case study simenz
Case Study:
Siemens Electric Motor Works – Process Oriented Costing
1. Introduction
The German manufacturing giant Siemens currently markets the largest range of electric motors in the world under its SIMOTICS brand.1This success was ensured by a transformation of Siemens Electric Motor Works (SEMW) in the early 1980s when management decided to move to a specialised customised electric motor manufacturer. This strategic reorientation transformed the manufacturing process and lead to continued profitability in a competitive environment. One of the key factors in this success was a change in the costing system. Activity based elements were introduced which identified the number of customer orders and number of types of specialised components as key cost drivers. SEMW’s transformation is a classic case study in process costing.2
2. Strategic reorientation
2.1 COMPetition: the Need for Change3
SEMW commenced in 1937 in Bad Neustadt in the western German state of Bavaria. Most of Siemens’ electric motor factories were destroyed in the Second World War or fell under the control of Eastern Bloc countries after the war. Despite major expansion and automation in the 1970s, Siemens was struggling to compete in the production of standard A/C (alternating current) motors. Characterised by long runs of single types of motors which were inventoried and shipped on receipt of orders to a wide range of customers, marginswere low leaving SEMW unable to compete on price.
By the 1980s labour costs were a major competitive advantage for Eastern Bloc manufacturers. Due to strong economic recovery in West Germany during the late 1950s and the 1960s, input costs, includingwages, increased. The Eastern European post-war experience had been very different, with wages and salaries, and standard of living, falling well behind that of West Germany. In this environment, SEMW’s managers saw that they needed to reduce costs.SEMW considered its options, and management decided to
Siemens Electric Motor Works – Process Oriented Costing
1. Introduction
The German manufacturing giant Siemens currently markets the largest range of electric motors in the world under its SIMOTICS brand.1This success was ensured by a transformation of Siemens Electric Motor Works (SEMW) in the early 1980s when management decided to move to a specialised customised electric motor manufacturer. This strategic reorientation transformed the manufacturing process and lead to continued profitability in a competitive environment. One of the key factors in this success was a change in the costing system. Activity based elements were introduced which identified the number of customer orders and number of types of specialised components as key cost drivers. SEMW’s transformation is a classic case study in process costing.2
2. Strategic reorientation
2.1 COMPetition: the Need for Change3
SEMW commenced in 1937 in Bad Neustadt in the western German state of Bavaria. Most of Siemens’ electric motor factories were destroyed in the Second World War or fell under the control of Eastern Bloc countries after the war. Despite major expansion and automation in the 1970s, Siemens was struggling to compete in the production of standard A/C (alternating current) motors. Characterised by long runs of single types of motors which were inventoried and shipped on receipt of orders to a wide range of customers, marginswere low leaving SEMW unable to compete on price.
By the 1980s labour costs were a major competitive advantage for Eastern Bloc manufacturers. Due to strong economic recovery in West Germany during the late 1950s and the 1960s, input costs, includingwages, increased. The Eastern European post-war experience had been very different, with wages and salaries, and standard of living, falling well behind that of West Germany. In this environment, SEMW’s managers saw that they needed to reduce costs.SEMW considered its options, and management decided to