Philips cuts inventory in supply chain

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Consumer electronics giant Philips said it cut inventory in its supply chain by the equivalent of more than 585m euros in the last quarter as part of its efforts to improve its end-to-end processes.

In its fourth quarter report, the group said inventory as a percentage of sales decreased to 16.1 per cent from 18.2 per cent in the third quarter of 2011. This represented a comparable decrease of 585m euros, which was an improvement compared to the decrease in inventory seen in the same period last year.

The group has been implementing a change and performance improvement programme, named Accelerate! It said the actions to deliver on the overhead cost reduction program were on track, and the first planned cost savings were realised in the quarter.

A key part of the Accelerate! plan is a focus on end to end execution. This includes transforming customer value chains to seven lean business models, enabled by effective IT; inventory reduction plans and targets; and accelerating innovation time to market by average 40 per cent.

The group reported fourth-quarter sales of 6.7bn euros, while EBITA was 503m euros.  million EBITA margin declined from 14.1% in Q4 2010 to 7.5% in Q4 2011.

Chief executive  Frans van Houten said: “Our fourth quarter results were impacted by weak European sales, postponement in deliveries of existing orders in our Healthcare sector, and inventory correction actions and other operational issues in our Lighting business. These issues were partially offset by solid results in our Consumer Lifestyle growth businesses, which benefited from the early adoption of the Accelerate! change and performance improvement programme.

“We are cautious about 2012 given the uncertainty in the global economy, and Europe in particular. In addition, we expect our 2012 results to be affected by the previously communicated restructuring charges and one-time investments aimed at improving our business performance trajectory, as part of the multi-year Accelerate! programme. Excluding these additional charges, we expect the underlying operating margins and capital efficiency in the sectors to improve in the latter part of 2012.”

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