Procurement
Purchasing at Covestro is handled by the corporate Group Procurement function. Group Procurement shares responsibility with the business entities and regional hubs of the corporate Supply Chain & Logistics function for the timely global supply of goods and services to all divisions of the company on the best possible terms and conditions. This makes sure that our high quality standards are met. Furthermore, Group Procurement checks whether Covestro’s social, 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.
- See “Sustainability in Sourcing.”
- Additional information is available at: www.covestro.com/en/company/profile/procurement/sustainability-in-procurement/supplier-code-of-conduct
In a process aimed at creating a competitive advantage for Covestro and making a decisive contribution to overall value, Group Procurement has defined the strategic principles (cost optimization, supply chain optimization, sustainability, circular economy, and business proximity). Group Procurement contributes to realizing Covestro’s vision of becoming fully circular by, among other things, purchasing renewable energy and alternative raw materials.
Strategic principles in procurement
Covestro is an energy-intensive company and at present still 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, Covestro, along with large parts of the chemical industry, is very majorly affected by prices in the procurement of sources of energy, which have been persistently high and volatile since the year 2021. Although there have already been sharp falls from the extreme price levels of the year 2022, energy prices in the year 2023 continued at a high level compared with the period before the year 2021. 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. In this context, Group Procurement is planning to procure alternative sources of energy, such as green power or steam, and is considering the use of carbon capture and storage. We have thus redoubled our efforts to actively develop new long-term supply plans and signed purchase contracts for renewable energy (particularly electricity).
Upstream GHG emissions in connection with the procurement of raw materials account for the majority of Covestro’s indirect GHG emissions (Scope 3 emissions). Group Procurement therefore plays a key role in achieving our new Scope 3 reduction target, which we defined in the reporting year. In the year 2022, we launched our Supplier Engagement Program (SEP), which is aimed at developing joint measures to achieve net‑zero emissions in the long term in category 1 “Purchased goods and services” of Scope 3 emissions. To this end, we identified the main sources in this category and, based on a heatmap, started to contact the parties driving these emissions. We discuss the emissions reduction programs and targets jointly with our suppliers and analyze how they impact on our Scope 3 emissions. Under the SEP, we have initiated discussions with suppliers that cover most of our raw materials and are actively gathering their feedback on the supplier-specific product carbon footprint (PCF). 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 2023, goods and services were procured from some 15,000 suppliers (previous year: some 16,000) for €11.6 billion (previous year: €14.5 billion). In fiscal 2023, the procurement spending of Covestro’s main sites in Germany, the United States, and China accounted for 76% of Covestro’s global spending. Most of this amount –85% – 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 32% of our purchasing value (previous year: 40%). 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.