2.3 Procurement and Production

Uniform Group directives on procurement are in place. Our production-specific procurement activities, like production itself, are organized on a decentralized basis in light of the diverse nature of our business activities. The procurement of indirect goods and services that are not relevant to production – such as consultancy services, business travel and fleet management, computer hardware and software, laboratory and workshop equipment, safety devices and office supplies – is centrally organized within our service companies.

HealthCare

An organizational unit of HealthCare steers the subgroup’s entire supply chain, from raw material procurement to manufacturing to product shipment, utilizing a global production network consisting of its own sites and those of subcontractors. In this way we aim to steadily reduce costs, increase our flexibility and delivery reliability, and maintain high standards of quality, safety and environmental protection on a global basis. The manufacture of pharmaceuticals is subject to exceptionally stringent quality requirements defined by the term “Good Manufacturing Practices” (GMP). Compliance with these requirements is regularly audited by internal experts, regulatory authorities and external consultants.

The Pharmaceuticals segment generally procures the starting materials for the active ingredients of its prescription pharmaceuticals from external suppliers. To prevent supply bottlenecks and to mitigate major price fluctuations, these starting materials and the intermediates we do not produce ourselves are generally purchased under global contracts and/or from a number of suppliers we have audited and approved.

Our active ingredients for prescription medicines are manufactured primarily at the sites in Wuppertal and Bergkamen, Germany, as well as Berkeley and Emeryville, California, United States. These substances are processed into finished products and packaged worldwide using sophisticated technologies. Our medicines come in a wide range of delivery forms, including solids (coated or uncoated tablets, powders), semi-solids (ointments, creams) and liquid pharmaceuticals used in injections or infusions, for example. Our hormonal contraceptives are supplied as sugar- or film-coated tablets or used in intrauterine systems (coils), for example. These manufacturing and packaging activities take place in Berlin, Leverkusen and Weimar, Germany; Garbagnate, Italy; Beijing, China; São Paulo, Brazil; Turku, Finland; and various other sites in Europe, Asia and Latin America. The hemophilia drug info

Kogenate® is manufactured by a biotechnological process at Berkeley, California, United States. info

Betaferon®/Betaseron® for the treatment of multiple sclerosis is produced in Emeryville, California, United States.

In the Consumer Health segment, the Consumer Care Division procures certain active substances, such as acetylsalicylic acid and clotrimazole, from within the Bayer Group. The principal raw materials we purchase from third parties are naproxen, citric acid, ascorbic acid and other vitamins, and paracetamol. To minimize business risks, we diversify our raw material procurement sources worldwide and conclude long-term supply agreements. Among the division’s largest production sites are the facilities in Myerstown, Pennsylvania, United States; Cimanggis, Indonesia; Gaillard, France; Bitterfeld-Wolfen and Grenzach-Wyhlen, Germany; and Madrid, Spain.

Some four fifths of the Diabetes Care products (such as blood glucose meters) of our Medical Care Division are procured from original equipment manufacturers (OEMs). Material prices and availability are covered in most cases by long-term contracts and therefore are not subject to major fluctuations. We hold strategic reserves of certain direct materials or finished products in order to be able to supply our customers consistently and reliably. Our largest production site for Diabetes Care products is located in Mishawaka, Indiana, United States. Most of the materials needed for our medical equipment business, too, are procured from external suppliers, their availability, quality and price stability being ensured by way of long-term agreements, careful choice of suppliers and active supplier management. The majority of our medical devices are manufactured at the U.S. sites near Pittsburgh, Pennsylvania, and at Coon Rapids, Minnesota.

The Animal Health Division procures the pharmaceutical active ingredients for its veterinary medicines both from within the Bayer Group and from external suppliers throughout the world. Our animal health products are manufactured mainly at the sites in Kiel, Germany, and Shawnee, Kansas, United States, and marketed worldwide.

CropScience

CropScience procures most of its raw materials for the manufacture of crop protection products externally. These raw materials are mainly basic chemicals such as chlorine, sodium hydroxide solution and sulfuric acid, or synthesis components. The cost of some raw materials depends on oil and energy prices and freight charges. Key products are usually procured on the basis of long-term supply agreements. We reduce the risk of supply failure by diversifying our raw material sources and holding strategic reserves of important raw materials. Another major factor in ensuring supplies is that we buy primarily from certified suppliers with defined quality standards for their production and for the raw materials to be procured.

CropScience has 36 production sites and formulating facilities of its own around the world where its Crop Protection and Environmental Science products are manufactured. Among the largest are the facilities in Dormagen and Frankfurt am Main, Germany; Kansas City, Missouri, and Institute, West Virginia, United States; and Vapi, India. In addition to a number of central locations for the manufacture of our active ingredients, a network of decentralized formulation and filling sites enables us to respond rapidly to local market needs. At these facilities the active ingredients are processed into herbicides, fungicides, insecticides, seed treatments and Environmental Science products according to local requirements and application areas. We continued to invest in our global production network in 2009, selectively expanding our capacities for important products such as the herbicide info

Basta®/

Liberty®/

Ignite® and the fungicide info

Proline®/

Input®/

Prosaro®.

In the BioScience business unit, we produce our seeds close to the customer in Europe, Asia, and North and South America. Our canola, cotton, rice and vegetable seed is bred in our own centers or grown under contract on an area of more than 90,000 hectares.

MaterialScience

The basic raw materials for our MaterialScience products are petrochemical feedstocks such as benzene, toluene and phenol. We generally purchase these materials on the procurement markets under long-term contracts. The operation of our production facilities also requires large amounts of energy, mostly in the form of electricity or steam, making energy costs a significant factor for the MaterialScience business. To minimize the price fluctuation risk, we aim for a balanced diversification of fuels for steam production and a mix of external procurement and captive production for power generation. We also employ commodity swaps and commodity options in the case of long-term, fixed-price supply contracts, for example.

The largest production facilities of MaterialScience for the European market are located in Dormagen, Krefeld and Brunsbüttel, Germany; Antwerp, Belgium; and Tarragona, Spain. The major production site for the North American market is at Baytown, Texas, United States, while customers in the Asia/Pacific region are supplied chiefly from Map Ta Phut, Thailand, and Shanghai, China. In the field of commodities we endeavor to reduce costs by operating world-scale production facilities that enable us to supply markets across national borders. We also have a large number of production facilities close to local markets in 17 countries to serve our diverse businesses. Of these facilities, our systems houses formulate and supply customized polyurethane systems under the trade name info

BaySystems®, while others carry out compounding of polycarbonate granules (brand name: MakroColor®) close to the customer or manufacture our semi-finished products (polycarbonate sheet). We also operate regional production facilities for functional films made of polycarbonate or thermoplastic polyurethane.