Siemens looks to procurement to improve its fortunes

28 April 2009

29 April 2009 | Geraint John in Berlin

German industrial giant Siemens wants to make significant cuts in procurement spend over the next 12 months to help compensate for declining orders, revenue and profitability.

The proportion of spend managed on a group-wide basis will rise by 60 per cent, a fifth of its 100,000 suppliers will be axed and more materials will be bought in lower-cost countries. But the company declined to declare a savings target.

"Our purchasing managers will be measured against savings targets," said Barbara Kux, Siemens' CPO. However, this wouldn't take place in the public eye.

"In price poker, you don't want anyone to see your cards."

Speaking at the company's second-quarter results press conference in Berlin, Kux said that with raw material prices at "rock bottom" and production capacity easier to access, "now is the right time for Siemens to optimise its procurement system".

Kux pledged to raise the proportion of its annual €40 billion (£35.9 billion) purchasing spend managed across its three business sectors from €12 billion (£10.8 billion) - or 29 per cent - in 2008 to €19 billion (£17 billion) - or 47 per cent - in 2010, a rise of 60 per cent.

Categories that would be targeted for centralised purchasing included IT hardware and software, travel, fleet and factory supplies.

Kux, who joined Siemens last November from Philips, also said the proportion of materials and services bought in lower-cost countries would rise from 20 per cent in 2008 to 25 per cent.

Announcing its latest financial results, CEO Peter Loscher insisted that Siemens was not in crisis and that its performance was better than that of its competitors.

"We consider the results at the halfway point of our fiscal year quite satisfactory," he said. "But we know the direction this year is taking... And this direction is marked by a sign that reads: 'Decline in orders, revenue and profit'."

Full-year profit to the end of September would exceed the €6.6 billion (£5.9 billion) achieved in 2008, he pledged. But analysts expect the figure to be well down on the €8 billion-plus (£7.2 billion-plus) it forecast last year.

"The motto 'cash is king' is one we have certainly taken to heart," Loscher said.

Procurement was one of four key areas where Siemens was taking action to improve its competitiveness, he added.

But he stressed that it was not Siemens' style to make "rash, short-term decisions". The purpose of its procurement strategy was to "improve long-term co-operation with our suppliers."

Kux, Siemens' first female board member in its 161-year history, said more than 1,000 individual measures had been identified within her supply chain management team to reduce cost and improve efficiency and relationships.

"One lever, for example, will be reducing the complexity of our product specification and increasing its standardisation," she said.

Since January, joint programmes had been launched with the company's most important suppliers "to identify and implement measures that would benefit both sides".

Kux said the longer-term goal of her strategy was "to establish the world's leading procurement network, push the development of technologies, and accelerate innovation cycles".


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