Why risk mitigation should not be your strategy?

Move the supply chain to a more strategic role by using the momentum combined with a vision and having dedicated strategic activities

Disclaimer : Please note that the interview is based on the expert’s own experience and view and does not engage one of Siemens under any circumstances.

How can procurement use ‘rewards and penalties’ to influence suppliers?

For me it is important to get a clear picture, what is the driving force. In the triangle of performance, cost, and quality this lever may help you in one or another way. Nevertheless, in times with limited availability, resources or scarcity of products in the market the concept ‘rewards and penalties’ bare risks which need to be considered. ‘Rewards and penalties’ can be a winning concept if: – You create/ have standards to follow on a contractual basis. – You keep the promise and do not change direction. – You are dealing with limited motivation for internal optimization (performance, costs or quality). This can be considered a valid option when talking about implementing sustainability (carbon reduction) or diversity, as these fields will require dedicated commitment and investment.

What are the best strategies to better mitigate supply chain risk?

It all starts with transparency and creating a logical understanding of what is happening in the world. Being able to visualize which risks really lead to supply chain challenges that require a dedicated response, is a crucial element of risk mitigation. Panic does not help anyone! For me we have limited resources and limited levers available, so mitigation as the words says should not be your strategy, I believe companies need to spend more time in the evaluation of potential effects on the supply chain. Managing supplier risks, such as environmental and ethical concerns, will require companies to disclose relevant, key metrics and need not only be checked by 3rd sources but also connected to consequences in case of misleading information. All this will bring up the question, is just trying to mitigate the best way? As we have stated in our Supply Chain Vision we strive not for resilience, as continuously braise for impact, we focus on robustness to avoid the long-term collapse of the supply chain.

How has your company moved supply chain management towards a more strategic role?

With the momentum given the last years, driven by extreme events like a pandemic, political instabilities,… we can see a paradigm shift towards supply chain. We at Siemens used this momentum to start the transformation from a very tactical solution-based understanding to a more strategic mindset – not only doing things right but doing the right things. This started with the man in the mirror – we created based on the overall business strategy our supply chain vision which addresses the key trends and triggers from the market: – Robust vs. resilient – Dynamic world – Smart decision – Caring for customer and environment The vision led to a strategy for the supply chain focusing on regional empowerment and the interlinkage of our digital world. With this we now have the base to motivate and influence our cross-functions to create the best customer experience. By using the momentum combining with a vision and having dedicated strategic activities we moved supply chain to a more strategic role.

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Alexander Tschentscher carries today responsibilities for the supply chain of the future in the Siemens Industrial Business: Smart Infrastructure. As the Head of Supply Chain Excellence and in addition leading the Program Management Office Supply Chain Strategy, he is the mind and soul of the strategic direction in Supply Chain & Logistics.

In his former position in Siemens, Alexander Tschentscher was responsible for the Logistics as well as Procurement in the Siemens’ Industrial Business Smart Infrastructure Business Unit: Distribution Systems. Culture transformation and motivating the change as well as creating “something new” is a revolving pattern in his path with appointments in Management Consulting, Procurement & Commodity Management, Project Management as well as Logistics.

He holds a Diploma in Business Administration of the Ludwig-Maximilians-Universität in Munich, Germany.

Alexander Tschentscher is married, has 1 child and his home base in the region of Munich, Germany.