by Geraint John in Berlin
Barbara Kux, head of supply chain management at Siemens, the German industrial powerhouse that makes everything from high-speed trains to hearing aids, this morning outlined how procurement will help to revive the company’s flagging performance.
Sitting alongside CEO Peter Loscher and CFO Joe Kaeser at its six-monthly results press conference in Berlin, she sketched out a broad vision designed to cut costs and improve profitability in the short term while improving the firm’s relationships with key suppliers and capitalising on innovation longer term.
She announced that group-wide purchasing would be increased by 60 per cent, that low-cost country sourcing would rise from 20 to 25 per cent of its annual €40 billion purchasing spend, and confirmed her previous statement that a fifth of Siemens’ 370,000 accounts with 100,000 different suppliers would be cut this year.
Kux also said that her 4,000-strong team around the globe was taking advantage of lower raw material costs. But, crucially, she declined to say how much money procurement was being asked to save. Shareholders and analysts were therefore left to speculate how much of Siemens’ declining profits will be compensated for by lower costs in its current fiscal year (prior to the press conference, some analysts were predicting a target of €2 billion in procurement savings, or 5 per cent of total spend).
Afterwards, CPO Agenda managed to snatch five minutes with Kux, the most senior board-level procurement leader in Europe. Following is an edited transcript of our conversation:
You haven’t given a public savings target. Why is that?
We have stated clear objectives – it’s 60-25-20. These are quite ambitious targets. Clearly we have targets by material group for all 4,000 purchasing managers. We are on the way to realising them. But in consideration of the other players in the market – customers, suppliers, competitors – we have decided not to give further targets in public.
On the one hand you are under pressure to cut costs; on the other you say you want to forge closer supplier relationships. How can you do both at the same time?
First, we want to gain a better understanding of the supply base we have. As I mentioned, we have far too many [suppliers]. We are in the process of grouping these 370,000 accounts by companies, to go through and reduce the one-offs and also start to group more volume to the strategic partners. Then, of course, in the second step it’s very important to identify our strategic partners. It’s not just an issue of size, it’s an issue of sustainable development into the future, and this process is at this moment ongoing. But the first step is of course transparency – just to know what you’ve got and what you should have.
Many other big companies have been doing these things for several years. Has Siemens been slow to embrace best-practice procurement?
Well, that’s not exactly correct. I think we have good organisations but everything was very decentralised – in the businesses, in the divisions and in the sectors [Siemens’ three main businesses – industrial, energy and healthcare]. It’s the first time we’ve had this position in the board of Siemens and thus creating an overall optimisation of supply chain management for the company. We have two objectives: one, to create better value for the company as a whole; and two, to create better value for the sectors.
Where will the balance fall between demanding price cuts from suppliers and working with them to lower supply chain costs?
First, we need to optimise and also profit from actual price levels in the marketplace. But we need to do both, we also need to review the relationship in terms of growth opportunities and value optimisation as a whole. And that’s not just cost reduction, it’s also how suppliers can help us be faster to the market, to use innovations in process, etc. So it’s the whole picture.
But that’s a longer-term proposition, isn’t it?
It is longer term, but on the other hand we also started to exploit raw material opportunities, which we buy for our suppliers; that’s something we can do. At this moment we offer a financial service programme to suppliers. So yes it is true, it is a bit more longer term. But there are also some short-term opportunities clearly.
What will you have to do to your procurement organisation in order to be able to deliver this strategy?
First of all, it’s to set clear targets and to motivate all the teams so that they are really going to deliver the best. We had a very good start in January with the top 100 companies and we are well on the way.
Siemens looks to procurement to improve its fortunes
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