Siemens acquires electronics supply chain provider Supplyframe: Rapid analysis

Siemens AG, a global technology provider, announced the acquisition of Supplyframe, a provider of the Design-to-Source Intelligence (DSI) platform for the global electronics value chain.

In a press release announcing the acquisition, the companies said the $700 million deal will allow customers access to both Siemens’ offerings and Supplyframe’s market intelligence. The companies will aim to help clients reduce costs, increase agility and make informed decisions. The deal strengthens Siemens’ portfolio with new capabilities in SaaS.

Supplyframe’s DSI platform is home to over 10 million engineering and supply chain professionals worldwide, providing options for businesses to design, source, market and sell products in the global electronics supply chain. Its expected revenue for 2021 is $70 million.

“We are very pleased to welcome Supplyframe’s highly innovative and talented team to the Siemens family. Supplyframe will be the nucleus to accelerate our overall digital marketplace strategy,” Cedrik Neike, member of the Managing Board of Siemens AG, said in the press release. “Supplyframe’s ecosystem and marketplace intelligence complements our industrial software portfolio perfectly and strengthens our capabilities for the growing market of small- and mid-size customers.”

This Spend Matters PRO Rapid Analysis research brief explores valuation considerations, the rationale for the combination, the increasing intersection between product lifecycle management (PLM) and direct materials procurement, and the rise of supplier/product intelligence as a critical required capability for procurement organizations — and by extension design engineering and supply chain teams. This brief also explores broader market and supply chain implications of bringing the combined assets togethers. To learn more about Supplyframe’s direct materials procurement capabilities, we recommended starting with a recent PRO Vendor Analysis on the provider which you can find here and here.

Siemens-Supplyframe acquisition backdrop

The acquisition price of $700 million represents an approximately 10 times forward (2021) revenue multiple from a valuation perspective. For Supplyframe, a company with a history not only as a software provider but also a source of deep industry content, this is very significant — as it values the entire business on a SaaS multiple. But the valuation may make more sense in the context of how actual users derive value from direct materials procurement applications. Hint: It’s not just the technology components!

Supply chains have been front-of-mind for business executives. And for manufacturers, those supply chains are generally designed when the products are designed. This type of direct materials sourcing is a critical set of capabilities in both product design (and product costing) and supply chain — with procurement playing an important role in improving the internal/external linkages between design and supply chain.

So, Siemens, a major player in PLM, and not just an industrial conglomerate, has made an extremely smart decision to bring direct materials sourcing and broader supply chain intelligence to its software product portfolio. In this way, Siemens can not only offer design engineers a PLM environment to design products and assets to bring to market, but also the supply chains that will build those products/assets, deliver them to customers, and then service them over their life cycles … profitably. This brings real life supply market intelligence to bear within robust direct materials workflows that Supplyframe has pioneered for many years.

It’s also a smart move since as industrial infrastructure gets increasingly digitized, there is an increasing degree of electronic content within them. Automotive is an obvious example as wire harnesses gave way to drive by wire. Also as an increasing reliance on chips (and the global supply chains that can threaten those critical upstream components — especially when manufactured in Taiwan) and software required more complex design engineering. This is where Supplyframe has focused all the way from the ODMs, OEMs, contract manufacturers, distributors and component manufacturers. By bringing this “design for supply chain” intelligence upstream into the design process vis-a-vis the direct materials sourcing process, Siemens is connecting the dots between front-end design-centric PLM and back-end sourcing and supply chain operations.

Direct materials procurement is complicated. Very complicated!

We’ve written a great deal about the criticality and complexity of direct materials sourcing within the broader direct procurement and inbound supply chain process. In our recent four-part framework, we covered direct materials sourcing regarding the critical processes and digital capabilities. Interestingly, while the first overall aspect of direct procurement is the “design for supply [chain]” aspect, the second is “Supply Chain Resourcing” which is about designing the supply network itself — i.e., when you source part of a product, you’re really doing extended supply chain [re]design!

In our PRO analysis, we discuss that the intent of supply chain resourcing is to “provision the supply chain assets & services.” An industrial solutions firm that can “own” the modeling (aka digital twinning) and management of the supply chain, the products that the supply chain controls, and most importantly, the information flows across the products and assets, will have a strong integrated position in the new digital world rather than just hawking siloed apps in PLM, sourcing, SCM, and so on.

Also, Siemens needed to make this acquisition to not just support its own digital transformation with its SCM DigiNetwork effort, but also integrate across its legacy and current software solutions. Siemens acquired TeamCenter PLM from UGS and TeamCenter includes a direct materials sourcing application, but it’s decidedly aging, and Supplyframe brings a predominantly modern cloud application portfolio to bear. Supplyframe also has a lot of experience to bring product/component intelligence and content into the context of various design and sourcing applications, so this will help to inject this decision support and toolset into Siemens’ designer/customer base.

In conclusion …

What’s also great news for Siemens procurement and supply chain team members is that they are now the proverbial kids in the candy store to use this technology portfolio within their own operations AND to extend that out to customers. Siemens is a very sophisticated procurement organization and will make great use of the technology.

Of course, there are also downsides here. It’s not so much of a legacy PLM or ERP vendor sucking the life and innovation out of an acquired provider (Oracle’s acquisition of Agile Software comes to mind). But rather than when you want to own it all, you end up competing with everyone.

One can’t help but think that Supplyframe customers at GE, ABB, and other firms that compete with Siemens will now have critical digital supply chain information being processed by a firm owned by their competitor. Expect some of them to be looking for alternatives very soon (hopefully they had this as a risk scenario in their ‘playbook’). This was the same issue when Flex helped found supply chain orchestration and risk management provider Elementum. Back in 2014, we were skeptical about Elementum’s ability to attract customers that were using Flex’s competitors, and time did prove us generally right on that call.

Anyway, there’s all sorts of implications here that we’ve only scratched the surface on, but we’ll look to get a briefing from the Supplyframe team and come back with additional thoughts and insights. Stay tuned!