As companies nowadays are in a highly
competitive and rapidly changing environment, it becomes increasingly difficult
for firms to rely on the competitive advantages gained from sales and
production processes. Yet the long-neglected purchasing department is still of
great potential. Companies can gain sustainable competitive advantages through
strategic sourcing by reducing the cost of investment and integrating
suppliers’ ability.
Siemens AG, a global powerhouse in the
fields of electrification, automation and digitalization and for healthcare
solutions[1], has achieved great success in the market of China. Looking into it,
there are 4 principles of strategic sourcing inherent in Siemens.
1） Total cost consideration
Rather than merely consider price during procurement, Siemens makes strategic
sourcing decision after combining different situations of suppliers and the
demand of the company. That is to say, the amount of order depends on the total
cost which embraces the price, quality as well as logistics. The lower the
total cost, the smaller the share of orders. According to TCO model[2], price is
not the ultimate payment, quantity, profit sharing, payment and even shipping
should be included in the calculation of total cost as well.
2） Negotiation via fact and data
The success of strategic sourcing is partially based on negotiation
via fact and data. To achieve this, the procurement department of Siemens sets
up a marketing team to attract potential suppliers so as to recognize
comparative advantages of the suppliers. In the process, they always look for
new suppliers and evaluate them while cooperating with existing suppliers on
brand-new areas.
3)
Supplier relationship management
Improvements under supply chain management are established by the
cooperation of purchasers and the suppliers. In addition, the investment of capital,
resource, time and the introduction of new supply chain management thinking could
also improve the efficiency of the supply chain and make direct economic
benefits.
Implementation of supplier relationship management could be divided
into three stages: at the very beginning, the company determines purchasing
categories and savings target under certain suppliers. After that, a detailed
flow of information should be established for answering questions related to
performance. Finally, suppliers and purchasers should arrive at an agreement on
the procedure in order for targeting desired consequence.
4) Counterbalance
The relation between company and supplier is a mutual selection
process. Therefore, fully understand the supplier and its business strategy,
operational model, competitive advantage, operating conditions and stuff could
create opportunities for company to find a balance point in mutual cooperation.
First, the audition of pre-production process could testify whether
the supplier can produce to meet the quality requirements of Siemens. And then
followed by a large-scale trial production, Siemens attempts to ensure the
suppliers meet the six sigma quality standard and safeguard the stability of
the manufacturing process. If it works, measurement systems could be
established; but if not, Siemens will conduct an internal re-education for the
suppliers.
In conclusion, Siemens are experiencing an
efficient strategic sourcing management. But on the other hand, the prosperity
of rivals does post a threat to the company. Is there any other strategic
souring management measure to handle that?
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