Article Analysis Paper – Procurement Helps Siemens Deliver Record Profits
Various organizations seek ways to improve their financial health. Many of these organizations turn to their supply chains in an attempt to identify profit opportunities. According to Burt, Dobler, and Starling (2003), “Supply management can positively impact the firm’s bottom line more than any other business function” (p. 2, para. 2). Among many functions of supply chain management is the function of procurement or purchasing of goods and services from suppliers and vendors. Many strategies exist for organizations to use when procuring goods and services. This paper will examine the purchase and procurement similarities and differences of two organizations, the Siemens Company and Wynn Buick Pontiac GMC. Not only will similar and different procurement strategies be reviewed, recommendations will be offered on how to enhance and improve Siemens procurement function.
Differences between Siemens and Wynn Buick Pontiac GMC
Several differences exist between the Siemens organizations and Wynn Buick Pontiac GMC. Two major differences exist between the organizations: outsourcing and purchasing in bulk. According to the Procurement Leader article “Last year, Siemens began bundling procurement to source more materials from low-cost counties, reduce its supplier numbers and buy more in bulk” (N. A., 2010, p. 1, para. 1). Siemens a global manufacturing organization used sourcing of materials from low-cost countries as part of their outsourcing organizational procurement strategy. In contrast, Wynn Buick Pontiac GMC is a service organization with only a limited local market does not need to source materials or service requirements to low-cost countries.
Purchasing in bulk is another difference in procurements strategies between Siemens and Wynn Buick Pontiac GMC. Whereas Siemens shifted focus last year on reducing procurement cost by purchasing in bulk, Wynn Buick Pontiac GMC focused on making purchases based on customer demand with more frequent deliveries and in smaller lot sizes. Purchasing in bulk provides Siemens with the ability to set pricing with applicable discounts for purchasing in quantity on products or services, set a delivery date, and then plan for the shipment of goods at its facilities worldwide.
Similarities between Siemens and Wynn Buick Pontiac GMC
Similarities exist between Siemens and Wynn Buick Pontiac GMC. The most noticeable similarity is the shift away from multiple source procurement strategy toward a single source procurement strategy. Both organizations understand the value of cost reductions and purchasing strategies using fewer suppliers and vendors. According to Berger and Zeng (2005):
When several suppliers are present, since the supplier responds to the demands
and specifications of a particular quotation, the buyer has the opportunity to receive lower prices and shipping costs. However, the supplier gas the burden of
being responsible for maintaining the necessary technology, expertise, and forecasting abilities, plus cost, quality, and delivery competencies (p. 250, para. 3).
With multiple a multiple sourcing strategy, organizations play suppliers off one another for the best price and shipping costs. However, as a result, the multiple vendors often create unintentional delays in production and shipping because of the time consuming contract negotiations with each vendor.
Siemens reduced the number of its vendors to gain better control of the procurement process. In addition, it can also give more business to each vendor and purchase in volume. Therefore, pricing, shipping, lead times, discount structures are already agreed upon and accountability becomes easier. Wynn Buick Pontiac GMC also receives similar benefits by reducing its number of vendors. Identifying those parts distributors that understand the needs of the dealership parts business is important. Price is no longer the sole factor in partnering with a supplier. Quality, ease of doing business, delivery timeliness, flexibility, inventory levels, and customer support either in person or electronically play a part in deciding on a vendor to use.
Improvements to Enhance Siemens Procurement Function
Whereas Siemens has seen an increase in profits this past year as a result of various procurement strategy initiatives including lowering its costs by sourcing more materials to low-cost countries, reduce its supplier base, and buy more in bulk, many more procurement opportunities are available for Siemens to use. The most beneficial strategy for Siemens at this time would be to improve its relationships with its suppliers. Developing and improving relationships with the reduced supplier base can improve Siemens competitive advantage further.
According to Fredenhall Hopkins, and Bhonsle (2005):
One tool purchasing can use to improve its supply chain performance and service to other functions, while helping to improve the firm’s competitive position, is to develop a cooperative relationship with appropriate suppliers. There is evidence that the level of cooperation in the firm’s key buyer-supplier relationship influences firm performance, and that cooperative supplier-buyer relationships can provide both improved profits and a competitive advantage (p. 26, para. 1).
- Quote paper
- James Tallant (Author), 2010, Article Analysis Paper – Procurement Helps Siemens Deliver Record Profits, Munich, GRIN Verlag, https://www.grin.com/document/167251