SIEMENS

Companies often used to be very casual about deciding where to build their factories,” says Jörg-Henning Kaske, who is responsible for Manufacturing Standards & Guidance at Siemens Corporate Technology (CT). “You could even go so far as to say that production location decisions were often made on the basis of anticipated wage cost savings — but that’s simply not enough any more.” These days, global production networks and the distribution of manufacturing centers need to be carefully planned and closely aligned with corporate strategy and market and customer requirements. “That’s why we developed a new approach for a global manufacturing footprint design that systematically examines the existing network and is geared to our customers’ requirements,” says Kaske.

A key focus here is to identify the weak points in conventional network planning. “Up until recently, networks were usually adjusted selectively in response to substantial cost-reduction pressures,” Kaske explains. “In such cases, a location in Europe would be closed and a new one built in Asia, for example. The new technique, on the other hand, takes a closer look at factors that determine customers’ purchasing decisions, as well as market development aspects and competitors’ behavior.” This can sometimes lead to an expansion of manufacturing facilities in industrialized nations — as was the case when Siemens invested more than $350 million in the production of state-of-the-art gas turbines at a plant in Charlotte, North Carolina, in 2011. The turbines are high-end components whose production requires skilled workers, precision technologies, and intensive research. “All of these requirements make the U.S. a very attractive location for us to manufacture such products competitively, because access to innovators is much more important here than cheap labor,” says Eric Spiegel, CEO of Siemens Corporation in the U.S.

Success Factors. In order to identify the best locations for future manufacturing facilities, Siemens focuses on several key success factors. “The main factors are profitability, speed, delivery flexibility, process quality, and innovative capability,” says Kaske. Each of these factors must be weighted differently because their importance varies depending on the customer, sales region, and product line in question. “The next step involves determining how well the existing production network fits in with these factors, as well as analyzing factors such as dependence on development and the existing supplier network,” says Kaske. In the subsequent design phase, specialists develop various network scenarios and examine their total cost impact. “By the time the process is over, we have several scenarios and can then decide which ones we want to implement,” he adds.

This is no one-time process. “It’s actually meant to become part of a continual footprint management system — in other words, a regularly scheduled monitoring procedure that reveals areas where we can make improvements as we go through the annual strategic planning process.” Although this method takes up more time and resources than a reactive approach, Kaske is convinced that the benefits outweigh any drawbacks: “With this approach, we can not only make the entire network more flexible and effective but also take long-term trends into account in the early planning stages. This, in turn, reduces the risk of having to implement costly restructuring measures.”

The design of a company’s footprint is the first step in the creation of an optimized production network. “But we also need to improve our implementation, which is why we’ve restructured our on-site facility planning process,” Kaske explains.

The new concept was first applied in the city of Goa on the west coast of India, where Siemens Energy Automation built a new plant for manufacturing power-grid circuit breakers that automatically shut down network segments in order to prevent damage to the grid or transformers. Sebastian Schumann was responsible for putting the concept into practice in Goa. “Up until now, conventional facility planning involved two processes that ran in parallel,” says Schumann. “Siemens Real Estate handled the planning of the building, while another group worked largely independently on the layout — in other words, the design of the plant’s interior. This sometimes caused problems when the two sides came together to coordinate activities.”

Siemens operates over 320 factories worldwide, which means it has a wealth of experience in planning and construction. “Despite all our know-how, we still had to repeatedly reinvent the wheel — and there was always the danger that we’d make the same mistakes all over again,” says Schumann.

Siemens’ new planning concept has eliminated this threat. The company’s planning experts intend to utilize five basic sample factory types in the future, including facilities for wind energy equipment manufacturing and electronics production, for example.

“In Goa, we took an existing standard electronics plant design off the shelf, so to speak, and adapted it to regional conditions and requirements,” says Schumann. Among other things, this meant taking into consideration local building materials and technologies and adapting building systems to suit local environmental conditions.

“The entire process was managed by a single project team — a feature that made coordination between exterior building and interior systems planning more efficient and enabled quicker decision making,” says Schumann. Goa was chosen after an extensive analysis of the location. An important aspect here was the fact that Siemens’ Healthcare Sector already operates a facility for manufacturing X-ray machines in Goa. As a consequence, it was possible for the new factory to utilize the existing infrastructure. In addition, it just so happened that Siemens already owned undeveloped property right next to the Healthcare plant, which greatly accelerated the planning and construction process.

Quick Construction. The facility in Goa was completed in January 2012 — just one year after its groundbreaking ceremony. “The new planning concept made us faster and also allowed us to precisely predict costs and remain within budget,” says Schumann.

However, he is also aware of the drawbacks associated with generic factory types. “Although our concept does harbor the risk that we might overlook certain unusual solutions, the benefits of rapid planning and precise cost forecasts generally outweigh that risk.”

The new facility in Goa will play a key role in the Energy Automation production network. For one thing, the devices manufactured there will be exported to emerging markets, where they will support a number of countries as they seek to establish smart grid infrastructures. “If you want to integrate renewable energy into a national grid in a meaningful way, you need an intelligent network and computer-controlled protection equipment to handle the output fluctuations this type of energy is susceptible to,” says Schumann.

And there is another reason why Goa is so important: A development department in the facility will be used to create customized “SMART” products for the Asian market, whereby smart stands for “simple,” “maintenance friendly,” “affordable,” “reliable,” and “timely to market”— and thus perfect for local and regional requirements.

“By manufacturing locally, our plant in Goa not only offsets exchange rate fluctuations but also cuts costs. Perhaps, more importantly, we ensure that our products are adapted flexibly to meet the different regional requirements of our customers,” says Schumann. Just what kind of innovative capability can be realized when a company operates its own development department in India is best illustrated by the 1,200-kilovolt (kV) circuit breakers developed by the Siemens Power Transmission Division at its facility in Aurangabad.

These automated protective switches are unique — no other comparable product can operate at such high voltages. The unit will help India build a 1,200-kV electricity grid whose transmission capacity will be more than double that of the old 800-kV network.

Long-term plans call for Goa to expand into a global production center for emerging markets. “The main plant in Berlin will still manage network coordination between manufacturing locations in the UK and China,” says Schumann. “For example, Berlin will ensure that the same machinery is used at all facilities and that product data remains consistent at all factories.” This will make it possible to quickly compensate for a production shutdown at one location by having a second facility pick up the slack. Even so, development activities in Goa will give the plant there extensive freedom when it comes to manufacturing specific product series for emerging markets.

Kaske believes Siemens will be in a strong position once the new approaches have been refined and applied. “Strategically planned distribution of manufacturing facilities, rapid and economical on-site implementation on the basis of sample factory types, and global production with uniform standards —” he says, “these will be the essential elements of the network of the future.”