Barbara Kux and Siemens’ Procurement Plans

In December, the Financial Times had an interesting report about Siemens, who announced a €6bn cost-cutting plan after a fall in profits and new orders. “The group also surprised investors by revealing that Barbara Kux, board member for supply chain management and sustainability, would leave the company when her contract expires at the end of next year, half way through the two-year cost-cutting programme”.

Kux was the architect of a major procurement change programme, which she kicked off when she joined Siemens in 2008, known as “60:25:20”. That was based on three key objectives;

  1. More central or collaborative contracts within Siemens, particularly in the indirect spend area, where Siemens spend some $15B a year. The target was a 60% increase in the “pooling of our spending”.
  2. More sourcing from emerging countries – increasing the percentage of total spend coming from those areas from 20% to 25%.
  3. Reduction of the supply base by 20% from some 113,000 suppliers to 90,000

The first point recognised – quite rightly – that collaborative buying is harder in the direct materials area – more scattered purchasing teams are needed in order to stay close to markets and product development.

It’s interesting that none of these three points speak directly about value or savings. They’re all what we might call “second order” objectives. So we might assume that more collaboration, or more low cost country sourcing should lead to better value from our purchases – but that’s not guaranteed.  Those two should pay off but I’d actually be more doubtful about the supplier reduction angle. It’s not a silly goal, but really supplier reduction should be one natural outcome of good procurement strategies, rather than an end in itself. I am surprised Kux saw that as one of the three headline objectives.

Anyway, the FT speculated on why she was going to leave next year, just half way through the new cost-cutting programme.  Was there something significant in that decision? So we’ll take a look at that issue tomorrow.

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