10 June 2010 | Interview
Siemens’ first female board member and Fortune magazine’s sixth most powerful woman in business.
At a press conference attended by SM in Berlin in spring 2009, Peter Löscher, president and CEO of German industrial giant Siemens, led a presentation naming procurement as one of four key areas that would help the company improve its competitiveness.
It wanted to make cuts in procurement spend over the following year to help compensate for declining orders, revenue and profitability. It announced that the proportion of spend managed group-wide would rise by 60 per cent, a fifth of its 113,000 suppliers would be axed and more materials would be bought in lower-cost countries.
Barbara Kux, member of the managing board of Siemens as head of supply chain management and chief sustainability officer, who had joined the company from Philips the previous November, said the proportion of materials and services bought in lower-cost countries would rise from 20 per cent in 2008 to 25 per cent. She pledged to raise the proportion of its annual ¤40 billion (£34 billion) purchasing spend managed across its three business sectors (industry, energy and healthcare) from $12 billion (£10 billion) or 30 per cent in 2008 to $19 billion (£16 billion) or 47 per cent in 2010, a rise of almost 60 per cent. Categories that would be targeted for centralised purchasing included IT hardware and software, travel, fleet and factory supplies.
Kux said more than 1,000 individual measures had been identified in her supply chain management team to reduce cost and improve efficiency by, for example, reducing the complexity of product specification and increasing standardisation. She 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”.
Kux, Siemens’ first female board member at the company which is now 163 years old, who in September was named the sixth most powerful woman in business by Fortune magazine, gave SM an update on her department’s work.
How is the procurement transformation progressing?
We’re making solid progress with our Siemens supply chain management organisation. We’ve now bundled a large share of our purchasing volume – a total of 44 per cent – across our sectors (industry, energy and healthcare). We’re in the process of consolidating and strengthening our supplier base, and, as a “global local player” [it buys locally in countries where it has a base and staff] we intend to expand our share of global value sourcing from about 20 per cent in 2008 to more than 25 per cent in the medium term [the company intends not only to buy in emerging countries but also to produce, design, develop and sell]. These measures, and others relating to our “classic” procurement activities, are making contributions to value creation.
What have been the biggest barriers to success?
In the past, procurement was quite decentralised. That’s why it was first necessary for us to merge the various units, strengthen cross-sector processes and standards and reorganise how countries worked together in clusters. This entailed a great deal of persuasion as well as broad and intensive communication.
Have you gained greater control of spending? Have you met your $19 billion target?
You mean the figure of $19 billion (£16 billion) Siemens-wide for managed procurement volume? This target is set for the current fiscal year, which ends in September, so we still have a few months left.
But we’ve already come a long way. In 2009 alone, we increased our company-wide managed procurement volume from $12 billion to $16 billion (£14 billion). So we’re very confident that we’ll reach this target.
Have you managed to slash the number of suppliers? Will you continue to do so?
We started with more than 110,000 suppliers in 2008. Our goal was to reduce them by 20 per cent in the mid-term and we’ve already reduced them by 17 per cent.
However, our intent is not just to reduce this figure. By optimising our supplier base, we’re aiming to work more intensively with our strongest partners, so the suppliers profit from increased sales volume and closer interaction with the company.
For Siemens, fewer suppliers means not only improved efficiency and lower administrative costs, but also greater innovative strength. One example is the Siemens Supplier Forum (see bottom of article), which we established in autumn 2009. At the forum, we discuss new forms of co-operation with selected strategic partners from our supplier network, and the results are implemented in concrete projects.
How much money has the supply chain management transformation saved Siemens?
In price poker, as we say, you don’t want anyone to see your cards. So we don’t publicly disclose our procurement savings. But I can assure you our internal targets are ambitious.
How has procurement contributed to the overall performance of the business?
Of course the main aim is to safeguard the company’s profitability. This encompasses not only the classic contribution of lower procurement prices, for example, but also such measures as the early integration of procurement and our suppliers in product development as well as the expansion of our global value-sourcing network, particularly in countries where we are experiencing the strongest growth. Thanks to all these measures, we made a substantial contribution to earnings in 2009.
What future targets can you disclose? How do these promote the company’s broader objectives?
It’s too early for new targets. First we intend to achieve the targets we set in 2008. They directly promote the company’s broader objectives: first, sustainable growth in emerging countries and green markets; and second, the continued successful management of our businesses throughout the economic crisis.
Has the world economic downturn changed supply chain management fundamentally? And if so, how?
In the wake of the crisis, markets have become more volatile and unstable. This means we’ve had to exercise much greater care in managing the risks associated with this volatility – be it related to price or security of supply – when it comes to dealing with suppliers who have also suffered.
At the same time, while the crisis is still not over, we see that emerging markets are now, more than ever before, the world’s growth driver. This means that we must adapt and adjust our global supply chain network. But we initiated appropriate measures at a very early stage, which is why we’re already benefiting from them today.
What have you learnt about your markets, your suppliers, your company and yourself during the downturn?
One thing has become clear: supply chain management is a people business. We were able to achieve such great success in such a short time because of our highly motivated and committed employees and teams – not only at Siemens, but also with suppliers.
It has also become clear that Siemens, despite its size, is a flexible company that can respond very quickly to change and that communication and early involvement are the key to making allies out of other involved parties.
How do you use the additional influence you have as a member of the managing board?
The decision to address supply chain management at Siemens at the managing board level was a clear signal that this topic is of tremendous importance to the company. That’s why I see this change as very positive.
It was highly motivating for supply chain management employees. Many people in procurement had waited for this step, because a global organisation with worldwide responsibility accelerates processes and facilitates the work in many respects.
As a member of the managing board, I’m responsible not only for supply chain management but also for green technologies and sustainability. In this capacity, it’s my responsibility to help our customers to protect the environment while promoting growth.
What advice would you give to a supply chain management professional looking to secure a board role?
The decision regarding which individual is best equipped to assume responsibility for supply chain management on a board is made by a company’s managing or supervisory board. The qualifications and characteristics needed differ from company to company.
In my case, it was helpful that my previous work had given me an eye not only for procurement but for the entire supply chain and that I have international experience in general management and running large businesses, as well as the ability to run large network set-ups. So, I was able to win support for my plans from key persons in a short time.
Do you get tired of people asking you about being a very successful businesswoman?
No, not at all. These discussions are important. At Siemens, we take the discussion a step further, considering not just gender but also nationality, ethnic and educational background, age groups and so on.
The more diverse a company’s workforce is, the higher the range of experience is on which the company can draw. The important thing is that the individual who is best suited for a given position is selected from the enormous pool of worldwide talent. To include many women in this can be a competitive advantage for a company.
What would you do now if you were Toyota’s CPO?
What would I do if I could fly? To tell you the truth, I don’t especially like “what if?” questions. I’d rather think about concrete matters where I can make a difference.
SRM IN ACTION
Awarding rewarding suppliers
Siemens held its inaugural supplier awards ceremony in September last year to honour its three best vendors. Engineering firm BIS Gas Turbine Systems, which has worked with the Siemens energy division since 2002, won first prize. Judges were impressed by the German company’s ability to respond to the “specific needs of customers in various countries”.
The other two accolades went to Swiss semiconductor manufacturer STMicroelectronics for “most innovative supplier” and US hearing aid firm Knowles Electronics for “global value sourcing”. Kux said the awards recognised “partners who have helped us reach the market better and faster”. The awards ceremony took place at Siemens’ first annual supplier forum, where the firm and its top 30 suppliers discussed how best to work together to maintain profitability.
