seimens supply chian

8/13/2019 Seimens supply chian

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Supply Chain Management

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A Study of Supply Chain framework of:

Siemens AG

Submitted By:

Soniya Agnihotri

Roll No 72

EPGDIB - 2012 - 14

Indian Institute of Foreign Trade, New Delhi

Course: Supply Chain Management

Faculty: Prof. Nitin Seth


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Table of Contents

1. Motivation to Study ..................................................... ................................................................. ..................................... 3

2. A Study of Supply Chain framework of Siemens ............................................................... ..................................... 4

2.1. About the Company: Siemens AG ............................................................. ........................................................... 4

2.2. Supply Chain Framework at Siemens ................................................................ ................................................ 4

3. Supplier management systematic .......................................................... ............................................................... ....... 8

4. Inventory Management ......................................................... .............................................................. .......................... 11

4.1. Inventory Analysis .......................................................... .............................................................. .......................... 11

4.2. Cluster Analysis: Based on ABC & RUS Model ........................................................... .................................. 12

5. Business Processes at Siemens ............................................................... ............................................................... .... 15

6. Supply Chain Performance Measurement at Siemens ............................................................... ....................... 16


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1. Motivation to StudyBeing associated with the manufacturing industry (Oil & Gas, Power sector) since the beginning of my

career, I have chosen to study the supply chain model for Siemens AG. In the subsequent sections I

shall analyse the existing supply chain activities that Siemens has incorporated as a part of its

operational framework and their performance measures.


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2.A Study of Supply Chain framework of Siemens2.1. About the Company: Siemens AGSiemens is one of the worlds most prominent companies and Europes largest technology

conglomerate. Siemens AG was founded in 1847 in Berlin. Its founder, Werner von Siemens began thebusiness with the manufacture of pointer telegraphs. Today, the company has grown to become one of

the worlds largest electronics and electrical engineering companies; with 362,000 employees around

the world, Siemens is active in around 190 countries. The group is involved in four main business

areas: Energy, Health Care, Industry, & Infrastructure and cities. The Energy sector is a leading

supplier of products, solutions and services in the field of energy technology. The Healthcare sector

offers products and consulting services to the healthcare industry. The Industry sector supplies

innovative products and services to industrial customers. The Infrastructure & Cities sector provides

sustainable technologies for urban centers worldwide. Two additional cross-segment central

divisions activities offer financial services and real estate for the rest of the Siemens group. Siemens

AG relies heavily on the output of its R&D operation, and invested EUR 4.2 billion into research anddevelopment during the 2012 fiscal year. Siemens AGs revenues amounted to EUR 75.9 billion in2013.

2.2. Supply Chain Framework at SiemensThe principal goal of supply chain management at Siemens is to ensure the availability and quality of

the material it requires to serve the customers and also consider the innovation strength and

sustainability of its suppliers. The aim is to strengthen the competitiveness by substantial savings in

purchasing volume. In financial year 2013, Siemens purchasing volume amounted to approx 38


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billion, which is roughly half of its total revenue. The primary strategy to achieve savings in purchase

volume is:

- Siemens-wide managed volume,- Sourcing from emerging markets- e-sourcing- Less complex supply base, consolidated spends

Objective:To lower the complexity of the supply base and exploit the possible synergy effects to the

maximum. Siemens aims to consolidate the spends and exploit the synergy effects. To realize further

savings potential within the framework of Siemens by further integrating supply chain management

activities into other business activities, such as design and production. The relevant lever in this

context is material cost productivity and in particular Design-to-Cost, which optimizes the design of

products in order to reduce material cost. In order to achieve this goal, it requires a globally balanced,

locally anchored and close network with its supplier base, a well conceived cross-functional approach

for optimal exploitation of the innovativeness of its suppliers, and a clear focus on global functionalexcellence in implementation.

Supply Chain Management is in line with the aim of optimizing supply chain management across the

entire enterprise based on integrated quality, logistics and manufacturing processes, pooled

bargaining power and a focused supplier base. To highlight the importance of Supply Chain

Management, but also to ensure SCM processes are optimized across the enterprise, a Siemens

Procurement Council was set up to ensure company-wide coordination of the procurement function

Siemens moved from regional and national basis supply chain to a global supply chain:

Siemens has adopted a Centralised supply chain modelling, network design and optimisation. Siemens

has over 500 distribution centres globally and has optimised in the past its supply chain on a regional

or national basis. Siemens further optimised planning of the supply chain on a global scale, reducing

complexity and cost and improving service.

Principles of supply chain management

Primary strategies for achieving savings in purchasing are the following:

Siemens-wide managed volume: Siemens bundles more than half of its purchasing volume which

includes direct and indirect material. Through this worldwide pooling of volume, it achieves

substantial economies of scale.

Sourcing from emerging markets: Siemens is moving towards a globally balanced supply chain

network. One essential element is to constantly increase the share of sourcing from Global Value

Sourcing (GVS) countries, which are generally emerging economies. To accomplish this goal, it

identifies selects and fully qualifies suppliers from GVS countries, and engages them in a continuous

development process that extends to sustainability thereafter. Additionally, Siemens encourage and

support its suppliers to expand their operations in order to follow its manufacturing footprint in these

countries. In fiscal 2013, Siemens further increased the proportion of its sourcing coming from GVS

countries on a comparable basis.
http://www.siemens.com/sustainability/en/core-topics/suppliers/management-and-facts/index.php#toc-1http://www.siemens.com/sustainability/en/core-topics/suppliers/management-and-facts/index.php#toc-1


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E-sourcing: Siemens significantly increased the proportion of external purchases that it awards via

electronic bidding over the last few years to more than 10%. It expects to realize further savings

potential within its framework by further integrating supply chain management activities into other

business activities, such as design and production. The relevant lever in this context is material cost

productivity and in particular Design-to-Cost, which optimizes the design of products in order to

reduce material cost. Siemens is strengthening Siemens innovation power by benefiting from theinnovative strength in its supplier network. With its Siemens Supplier Forum, it established a platform

for regular dialogue with its top strategic suppliers at the CEO level. With this dialogue, Siemens aims

to ensure long-term cost leadership, realize shared growth potential and increase innovation

capabilities.

Sustainability is a guiding principle for supply chain management. Sustainability requirements are

therefore an integral part of all relevant supplier management processes such as supplier selection,

supplier qualification and evaluation, and supplier development. Siemens established a risk-based

system of appropriate processes to enable it to systematically identify potential risks in its supply

chain. It consists of sustainability self-assessments by suppliers, risk evaluation conducted by thepurchasing department, sustainability questions within supplier quality audits and sustainability

audits by external auditors.

Requirements for suppliers

All Suppliers have to make a clear commitment to the principles of sustainability. The major

requirements are: respect for the basic rights of employees and environmental protection are

defined in the Code of Conduct for Siemens Suppliers. Under the relevant clauses in its procurement

contracts and Conditions of Purchase, all Siemens suppliers must undertake to meet these

requirements and also promote compliance with them in their own supply chain

Identifying risks and implementing measures for improvement

Siemens procures from some 90,000 suppliers in over 150 countries and constantly increases the

share of sourcing from Global Value Sourcing (GVS) countries, which are generally emerging

economies. Because this supplier network is very large and widely spread, it is not possible to inspect

all suppliers to the same extent by auditing them on site. Siemens has therefore established a risk-

based system of appropriate processes to enable them to systematically identify potential risks in the

supply chain. It consists of sustainability self-assessments by suppliers, risk evaluation conducted by

purchasing department, sustainability questions within supplier quality audits, and sustainability

audits by external auditors.

Know-how transfer and competence building

Siemens is committed to building its suppliers competence and intensifying knowledge transfers

related to sustainability. Siemens has developed an internet-based information and training platform,

which is available free of charge to all suppliers.

Siemens with the help of Accenture reviewed the Siemens existing procedures and identified the

obstacles along the supply chain. They introduced software that models consumer and product

requirements, with a goal of helping Siemens factories develop better supply plans by more fully

considering the needs of purchasing, manufacturing, distribution and transportation.


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Global Value Sourcing

Six benefits stand for Global Value Sourcing and will help keep Siemens one step ahead of the

competition.

- Lower Total Costs- Innovation in Emerging Markets- Natural Hedging- Supply Security- Local Content- Siemens Global Image


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3.Supplier management systematic

A comprehensive Supplier Management Systematic is the basis for optimization of the relationship

between Siemens and its suppliers. Supplier Management is thus a crucial factor for the safeguarding

of the competitive advantage for Siemens through a continuous improvement of it supplier base.

The elements of the supplier management system are:

Supplier Selection / Supplier Qualification Supplier Evaluation Strategic Evaluation incl. Supplier Risk Management Supplier Development

Supplier Selection/Qualification:Siemens suppliers are subject to the company wide standardized

Supplier Qualification Process. It is a core element within supplier selection process to make sure that

cross-functional requirements are continuously met or outperformed by the supplier. SupplierQualification is a core element within supplier selection process. All suppliers are subject to a

Siemens-wide standardized qualification process, which is divided into three sections.

The first section checks the supplierscompliance with Siemens mandatory minimum requirements

(e.g. acceptance of the Code of Conduct for Siemens Suppliers). Section two is based on an individual

risk profile of the supplier and includes further cross-functional qualification modules (e.g. supplier

self-assessments, provision of certificates). After this, a standardized supplier qualification status is

awarded to the supplier which indicates their Ready-for-Business-Status. Section three finallycovers the product-specific qualification and focuses on the suppliers abilities to

manufacture/provide a defined product/service and includes onsite audits and product release

processes.


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Supplier Evaluation: During the course of the supplier evaluation process criteria such as the

supplier's quality and environmental protection are evaluated at least once a year. To make sure that

suppliers continuously comply with Siemens performance requirements in the course of the supplier

relationship, performance of existing Siemens suppliers is evaluated regularly on the basis of

standardized criteria. The regular supplier evaluation monitors suppliers performance in the pastand includes 16 mandatory corporate standard criteria. The supplier evaluation is performed at least

once a year and results in a standardized classification which ranges from "Outstanding" to "Poor".

With Procurement in the lead, cross-functional partners, such as Quality, Technology or Logistics are

an integral part of the entire monitoring process.

Strategic Evaluation incl. Supplier Risk Management: The Strategic Evaluation focuses on thesuppliers compatibility with Siemens strategic, future-oriented requirements and therefore enables a


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Different Analysis techniques that may be employed based on the volume of demand and the structure

of demand.

Analysis may be based on:

1. Simple inventory value analysis ABC Model: Inventory optimization based on the proportionof value distributed between the inventories.

2. Simple consumption analysis RUS Model: Inventory optimization based on the consumptionfrom stock pattern. Demand in terms of consumption is analysed. Demand frequency trends

are more important compared to demand quantity.

3. Based on cluster analysis ABC & RUS Model: A cluster is made on the basis of ABC and RUSmodel. Cluster analysis is discussed in detail

4.2. Cluster Analysis: Based on ABC & RUS Model


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Based on the cluster define the product class, and assign the sourcing model:

Cluster ABC - RUS

Based on the cluster the following sourcing models may be defined for inventory optimization:

Sourcing Models


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The consignment model is the superior one as it offers extremely low process and the working capital

costs. Thus Siemens employs a cost efficient sourcing models.

Sourcing Models

Possible measures based on cluster analysis:

A-R Parts: Verify the possibility of further expansion of consignment supply concept C-R Parts: Verify the possibility of further expansion of c part management supply concept C-S Parts: Inventory optimization measures. Target to have more material in higher purchasing

volume and regular usage cluster

D-O Parts: Obsolete Management. Identify and eliminate the obsolete materials considering thefollowing options. A) High value: Design for new product. B) Low value: Scrap. C) Sell to other

locations. Take proactive measures to avoid further obsolete materials.

Inventory optimisation: Inventory management has to be started in time. Requires yearly planning

and budget. Define the proper sourcing model based on ABC-RUS Analysis. Optimize the design based

on regular demand material. Obsolete material inventory must be avoided.


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5. Business Processes at SiemensThe below figure shows the different business processes incorporated by Siemens:

Business Processes


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6.Supply Chain Performance Measurement at SiemensSiemens has incorporated various qualitative and quantitative tools to measure the performance of

supply chain at Siemens.

SCOR Model: Plan->Source->Make->Deliver->Return

As described in the above figure for Siemens business processes, Siemens uses the metrics in the

SCOR model for measurements of efficiency in terms of cost and performance in the supply chain. The

aim of SCOR is to provide a standard way to measure Supply chain performance and to use common

metrics to benchmark against other organizations

Energy Efficiency Programs

A special program has been developed combining the expertise of improving energy efficiency inproduction processes and the environmental impact analysis. Goal of the Energy Efficiency Program

for suppliers, a program which Siemens had developed originally for its own production processes, is

to assess and improve supplier sites regarding energy and resources efficiency. A set of

questionnaires regarding the three topics: environment, energy management and technology have

been designed considering the requirements of energy management systems and green house gas

protocol (GHG emissions Scope 1 and 2). The qualitative and quantitative questions contain sites

input and output data concerning data like material, energy and waste. This data are also the basic for

GHG-emission calculation. Different level of details might be applied depending on energy intensity of

the industry sector and strategic relevance of supplier. A single evaluation of each of the three topics

and the complete sites evaluation will be conducted based on the returned questionnaires, potentialimprovement and recommendations are identified in each of the areas. This has been developed as a

means to measure the energy efficiency and its environmental impacts.

*Most of the data has been sourced from SiemensCorporate website: www.siemens.com

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