It has already made 11 unit closures, five of which were made by year end 2014. Sandvik is planning a total of ten unit closures, predominantly in Europe. In addition, Sandvik is implemented further measures to adjust the cost base to current demand as well as making a project write-down related to mining systems, the company says.

The closures have saved the group an estimated SEK1.1 billion, yearly run-rate by the end of 2016. Nonrecurring charges associated with the initiatives, totaling about 1.9 billion SEK, will impact the first quarter of 2015. The company says that the second phase of closures will give it annual savings of approximately SEK 600 million by year-end 2016 at a cost of 1,220 million SEK, which will be charged to the first quarter of 2015.

Productivity enhancements

‘We are now continuing the optimization of our supply chain, which brings several benefits,’ said Olof Faxander, Sandvik's president and CEO. ‘Notably, by reducing the number of production units, we will achieve significant productivity enhancements as a result of a reduction in the cost base over time. However, just as importantly, we will increase flexibility, move closer to our customers and raise our capital efficiency. It is essential that we adapt to a changing global market, where the ability to act and react quickly is crucial for long-term success.’

For Sandvik Machining Solutions and Sandvik Materials Technology, the closure and downsizing of production units could address current overcapacity and reducing production costs, while Sandvik Mining will realign its supply chain footprint to improve the business area's cost structure and its ability to offer better service to its customers, the company said in a press release.

The plan may also involve investments in new sites located in faster-growing markets and the expansion of existing facilities.