Executives at Siemens Mobile were certainly no different from everyone else as they succumbed to the high-tech mania of the late 1990s. “We thought the good times were going to last forever,” admits CFO Joe Kaeser with a rueful shake of the head. “We got crazy about rolling out new phones, and basically neglected demographics — there were just not enough people out there to buy them.”
But it was only after a less-than-festive Christmas season in 2000 that senior executives at Siemens Mobile, the largest of 15 divisions at its parent Siemens, the E84 billion German electronics and electrical engineering giant, realized they had a big problem on their hands. Not only were vast amounts of unsold handsets languishing on the shelves of warehouses, but sloppy accounts receivable processes had left the division with mountains of unpaid invoices. By the end of the second quarter of 2001, net cash tied up in inventory and receivables had risen to €2.32 billion, or the equivalent to 4.8 asset turns (net sales/net working capital) a year. “We were in a terrible asset situation, much worse than our peers,” says Kaeser, noting that the division had negative net cash from operating and investing activities of €621 million.
This was when Kaeser took his cue. Until April that year, he’d been chief controller under group CFO Heinz-Joachim Neubürger, after having proved himself a turnaround expert as CEO of Siemens Microelectronics, a €1 billion California-based business. Dispatched to the troubled Munich-based division in May, Kaeser unleashed a three-pronged assault on inventory, receivables, and payables under a program called Cash Plus.
Among its features: shifting responsibility for the order-to-cash process from finance to sales; shortening the duration of network-building projects in order to receive much earlier payments; improving forecast accuracy to 85 percent by working more closely with major customers such as Vodafone and Orange; using improved forecasting accuracy to negotiate longer accounts payable terms and conditions; and reducing net inventory levels through increased use of ‘No ID’ production — that is, building reserves of semi-assembled handsets that can be quickly completed upon receipt of an order. The overriding aim of all those measures: to cut net working capital in half by doubling asset turns within two years.
By April this year, net working capital was down 63 percent to €855 million, equivalent to 12.1 asset turns. But Kaeser is far from finished. Having trimmed days inventory outstanding (DIO) to 12 days by the beginning of this year from 38 days in October 2001 — comfortably surpassing his initial target of 15 days — he now wants to bring DIO down to eight days. Here, the Web is likely to hold the key.
In June the CFO set up a cross-functional working group to examine the feasibility of creating an electronic marketplace where all assets and orders are visible to not only suppliers, but also customers. In doing so he reckons he can wring more cash from the firm’s existing operations. “We’ve done it before, so we can do it again,” he vows.