465 Chapter 10 Management Control of Operations CASE 10-3 Siemens ELecTRIC MoToR WORKS Ten years ago our electric motor business was in rea ducc electric motors for other applications. At the end of World War II, the Bad Neustadt plant was the only Siemens factory in West Germany capable of producing electric motors. All the other Siemens production facil producer in the industry. Consequently, we decided to ities had been completely destroyed or seized by Eastern Bloc countries. After an aggressive rebuilding program Bad Neustadt emerged as the firm's primary producer of trouble. Low labor rates allowed the Eastern Bloc countries to sell standard motors at prices we were unable to match. We had become the high-cost change our strategy and become a specialty motor producer. Once we adopted our new strategy, we discovered that while our existing cost system was adequate for costing standard motors, it gave us inaccurate information when we used it to cosf specialty motors Karl-Hcinz Lottes Director of Business Operations. EM electric motors Through the 1970s, EMW produced about 200 different types of standard motors, a a total annual volume around 230,000 motors. Standard motors accounted for 80 percent of sales volumes-the remaining 20 percent were customized motors. The production process was characterized by relatively long runs of a single type of motor. Because identical motors were used by a wide range of customers, standard motors were inventoried and shipped as orders were received. The market for standard A/C motors was extremely competitive. The firm was under constant Siemens Corporation Headquartered in Munich. Siemens AG, a producer of electrical and electronic products, was one of the world's largest corporations. Revenues totaled 51 bi pressure to reduce costs so that it could price ag. lion deutsche marks in 1987, with roughly half this amount representing sales outside the Federal Republic of Germany. The Siemens organization was split into seven major groups and five corporate divisions. The largest group, Energy and Automation, accounted for 24 percent of total revenues. Low-wattage alternating current (A/C) motors were produced at the Electric Change in Strategy Motor Works (EMW). which was part of the Manufac- An extensive study revealed that EMW could become a turing Industries Dvon of the Energy and Automa- profitable producer of low-volume, customized A/C tion Group. High-wattage motors were produced at motors. To help implement this strategy, the Bad another facility sively and still make a profit. Despite a major expan sion and automation program begun in 1974, by the early 1980s EMW found it could not lower its costs sufficiently to offset the lower labor rates of its Eastern Bloc competitors Neustadt plant was enlarged and dedicated to the manu- facture of A/C motors with power ratings ranging from 0.06 to 18.5 kilowatts. These motors supported a num- ber of applications including automation engineering The Electric Motor Works Located in the small town of Bad Neustadt, the original Siemens EMW plant was buil in 1937 to manufacture refrigerator motors for Volkskuhlsch-raenke (people's This case was adapied fromthe Siemens A (9-191-006) and Siemens B refrigerators). Less than a vear later, Mr. Siemens halted oil rd Busin St Copyright by the r sident and Fellows of the production of refrigerator motors and began to pro- Harvard College. (9-189-090) cases written by Professors Robin Cooper and Karen Wruck