Global production and sourcing

strategy

Capital Markets Day, 28 August 2006

Presentation by
Søren Husted, President Vestas Nacelles A/S
 Søren Husted
President, Vestas Nacelles

• Age 45
• Educated B.Sc. Mech. Eng.
• 17 years at Vestas -
20 years in the industry
• 4 years outside Denmark –
USA and Italy
• Career at Vestas:
• R&D
• Service
• Technology Transfer
• Production Development
• Technical Management
• Since 2003, in current
position

2
 Agenda

• Vestas supply chain

• Overall organisation
• Overall production and
sourcing strategy
• Vestas Blades
• Vestas Control Systems
• Vestas Nacelles
• Vestas Towers
• Asian production set-up
• Q&A

3
 SBUs
Vestas supply chain – Who is responsible?
PBUs

Technology
Group Finance
• Responsible for
• Optimises product BOM, RNSP and
mix
product config-
Contract review
uration
board
• Forecasts CIM
• Reviews contracts demand
• Ensure sales
documentation

SBUs
• Provide sales
forecasts
• Secure and confirm PBUs
orders • Run capacity
• Ensure project planning
planning and • Create production
execution from ex plans based on
works demand plan
• Order
components
Delivery task force • Manage supplier
Supply task force
• Cross-BU task force relationships
• Creates/Changes demand • Nacelle task force • Forecast
plan based on sales and
• Coordinate component component and
supply spare part
capacity forecasts
• Evaluates delivery risks demand
 Overall organisation
- 4 production business units
4 production business units (PBUs):

Vestas Blades A/S Vestas Control Systems A/S

Vestas Towers A/S Vestas Nacelles A/S

• Vestas Blades: manufacturing of blades

• Vestas Control Systems: manufacturing of controllers
• Vestas Towers: manufacturing of towers
• Vestas Nacelles: manufacturing of nacelles, incl. castings and
machine parts, generators, assembly of nacelles and central spare
part function

5
 Global experience
Local expertise

But too much in Europe

6
 Overall production strategy

Blades and nacelles

• core technologies
• 100% manufactured by Vestas

Towers
• partial in-house production
• 15-20% manufactured
in-house

Control systems
• 100% Vestas ownership
• IT will play a far more dominant role in future products
• external partnerships under the banner of: IT is everywhere
in our wind power systems

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 Overall production strategy

Establishment of future production units

• future major production units likely to be established outside
of Denmark to:
• increase understanding of the markets in which we are
operating
• decrease dependency on currencies and shield against
exchange rate fluctuations
• cut transport costs
• - however, in the working relationship between production
and development, the know-how that exist in our Danish
production facilities is crucial to Vestas’ global success

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 What do we want to achieve?

Small
Small and
and frequent
frequent deliveries
deliveries to
to Plans
Plans that
that create
create stability
stability for
for
reduce
reduce the
the stock
stock level
level our
our production
production process
process

A system that produces a continuous

flow of materials and products driven
by a fixed and levelled production
plan, maximum flexibility and based
on LEAN concepts

The
The ability
ability to
to respond
respond Eliminating
Eliminating waste
waste and
and
quickly
quickly to
to customer
customer reducing
reducing stocks
stocks
requests
requests

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 Overall sourcing strategy

Global sourcing
• global sourcing at a local level
• Denmark – India = global sourcing
• India – India = local sourcing
• European strategic suppliers must grow global together with
Vestas
• existing supplier network is being supplemented with new
local partnerships

Vestas will never be dependent on only one supplier

• we recognise strategic suppliers’ need for a fair margin on
products
• our mission - Failure is not an option - also applies to
strategic suppliers

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 Overall sourcing strategy
- strategic partnerships
What is a strategic partnership?
• “A relationship between individuals or groups that is
characterised by mutual cooperation and responsibility, as
for the achievement of a specified goal.”
• cooperation and responsibility is the foundation for achieving
common goals
• cooperation means sharing knowledge
• responsibility means standing behind the products

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 Vestas’ expectations
to a strategic partner

• World Class Performance

• competitive on total cost
of ownership
• LEAN thinking
• long-term partnership
• global presence
• flexibility
• sharing our fundamental
values
• early involvement in
R&D work

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 Global sourcing
- Vestas objectives

• as the worlds leading manufacturer of wind power systems,

we will be at the new fast growing markets
• Vestas will source in low cost countries to secure more
competitive prices
• Vestas will source more in USD, since we are very vulnerable
with the current situation
• we want suppliers that are present in all key regions, as this
increases flexibility for Vestas
• we want our strategic suppliers to follow Vestas from Europe
into the global world of wind energy and manufacturing

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 Sourcing Roadmap – Vestas Production
Vestas
factory

Sub-contractor
(Towers)

Suppliers and
sub-suppliers

Vestas facilities

Nacelles: 15
Controls: 4
Blades: 7
Towers: 5
 The logistic challenge

In 1986, a complete wind turbine could be transported by one

standard truck…
…today – 20 years later – it takes 10 oversize transports to
complete the same job…

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…and meanwhile, the number of
turbines shipped has increased

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 Vestas Blades
- production strategy

Main goal
• Vestas must remain self-sufficient in blades

Strategy – main elements

• need for continuous expansion of production facilities due to
strong growth on the market for wind power
• when establishing production facilities, high priority is given
to:
• geographical closeness to markets rather than to
suppliers (due to high outbound transportation costs)
• expectations of high volume and/or strong growth in the
region

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 Vestas Blades
- sourcing strategy
Main characteristics of sourcing materials for blades
• a limited number of sourcing categories
• for some materials, also limited number of suppliers globally
• Vestas plays a key role within composite materials

Strategy – main elements

• secure global capacity on key materials through long-term
contracts
• we want suppliers who are present or willing to establish
production in all key regions
• constantly to improve our supplier relationships

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 Vestas Control Systems
- production strategy

Main goals
• World Class within safety,
quality and delivery precision

Strategy – main elements

• customer oriented
• global manufacturing footprint
• existing facilities: Denmark
and Spain
• new control factory under
evaluation outside DK and ES
• IPR protection
• test strategy
• flow line production & process control (Six Sigma)

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 Vestas Control Systems
- sourcing strategy
Main goals
• secure World Class Procurement
• secure logistic setup matching the Vestas Group and Vestas
Control Systems

Strategy – main elements

• focus on ”critical” suppliers dealing with single/sole sourcing
and the handling of IPR
• reduce number of suppliers
• focus on long-term relations and partnerships
• selected suppliers in development projects and
establishment of cooperation with strategic partners
• supplier partnerships - criteria
• flexibility
• technical support
• control and documentation of manufacturing processes
• Six Sigma and ”zero defects” philosophy

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 Vestas Nacelles
- production strategy
Main goal
• to produce and deliver nacelles and hubs for all Vestas turbines

Strategy – main elements

• we need to be a GLOBAL, LEAN organisation based on People &
Culture

Vestas Value Chain

R & D and Assem- Sale and Transpor- Instal- Mainten-

manufacture bly and Planning tation ance
lation
test

Vestas Nacelles Value Chain

Foundries Machining
Assembly
and test
Generators

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 Vestas Nacelles
- sourcing strategy
Main goals
• expand global capacity on
critical components
• establish a global supply base
• by end of 2008 to have
the best sourcing competence
within the wind turbine industry
– with a truly global approach
to sourcing

Strategy – main elements

• increase supplier performance
• build supplier relationships
• improve understanding of supplier economics

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 Vestas Towers
- production strategy

Main goals
• Towers serving the market needs, seen from technical,
quality and commercial perspectives

Strategy – main elements

• business control
• maintain knowledge for towers manufacturing
• maintain skills and knowledge enabling the transfer of
manufacturing technology to third party manufacturers
• maintain in-house production to validate work methods
and processes
• LEAN manufacturing
• manufacture products with LEAN principles in mind
• technology transfer
• transfer LEAN production principles
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 Vestas Towers
- sourcing strategy
Main goals
• master design to
manufacturing engineering
• master concept manufacturing
• master technology transfer
to towers manufacturers abroad
• having continuous focus on
engineering and manufacturing
methods to optimise products

Strategy – main elements

• maintain partnerships
• ensure World Class
manufacturing
• maintain “supervision competences”

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 Asian production set-up
- nacelle assembly, India

Chennai, India
Production of V82-1.65 MW

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 Asian production set-up
- China
Production start: Blades Phase 1: Q2-2006
Blades Phase 2: Q3-2007 Sourcing office
Nacelles: Q2-2007
Generators: Q3-2007
- capacity approx 350
pcs. V80-2.0 MW/year

Vestas Blades
Beijing TEDA WEST
Tianjin

Shanghai

Guangzhou
Shenzhen

Vestas Nacelles Vestas Nacelles

Generator production Nacelle assembly 26
Q&A

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