Pictures of the Future      Spring 2008

Your Wish Is My Command

Customers’ wishes are becoming increasingly individualized. Manufacturers must thus achieve fast, flexible production cost-efficiently. For Siemens, this means focusing on platform strategies, key account management, and the virtual world.

It’s the same thing day in, day out. You open the newspaper, and a whole sheaf of advertising leaflets for various products falls out onto the floor. From bed linen to porcelain to high-tech gadgetry—the merchandise seems endless. But the most important message of the newspaper supplements is that products are being pitched at almost unbelievably low prices. Slogans like "Penny-pinching is cool" from a German electronics chain, and "Save money. Live better." from U.S. discount giant Walmart have become part of the vernacular. The reason for the low prices is the huge number of suppliers crowding into the market in the age of globalization.

Manufacturers that want to satisfy customers and remain competitive against low-wage countries have only two means of doing so: innovation and customized products, accompanied by a reduction in the length of time from the design of a product to its production.

Individualized products and solutions need not be more expensive than their conventional counterparts, provided they have been intelligently designed. This begins at an early stage, with modular product planning and assembly. The principle by which customers assemble their personal solutions from pre-fabricated modules can mean huge cost benefits for manufacturers. The latter can respond to customer demands with suitable products but don’t have to develop these products from scratch, thanks to their assembly kit model.

This principle is best illustrated by an example from Europe’s rail transport sector where no less than 26 train control systems installed in 31 European countries used to demand specially designed locomotives.

Often, trains traveling from one country to the next must have their locomotives replaced at border crossings in what amounts to a costly and time-consuming procedure. To solve this problem, Siemens’ Mobility division offers the Eurosprinter, a locomotive based on a common platform (Locomotives). Here, the customer chooses everything from the voltage supply system to the train control system—and that goes for cross-border traffic spanning several countries. The advantages of this strategy for Siemens as well as for rail operators is clear. For Siemens, the modular system means lower development and marketing expenses. For the customer, it means an attractive purchase price and locomotives that can be flexibly distributed over a wide geographical area. This also adds up to a reduction in waiting time during border crossings of at least 30 minutes, which is time that can be crucial in freight-transport competition with trucks.

Special Support for Large-Scale Projects. The advantages of customization also apply to projects of an entirely different sort, such as airports, hospitals and hotels. To relieve customers of the laborious effort of having to seek out and assemble the individual components of such complex, large-scale projects themselves, companies are increasingly ­offering what is called key account management. Here, special support for the customer includes both all-around subject expertise and coordination of business dealings. The idea of the key account was first adopted in the early 1990s by IT companies such as HP, IBM and Xerox, whose customers—usually international companies from the automotive, finance or petrochemical industries—wanted all of their products and services to be compatible and based on the same standard. Today, particularly with regard to rapidly expanding global companies, standardization is a bigger issue than ever—especially when it comes to the key issue of cost efficiency, which can vary significantly among a company’s locations depending on which systems and service contracts are in effect .

Since the 1990s, Siemens too has placed a greater focus on its customers. In 2004, the company developed a special initiative called Siemens One. "Providing customized solutions instead of individual products is an important business today," says Dr. Hajo Rapp, head of Account Management and Market Development at Siemens One. "Companies may think primarily in terms of their products, but customers are mainly intent on solutions that satisfy their needs," he adds.

To provide this service, there are 13 Market Development Boards (MDB) at Siemens. In each of them, representatives of the various Siemens divisions together develop solutions adapted to industry- or even customer-specific processes, such as those in use at airports and in the automotive, metal and mining industries. The drivers of this development are often the customers themselves, who discuss their needs and preferences with a Siemens key account manager and receive appropriate support from him or her. The account manager, who works with an MDB, ultimately analyzes which components from which divisions are needed to best realize the solution desired by the customer.

The MDBs see a difference between Siemens and its competitors in this regard. "We don’t just specialize in individual customers; our MDBs bring together customers from various industries," says Rapp. "This combination of industries not only gives us broader expertise regarding the businesses our customers are engaged in; it also boosts our cost-efficiency."

In addition, Siemens offers many clients customized financing models. For example, the City of Freiburg, Germany is paying for its ­power-saving LED lamps from Siemens with the energy costs it saves. And at Bangalore Airport, which was fully equipped by Siemens, the company actually has a 40 % stake in the airport operator through a subsidiary. The operator consortium is financing the investment through a concession that allows it to levy fees on airlines and passengers (Financing).

Focusing on Major Customers. The significance Siemens attaches to key account management can be seen simply by counting the number of key account managers at the company. Over 100 employees now support large, globally-operating companies, from Nestlé and BMW to Chinese steel giant Baosteel. The customers who are the focus of account managers’ attention represent approximately one third of all sales at Siemens. Rapp underscores the importance of this commitment: "The business of the MDBs is growing at a disproportionately high rate relative to the company as a whole. We intend to continue to take full advantage of this excellent growth potential in the future."

In addition to key account management and the principle of modular manufacturing based on platform concepts, companies use a third method to make their products flexible, marketable in a short period of time, and in tune with customer expectations: simulation. Specialized software packages allow products to be fully designed, simulated and tested in three dimensions on a computer (Pictures of the Future, Fall 2007, Factories of the Future). This often reduces development and planning costs by 20 %—in addition to shortening the start-up phase for production. According to Boston-based consulting company AMR Research, 20 % of all product and manufacturing changes already occur in the virtual world ­instead of on the drawing board, and that number is increasing.

This is true at Siemens too, which is now one of the world’s largest suppliers of industrial simulation software. The objective on the near horizon is to use these planning tools to merge the virtual and real worlds and thereby create entirely new opportunities for individualized production (Mass Customization).

Demand for customized production is growing at an enormous rate, says Prof. Dr. Günther Schuh, a university professor specialized in production engineering at RWTH Aachen University. (Financing). According to Schuh, who is an international expert in this field, virtual production is an important element when it comes to setting up an affordable system of customized production.

Until this system of customized production is in place, however, "mass customization" is one way to achieve individualized production. Here, prefabricated assembly kits and platforms are individualized or refined at the end of the production line. And increasingly, other industries are showing interest in a formula that has long since proved its value in the automotive industry, where packages of options have been available for years. Indeed, Schuh believes that consumers will expect to see an increasing number of products that are tailored to their individual needs.
                                                                                                       Sebastian Webel