Reduced costs by SEK ~5bn since 2015

  • Modularization, automation and strategic sourcing are key to drive profitable growth through cost competitive products with best-in-class product design and quality.
  • We aim to annually drive down the variable product cost by 3% on like-for-like products, net of normal inflation ≤2% (excluding raw material price impact).
  • The re-engineering investment program is an ongoing initiative to deliver on variable product cost target.
  • In addition, continuous cost improvements are an important part of our strategy – achieved by improving cost structures and developing methods, processes and skills.
  • Electrolux manages working capital to release resources that can be invested in growth activities.

Focus areas to increase efficiency and drive profitable growth

Competitive cost structure

  • High share of variable costs – about 70% of the Group’s total cost base.
    • Enables high flexibility and fast adaption to external factors such as fluctuations in market demand or commodity prices.
  • Several cross-functional cost-excellence programs have been implemented to reduce variable product costs, e.g. the Electrolux Manufacturing System, modularization, digital manufacturing and an integrated digital supply chain.
  • The continuous improvement program aims to reduce structural costs through improved ways of working, greater resource efficiency and the increased use of digital tools and processes.
  • Reduced energy, waste and water use supports a more competitive cost structure.

High degree of variable costs

SEKbn 2020
Net sales 116
Direct material -43
Sourced products -17
Other variable costs -19
Operational structural cost -24
Innovation and marketing structural cost -8
EBIT 5.8
Variable cost ~70%
Structural cost ~30%

Variable costs:
Direct material incl. raw material and components.
Sourced products incl. small appliances, vacuum cleaners, air conditioners, microwaves, etc.
Other variable costs incl. direct labor and other variable production costs as well as costs for warranty and logistics.

Structural costs:
Operational structural costs incl. all fixed factory and warehousing costs, depreciation and administration.
Innovation & marketing structural costs.

SEK ~3.5bn cost savings with full effect from 2024

  • SEK 8bn of investments committed to an extensive re-engineering program, which is fully underway.
  • Investments in modularization and automation in the Americas and Europe will further strengthen cost competitiveness and are vital to drive profitable growth.
    • The re-engineering program drives efficiency, strengthens production cost competitiveness, increases flexibility and product speed to market as well as a sharpened product offering through design and quality.
    • Modularization will continue to be key once the re-engineering program is complete.
  • SEK ~3.5bn annual cost savings, full effect from 2024, from the re-engineering program and streamlining measures.
    • Main cost efficiency impact will be in North America related to the investment in Anderson and Springfield.
      • Direct material savings and improved labor productivity are the main drivers.
    • Global streamlining measures involved the creation of four regionally focused business areas in 2019 and the re-organization of key global functions.
  • Re-engineering investments will also realize significant sustainability benefit such as improved energy efficiency and safer working environment.

Executing on our global re-engineering investments

Automation and modularization strengthens competitiveness

Modularization and automation are key to drive profitable growth

  • Cost competitive, high quality products are vital to drive profitable growth.
  • Re-engineering program significantly increases the use of global modularized products for refrigerators/freezers and cooking products.
  • Benefits from modularized products in automated production:
    • Sharpened offering with more relevant features at lower costs.
    • Leveraging and accelerating global technologies increases the speed of innovation.
    • Product design improvements – using modularized bases makes it easier and more efficient to apply updated designs.
    • Best-in-class product design and quality.

Significantly leverage our global scale and technology deployment through global modularized products​


Note: graphs show % of volume using global modules over total in-house production volume. Global modularized products are used in more than one product and in more than one region.
*Front-load laundry.

Leveraging global scale in strategic sourcing

  • Strategic sourcing is the single most important initiative to reduce product costs.
  • In 2020, Electrolux purchased raw materials and components for SEK ~43bn.
  • The global purchasing function coordinates and administers ~95% of all direct material purchasing.
  • By increasingly introducing modularized products, the Group’s global scale can be leveraged in terms of procurement and R&D.
    • Enables both fixed and variable cost reductions.
    • Increases flexibility by allowing the customization of products using a limited number of standardized modules.
    • Increases economies of scale in the sourcing of components.
  • The Electrolux Responsible Sourcing program supports a global effort to make the right decisions on suppliers and promote the sustainability performance of the supply base.
  • A global credit insurance program is in place for many countries to reduce credit risk. Electrolux offers its suppliers the opportunity to utilize supplier finance.

Raw material exposure 2020

Sensitivity analysis, year-end 2020

Raw materials Change +/- Pre-tax
earnings impact -/+,
SEKm
Stainless steel 10% 200
Carbon steel 10% 400
Plastics 10% 350

Changes in raw materials refer to Electrolux prices and contracts, which may differ from market prices. The figures in the sensitivity table are rounded.

Capturing regional opportunities through deep local understanding

  • Being global with a local presence and knowledge of each regional market means better adapting to changing consumer demands and sustainability related requirements.
  • Three well-established brands – AEG, Electrolux and Frigidaire – serve different regions and market segments.

The Frigidaire consumer represents middle American core families with family life and friends in focus

Improving stability and mitigating against financial fluctuations

  • Global presence makes Electrolux less sensitive to macroeconomics in specific market regions. This helps to smooth out seasonality and fluctuations in economic cycles – to mitigate against financial performance fluctuations.
  • The Group’s global presence, with manufacturing and sales in a number of countries, offsets exchange rate effects to a certain degree.
    • The principal exchange rate effect arises from transaction flows – when purchasing and/or production is carried out in one currency and sales occur in another currency.
    • The major currencies for the Electrolux Group are the USD, EUR, CNY, BRL, AUD, GBP, CAD, CHF, CZK, RUB and VND.
    • Read more about Electrolux currency exposure

Sales by region, 2020

Digitally integrated supply chain and manufacturing

  • Digitalization helps drive improved productivity and flexibility in Electrolux operations through:
    • Improved visibility and planning.
    • Installing a digitally managed environment within factories that monitors operational information in real-time.
  • Speed and accuracy are what customers and consumers expect, and are even more important as online sales grow.
  • Electrolux is transforming from a traditional manufacturing efficiency & push approach to demand & service driven supply chain model.
    • Control tower concept improves the visibility of the supply chain, to connect the front and back end.
    • Digital tools allow faster and better steering of the supply chain, including real-time track & trace in transportation as well as real-time production control.
    • Agile working – squad teams run the supply chain.

Digitalization optimizes supply chain including managing inventory levels