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Annual Report 2009

Operations Division overview

Alfa Laval's Operations Division is responsible for product-related purchasing, manufacturing and distribution for the entire Group. This centralization contributes to increased efficiency and reduced operating costs. Operations is responsible for the manufacturing of all products for all segments and thereby contributes to ensuring access to the company's products in all markets.

Purchasing

The purchasing organization continued its successful optimization of the supply structure during the year. The organization comprises three regional offices, located in India, China and Mexico, and three central offices, based in Sweden and Denmark. This centralization makes it easier to assess the Group's overall material requirements, since volumes can be consolidated, thereby generating economies of scale. It also provides an overview of how these requirements are distributed, which is advantageous since it facilitates the matching of local production units with suppliers that are able to make both local and global deliveries on the right terms. To optimize the Group's purchasing activities, the organization also regularly reviews its network of suppliers, which involves seeking out and evaluating new suppliers, as well as continuously screening the suppliers gained through acquisitions. In addition, contracts are reviewed on an ongoing basis, a process that contributed to major materialcost savings in 2009. Considerable focus is also devoted to ensuring that suppliers fulfill Alfa Laval's quality requirements, are able to supply the right specifications at the right time and comply with the company's Business Principles. Alfa Laval's network of suppliers is well established, with 80 percent of the Group's total purchasing volume originating from about 350 suppliers and about 65 percent (65) occurring within the framework for global contracts. The single most important raw material for Alfa Laval is stainless steel, which accounts for approximately 25 percent of the company's total purchase volumes. In Europe, the price of stainless steel comprises two components: a base price and an alloy surcharge. The base price increased somewhat during the year, while the price of nickel fluctuated considerably. Nickel is one of the of the Group's most important metal alloys, followed by molybdenum, which experienced a more stable trend. Copper and aluminum prices also increased somewhat, while the price of titanium fell sharply as a result of declining demand from aircraft manufacturers and the process industry, among other areas.

Manufacturing

Alfa Laval's production is centralized and based on manufacturing technology, product group and size, not on application. For example, regardless of their application, large separators are manufactured in Eskilstuna (Sweden), small separators in Pune (India) and medium-sized separators in Pune and Krakow (Poland). Alfa Laval has approximately 4,800 (5,500) employees at 28 (27) major manufacturing units. This structure is continuously reviewed to ensure the optimal planning and distribution of production. Particularly careful planning was required in 2009, since a major capacity adjustment was implemented at the same time as deliveries were to be made to the order stock. In addition, continued investments were made to further enhance quality at the same time as all employees received training in a new production concept to increase efficiency, in line with Alfa Laval's multi-year investments in SixSigma. At year-end, 95 percent (80) of the production units were certified. In parallel with these initiatives, efforts to increase ISO 14001 certification continued. At year-end, 95 percent (80) of the total delivery value came from certified facilities. Alfa Laval's investments in research and development also affected Operations, since new products can require anything from training to technical adjustments of production machinery. At the same time, environmental work remained a key focus area. Among other initiatives, the phasing out of chemicals that are blacklisted by Alfa Laval was completed and additional measures were taken to reduce the Group's energy consumption and carbon emissions, work which will continue in 2010. The Sustainability Report on page 45 provides examples of the energy-saving measures implemented at Alfa Laval's production unit in Richmond (US). Different projects are being continuously conducted at all units.

Distribution

Alfa Laval has three primary distribution centers located in Tumba and Staffanstorp in Sweden and Kolding in Denmark. The company also has regional distribution centers in Indianapolis (US), Singapore (Singapore), Shanghai (China) and Shonan (Japan). A smaller center was also opened in India during the year. The distribution unit conducts continuous reviews to track demand and improve the supply and delivery reliability of various products and spare parts. This is a challenging process considering that some Alfa Laval products are still in operation after 30 years or more and may thus require spare parts. Accordingly, parts are classified into three levels in order to streamline inventory management: parts that should always be in inventory for rapid delivery, those not in inventory but able to be purchased and delivered fairly quickly and those seldom requested, for which price and delivery must be established with each order. The distribution unit also handles all of Alfa Laval's transports. The goal is to provide rapid and cost-efficient solutions that simultaneously fulfill the company's target for reduced carbon dioxide emissions. The Group strives to reduce the environmental impact of its distribution operations. Accordingly, a gradual shift is under way from air transports to land and sea-based solutions. In 2009, approximately 7 percent (8) of distribution occurred by air transport, 31 percent (32) by ship and 62 percent (60) by truck.

Annual Report 2009

Purchasing offices

For a number of years, Alfa Laval has had regional purchasing offices in strategic market such as China, India and Mexico.

Corporate purchasing organization Regional purchasing organizations

Production units

Alfa Laval has approximately 4,800 (5 500) employees working in production and 28 major manufacturing units:

­ US (4) ­ Brazil (1) ­ Sweden (4) ­ Denmark (2) ­ UK (1) ­ France (3) ­ Italy (2) ­ Finland (1) ­ Poland (1) ­ Russia (1) ­ China (2) ­ India (4) ­ Japan (1) ­ South Korea (1)

Production units

Distribution centers

­ US (1) ­ Sweden (2) ­ Denmark (1) ­ China (1) ­ Singapore (1) ­ Japan (1) ­ India (1)

Distribution offices

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