Fortum Procurement

Pasi Kaukojärvi

14.9.2016

Introduction – Pasi Kaukojärvi

Work Experience

• 2011-present FORTUM, Corporate Purchasing

– Head of Procurement, Wind & New Ventures

– Strategic Purchasing Manager

• 2006-2011 NOKIA NMP, Global Sourcing

– Senior Purchasing Manager

– Quality & Technology Manager

• 2000-2003 NOKIA NETWORKS, Global Sourcing

– Senior Component Engineer

• 1997-2000 VTI HAMLIN

– Process Development Engineer

• 1992-1997 MICRONAS

– Team Manager, Process Engineer

• 1991-1992 VTT Semiconductor Laboratory

– Research assistant

Education

• 1989-1993 HELSINKI UNIVERSITY OF TECHNOLOGY

(HUT), Finland

– Master of Science in Technology

– Major in Semiconductors and Electronic Materials

• 1990-1991 LEEDS POLYTECHNIC, England,

– Scholarship student from HUT

– Electronics, Business Studies and Management

• 2007 Europian Institute of Purchasing Management

(EIPM), France

– Management & Strategic Purchasing

2

4

Fortum Strategy

• http://www.fortum.com/en/mediaroom/media-library/video-

portal/pages/default.aspx

5

6

Fortum in brief

Forerunner in clean energy

64% of power generation CO2-free

- in EU 97%

Some 8,000 energy professionals

Nordic and Baltic countries, Russia,

Poland

Core competences in hydro and nuclear

power, combined heat and power production and in operating on

energy markets

Energy-related products and expert

services

1.3 million electricity sales customers

Figures: 2015

Global megatrends shaping the energy sector

Climate change and

resource efficiency

• Decarbonisation

• Renewables

• Circular economy

Digitalisation, new technologies

• Competitive solar and wind

• New digitally-enabled solutions

• Storage

Urbanisation• Growth of cities – especially in Asia

• Need for sustainable utility services

• Electrification

Active customers

• Customers make conscious choices

• Decentralised production

• Demand response

7

8

Solar EconomySolar based production with

high overall system efficiency

Geothermal

Hydro

Wind

Sun

Ocean

Traditional

energy productionExhaustible fuels that

burden the environment

Coal Gas

Oil

Advanced

energy productionEnergy efficient and/or

low-emission production

Nuclear

today

Nuclear

tomorrow

CHP

CCS

Bio

Copyright © Fortum Corporation

All rights reserved by Fortum Corporation and shall be deemed the sole property of Fortum Corporation and nothing in this slide

or otherwise shall be construed as granting or conferring any rights, in particular any intellectual property rights

Energy is an enabler

Storage

Active

ConsumerDemand

Response

Lo

w

Eff

icie

ncy

Hig

h E

ffic

iency

High Emissions Emission free

Interconnectors

Smart

applications

Fortum – Forerunner in clean energy

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Fortum worldwide

10

Expert services globally

Nordic countries

• Power generation capacity

8,484 MW(+ Fortum Värme* 639 MW)

• Heat production capacity

1,974 MW(+ Fortum Värme* 3,891 MW)

• Electricity sales customers

1.3 million

India

Power generation capacity

15 MW

Baltic countries

• Power generation capacity

93 MW

• Heat production capacity

812 MW

Poland

• Power generation capacity

197 MW

• Heat production capacity

1,129 MW

Russia

• Power generation capacity

4,903 MW

• Heat production capacity

12,696 MW

Figures: 2015

*Joint venture AB Fortum Värme samägt med Stockholms Stad

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Fortum Procurement

Fortum purchasing development

• Operative sourcing in place– Common processes, mandates

and templates

– Tools for spend visibility and

tendering

• New concepts initiated– Lead buying

– Global sourcing

• Achievement of set goals

• Strategic purchasing - pull from the

rest of the organization to create

value– Strategic purchasing with proven high

• Effective organization – strong co-

operation across divisions and

functions -> Category Mng

• Competence development,

Leadership– Continuous capability building and

talent de

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What is strategic purchasing?

Quality

Purchase

price

Strategic purchasing goes below

the surface…

Specifications

Strategic

need

Make-or-

buyInnovation

Delivery time

Order

processTransport

Inventories

Internal demand

Life cycle

costs

Transactional

focus“Strategic purchasing is a systematic

and collaborative process for

to buy commodities and services at

the lowest total cost of ownership

and the highest value to our

business”

• Determining supply requirements,

• Identifying external and internal

improvements,

• Selecting the most competitive

suppliers, and

• Managing supplier performance

Sustainability

Fortum sourcing categories

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Solar

Wind

Turbines & Generators

Construction & Civil Works

Automation

Distribution Network Services

Service & Maintenance

Electrical Materials

Consulting

Indirect

Real Estate & Facility Mng

IT

Fuels

Ideas of further value creation in Purchasing

1. Strengthen current operations

• Category Management role

• Cross country & Cross BU synergies

• Volume benefits

• Systematic supplier management

2. New Products and Innovations

• Flexibility vs consistency. Like

contracts and processes

• Time to market. Market & supplier

scouting

• Internal & external collaboration

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Volume Speed

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Power sector and change

Value creation in electricity value chain will change dramatically

Future

NowEnergy

Flexibility/Capacity

Environmental/CO2-free

Consumer market

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Price pattern is getting more important than average price

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Source: Nord Pool Spot, Bloomberg Finance LP

Nordic (hourly Nord Pool spot system price)

German (hourly EPEX spot price)

December 2014

Declining technology costs and more efficient technologies

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0.50

0.70

0.90

1.10

1.30

1.50

1.70

2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14

$/W Solar module average selling price

The curve represents an average of the selling prices reported by the following companies:

Canadian Solar, Yingli Solar, Hanwha Solar, China Sunergy, Jinko Solar, Renesola, Trina

Solar

-60% in selling prices in 11

quarters 0.70

0.80

0.90

1.00

1.10

1.20

1.30

H2 2007 H1 2008 H2 2008 H1 2009 H2 2009 H1 2010 H2 2010 H1 2011 H2 2011 H1 2012 H2 2012 H1 2013

€/W Cost trend of onshore wind turbine prices, by contract date

Data exclude Asian turbines.

Battery storage costs are also decreasing

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Outsourcing & collaboration – Growing need

Outsourcing & Collaboration Drivers for Sourcing

Focus on Core Business

In-house only operations and

activities that are strategically

important; like power & heat

generation, energy trading etc.

Cost Optimization

Actively analyze and optimize

daily operations to improve

efficiency and value creation

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Complex & Fast Changing

Environment

Business environment is very

dynamic and innovations are

created even faster and

everywhere

Managing external resources is increasingly more relevant competence

and complex process

Five steps of good collaborative sourcing

2. Contract

3. Develop

ment

4. Execute / operation

5. Review &

KPIs

1. Synergy / business

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“Win – Win

& Win

mindset”

Thank You!