Purchasing at Covestro is handled by the corporate Group Procurement function. Group Procurement works with the business entities and regional hubs of the corporate Supply Chain & Logistics function to ensure the timely global supply of goods and services to all divisions of the company on the best possible terms and conditions. This ensures that the Group’s high quality standards are met. Furthermore, Group Procurement is responsible for ensuring that Covestro’s ethical and environmental principles are upheld throughout the entire procurement process. The basic tenets of our procurement policy are set forth in a directive that is binding on all employees throughout the Covestro Group.
In the year 2022, Group Procurement defined details of the strategy and strategic principles (cost optimization, supply chain optimization, sustainability, circular economy, and business proximity). The objective is still to generate a competitive advantage for Covestro and make a decisive contribution to overall value. Group Procurement contributes to realizing Covestro’s vision of becoming fully circular by, among other things, purchasing renewable energy and alternative raw materials.
Covestro is an energy-intensive company and depends to a large extent on gas. It is predominantly used as a source of energy and as process gas in chemical reactions and there is no comprehensive short-term substitute for gas in the production processes. For this reason, in the procurement of sources of energy, Covestro, along with large parts of the chemical industry, is very majorly affected by the persistently high and volatile prices amid the Russian war against Ukraine. Given the nature of the energy markets, it will only be possible to influence this effect in future by switching to sources of energy other than gas. Group Procurement is planning to source alternative fuels, such as hydrogen, ammonia, biogas, or green methane, wherever the potential to switch to other fuels has been identified in production processes. In this way, Covestro will be able to reduce its current dependence on gas in the medium to long term. At the same time, the significant increase in energy prices in the year 2022 is increasingly driving up demand for circular solutions. We have for this reason redoubled our efforts to actively develop new long-term supply plans and signed purchase contracts for renewable energy (particularly electricity). This resulted in Procurement sourcing around 740 GWh of electricity (around 12% of total usage) from renewable sources in the year 2022.
GHG emissions in connection with the procurement of raw materials account for the majority of Covestro’s Scope 3 emissions. Group Procurement therefore plays a key role in achieving any future Scope 3 reduction target. In addition, the corporate Group Procurement function promotes the digitalization of purchasing processes and systems in the interest of improving procurement efficiency and effectiveness for Covestro and its suppliers.
In fiscal 2022, goods and services were procured from some 16,000 suppliers (previous year: some 13,000) in 61 countries (previous year: 66) for €14.5 billion (previous year: €11.3 billion)*. In fiscal 2022, the procurement spending of Covestro’s main sites in Germany, the United States, and China accounted for 78% of Covestro’s global spending. Most of this amount –81% – went to local suppliers in the individual countries.
The most important raw materials for our products are petrochemical substances such as phenol, benzene, propylene/propylene oxide, toluene, and acetone – which collectively account for 40% of our purchasing value (previous year: 35%). Moreover, the operation of our production facilities requires large amounts of energy, which we primarily procure from external sources in the form of power and steam. We endeavor to procure raw materials essential for operations which are difficult for Covestro to obtain from external supply sources from within the Group or through joint ventures. To name just two examples: Covestro produces part of its chlorine in-house and procures propylene oxide through a joint venture. Operations, logistics, and investment projects require technical goods and services in addition to raw materials and energy. These activities are consolidated by the corporate Group Procurement and Supply Chain & Logistics functions. We also regularly monitor the sustainability and quality of our suppliers and ensure that they comply with internal and external standards.
*Due to the ongoing system integration of Resins & Functional Materials (RFM) acquired from Koninklijke DSM N.V., Heerlen (Netherlands), the RFM-related procurement volume was only partially included for fiscal 2021. Since fiscal 2022, RFM fully integrated.