025   Vestas annual report 2013 · Management report

Manufacturing footprintEver since implementing a new manufacturing set-up in 2012, merg-ing the four production business units into one executive management area, Vestas has been working on creating a leaner and more asset-light manufacturing organisation. With the goal of increasing flexibility and outsourcing while improving capacity utilisation in order to im-prove profitability and capital efficiency, Vestas has reduced its number of manufacturing sites from 31 to 19 during the two-year turnaround.

Non-core activities have been divested or outsourced, making Vestas a leaner company, more focused on utilising its core competencies to full effect. With the 19 remaining factories optimised for production of the two wind turbine platforms in the updated product roadmap, Vestas has consolidated a cost-effective, flexible and global manufacturing footprint.

Divestments and closures in 2013The work to further reduce costs and make Vestas more scalable in-tensified in 2013. Six machining and casting units in Norway, Sweden, Germany, China and Denmark were sold to the German industrial group VTC Partners GmbH with whom Vestas has a long-standing supplier relationship. Going forward, Vestas will continue to receive its compo-nents at the same high quality level it is used to, while benefitting from the new owner’s scale and efficiency.

The transaction was agreed at a sales price of EUR 1 with an earn-out element for Vestas of up to EUR 25m. As part of the divestment, Vestas made a further write-down of approx EUR 50m.

With the divestment of its machining and casting units, Vestas expects to lower its costs for casted components by around EUR 30m over the next two years with the potential of further cost reductions.

Other efforts in 2013 to reduce costs and simplify the manufacturing set-up included closure of the nacelles assembly factory in Taranto,

Italy and closing of the supply centres in Esbjerg, Denmark and Tianjin, China. Likewise, the operation of 22 spare part warehouses in Europe was outsourced to long-standing business partner DB Schenker. Finally, the Control Systems facility in Lem, Denmark, was merged with Control Systems in Hammel, Denmark, while the branch in Soria, Spain, was closed down.

Flexibility and scalability Vestas’ ability to scale up and down according to demand also included ramping up in 2013. In the USA, Vestas decided to offer production for a third party at the world’s largest tower factory in Pueblo, Colorado. Combined with Vestas’ increased order intake, the factory is now ex-pected to produce at full capacity throughout 2014. In fact, Vestas has hired more than 300 employees at the factories in Colorado, USA, and by the end of 2013, a total of 1,425 were employed – an increase of 28 per cent as compared to year-end 2012.

By the end of 2013, Vestas had a well-balanced global footprint for manufacturing wind turbines and delivering services close to its cus-tomers in order to ensure cost competitiveness. Combined with further efficiency improvements, Vestas will use its manufacturing scalability and flexibility to achieve cost leadership within the wind power industry.

Sourcing and suppliersIt is Vestas’ ambition to work even closer with its suppliers to further improve the professional level of the supply chain. Under the central-ised global sourcing programme, Vestas collaborates with fewer but larger suppliers to purchase larger amounts of components or set of components at lower prices. By working closely together with Vestas, selected suppliers are able to develop the best components at the low-est cost while Vestas reduces its need for in-house production.

By further developing proven technologies and using more standard components from strategic suppliers, Vestas can lower its production costs and focus its resources on core value-adding initiatives. These

Manufacturing and sourcing

“ With the consolidation of the manufacturing units, Vestas has become leaner and more flexible. Through continued cost-cutting and utilisation of our global manufacturing footprint, we’re now intensifying our efforts to lower the cost of wind energy.”

Jean-Marc LechêneExecutive Vice President & COO

026   Vestas annual report 2013 · Management report

include further developing and improving existing platforms in order to reduce the cost of energy for Vestas’ products. Sourcing and manufac-turing, for instance, can contribute by reducing wind turbine costs and lowering the balance of plant. Going forward, specific ways to reduce cost of energy may be offering longer blades and more powerful gen-erators without increasing the cost correspondingly.

As savings also apply to suppliers, Vestas works on an accelerated earnings program, focusing on reducing the variable costs in all spend-ing areas associated with external suppliers. The programme includes materials that go into manufacturing wind turbines, costs at construction sites, e.g. roads, as well as indirect spend across the company, e.g. travels. All decisions in this regard are based on category management, assess-ing all aspects of design, manufacturing, construction and delivery.

By delivering improved cost bases, the accelerated earnings program is a key enabler for consolidating Vestas’ leading position in a competitive market. Going forward, Vestas intends to continuously lower the cost of energy by reducing the costs associated with manufacturing and sourc-ing to an even greater extent.

During the course of 2013, Vestas gained good effect from its product cost-out initiatives. As cost out must never compromise quality, Vestas continues its Six Sigma programme and all initiatives aimed at reduc-ing costs are continuously monitored. Saving costs will continue to be a daily focus area for Vestas in order to constantly improve profitability, remain competitive and offer customers low cost of energy.

Working capital managementThe regionalised manufacturing footprint leaves room for further re-duction of inventories in the different regions by decreasing the lead time. An important focus area is therefore to reduce the working capital tied up in MW under completion, i.e. wind turbines in transport to site, in installation phase and in mechanical completion phase. Vestas aims to further reduce the level of MW under completion.

Moreover, Vestas focuses on bringing down the order-to-cash time by implementing improvements within contract management and cash collection.

Other initiatives completed in 2013 in order to improve net working capital have been optimisation of the timing of supplier payments and renegotiation of customer payment terms. The work to optimise work-ing capital streams will continue in 2014.

Manufacturing footprint

BrazilNacelles

USA TowersNacellesBlades

China BladesNacellesControlsGenerators

DenmarkBlades

NacellesControls

GermanyBladesNacellesGenerators

ItalyBlades

IndiaNacelles

Spain BladesNacellesGenerators