to achieve even greater economies of scale at its production units throughout the world. Above all, it is crucial to reduce complexity by defining the optimal structure and coordinating manufacture of the various products. Focus is placed on creating a swift and efficient process for component assembly.

Optimized procurement

Approximately half of the savings delivered by the global initiatives are expected to be realized through better global coordination of procurement. Modules with standardized interfaces, products and components result in fewer suppliers while increasing the volume of the input goods being procured. Another prioritized area that is part of delivering greater efficiency is the involvement of the procurement function earlier in the product development process.

Faster and more efficient product development

Developing products based on global needs leads to greater efficiency not only in product development and marketing, but also in production, since fewer product platforms are required. Cooperation between the different Electrolux global product councils for appliances will accelerate, and global units for product development in the respective product categories will accelerate the pace of innovation. Currently, Electrolux has eight global product development centers for household appliances around the world that focus on areas including induction, built-in and front-loaded washing machines. The objective is to further increase the level of differentiation for new launches in the premium segment and concurrently be able to profitably compete in the mass-market segment.

Modularization

Standardizing and utilizing modules for components common to all products, in one category, facilitates faster product development and more rapid satisfaction of consumer needs. In addition, procurement costs are reduced; resulting, for example, in lower product costs. In appliances, work is ongoing to identify the number of variants needed for a product category’s various components, such as glass shelves, handles and hinges. Although criteria for design must be varied to meet consumer preferences and tastes, the inside of the product is rarely affected.