Friday, October 10, 2014

Strategic Sourcing of the Siemens

    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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