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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.
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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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