SIEMENS ELECTRIC MOTOR

WORKS
 SEMW-BRIEF INTRO

• SEMW belonged to Manufacturing and Industries Division of Energy and Automation Group
• Energy and Automation Group: One out of 5 corporate divisions of Siemen's corporation
• Energy and Automation Group: largest group accounting for 24% of total revenues of Corp.
• SEMW: Producer of low wattage AC electric motors, both standard and custom motors
• 1970’s: 80% sales through standard motors and remaining 20% through customized motors
• By early 1980s SEMW realized that competition is very high for standard motors and they will not be able
to match the price with eastern bloc companies.
• An extensive study revealed that low volume customized AC electric motors can be their game changer
• Requirement: Infrastructure to manufacture efficiently a large variety of motors in small production runs
 SEMW-TRADITIONAL COSTING SYSTEM

• Material and Labour costs directly assigned to the products

• Overhead costs divided into material related, production related and support related
• Material OH related to DM associated with the product, production OH: traced to 600 production centres
• Support cost: a % of DM+DL+MOH+POH
• After 2 years of strategy to focus on custom motors, traditional costing system seemed unable to capture the
difference between support overheads and change in product mix.
• In reality support cost was more dependent on no. of orders received and no. of components than above
• Most affected dept:
 SEMW-NEW COSTING SYSTEM & ITS EFFECT

• Costs related to order processing and that of special components were removed from support related cost
pool and assigned it to new cost pools
• A total of 9% of the total costs were transferred from support related cost and separately added as “order
processing cost” and special components cost
• This helped SEMW to come with a revised pricing system in which base motor cost was arrived by adding
DM,DLM,MOH,POH & portion of support OH.
• To this base motor cost, order processing cost and various overheads related to special components were
added to arrive the total cost of a motor.
• New costing system helped EMW to take informed decisions in accepting orders. In 1987, less than 50%
(by value) of total orders were only accepted.
• Hence revised costing system helped SEMW to price their products precisely and realistically, turn down
orders which could bring losses to the them helped in rightly picking the orders ensuring comfortable
margin.