Drive functional and

operational excellence

A key factor in the recent creation of our Executive Committee was the idea that, to deliver the next level of performance and reach our vision of becoming the leader in coatings and specialty chemicals, we need to pursue excellence from a functional perspective. This new governance structure is providing the impetus that we need to develop plans to reach the next level of functional and operational excellence, resulting in our announcement in October 2011 of a performance improvement program to deliver €500 million EBITDA by 2014, as well as a step change in effectiveness.

This program is not optional; we must deliver higher levels of efficiency to ensure that, in future, we cover our cash requirements and generate free cash flow, while still investing in growth. In addition, higher efficiency levels are required to achieve our Values medium-term ambition of top quartile eco-efficiency improvement rate. Nor is the program optional from an effectiveness perspective. By improving our level of performance, we will be better positioned to achieve our medium-term ambitions regarding, for example, safety and employee engagement.

There are a number of workstreams included in this overall performance improvement program, which are outlined below.

Integrated Supply Chain

We have a very ambitious program for functional and operational excellence in Integrated Supply Chain, which includes Sourcing/Procurement, Manufacturing/Operations and Distribution/Logistics. The program should generate substantial and simultaneous improvement in Value (e.g. in the form of cost and capital savings) and Values (e.g. in the form of improved people and process safety). In terms of activities, the program includes:

  • Improvement at manufacturing sites and distribution centers
    These improvement actions essentially take place at individual plant or distribution centers. They are based on standardized improvement methodologies such as Lean and Lean Six Sigma. The concept will be rolled out company-wide and the scope includes organizational effectiveness, overall equipment efficiency and the reduction of our environmental footprint
  • Improvements of operations and manufacturing network
    These are cross-business improvement plans that will further enhance the productivity and sustainability profile throughout the overall supply chain. They encompass opportunities for restructuring in some of our more established markets, as well as more efficient and effective pursuit of growth opportunities in high growth markets
  • Complexity reductions
    Integrated Supply Chain supports business-driven simplification efforts. The business simplification programs will lead to the use of fewer raw materials, fewer formulations and fewer stock keeping units, and simplified operations, thereby boosting overall productivity in the supply chain and lowering working capital levels
  • Stepping up safety efforts
    Helping us to achieve our top quartile ambitions when it comes to personal safety through standardized behavioral based improvement programs. We have also supplemented our process safety and asset integrity standards with guidance notes and best practices. Process safety awareness training sessions are being rolled out for site managers and new process safety specialists throughout the organization

Research, Development and Innovation (RD&I)

To take advantage of our scale and ensure that we maximize the use of our extensive technical knowledge and know-how, we have established six global RD&I Centers. These are located in Deventer and Sassenheim in the Netherlands; Felling and Slough in the UK; Strongsville, Ohio, in the US; and Songjiang, near Shanghai, China. The six facilities house one or more of the company’s Expert Capability Groups, all of which perform groundbreaking research. They are co-located with the principal RD&I laboratories of one or more AkzoNobel businesses, which develop the technology platforms for their respective activities. The global centers are complemented by around 140 smaller RD&I laboratories, which focus on the development and adaptation of products for local markets and technical support for manufacturing and customers. In addition to ensuring that we make best use of our people capabilities, we also need to ensure that we leverage opportunities to improve efficiencies in our formulations. We are doing this by developing product architectures which can be used around the globe for both Decorative Paints and Performance Coatings. This allows us to create and market products that are optimized in terms of price-value trade-offs, as well as eco-efficiency in product, manufacturing and use. This project is key within our VOC reduction program, which will help us to deliver on a 25 percent reduction in VOCs per unit of product sold by 2015.

Human Resources (HR)

Delivery of efficiency and effectiveness in our HR function is fundamental to delivery on our strategic ambitions. This includes, but is not limited to, delivery of our ambition to become top quartile in diversity, employee engagement and talent development. We are therefore stepping up our efforts to build a functionally excellent One HR organization.

Two important enabling initiatives to deliver a functionally excellent HR organization are country HR organizations and HR information systems. With regards to the former, we have made substantial progress. We have implemented HR organizations in most of our top ten countries, which provide shared services and recruitment expertise for all AkzoNobel businesses. With regard to the latter, we have now put in place a program to harmonize our IT systems in our top ten countries.

Finance and Information Management (IM)

Similarly, we need to ensure that we improve efficiency in our Finance function and systems to both reduce costs through standardization and harmonization, while at the same time increasing our focus on business partnering and ensuring a continued high level of control. A series of specific projects in these workstreams will deliver simultaneous improvement, including implementing a global chart of accounts, consolidation of ERP systems and revamping several key processes such as purchase-to-pay. These initiatives will also support the creation of business shared service centers in the future.

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