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Managing Global CustomersAn Integrated Approach$

George S. Yip and Audrey J.M. Bink

Print publication date: 2007

Print ISBN-13: 9780199229833

Published to Oxford Scholarship Online: October 2011

DOI: 10.1093/acprof:oso/9780199229833.001.0001

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(p.200) Appendix Case Studies

(p.200) Appendix Case Studies

Source:
Managing Global Customers
Publisher:
Oxford University Press

In this Appendix we provide summary case studies that describe the approach to global customer management by four companies (DMV International, Royal Dutch Shell, Unilever and Xerox), and global supplier management by a fifth (Siemens). We have used some of the information in these cases in different chapters earlier in this book. As every company’s global management programmes change often we give specific dates as to when we collected the information about these programmes.

DMV International (as of 2004)

Introduction to the Company

DMV International develops and produces functional and nutritional ingredients for the food, nutrition and pharmaceutical industry worldwide. DMV International is the industrial ingredients division of Campina b.v., one of the largest dairy cooperatives in Europe, with annual sales of ₠3.7 billion. The DMV headquarters are in Veghel, the Netherlands, and production and R&D facilities are based in Europe and North America. There are also 16 sales offices spread over Europe, Asia-Pacific and the Americas.

History of Customer Management

DMV global account management started in 2000 with one pilot customer. When a major reorganization of the commercial structure of DMV was planned in the following year, it was decided to apply the best practice set up from the pilot account to other accounts. A customer segmentation project identified four types of customers: key accounts, core accounts, large transnationals and others. This selection process determined the key accounts as the ones that would be part of the new key account management programme. The set up in (p.201) the pilot account was copied for the other key accounts, where each account had a key account manager (KAM) responsible for the account, and a key account team (KAT) supporting the KAM to develop a key account plan and to execute it. In July 2003 a training programme was set up for the KAMs and core KAT, and in October 2003 the surround KAT members were enrolled in the training. Since then the KAM and KAT have worked together on key account plans for each account.

Objectives and Importance of Global Selling

The customer segmentation project is based on the objective to give the right level of attention to the right customer. This project identified the companies by which DMV wanted to be viewed as a valued supplier in order to make it easier to utilize internal resources in an effective manner. Next to identifying the right accounts to spend the resources on, another objective was to gain more openness and trust with these companies. For DMV, key account management means putting itself in the account's position to get a better knowledge of what the customer needs. KAMs enable DMV to occasionally take a look behind the scenes at customers and find out what motivates them.

A big driver to initiating the management of accounts on a global basis was the fact that customers were becoming better coordinated. Internal communication within major customers has become increasingly better organized, and each year there are more requests for global pricing. DMV always had an edge in global communication as it is a relatively small company and, therefore, internal communication was less challenging for them than for some of their customers who are larger companies. However, to keep this edge, as their customers become better coordinated, it is important for DMV to stay informed and to use any acquired knowledge to enhance the global customer experience.

Designing a Global Customer Management Programme

The structure of DMV's key account management is built on having a key account manager and a key account team for every account identified as a key account. The KAM is responsible for the margin and business of the whole account. The budget is set up with worldwide input and feedback, and the target of the KAM is based on the overall budget margin. There are no dedicated key account managers. They all have more than one account. Because there are no KAMs dedicated to a single account the person chosen to be KAM for a position will often operate from the region where the majority of the business with a specific customer takes place.

(p.202) The key account teams (KAT) consist of a core team and a surround team. The core team of every account consists of four or five people from different departments, including the key account manager. This combination is different for each key account, as the numbers of the team must be representative of the focus DMV has for each account. Departments that are often represented in the KAT are supply chain management, research and development, and marketing and production. Next to the core team for every account, a surround team is identified. The numbers of this surround team are less clearly named and will only be used for specific issues. For example, if the core team for an account does not have a supply chain management representative and a single project comes up that could use some supply chain expertise, then the supply chain person from the surround team is asked to join the key account team meetings for the duration of the specific project.

A special function in all the KATs is that of the key account assistant (KAA). The KAA makes sure that all information on the key account is well documented. He or she will produce reports for both internally involved people and the key account company. The KAA is the main information manager and will send out relevant documents such as highlights and financial reports. The same KAA operates in all KATs, therefore offering the advantages of experience and best practice sharing. Recently the position of KAA has gone. A new role for the key account coordination manager has been put in place. He is responsible for a proper execution of KAM and best practice sharing.

Roles have been described for all relevant parties for the key accounts, so that everybody knows what to expect from each other. What does the management team do? What does the business line manager do? What does finance do? Everyone knows what is expected in terms of support and implementation.

The KAM is the main point of contact for the account, but DMV tries to avoid a bow tie structure in the relationship with its account companies. A diamond structure where different DMV people have communications with different people from the account is seen as ideal. To have this on a global relationship, the customers need to have other global departments too. For example if the customer has a global R&D structure, this makes it easier to work together with the global DMV R&D people. There is no separate key account management department. Currently all KAMs happen to work in Europe, and therefore all report to the regional manager of Europe and the Middle East. This is more a coincidence than planned, but it does help. Both this regional manager and the MD are strong supporters of key account management. Local sales people working with the same account are on the same hierarchical level as the key account managers. They will report to their own regional managers, but have a dotted communication line to the key account manager. In some cases they are in the KAT.

(p.203) Apart from the KAA, there are no people dedicatedly working on the key account management. For some of the KAT members, key account management feels like something they do ‘alongside’ of their actual job. It would be good if key account management could be more embedded in the whole organization.

Selection and Customization

Initially the key accounts were identified in the customer segmentation project in 2001. The key accounts are not just selected based on size, they have to be strategically interesting and have potential for more added value sales.

Customization mainly occurs in the composition of the KAT, which is based on the issues and needs of the account. Apart from the difference in composition, each KAT member will have his or her own GROW (Goal, Role, Opportunities, Workplan) plan that is customized based on the situation of the account and the expertise of the KAT-member.

Tools

The most important strategic information tool is Radar, a live link programme that works as an intranet information system. Radar was introduced in 2000 and rolled out in all the different DMV geographical areas over the following year. Although it seems that not all Radar capabilities are being used to their full potential within the company, it has proved to be a useful tool for key account management. Next to all the general documents that are available for all DMV departments, the key accounts have their own folder. In this account-specific web space, all relevant documentation on the account is gathered. Besides all the internal and external reports that the KAA is responsible for, Radar is also used to keep track of the progress in the ‘GROW’ of each KAT member. Although the Goal, Role and Opportunities are more or less fixed items, the Workplan is being updated at every KAT meeting. The achieved targets in the last Workplan are discussed and new targets for the next few months determined. The ‘GROW’ is an important guidance tool for DMV's key account management as it ensures that all relevant people are working with the account in a customized manner that is in line with the total key account plan. Another tool that was used during the start-up phase of DMV's key account management programme was specific training for global account personnel. The first group to be trained were the key account managers, then core members, followed after a few months by the other KAT members.

(p.204) The KAT meetings for most teams are once every two months. Foreign colleagues who are part of the KAT core or surround team will not always be physically present, but video-conferencing equipment is available at all major DMV sites. Once a year the complete KAT will take a day together to work on the key account plan. This plan should give direction with the account company for the next year, and helps plan the ‘GROW’ of each team member. It is possible that the KAT members change because of a change of focus for the key account. The surround team is changing more frequently as members move in and out, due to the variety in current projects and issues. All team members will get the reports and minutes of the KAT meetings. Other information tools for all people involved are the regular booklet of highlights of all key accounts, combined by the KAA and the international quarterly report per key account.

Company Influences

The fact that DMV is relatively small helps to overcome most barriers. Short communication lines help in having everybody well informed about all outstanding issues with the account. The standard friction between global and local targets that exists because of the matrix structure for global account management is therefore not as strong as in most companies. Most problems can be overcome by talking directly to the people involved.

Although DMV is a relatively small company, the key account management does not yet seem to be fully integrated in the day-to-day business. The internal mindset at DMV is not always positive towards changes. Sometimes there is some operational resistance because people do not understand why these accounts should be more important than others. The KAM programme needs to be part of a cultural change, and people need time to adapt to it. Aligning the KAM targets with the company targets and the personal targets of employees will help integrate the KAM programme.

Supplying ‘service products’ can sometimes raise some internal resistance. These are products—although not profitable in themselves—that are supplied to key accounts as part of the total service DMV wants to give these companies. As the current DMV structure means that an account can be supplied from two different business lines, these ‘service products’ can be the cause of some friction. One business line has to supply a product that is not profitable for them, while the other business line will reap all the benefits of the good relationship that is created with the account company by providing this service. Again, DMV's size allows for good communication and this helps to overcome these problems most of the time. However, it is important to ensure there are no conflicting targets within the company, and if DMV decides to supply a ‘service (p.205) product’ the customer should not be made aware of any resulting internal friction.

The executive support is good. The roles of the management team for the key account management have been described and are visible for everybody in the information system. A letter from the management team was sent into the organization to endorse the key account management programme and to show everybody that top management is very supportive of the programme. There is a formalized executive sponsorship programme. DMV does want to have contact with its global customers on an executive level. Some global account personnel believe that a structured meeting with the key accounts on an executive level could strengthen the relationship, provide a better understanding of the customer's strategy and needs, and open up more opportunities.

Performance

The key performance indicators for the global accounts are margin, the number of projects running and their position in the project-pipeline, and vendor rating (how the customer perceives DMV). Four times a year the KPIs are reviewed by the commercial management team.

As DMV is relatively new to working with global account management it is hard to really see performance changes, although small positive changes are starting to emerge. Customers seem to be more willing to start a partnership that will end up beneficial to both parties. Although customers will always demand a competitive price from a supplier, this type of relationship often leads to companies becoming preferred suppliers, which leads to a higher success rate in new business opportunities and more security in the supplier position. However, even with a partnership, getting all of a customer's orders is not a certainty. Good relationships should never be taken for granted.

DMV notices an increase in projects coming from the key account companies. Over time these projects will lead to more sales and an improvement in performance. In the case of the pilot key account, the good relationship that DMV had with the European part prior to the start of the programme, seems to have rubbed off to its American part. The KAM believes that valuable information reaches him faster than it used to.

Future

As DMV only recently started the programme, the future will show a maturing of the programme organization. There have already been some changes in (p.206) selected accounts and at this time all account teams have started to work on projects on a regular basis.

Based on the first experiences some changes in the programme organization might be made. One of the most repeated comments is that the programme should be ‘better imbedded in the total organization’. Especially for the KAT members it can feel like something they do next to their job. Aligning job objectives throughout the organization is an important factor in achieving this.

The AA Account—Interviews Conducted in April 2004

The relationship between DMV and AA has existed for approximately 20 years. Good personal contact is key to the relationship, as the Nutritional part of AA is strategically dependent on DMV's products. The core team for AA consists of a key account manager, the key account assistant, the sales person for the US, a representative of R&D and a representative of marketing. Regular surround team representatives are supply chain, application & development and sales people from other regions.

In 1999/2000, AA was the pilot for DMV's key account management. DMV noticed that for them AA Europe and AA US were two different companies. While there was regular communication between the account managers for the US and the EU, they felt they were missing something. Furthermore, the communication with AA's global R&D and marketing was not very good. DMV decided that it might be beneficial to take a global approach to the company.

After initial training, the designated KAM formed a key account team and wrote a key account plan based on input from the key account team members. He tried to structure the relationship on a more global basis. When AA first heard of these plans, they thought it would create a difficult situation, as they have a split between their US and Europe operations, but in the last few years they have started to see the benefits. A fixed point during every meeting with the AA EU part is the question, ‘Please tell us what is going on at AA US’. AA appreciates DMV having this knowledge, but it is important to be careful with it.

AA is the global market leader in medical nutrition (with a market share of 15–20 percent), a market that is strategic to DMV's business. Therefore, it is a company that needs to be in the global customer portfolio. As AA wants to be innovative in this market, it is an excellent company to work with, to show them new DMV developments, and to learn from them what is important in the medical nutrition market. On the other hand, DMV as a supplier is also very important for AA. DMV is the market leader in strategic products for AA. AA also needs DMV because of its innovation strategy: DMV can help AA innovate with new products and R&D service.

(p.207) R&D is a very strong part of the relationship. The direct contacts, between the AA and DMV R&D departments, help them to have a strong working relationship. They fully utilize their experience and knowledge in R&D. The AA EU purchaser would like to be more in this R&D loop. Historically, R&D would have the final say in what needs to be purchased, therefore disabling the purchaser's negotiation position. In recent years this power has moved more to the purchaser.

There is no hierarchical connection between the US and EU purchasers. Therefore, decisions made between the two of them can be jeopardized by local issues. Most of the time, the word ‘global’ stands for a theoretical approach. There is no coordination between the divisions. AA does see the advantages of possible global coordination, but the practical operations are far from being at that stage.

Executive sponsorship of the relationship between these two companies mainly comes from the DMV side. While the AA purchaser knows the commercial director and region manager of DMV he said that the CEO of AA ‘possibly doesn't even know where this factory is’.

The BB Account—Interviews Conducted April 2004

BB is a little over a century old, and a leading presence in the clinical and baby food markets. It is present in 100 countries and has 12,000 staff. Six years ago BB started to consolidate procurement, starting in Switzerland with raw materials and packaging materials. A global department took over purchasing from the factories, mainly for Europe. The communication had not been very smooth. Therefore, it was decided that all the purchasing people would be grouped together. There is a global purchasing team in the Netherlands, managed by the vice president for purchasing worldwide. Global purchasing is definitely an important issue for BB, mainly for economic reasons. For BB the key success factors to be a world supplier are:

  • good economic performance (being competitive);

  • quality;

  • ability to bring value through innovations;

  • security of supply.

A vendor rating exercise showed that BB rates the DMV performance as ‘good’. They welcome DMV's step toward global account management as it enables the two companies to take a strategic view and to create success stories together. The appreciation of DMV as a global account was demonstrated by the ‘BB Booster Awards’ that were founded to recognize and encourage BB's top tier suppliers. With this ceremony BB emphasizes the importance of its suppliers (p.208) in providing outstanding value adding performance and contribution to BB's strategic objectives. DMV was awarded the Booster Award for the Dairy, Proteins, Oils & Fats category.

BB thinks there is potential for extra business between itself and DMV, but DMV has to understand its needs, understand the strategy and deliver the objectives that the strategy aims to achieve. For example BB would like to see some innovation in the supply chain that would save money. But when this information is given to DMV through the procurement person it is hard to know what they mean by innovation. DMV needs more insight into what BB needs, wants and what its current situation is. One of the objectives of the DMV key account team for BB is to extend the diamond contact structure with BB. This way, they will gain more customer insight, learn about the needs and strategy of BB and be better able to provide the necessary products and services.

Sometimes the relationship falls back to common price negotiations, which undermines the partnership. There are times when there are talks about strategy and mission, but when the annual contract comes along its focus is on price. BB has a company culture where there is prestige in having purchasing skills. On the other hand, BB managers complain that DMV is not always as transparent as they want them to be. They feel if the two companies had more trust and openness with each other to work together on cost improvements, discussions on price would be more constructive than just being about claiming more of a margin. However, the BB purchaser feels that the relationship is moving in the right direction due to increased communications between the companies.

The CC Account—Interviews Conducted April 2004

The DMV–CC global relationship grew in line with CC's needs. When CC wanted to start streamlining its contracts, DMV had just started the KAM programme. Therefore the consolidation of the CC contracts was not forced upon DMV, they were ready for that request. The CC core key account team consists of the key account manager, the key account assistant, a market development manager, a supply chain manager, and an R&D manager. The objectives for starting the key account approach with CC were building a good relationship, gaining more knowledge about the company past the procurement stage, and, therefore, being able to anticipate CC's needs and requirements. Even though CC is not buying on a global basis yet, the fact that DMV can offer global services gives them a competitive edge. CC knows they will want to move to a more global approach in the future, and supplier capabilities are surely taken into account at this time.

(p.209) The KAM negotiates on all products that CC buys from DMV in Europe; coordinates the price in the Americas and the Far East; and makes sure there is one single strategy for working with CC. The latter is not very advanced in global procurement yet, and the negotiations in the Americas and the Far East are being done by the relevant geographical DMV sales people. For this, the KAM is in close contact with them. For existing business, after the KAM has set the contract, the day-to-day business of executing the contract goes back to the customer service personnel or the area sales managers for the relevant area. For new business the KAM is the first point of contact for the CC development team. They will bring in DMV experts to support them in this.

The KAM would like to see the customer service role dedicated to a key account. At this time several different customer service people work with CC, according to the geographical location. Having dedicated customer service people would improve the flow of information.

Both companies are very important to each other. They need to work together in the supply chain, as continuity is important to them both. Both parties realize that the way forward in a supply chain is openness. The more the two companies work together, the more tied up they will become and the harder it will become for CC to change supplier. An example of tying up the two companies is the E4US supply chain project that CC has been running for the past few years. DMV has been actively implementing E4US and has it running in four countries now. As the main competitors are not geared up for E4US yet, this binds CC even more closely to DMV.

CC is investing heavily in DMV as a supplier. The TPM (Total Productive Maintenance) programme that CC is working with worldwide is currently being implemented at DMV. The latter has acquired a new operations manager who previously worked for CC and has experience with TPM. CC also has an internal TPM consultant that helps DMV in the implementation. By implementing TPM, it is the objective that DMV products will become more economical, from which CC benefits. Some DMV personnel see this as CC taking over their factory and trying to squeeze them out of more margin. However, by implementing TPM the cost for all products will go down, not just for the products sold to CC. In a way this is a win–win situation.

The main concern in developing the global relationship to its full potential is the level of trust between the two companies. Especially where new innovations are involved. It is important to ensure that this does not escalate into a block on communication at other levels between the companies.

The main CC contact is very pleased with the current DMV KAM, as he perceives her to have a very accurate view both of CC's needs and requirements, and of DMV's capabilities in these. He says: ‘If I want to know something about CC I call the KAM at DMV. That saves me calling all my colleagues around (p.210) the world’. Furthermore, he is impressed by the level of global coordination and communication at DMV. Points of improvement that he mentions are a lack of entrepreneurial activities at DMV, and the legal barriers with new innovations.

Royal Dutch Shell (as of 2004)

Introduction to the Company

Royal Dutch Shell is a global group of energy and petrochemical companies whose activities include transporting and trading oil and gas, marketing natural gas, producing and selling fuel for ships and planes, generating electricity, and providing energy efficiency advice. The Shell companies are engaged in exploration and production, gas & power, oil products, chemicals and renewables as well as other activities, in over 145 countries and territories around the world.

History of Customer Management

The global customer account management (GCAM) programme started in 1999. All global accounts were part of the Shell unit Oil Products (OP). Shell has a standard regional approach, (EU/US/Latin America/Asia) with regional (zonal) account teams, and global account teams for the customers selected to be global accounts. At the start there were five business groups for the global accounts; Automotive Manufacturing, Gas and Power (e.g., ABB, Siemens), Automotive Components (Lubricants, e.g. Bosch), Food, and Mining. During the set up, 12 customer groups were determined as global accounts, based on criteria such as size, importance, impact on business and regional spread. Over the years more global accounts were added—often by their own request— and some accounts were taken out of the programme, as they no longer qualified. In 2004 there were approximately 35 accounts in the global accounts programme.

At the start of 2004, Shell made some organizational changes in OP, which influenced the position of the global accounts. In the new situation there were two streams of business: fuel (retail) and lubricants. Lubricants consisted of consumer lubricants and industry lubricants. The global accounts are spread across the different business streams. For example the automotive accounts are part of consumer lubricants while the food accounts are part of industry lubricants.

(p.211) Objectives and Importance of Global Selling

There used to be a relatively low percentage of business with the major customers. Shell saw itself as the global market leader in lubricants, which showed in the amount of business it had from large companies. Shell noticed companies beginning to purchase on a global basis and in response formed the global team. It looked at its biggest customers and asked the question, ‘who is poised to start purchasing globally?’

Three levels of key account management (KAM) were determined:

  • real international accounts;

  • regional key accounts;

  • national key accounts.

The leverage of KAM should be that Shell grows into the opportunities the key accounts provide. They would appoint local people to a certain sector to help in zonal and global accounts. Shell would identify potential accounts and determine how many sites they have in a certain country, and how many Shell FTE's there should be for that country.

Design of Global Customer Management

Each global account has an international key account manager (IKAM) who reports to the respective business manager. An IKAM is supposed to stay in his or her position with a customer for at least five years. The IKAMs have a team of local key account managers (LKAM) who are responsible for the customer in a certain country or region. The number and location of the LKAMs depends on the amount of business in the various locations. In some cases the LKAM has only one customer to attend to, but often he or she is responsible for multiple customers in a certain region. There are similar global account programmes across the different business groups with some differences. In the consumer lubricants group the LKAM reports directly to the IKAM, based on the majority of business, but will have a dotted line to the local commercial manager and Shell organization, as he or she is dependent on local marketing, local supply chain, etc. The LKAM's salary is paid for by the global account organization, as are all their expenses. In most of the other business groups, the LKAMs are reporting into their local line manager and have a dotted line to the IKAM. In these groups the salaries for the LKAMs are paid for by the local organization.

As the countries are P&L responsible, all the Shell local operating units are in charge of their own products and margins and they have the final say in pricing. All margins stay in the local country, even in the case of consumer lubricants where the wages of the local account managers on global accounts is paid for (p.212) by the global accounts organization. The GAMs are remunerated on the total global business and the local account managers on their part of it.

In the old situation there was no alignment on scorecard targets. The country managers would have different priorities from the global account organization, and therefore would not always be willing to lend the support needed for good key account management. Now, there is clear commitment from the cluster business management including clear alignment of targets and tactical actions. All targets of people involved with global accounts are in line with the global targets. The new organization is a global one, with a global scorecard which cascades down into the organization. The template is the same for the IKAM or the LKAM and the targets are drilled down.

Customization for the Global Accounts

The GCAM organization is the frontline to the customer, and deals with all the different elements the customer seeks from Shell. The customer value propositions (CVP) and, therefore, the elements that need to be offered are different for each industry, and sometimes even for each customer. For example, for the aviation industry risk management is very important, whereas the marine industry requires more time availability. In the automotive industry there are often CVP elements tailored to each customer as each company wants to improve their competitive advantage. The CVP is the perfect way to customize the accounts. This way the account knows its needs are understood by the IKAM and LKAMs.

The IKAM and Account Team

The global account manager operates as an independent entity. Many of the IKAMs work from a home office, and are not directly involved in local operations. The account team does not take a fixed form for all the accounts, as it depends on the business and potential with a specific customer in a particular country. The LKAMs often work for more than one account. The IKAM does not have influence on who is appointed LKAM for a specific account, and he or she often has to negotiate on the amount of manpower in the different countries. This way it is hard to make a cohesive team, as you need the cooperation of the country managers to get people involved, and they will normally work on the things they are paid for (i.e., on local targets—not necessarily with the global account). The recent organization changes and alignment of goals have helped to improve this.

(p.213) Tools

As the global account organization is fairly new, Shell is still looking for the best way to handle internal communications. A first trial with teleconferencing took place, but with 50 people participating, it ended up with one person doing most of the talking. A better communication tool is a regional meeting, which takes place frequently. During these meetings everyone working with global accounts in the region is present, as are all the IKAMs. This way there is one face-to-face meeting between the IKAM and the LKAMs on a regional basis once a year. For regular information, a monthly ‘highlights’ document is produced with input from all the IKAMs. Some of the accounts also have an account specific newsletter.

Another tool that is being developed is a website for the global account management group. This website will hold all the relevant information needed by anyone involved with global accounts, such as: vision and goals, people directory, news and recommended training. The different global accounts will have their own tab in the website, with account specific information like the CVP and the account plans. These sites are not to be used for upstream information, and only the IKAM's are able to change the content of the site. For communication of results a management information system is in use, but not all countries have access to this. Business analysts will create monthly reports that take 85 percent of its input based on the MIS, and the rest combined manually. These reports help managers see at the click of a mouse what the current business status is. One of the tools that most IKAMs rate as very useful is the key account plan template. These templates cover everything about an account and are drilled down through the account team. This helps making account plans easy and coherent for everybody involved.

Apart from the general global account tools, each IKAM decides on the day-to-day communication tools that are most suitable for the account.

Company Influences

During the start of the programme many conflicts were seen, mainly on the local level. Over the last five years things have settled down, although the system structure occasionally causes friction between local and global interests. The aligning of goals will aid this, and in the business group, Automotive, where the LKAMs report directly to the IKAMs it is less likely to occur. When Shell works on joint ventures, conflicts of interests will very likely always exist.

There is currently no formalized executive sponsorship for the global account organization, although the perception is that the executive level is supportive. As the new organization is being rebuilt some IKAMs have expressed the hope (p.214) that some form of executive support will be formally set up. This would give the global accounts more power to climb the first barriers in business, open up initiatives and create more options to speak to the global account companies on a strategic level.

Performance

It is hard to tell how much revenue comes from global accounts, as tax is included in the revenue records and can differ a lot over regions. However, most of the IKAMs can point out parts of a business that Shell received as a direct result of the global account structure. Sharing best practices and being able to duplicate projects from one country to another are good ways of enhancing the business.

The P&L responsibility is at the country level and the benefits of the business with the global account will therefore go to the local organization. This helps the country managers see the benefit of working with global account companies.

The Future

As the new organization for oil products has just been implemented, there will be some minor changes in the near future to help things run more smoothly. No major changes to the global account organization are foreseen in the near future.

The Wärtsilä Account

Wärtsilä started as a global account for Shell in 2001. The objectives were to grow the business as much as possible but also to become Wärtsilä's number one supplier, replacing Mobil Oil.

Wärtsilä is involved in power, marine business and the after-sales service market. Shell has been mainly dealing with power and Wärtsilä has a similar global organization to Shell, but only in around 50 countries. Wärtsilä has a matrix organization with geographic- and business-defined areas. In terms of sales, when one geographical area is selling a project, it is important for Shell to know what they are selling, so that they know which products offer. All projects are implemented by a project team that is based in Waasa (Finland). The service part of Wärtsilä also has a project organization doing upgrades and they work through the local operating units in a similar way to Shell.

(p.215) A significant part of Shell's customer value proposition (CVP) for Wärtsilä is that Shell is investing in their power plants. This way Wärtsilä has an investor when entering into new market areas. The business idea behind this CVP is that Shell invests a little in the power plant, and at the same time secures the fuel and the lube oil agreement for that power plant and for the end consumer of the energy.

Next to approximately 30 local account managers there are some R&D employees who are regarded as part of the global account team. This is a central group, based in Germany, which will develop new oils and are currently testing new products together with Wärtsilä. It is important to have these kinds of contacts, as they provide a deeper understanding of the customer needs.

Since the start of the program there has been a performance change in the account. Shell seems to have achieved a stronger position in the sharing and negotiating of projects. If a competitor is cheaper, Wärtsilä will offer Shell an opportunity to match the price to secure the deal. The CVP is probably one of the reasons that Wärtsilä gives Shell this option. Shell is not just a strategic supplier to Wärtsilä based on volume, they can also give them something that competitors cannot.

The Daimler Chrysler Account

Currently the Daimler Chrysler (DC) account has two IKAMs. One is in Europe—a German speaker focuses on Mercedes worldwide and on Hyundai. The other, in North America, focuses on Chrysler, Mitsubishi, Freightliner and Detroit Diesel worldwide, as well as Mercedes and Hyundai in North America. The two IKAMs keep each other informed and work together on issues that cover both accounts, but they otherwise operate as two individual accounts.

Next to the two IKAMS there are seven local account managers working for DC worldwide. The global account organization for automotives in total has seven IKAMs plus around 45 people that are part of the organization and report to the IKAMs. Depending on the requirements of the different countries, the DC account may have a 100 percent dedicated or a shared local account manager.

DC is not very globally coordinated, but it is trying to move in a direction of more globally coordinated buying. The platforms for the vehicles have all been separate, but currently a world engine plant in the US is being built that will start producing engines to fit Hyundai, Mitsubishi and Chrysler vehicles. Because it is moving more and more towards global integration, Shell has decided there should be a single global account manager for DC in the future. However, today that is not the case as DC is still fairly decentralized in its procurement. For example, the purchasing decisions for Mitsubishi Australia are made in Australia (p.216) and not in Japan (Mitsubishi's HQ). The only current exception is that DC has recently and, for the first time, made a coordinated fuel purchase, but only for certain countries. They say they will start buying factory oil on a global basis— but this will probably not be totally global, and only for the main branches of the company.

Since DC is so fragmented there is no main point of contact for Shell in the organization. Different divisions make different decisions and having a single contact in this situation would not automatically give them preferential treatment as a supplier. Every little piece of business needs to be won separately.

The expectations are that DC will increase its coordinated buying in the future. Its main objective would be price reduction, but Shell is not afraid of lower margins, as the increase in volume and decrease in selling costs will more than make up for this.

The Unilever Account

The relationship between Unilever and Shell really started becoming global when Shell had the opportunity to assist Unilever in the implementation of Total Productive Maintenance (TPM) in their factories. TPM is a culture-based, production floor approach, which builds an organization that aims to eliminate all losses, consequently realizing a zero-accident, zero-defect, zero-failure objective and improving the overall effectiveness of the production system. One part of TPM is autonomous maintenance, having the responsibility at the line to make sure that maintenance people have their hands free for specialist issues. This is where Shell comes in. Shell knows what is important for TPM and how to provide foolproof maintenance.

After having successfully assisted Unilever in TPM implementation at one of their Dutch factories, it seemed sensible to use this experience in other Unilever factories around the world, as Unilever is rolling out TPM in all parts of the company. Every new site that starts with the TPM implementation and is interested in using Shell will be visited by the IKAM and a local account manager. A presentation on how Shell can help the plant implement TPM will be given, ending with the question: ‘Do you want us to be your partner in this?’

Currently, Shell helps Unilever with TPM in 60 plants and this number is continually growing. This would be the time to look at gaining more leverage worldwide from this relationship, and to see if there are opportunities to set up global contracts. However, the Unilever lubricants spend is estimated at only 3–5 percent of the total maintenance budget. This means that buying lubricants on a global basis is not one of Unilever's priorities, and Shell has to win the Unilever business one factory at a time.

(p.217) The Unilever global account team consists of the IKAM and 40 LKAMs who often have more accounts than just Unilever. The LKAMs report to their local line manager, and have a dotted line to the IKAM. From the IKAM's point of view there is a sales side and a business development side of the account. The IKAM wants to improve the proposition with Unilever and achieve more organic growth. TPM is reaching a mature status and, therefore, Shell must look at all other developments within Unilever and how it can be of service in those. Both Shell and Unilever see this as a partnership where they can find synergy that gives them an edge over competitors.

The Bosch Account

Bosch and Shell have a long supply history. Good relations exist between the commercial and R&D departments of both companies. R&D is very important, as it provides the best entry to the customer and, therefore, should always be kept in the communications loop. The IKAM has regular meetings with R&D and keeps them in close contact. Bosch is very open, not blocking any information and keen to continue this partnership. In the past Shell focused on the automotive business of Bosch and not the other divisions. The global account organization has changed this and opened Shell's eyes to the business opportunities outside Germany. By coincidence, Shell's 12 key markets happen to be the same as Bosch's key markets. This overlap helps the global relationship. In this situation the Shell global account team for Bosch consists of the IKAM, an R&D focal point, the European sales manager, 25 LKAMs and sometimes other people supporting the account for specific projects.

There is a European supply contract that combines Germany, Switzerland and Austria. Currently Shell and Bosch are working on a global contract. For this situation having an IKAM is a big advantage, as it gives Bosch a single point of contact within Shell. It would be even better if the IKAM had the authority to negotiate on price for other countries. At this time the only way to get authorization is to get the operating units involved, which means involving 25 people to agree on a global contract. The IKAM is also responsible for incoming business. Local projects will go via the local channels, unless they have an international impact or central R&D issues. In these cases local management is not involved unless there are barriers which lead to them being needed.

Shift of production to China and Eastern Europe is a strong trend in the automotive industry. Bosch will also start to invest more in developing regions. It would be hard to grow from the current position without the global account structure. The global approach gives Shell a major competitive edge such as the R&D skills that can be used all over the world and relationships that are already in place.

(p.218) The performance of the account has gone up since the start of the global relationship. In some cases the IKAM knows more than Bosch itself. This gives him the power of knowledge so he can help Bosch with sharing information and sharing best practices from other countries. This way Shell is involved in projects at an early stage, which creates more global opportunities and a win–win situation for both Bosch and Shell.

Unilever (as of 2004)

Introduction to the Company

The Anglo-Dutch company Unilever produces and distributes a vast number of well known brands in the areas of nutrition, hygiene and personal care that are used by consumers all over the world. Unilever employs 234,000 people in approximately 100 countries and is divided into two global divisions: home and personal care and Unilever Bestfoods.

History of Customer Management

Historically, Unilever has grown to be a very multilocal company. However, while the company used to work with regional supply chains on regional brands, Unilever started to globalize their brands in the early and mid-1990s. This way, they would create stronger global brands for their end consumers. At that time, there was no need to expand globalization for the benefit of the Unilever customers: the retailing companies. The diverging force was language. The operators spoke their local language, and the customer development was very much local for local. Trade term structures were also made on the local level, as this was historically grown. The customer development growth process seemed to be second-class to marketing.

In the second half of the 1990s, a number of customers, led by the French Carrefour, began to organize themselves internationally, first regionally then globally. More and more companies started to set up global buying offices. Unilever was not prepared for that situation, as they were still operating with a local structure: with fiercely independent local companies with a local P&L. Although Unilever had seen the globalization trend, the speed with which the retailers globalized their business took them by surprise. In February 1996 a first meeting of country heads covered the subject of creating a global account management programme for the big customers. The point was raised that Unilever needed to find a product to work on globally with Carrefour, or it (p.219) would lose out, but there was major resistance against global coordination from the country heads, who had all the autonomy they wanted to work with these customers. However, reality caught up with them quickly, and soon all the relevant Unilever managers saw the necessity for a global coordination programme. Initially, Unilever started to make some ad hoc agreements for the French retailers, with conditions attached as a fig leaf. But as the globalization of the big retailers continued, Unilever soon saw they needed a more structured approach for global account management.

Objectives and Priorities in Global Selling

Without doubt, the most important objective to start the global account management programme was to keep up with the customer. As the customer is moving to a more globally coordinated operation, they will demand more global deals and service. They have a specific global structure in place and want to work closely with their most important suppliers. Being a supplier the size of Unilever, there is no choice than to cooperate on this. Besides the fact that these are big companies whose business a company like Unilever can't afford to lose, their impact on the markets they operate in goes beyond their market share alone. As these companies often are market leaders, having your products on their shelves is an absolute necessity to be accepted as a leading brand in a specific market. Since the mid-1990s the retail market has seen much consolidation. As it is expected that this trend will continue, working with these ever-growing retailers will help Unilever to gain autonomous growth.

Designing Global Customer Management

In 1999, Unilever decided there were five customers that they should see as strategic corporate customers, and they appointed one person as vice president to globally coordinate each of them. Two of these customers, Promodes and Carrefour, merged in the same year. One customer, Metro, turned out to be less globally coordinated than expected, and was dropped from the selection, while another customer, Tesco, was added. Initially this was all there was to the global account management organization: five mid-level management people, without any systems or processes. The actions taken per account were completely different. At the end of 1999 a new person was appointed to the position of senior vice president (SVP) global customer development, which later evolved into international customer development. This was the start of the implementation of a more structured organization for global account management.

(p.220) The SVP worked with a network of managers in different countries who would get together once a year. But as the turnover of people was very high, the SVP role felt like being a general without an army. He reported to the foods director on the Unilever board, at that time Anthony Burgmans, who was very supportive of global account management. This executive support was very important in gaining support from the rest of the company. In 2000 the programme was rolled out for the food, and home and personal divisions. The SVP was responsible for customer development within both divisions but continued to report into food. At this time, the global account management programme is still evolving. Unilever is working toward managing the large international customers like they manage the main international brands. They will have both country P&Ls and a global P&L for the customer. The reporting is still local at this time, but with a global P&L the reporting might shift over time.

There will be a more central organization implemented that will co-appoint the people working on the teams managing the accounts. These teams should be more dedicated than they are at the moment. This central organization needs to be more embedded in the total Unilever organization. An option would be to let the business group Europe take responsibility for the Carrefour account on behalf of all the other business groups, the US business group for the Wal-Mart account, etc. Having one face for the customer is very important.

Unilever is at a turning point in global account management. Up to now they have been very defensive, which meant that Unilever's growth trailed behind that of their customers, so holding them back. Now Unilever has began to work on initiatives to really work together with the global customers and so realize more growth together. Unilever needs to work on developing the perception that they are a global company. Being able to offer global trade terms is a big part of this.

Customization

Within the current Unilever global account management programme there is a very high level of customization. In the first place this is the case because there is not that much central coordination that forces the account teams to take a rigid approach, but it is also because Unilever has the luxury to customize their approach for each global account, as there are only four of them. These account companies have different areas they focus on in their globalization, and therefore it is good to be able to give them a customized approach.

Wal-Mart is looking to roll out its operating principle around the world. They asked Unilever to do this for them, and to help them open up new territories. At this time they are a predominantly US company, with a few international operations.

(p.221) Carrefour is focusing on global agreements. This met with a lot of resistance in the beginning, but Unilever now realizes this is the way most global customers are going. At this time, Carrefour is their only truly international customer.

Like Carrefour, Ahold is trying to implement more global agreements, but doesn't seem to have the ability to do so yet. This relationship is still very much at the discussions stage.

Tesco, the last company to be added to the list of Unilever global customers, is still very much a UK company. However, as they have started to expand overseas, they are looking for support from their big suppliers, and could become a very interesting global customer in the future.

Tools

The main tools that the VPs have to manage their accounts are information systems. Although the basic Unilever metric system is not specifically made to track global data, the majority of the necessary business information is present. Furthermore most account teams work with customer specific intranet pages, where the implementation of international agreements can be checked. No tools are present to use for global reporting. Information and reporting tools would be an important part of the improvements Unilever is trying to make on the global account management programme.

Company Influences

There is good executive support for global account management. The Unilever chairman meets once a year with the chairmen of top customers. However, due to the current structure of the global account management programme, discussions at the top level cannot have a direct impact on the working of the local parts of the company. With the local companies still having autonomy, it is not possible to just force decisions upon them. This local autonomy is the greatest barrier to doing close global business with the customers. While these customers can be huge in total, they might only have a small percentage market share in a specific country, and therefore the local manager is not always willing to give them better trade terms than their important local customers. The VPs do need to convince the local managers to change this approach, as the total customer represents so much more than business in any one country. It is a tedious and lengthy process to coordinate, for example, getting 50 countries aligned each year to renew the Carrefour deal. Without the formal organization, (p.222) P&L responsibility and reliable data in place, the position of VP global account is one requiring much ongoing coordinating and extinguishing of fires.

Performance

At this time performance is being measured by the standard Unilever systems, but they do not always give satisfactory results. Most of the VP global accounts have set up their own parallel process to collect the necessary information for managing the global account.

There are no real performance improvements that can be contributed to the global account management programme, but the VPs agree that not having global coordination in place will have cost them business in the last few years, and will cost them more in the years to come. Also, global coordination ensures that the global customers get Unilever support in countries where they only have a small market share at this time. The business that Unilever has with the global customers in these countries is not significant to the company today, but a global agreement will ensure this business grows as the customer expands their business there.

The Future

The Unilever GAM is at a turning point where a decision has to be made on whether it will have only a pedestrian, coordinating function or a more executive function. There are three main requirements that drive the global customers in their pursuit of global suppliers:

  1. 1. Operating principles: the customers want to be treated fairly wherever they operate.

  2. 2. They want to stop going from deal to deal in each operation, and want more joint business planning. At this time Unilever has fairly sophisticated joint planning systems with all of their global customers.

  3. 3. They are looking for suppliers who can match their capabilities, and they want to use suppliers who can help to upgrade their capabilities.

The global relations are currently gravitating to this; they are getting more professional, sophisticated and better informed. Unilever is also undergoing a culture change in their company. It is now more widely recognized that they can't ignore the global aspect. It is expected that consolidation in the retail industry will continue, and therefore Unilever needs to have their global capabilities up to speed, so they can profit from these changes together with their customers.

(p.223) Carrefour

Around the mid-1990s, Carrefour had only one word in its vocabulary: global. It wanted global suppliers, global brands, global contracts, etc. After initial resistance from the local companies, Unilever geared up to do global business with Carrefour. Carrefour is the second largest customer for Unilever. Conversely, Unilever is Carrefour's second largest supplier. Therefore, the efforts in global account management are more than justified. At this time, there is a business group in each division. Unilever works with Carrefour in roughly 55 companies, and has 100 managers working dedicatedly on the account worldwide. Between these 55 companies, they respond to eight different business groups. To coordinate the account in a structured way, three business groups are coordinated in Europe, and one each in Asia and Latin America. The five business group coordinators report to their own business groups, but they have a functional role in the Carrefour network that is managed by the vice president for Carrefour. The VP for Carrefour draws upon central resources, or resources that are locally accessible, often because they are in the region where a planned activity takes place. The global Carrefour account network consists of the VP of Carrefour, the five business group coordinators, 100 dedicated key account managers, the account directors and customer development directors in the main Unilever companies.

Between 90 and 95 percent of the business is still being done locally and is managed by the local resources. Most of the international project leaders also work together with the local companies. An important issue at this time is getting the resources to work on the global relationship. So the local companies need to become more willing to share resources to improve the total business with the account.

The biggest barriers to working with Carrefour in a globally coordinated way are linked to the Unilever organization. Because of the high level of local autonomy, there sometimes are very different ways of approaching a business issue in a country or at the regional level. These differences are present in both companies and business groups. It takes a lot of effort to coordinate this. Another barrier is the lack of a good information system specifically designed to work with global companies. The current standard systems measure performance in a way that is only relevant for internal Unilever reporting. Because of this lack, the VP for Carrefour has set up his own process that is customized for the Carrefour business. A Carrefour specific intranet has a scorecard on which the implementation of the international agreements can be tracked.

Better information systems, both for Unilever and Carrefour, and more dedicated functional roles in the Unilever organization would make managing Carrefour as a global account easier and more effective.

(p.224) Wal-Mart

The global account management for Wal-Mart really started in 1999. Before that time Unilever did not know how much business they had with Wal-Mart on a global basis. From the moment Wal-Mart was selected as a global customer, the global account organization has evolved from having separate business groups to having a unified approach towards Wal-Mart in 2002. Before that time, Wal-Mart had a global organization, but with the different Unilever companies all handling the account in their own way there were problems. As Wal-Mart represents 8–10 percent of the Unilever business, it was decided to manage them in a more coordinated way.

The vice president for Wal-Mart manages Unilever's global business with Wal-Mart for all the different Unilever business groups. In each country where Unilever and Wal-Mart work together a Wal-Mart account team is set up. Those people are account managers dedicated to a particular part of the business. Typically, there is a team leader who runs the team and who works closely together with the VP. This team leader reports directly to the local business. The VP does not have control of the local P&L or personnel working with Wal-Mart. This structure assures that Unilever is being strategically consistent with Wal-Mart globally, and uses the same operating guideline within the different countries. In total, Unilever has 200 people working with the Wal-Mart account, some of whom are part-time. Five of these people report to the VP for Wal-Mart. They are responsible for different regions, and work with the staff in the local companies.

A set of communication tools enables the VP to manage these people worldwide. In global meetings about 50 people, mainly account personnel, work together with Wal-Mart to set foundation objectives for the following year. Consistent strategies, objectives and operation guidelines are used and sent out to all involved personnel. A global website enables people to get the latest information and statistics. Wal-Mart uses a system called Retail-Link that is the second largest database in the world. Wal-Mart allows Unilever to use Retail-Link for free, which is an enormous source of information. Unilever has a few people who are very skilled in using Retail-Link. There is a specific person responsible for all the number work with Wal-Mart, and this is working very well. This information is valuable for future strategic choices with Wal-Mart, but you need someone to work with the information. If the VP had to do this himself it wouldn't happen due to other more urgent demands on his time.

At the moment the VP for Wal-Mart does not have much influence on who is working on the account. The people in sales in particular countries are responsible for that. They will consult him, but he is not directly responsible. He does not have direct influence on performance rating, but if someone is doing a bad job, he lets the people in the country know.

(p.225) The main driver to working in this way with Wal-Mart was the demand of the customer. As Wal-Mart wants to work very closely with their top 50 suppliers, the suppliers need to have a structure in place that matches theirs. If a supplier is not focused on the Wal-Mart business globally, they will fall behind other leading suppliers, as Wal-Mart is just too important to everybody's business. Wal-Mart is very focused on relationships. The companies that are able to work closely with them are the ones that will win over time. Wal-Mart is set to continue to grow, and suppliers need to be properly aligned with it to benefit from this growth.

There is sometimes some resistance from the local Unilever companies. Not all activities that take place on a global basis are as interesting to all of the local companies. If the local company doesn't want to cooperate, this can have an impact on the total business with Wal-Mart. However, as the total Wal-Mart business often is bigger than the business in an individual country, it is not so difficult to show the local companies why cooperation is important. Executive support is also an important tool in overcoming resistance. The chairman of Unilever US has ownership of the Wal-Mart account. He supports the global initiative and pays the salaries of the people who are not paid for by any one country's business.

Ideally, the Wal-Mart account should have a senior manager, living close to the customer in Arkansas, who should be responsible for developing the relationship. This person should be responsible for the total Wal-Mart P&L, and would make sure Unilever has the right interface from the supply chain perspective and the right interface with the top level people in Wal-Mart. This way Unilever could develop more leverage from it's size and gain efficiencies.

Xerox (as of 2004)

Introduction to the Company

Xerox's core business is document management. The $15.7 billion company provides technology, products and services to businesses to help them find better ways to work with their complete document stream, driving down document costs and streamlining document intensive business processes, hence making organizations more efficient and effective while delivering measurable savings on what is often an unidentified document cost. Their division Xerox Global Services is a global market leader in providing document outsourcing, communication services and business process services. Around the world, Xerox has approximately 60,000 employees. More than half are in the US, where the headquarters are based. The global customer management organization (p.226) that Xerox has developed is divided over the different major markets. This case study focuses on the European side of the organization which is part of Xerox Global Services Europe.

History of Customer Management

Xerox has recognized the importance of global customer management for the last few decades. In 1986 a pilot global account management project was started with six customers, which then grew steadily over the subsequent 15 years. During these years the significance of global customer management to the company became embedded in the company culture. However, the global customer management programme manifested itself more as a system of coordination than as an actual organization. The programme was mainly based on the sharing of information between the different employees working with a certain customer.

As Xerox was aware of the new customer requirements that were the result of the increasing globalization, a new global customer management organization was developed, which gave Xerox credibility as a global supplier. The implementation of this new organization started in 2001. The ‘Xerox Global Account Operations’ programme offered an integrated and coordinated global account strategy through virtual teams across the world.

Objectives and Importance of Global Selling

The globalization of markets brought a strong demand from customers for a more global approach to account management. Global management and support are becoming a ‘mandatory’ customer requirement. Xerox realized that global knowledge sharing is a critical success factor and decided to invest a substantial amount of money in people, processes and tools to build the new global customer management organization. For this new organization to succeed they needed to move away from a product approach towards a partnership approach, and manage the relationship and not just the transaction, especially for value-added customers. Customers want a coordinated approach from their key suppliers, including globally compatible systems and global standards. The capability to offer global services gives Xerox a competitive advantage. When Xerox is bidding for national business it will encounter at least 10 other large and small competitors, while in global bids there are very few truly global players. This means the chance of winning the business is much higher in a global situation. A global bid will probably provide lower margins, as the customer (p.227) tries to use the global volume as leverage, but a global bid also has positive side-effects such as potentially higher volumes, economies of scale and lower selling costs.

Design of Global Customer Management

The Xerox organization is divided into the North America Solutions Group, the European Solutions Group, Fuji-Xerox (Asia Pacific) and DMO (direct markets, rest of the world). The US and Europe groups each have one person responsible for the global account operations.

In Europe, there is a general manager of global accounts operations (GAO). The companies managed within the global accounts operations are divided into tier 1 and tier 2 accounts. There are four different categories of account managers working with the accounts.

  • Global account general manager (GAGM): responsible for one tier 1 account, reports both to GAO and the country manager of the country he or she is operating from and where the tier 1 account is headquartered.

  • Global account manager (GAM): responsible for the managing of tier 2 accounts in the headquarters country, plus coordination on a wider basis; is possibly responsible for more than one account; reports to the country manager.

  • National Account Manager (NAM): responsible for top national accounts. This person might be part of a global account team (e.g., Siemens a T1 German Global Account in UK will have a NAM in the UK and, Siemens AG has a GAGM in Germany). They are based in the country and manage the largest country opportunities.

  • Global Business Manager (GBM): responsible for accounts which are big from a European perspective but where the account is not big enough in any single country to justify having a GAM. Each GBM is responsible for approximately five to ten accounts, which they manage on a European basis. They report to the GAO. They work with the tier 1 GAGM's outside of Europe to ensure Xerox delivers a common account strategy and maximizes the business opportunities in these accounts.

Xerox works with a sender/receiver concept in which the global account general manager (GAGM) works on the sending side, and the global business manager (GBM) works on the receiving side. The GBM manages the business of the sender global account assigned to him or her in the receiving country. The sender country is usually the country of the customer's HQ, where decisions and negotiations are taking place. The tier 1 accounts have a virtual team that (p.228) is made up of all the people working on the account on a worldwide basis. The GAO is also in control of pricing and contracting in each country. Usually the GAGM (sender) is located as close as possible to the key decision-maker. For example, a German account, Siemens, is very large in many countries. Xerox considers Siemens as a tier 1 customer. The GAGM is based in Germany. He reports to the GAO and the German general manager; he works in all other countries with a virtual team.

Xerox's global capabilities depend on the critical mass in a country. The customer might want the same service in Colombia, a small and remote country, as it has in central London. The business in Colombia will be very small and so the Xerox capabilities will not be the same as in London. The same will usually be true for the customer. Xerox has a pragmatic approach with the countries and has its own version of the 20/80 rule: ‘Usually if you concentrate on the top 20 countries you will solve more than 80 per cent of the customer problems’. The tiers depend on what you want to deliver. Tier 1 countries are those in which both the customer and Xerox are strong.

Xerox offers both regional and global agreements. The company operates with a degree of flexibility when implementing global agreements, as it needs to adapt to local reality. The umbrella agreement covers about 80 percent of key needs. Once Xerox has the agreement, it establishes the network of people who will talk to each other to get it implemented in all the relevant countries.

Similar systems to that of Europe are in place in the other Xerox groups. There is a network of organizations that are cooperating to ensure all customers get what they want.

The developing market organization is responsible for Latin America, Eastern Europe, Russia, etc. These are all fully owned except in some minor countries. Fuji–Xerox is a joint venture, but this makes no real difference. Sometimes the equipment is different, but that is because the requirements of the market are also different. So no extra coordination is necessary.

The Global Accounts

Xerox uses three initial criteria to determine if a company can become a global account:

  1. 1. The company has to be truly global: it needs to have operations in more than two regions and a substantial part of the business should be outside of its home market.

  2. 2. The size of the account, both in existing and potential business.

  3. 3. The customer needs to be organized in a global way, to have global procurement and be willing to collaborate with Xerox in a global manner.

(p.229) The initiative to set up a global relationship could come from either the customer or Xerox. Some customers actively seek global account management from Xerox and, equally, other companies that have never asked for global account management are asked to join the programme by Xerox, as they see the business opportunities for global account management for the account.

Global account management has to be mutually beneficial for the customer and for Xerox. Not every request for GAM by a customer is granted. Sometimes Xerox does not see the business profitability potential, in which case no effort for GAM with this customer will be made. Furthermore, Xerox will drop accounts from the programme if they no longer comply with the criteria. At the implementation of the global account organization, Xerox has selected a limited number of accounts, which has gone down from 60 to 15 tier 1 global accounts, as they only wanted companies in the global account programme that had a true appetite for global business.

Naturally, there is variation across clients. Size and customer requirements make each account unique. Also the account team and the difference in business opportunities can be very marked. The account teams are fairly customized, yet business driven.

The GAGM and the Account Team

A good GAGM needs to be capable of internal selling. He or she should be able to put a business case together and understand the company, the culture and industry he or she is working with. The GAGM needs to understand his or her own company's political map, the customer's strategic objectives, his or her company's solutions and how they work towards the customer's strategy. There needs to be a defined period of tenure in the role of GAGM. The position should have a term of least three years and maximum six years. You need a fresh view after this time.

The GAGM is also the facilitator for all account issues, and owns the account strategy. This strategy is outlined in cooperation with the core team members. This means the GAGM will also use the input of national account managers who will actually be implementing the account strategy. This way they ensure adoption on the local level.

Paralleling the business with the global account, a set of dedicated people around the world will be part of the global account team. These people will report locally, but often with a dotted line to the GAGM. The way the GAGM works with these people depends on the requirements of the account.

One of the key challenges of the GAGM is to influence sales activity without direct authority; managing resources and getting target alignment are key areas of focus to maximize success.

(p.230) Tools

For virtual networks like the ones that the GAO works with, communication is an important tool. There is a governance process that explains to the GAGMs, GBMs and GAMs what is needed from them in terms of communication. Examples of this process are:

  • a monthly management letter setting out the business outlook, digest, key projects, etc;

  • a monthly global community conference call;

  • a quarterly meeting with about 35 of the global managers in Europe to share best practices;

  • global account strategy planning—each GAGM has to make an annual account plan, which is reviewed by the GAO every quarter, and all revenue streams are measured;

  • specific management objectives for each GAGM.

The main tool for sharing information on the accounts is a Xerox web-based repository called ‘Docushare’. Each GAGM can set up a Docushare group with web pages in their own setup. The pages will include information such as price lists, contract information, who's who, presentations, current projects, success stories and a chat room. The GAGM can give team members' access to the Docushare group in either read only, or read and write status. This is a reference portal for the community and a good way to collect information in a single location. There is also a system that gives global focus information, specifically tailored for executive use.

Besides these repositories for internal use, Xerox is working on developing similar information portals specifically accessible for certain customers. These web-based portals are customized for the account and include information such as the current contracts and which account managers are responsible for the account in each country. Ordering and billing can also be done on this website. A pilot project is currently running with five customer portals.

The ‘global account reporting system’ helps to get an overview of the global business. This system is set up in all country systems and keeps track of revenue and machine population in more than 5045 countries around the world. An automatic tool, ‘Salestracker’, shows the selling figures and places in the business pipeline. A central database gives the total outlook. It is a complex system, but gives a good idea about the total global sales to an account as well as the billed revenue.

Xerox also uses a Siebel electronic account planning tool for the global account sales process. This is where all account information relating to active (p.231) selling cycles is maintained. Every year they will look through all opportunities in the major geographical areas, based on the NAMs annual plans.

Company Influences

Global business is complicated. Country strategies will collide with global strategies and people tend to do what they are paid for and follow the solid reporting line. Typical barriers that Xerox struggles with are the following:

  • Xerox has been organized by geography and product line, and still is today. In many countries there is more of a product view than an account view. GAO has been working to change this. Now each operating company should have a number of account managers to work with top national accounts and global accounts. The critical mass in a country will determine the number of people working on the global accounts and the large national accounts.

  • Part of the Xerox business goes through other partners. Most of these partners are national, some of them pan-European. To get a complete view of the market, the cooperation and communication with partners needs to be particularly good. Xerox also tries to find ways to leverage the partnership.

  • Country managers can be a barrier when the geographic view is too strong. As the sending country pays for the GAGM, local management tends to push him or her to concentrate on the domestic business. The GAGM is compensated for the worldwide sales to his or her account, but the country manager is not. This barrier is more psychological than the others.

GAO tries to ensure a good balance between the efforts for domestic business and the worldwide business. A good country manager will be supportive of what is good for the company and because it is beneficial to have a GAGM in their country, they are mostly fairly cooperative. GAO also tries to give people enough praise for good work on the global level, and to share the reasons why the global account is important.

Xerox has a focused executive programme working in parallel to the global programme. There is a focus executive (FE) identified for each account on a global basis, and sometimes also on a regional basis. Executive engagement between the two organizations is facilitated. Most country general managers and other senior managers are FEs, but there are also three board members who have an account assigned to them as a FE. Every year the different regions have a contest for FE of the year.

(p.232) Performance

The general opinion within Xerox is that the implementation of the global account organization has beneficial effects on the general performance. Xerox has won a number of global deals just because the customers consider the global capabilities to be a competitive advantage. There are not many suppliers who can compete at this level. Besides Xerox, the global players are Hewlett-Packard (strong in value-added products) and Ricoh (strong in cheap commodities). Both their capabilities on GAM are better than average. Ricoh is probably not as strong as Hewlett-Packard or Xerox but it has a good retail network.

Besides having a higher success rate in bidding for global business, the current global accounts seem to have become more rewarding. An example account that was worth $500,000 a year became worth $15 million within three years. At this time, the global accounts in Europe—approximately 100 out of 100,000 customers—make up 15 percent of total business.

Are these accounts more profitable? The current systems do not allow Xerox to measure automatically the true profitability of a given account although they can measure that of a single deal. However, the lower number of competitors combined with the higher level of value-added service sales to these customers lead to the conclusion that the global accounts are more profitable.

The targets for the GAGMs are based on revenue and management objectives. They are split into two levels: the business in the home country and the business in the rest of the world. The local managers in the virtual team are remunerated for their local part of the business.

The Future

Continuous improvement is important for a dynamic organization. At this time Xerox is trying to achieve a good reporting system with alignment throughout the organization. This system should have a more customer-centric than geographical focus.

Educating customers is another aspect to focus on. Some companies do not know the value of global business and cannot see the bigger picture. Other customers see only the price. An expensive account organization like GAO is wasted on these kinds of account companies. They need to see what the mutual benefits of the global relationship are.

The Volkswagen Account

Xerox has been in business with Volkswagen (VW) for 35 years—the last four years being in the global account operations programme. The main goals for (p.233) this account are to win market share, to be their preferred solution provider and bring added value to the account. Xerox wants to support cost reduction with solutions and services, as that fits very well with both the VW and the Xerox visions.

VW is a logistics intensive company with one global quality standard that has zero-fault tolerance. It is sometimes hard for a company like Xerox to understand the needs of such a logistics giant, but that is exactly where the added value of a global relationship can be found.

Xerox needs to know what is going on at VW in order to respond in a way that will add value to the account. At the moment cost reduction is a hot issue at VW as there is a situation of overcapacity in the automotives industry. The culture of VW is that they ‘try to protect the jobs of their employees’, but they needed more flexibility and so have made the decision to move parts of the company to other countries. A lot of jobs are now moving to Eastern European countries. The GAGM for Xerox needs to know about business plans like these. He will plan how Xerox can help them in this global cost reduction with office equipment, systems and services, translation services and terminology finders, etc.

The global account team for VW consists of a virtual network of account managers in the different countries. The geography of these account managers will mirror the important areas for Xerox business with VW. The GAGM for VW tries to generate understanding for the customer with his virtual team. For global planning the national structure will be used. Within Xerox there are 68 people who work on the VW business and ideally should remain in the same position for at least four years. It is not good for the relationship if the account company sees a different contact person every year. There are also some connections made on a higher level, as executive support for these global accounts is important. The GAGM sees his own role partly as a transporter of information into both organizations. The other important part of his role is coordinating the account activity.

The procurement department within VW has a lot of power. The total VW procurement organization is three times the size of the whole of Xerox Europe. VW's procurement function is not always suitably open to possible opportunities. VW gives its purchases an ABC rating, with ‘A’ being the mission-critical purchases such as car parts. Xerox is a supplier of ‘C’ purchases, as its services are not directly related to VW's core business. This means it is hard for Xerox to show VW its true potential.

The GAGM is currently looking for a product opportunity that might be important to VW to give at least one Xerox purchase an ‘A’ rating, hoping that this status will speed up decisions within the very centralized VW procurement system.

The high level of know-how within VW can prove to be a barrier at times. Too much intelligence blocks progress in the company. VW is a complex (p.234) organization, and its IT motto seems to be ‘never touch a running system’. If it waits too long to implement changes, it might encounter problems in the future. There are always leaders and followers, but sometimes a bit of extra pressure is needed to get things going.

Because of global account coordination there have been significant performance improvements on the VW account. These improvements mainly lie in significant growth of the account due to early involvement in projects, better relationships with contacts in VW, more transparency and good coordination within the virtual global team.

The HSBC Account

Due to the fact that HSBC has grown by taking over smaller companies and that these companies had different account managers, Xerox's account management for HSBC has traditionally been very fragmented. As HSBC deserved the attention that a global account would get, the company became part of the global account organization. Nowadays there is a single GAGM responsible for the whole of the company, but there still needs to be occasional efforts in integration to include specific people who were initially managing companies that have been acquired by HSBC. The same is true for HSBC, which needs to standardize its working processes throughout the new companies it acquires in different countries. Xerox's services can play a role in this. When HSBC acquires a new company that needs to be integrated into the company, it will call the Xerox GAGM to organize them into a ‘look and feel’ that fits in with the rest of the company. This would not be possible if Xerox still had a fragmented account management approach towards HSBC.

The GAGM has an account team that consists of national account managers (NAM) in the major areas where Xerox has business with HSBC. As HSBC is very much a UK-centered company, the NAM in the UK is fully dedicated to this account. Other NAMs in other countries will normally be shared with other accounts. The NAM is important for the account as HSBC projects that have run in one country will often be rolled out to different countries, and therefore good communication between the GAGM and the NAMs is vital. The GAGM tries to have the core people in the account team under tight control. Ideally he would like them to be remunerated on a team basis, but at this time that is not the way Xerox works.

Besides the NAMs and other Xerox personnel around the world, there is a more complex layer of distributors. They are a lot more difficult to manage and get information from. For example, HSBC Malta is a large company, but since Xerox does little business in Malta, they are managed by a distributor there. Xerox could not get the distributor to go for the price they wanted with HSBC (p.235) and therefore they gave the distributor flexible discounting to make sure they could offer HSBC the price they wanted. However, this is a sensitive area and can be very complicated.

HSBC Purchasing has a very advanced communication system. One part of HSBC will be able to tell exactly what Xerox sells to the other parts of HSBC. Having an account with these kinds of global capabilities means Xerox has to make sure its communication is up to date. As the GAGM does not have an administrative assistant in his team, he has to enable and rely on good communication from the team members.

The new integrated way of managing the account is beneficial. The GAGM says that he gets positive feedback from HSBC. The relationship is moving from a ‘push’ to a ‘pull’ relationship.

The Siemens Account

Siemens is Xerox's number one customer in Europe and number eight customer worldwide. In Germany an important 35 percent of the total Xerox revenue comes from Siemens. This makes Siemens a very important customer for Xerox, and therefore it has been in the global account organization from the start.

Siemens's global strategy was one of the reasons why it chose Xerox as a supplier. It needed a supplier that could combine local operations and global management. Xerox is a worldwide player, and will therefore fit in the global purchasing strategy once the buying efforts for this category are fully combined.

Siemens' purchasing is getting stronger. They are already bundling their requirements for commodities, but are not yet coordinated enough to do the same for more complex purchases like the Xerox solutions business. There is a purchasing user council (PuC) that combines the purchasing of standard products and their efforts, which will grow over the next few years, so it is expected that eventually Siemens will want to buy all Xerox products and services on a global basis.

When they started the global relationship, Xerox mapped Siemens' requirements and divided them into two levels. Level 1 countries (Germany, China, US, UK, France) have the highest level of focus. Xerox employees from these countries involved with Siemens are part of a larger account community. The remaining countries are level 2 countries. Within these countries, key individuals with a coordination role hold the Siemens ‘linking pin’ function. The account network consists in total of about 100 people. Approximately 50 are within the level 1 countries and 50 within the level 2 countries.

There are country specific strategic plans for the five level 1 countries, as the situations for each country are very different. For the level 2 countries, (p.236) currently a pilot with generic web-based strategic planning is running. This should include a presentation and teleconference.

Siemens runs a very advanced supplier evaluation system in which its purchasing, logistics, quality and technology departments all over the world rate Xerox twice a year. Xerox will be showed the results of this evaluation and based on the results the two companies make an annual business goal agreement. The areas that need to be improved are listed, and together they set up a plan to improve the process, price and quality. They also try to calculate what this procedure will save the companies. There is an itemized action plan set up for a year and signed by management.

In the last four years business with Siemens has doubled, which has contributed to the global programme. Siemens wants a global interface, consistent systems, consistent products, consistent quality, a single level of global escalation and standard logistics. Xerox's global account organization is the perfect partner for that.

The ABB Account

ABB has 122,000 employees in over 100 countries and an annual revenue of $17 billion. During the last two years ABB has been working on drastic cost reduction. However for purchasing, their focus seems to be on the direct material purchases. As the indirect purchases are only about 5 percent of their total purchases there is less incentive to spend a lot of effort in combining purchases in this category. Therefore the business between Xerox and ABB is focused at the local level. The Xerox GAGM for ABB balances central executive level relationships with frequent visits to local businesses. Twenty key countries together generate 80 percent of the revenue for the ABB account and the GAGM tries to get around those countries as much as possible, every trip being used to visit the local customer. During these trips he focuses on sharing information and will tell the local customer what is happening on the global level. This will create goodwill and leads to receiving more information from their side. In this way the GAGM is a valuable source of information both to Xerox and ABB.

The total (virtual) account team is large. There are 300 people in 54 countries working with the ABB account. All report to their local line manager. All team members are connected through Docushare, in which they can find account planning, account strategy and other useful account documents.

In the UK a national account manager looks after ABB and four other customers. For specific projects a project account manager is appointed in order to obtain subject matter experience and skills. These are often arranged by the country managers, who know their own organization, their people and the (p.237) skills they have. The NAM will communicate specific aspects of the project within his own local team.

The main ABB contact says he likes the way Xerox handles the ABB account. For him Xerox is personified by the GAGM. He does not know how the account team is organized, but he knows the GAGM and that is all he needs to know. He appreciates the fact that the GAGM has a big network within both ABB and Xerox, and has enough power to make things happen for ABB.

ABB does not expect to start buying all office solutions on a global basis anytime soon. It is very much driven by local factors, such as employment and local costs—e.g., printing in the UK will give a different cost structure from printing in Poland. Some purchases on the hardware side are based on global prices, but on the services side it will take some more work.

Siemens (as of 2004)

This case study describes the situation of the Siemens Information and Communications Networks (ICN) group in early 2004. In October 2004, the company merged the Information and Communications Networks (ICN) group with the even larger Information and Communications Mobile (ICM) group into a new unit, Siemens Information and Communications. The previous heads of global procurement for ICN were asked to integrate the procurement function of ICM with that of ICN. After the merger, the total purchasing was about ₠C 11 billion. In June 2005, Siemens sold the loss-making mobile devices unit to a Taiwanese company, BenQ. The Information and Communications unit continues to lead the rest of the company in terms of its use of global procurement, although other units are expected to increase their level of global integration.

Introduction to the Company

Originally a German company, Siemens AG employed 430,000 people in more than 190 countries. Siemens provided products, services and solutions divided between the business segments of Automation and Control, Information and Communications, Lighting, Medical, Power, Transportation, and Financing and Real Estate. In these different business segments existed 15 operating groups. In this case study the management of global suppliers within Siemens will be discussed, with a focus on procurement within the Information and Communications Networks group.

(p.238) History of Supplier Management

In 2001 the purchasing units at the corporate level bought goods and services from more than 100 material fields (down to 77 by 2006). The global procurement organization started in 2001 when Siemens set the goal to create an innovative and dynamic structure that would be able to meet the new challenges of the globally networked market. Prior to the programme, every production location had its own strategy in purchasing, but the global procurement organization led to an effective pooling of sources. The ICN unit seized the opportunity created by the really terrible industry conditions due to downturn that began in 2001 when nearly every supplier was losing money.

Objectives and Importance of Global Purchasing

Achieving savings on procurement is an important objective for the Siemens global supplier management organization. However, financial improvements are not the only objective. By consolidating the supplier base, Siemens will be a more important customer for the suppliers that remain as preferred suppliers. Being in the top ten of customers for all the suppliers they work with gives Siemens the guarantee of high level support and service, as most suppliers care most about their biggest customers.

At this time, 50 percent of the total ₠C 3.5 billion purchased by Siemens' group, ICN, was with global suppliers. Group-based procurement optimizes procurement processes and structures within the group and with suppliers. An objective for this is that decisions are based on more than purchase price, but the whole of the value-added chain is taken into account. The cost of ownership is more important than the cost of purchase.

Design of Global Supplier Management

The central organization of the Siemens global procurement organization is the Global Procurement Board, which has representatives from all the different operating groups, selected regions and the procurement and logistics services. This wide range of representatives will ensure that both the cross-enterprise interests and the specific requirements will be taken into consideration. Also, having the purchasing heads as representatives in the Global Procurement Board ensures that decisions made have practical relevance, as well as making it easier to get decisions implemented in individual areas.

Every operating group, such as Siemens Communications, has a purchasing department which is responsible for the worldwide procurement of raw (p.239) materials as well as other materials and services for the respective group. The heads of the purchasing groups are represented in the global procurement board and are responsible for the worldwide implementation of decisions that are made, on the corporate level, in their respective groups.

Siemens Global Procurement uses pooling as its purchasing method. Some of the important pooling models are the Lead Buyers, the Purchasing Council, and Procurement Services:

  • The lead buyer was the first level of pooling. A lead buyer was based in one group or region, but for specific materials he or she would also handle the purchasing for other groups or regions.

  • The purchasing council (PuC) consisted of a representative of the global procurement office, and representatives from different groups or regions. The council has a more strategic role, concluding exclusive master agreements and negotiating terms and conditions. The PuC is a corporate institution and its decisions are binding for the entire company.

  • Procurement Services was responsible (until the early 2000s) for procuring the less strategic materials and services. It also covered more operational tasks such as order processing and logistics, while the Lead Buyer and the PuC dealt only with strategic purchasing.

Siemens has operated company-wide supplier relationship and evaluation programmes. A part of those was a corporate level programme for approximately 20 companies: ‘Siemens Strategic Suppliers’, the so-called S3. An S3 supplier needed to have contact at the corporate level. There was a relationship with a top Siemens executive who would ideally meet the S3 supplier twice a year. The two would discuss strategy, vision, targets and prerequisites. These meetings were not meant for the discussion of operational problems, but it was possible to address requirements at a board level so that the supplier was aware of Siemens' needs and demands. The current version of this programme is even more comprehensive and adds an intranet-based supplier evaluation system.

Every operating group has a number of material group managers (MGM) who are each responsible for the purchases for a particular product group, and the strategy for that group. Furthermore, in general, there is supplier management in the form of the supplier champion, often the MGM with the biggest volume of business with that supplier. The supplier champion will pool the activities for one particular supplier. Among his or her responsibilities are the material strategy, the supplier evaluation, business opportunities, and managing and developing the supplier.

The supplier champion is responsible for the total business with the supplier within the operating group, while the PuC representative is responsible for a (p.240) particular material. However, it is possible that the supplier champion is seated in the PuC and therefore has both functions. The driver for the PuC is the material; the driver for the supplier champion is the total volume.

Although Siemens purchasing is highly coordinated, there is a decentralized organization with several interfaces to the supplier. There is some pooling, but in a sensible way. There is a structured approach, centred over material segments. Siemens will pool at the corporate level for the things it is possible and sensible to pool, e.g., frame contracts are negotiated at the corporate level. But for many other things, pooling on a high level is not sensible and will only need a lot of specific extra agreements.

Customization

The selection criteria to become a key supplier are to have a high total volume of businesss and to be a strategic supplier to many divisions. A target agreement and a procurement plan will be made for each supplier. As every MGM works within a strategic material segment, all projects described in these plans should fit within the main strategy of the segment and Siemens as a whole.

For Siemens, to be a key supplier means being globally present, and not that the supplier must have a global strategy or global capabilities. Siemens' global communications are very good, allowing it to take advantage of differing prices in different markets.

There are big differences in material categories. For example, this global way of working works a lot better with technical goods like chips than with power supply. Therefore, if necessary, there is some sense of customization over the different suppliers, but the organizational structure stays the same.

Tools

One of the most important tools within Siemens' supplier management is the supplier evaluation. This is a cross functional activity that takes place at least once a year. In the supplier evaluation the focus is on cooperation (of which pricing is a key aspect), quality, logistics and technology. Each of those four areas carries an equal weight of 25 percent. From the supplier evaluation comes the supplier rating, with actions to improve and steer the supplier in the right direction. The whole evaluation runs on an intranet-based tool. Next to the supplier evaluation, another tool is the supplier status, which has a more long-term focus. In the supplier status, the supplier gets a classification that will have (p.241) consequences for its business. Target agreements can be made and controlled, and the supplier comparison factor comes from this.

The supplier comparison factor is used for all suppliers, and can mean a plus or minus based on the classification. This supplier comparison factor is used when comparing quotes. The results of the quote will be multiplied by the supplier comparison factor and, therefore, a more highly approved supplier will have a better chance of landing the contract than one that has a lower supplier comparison factor. The suppliers know that the SCF has a big influence. There are quarterly review meetings and there is an evaluation/controlling loop to optimize the performance of the supplier.

Usually there is a workshop with the supplier where the evaluation feedback is discussed, a target agreement made, areas of improvement identified and an action plan devised. There are also supplier awards in different areas. Although some suppliers do not like to hear the results of this exercise, in general it is seen as a very valuable way to improve the performance and the relationship, as the evaluations force small areas of discontent to surface.

Company Influences

Some aspects of company organization affect how well global procurement works. For example, the logistics are decentralized and often arranged locally. Hence, from a logistics point of view, there is a slight barrier. Another barrier is that sometimes the strategy used is from a general Siemens point of view, as opposed to an ICN point of view. There is not always a fit between the strategies of the different divisions, technology-wise. Also with the supplier evaluation, the performance over different divisions might not be homogenous. In this case it is hard to come up with corporate action items.

The cross-functional team does not always have similar targets. Sometimes it is easier to work with small flexible companies. Siemens needs a good mix in its supplier base such as some big global companies but also small logistically flexible companies. Sometimes it is necessary to convince the local Siemens people that this mix is necessary, and that the obvious solution for their location is not necessarily the overall best solution.

Siemens overcomes barriers by resolving them in the right place. The Global Procurement Board has been constructed to handle conflicts in an efficient manner. Most strategy conflicts can be resolved within the regular board meetings without many problems. The PuC is material driven over different divisions. They will address complex topics on a relevant level. This helps to overcome the differences between divisions.

(p.242) Performance

The Siemens global procurement system for ICN (and then Communications) has been highly successful when measured by the key criterion of cost reduction. For this division (or business area), the system has been able to deliver double digit price reductions year after year, which were necessary to counterbalance price erosion for communication equipment.

The Future

The current Siemens global procurement programme has been running for only a few years. Expectations are that Siemens will expand the area of global purchasing to more material fields where they see fit.

Company A as a Supplier

The relationship between Company A and Siemens started in the late 1990s. In the beginning, Siemens found Company A to be typical of many American suppliers in being rather inflexible with regard to their price lists. Siemens is a large company that has high expectations regarding contracts, payment terms, etc., and sometimes the relationship with Company A was a little disappointing. Around 2001, both parties came to an understanding. Company A understood what Siemens needed and wanted and there were new projects running, so as part of the project, Company A accepted the terms. An example was the creation, for the first time, of a Siemens AG worldwide contract with Company A. This contract is negotiated annually.

The most important line of contact between the two companies is between the supplier champion at Siemens and the global account manager at Company A. The role of the supplier champion is covering things that need to be addressed for every material field. When delivery terms are discussed, he will be the one talking to them. It is the same for every material field, so it makes sense to have one person. They use common sense to decide what should be negotiated or discussed on a material or global level within ICN. Whenever there are quarterly business reviews, he will contact all his colleagues to see what topics he needs to discuss. Then he prepares, collects and presents it to Company A and the Siemens management.

For every different group of materials that are being bought from Company A, there is a material group manager (MGM) who is responsible for supplier management, supplier evaluation, and contract and price negotiation. The MGM is (p.243) responsible for the purchasing of the particular material for all departments. In general, there is one global contract, which the MGM negotiates annually. The local companies buy within this contract. The local units send the forecast to the MGM who then negotiates and sends a pricelist back. They put it in the SAP system and order under those conditions. As the MGM for Telecoms buys approximately 90 percent of the Siemens total at Company A, he is also the supplier champion.

There is a controlling tool called Modias, which produces a monthly update for every location. It shows the volume that was bought, the supplier quantities, and then calculates the average prices from the previous year compared to this year in volume changes, and so on. For some locations this is already working but others it still needs to be implemented.

There is something similar, a volume report, on the measurement level that collects data from SAP. These tools are very important to the MGM. He needs them every month. At the moment this works for existing volumes and is being prepared for future products.

Company A is very important, as a supplier, to both Siemens and ICN. In some products they are a technical leader, but in volume they are also very important. Siemens is also a very important customer for Company A. Siemens has a relatively aggressive growth strategy and Company A wants to aim for increased market share, which is good for Siemens as improved market share produces better prices. About once a year the supplier champion has a meeting with the CEO of Company A who then travels to Germany to meet a representative from the ICN board. He does the same with all the other Siemens business units. A representative of Siemens-wide management on the purchasing level meets with Company A once a year. These high level contacts are very valuable in creating a good working relationship. Although these meetings will not look at every little detail, they can be used to help if there are problems between the companies that cannot be resolved at a local level.

Company B as a Supplier

Siemens spends about ₠C20 million annually on parts with Company B. Every Siemens group has a materials group manager who is responsible for cost and strategy. Furthermore, there is supplier management in the form of the supplier champion. As this is mostly the MGM with the biggest volume, this is the MGM for products from Company B. The supplier champion for Company B is incentivized on price, terms and conditions, and other factors. However, as with other vendors, the only way for the supplier champion to be a success is to have a good relationship with the supplier as well as internal colleagues. The (p.244) supplier champion has to cooperate with the cross-functional people and has to think of the wants and needs of the internal customer.

The acceptance of the Siemens way of working with external suppliers is very good. Company B's goal is to have maximum business with Siemens, which can be assured with an annual business of ₠C 20 million. The PuC does the price negotiations for Company B and the supplier management process is done within the division—in this case ICN.

Siemens considers that Company B was a very difficult supplier to start with. For example, early in the relationship, Company B was selling one item in Germany at ten times its price to Siemens in Florida. But this relationship has changed so much that in 2005 Company B received one of Siemens' supplier awards. Company B and Siemens are now strategic partners, but the dependency is not so high that the one cannot exist without the other. There is a good fit between the companies. They are both big global technology-driven companies with a large R&D force. The technological drive for both companies is an important part of the fit. This means the companies understand each other's drives.