GILDEMEISTER LATHES LTD.

Uwe Heimers, Siemens AG, Bielefeld, Prof. Dr. Dr. h.c. Michael Kleinaltenkamp, Freie Universitaet Berlin, Berlin Prof. Dr. Martin Kupp, ESCP Europe, Paris, Ulli T. Reitz Freie Universitaet Berlin, Berlin

“Oh no, not that!” Mr. Schneider sits frowning at his desk. He has been employed as managerial sales engineer in the Bielefeld branch of the Motion-Control (MC) business sector for the Automation & Drives (A&D) department of Siemens for around two years. The manager of this sector in the parent branch in Erlangen has just been on the telephone. The report on the halfyear turnover figures must be ready in a few weeks. The forecast for the coming half-year is to be given particular attention. The business sector manager wanted to know if the Bielefeld branch might be able to help to brighten an otherwise rather mediocre picture through major customer Gildemeister Lathes Ltd. “If only I knew!”, sighed Mr. Schneider. A longstanding business relationship existed with Gildemeister Lathes Ltd. The current concern was to secure a follow-up order for the supply of components for a newly developed series of universal lathes. As well as the entire electrical equipping of machine tools in the form of numerical control, drive and motor systems, the potential order volumes also include provision of control cabinets and engineering services for the planning and implementation of the systems. Heidenhain Ltd was also competing for this attractive volume of trade. Heidenhain Ltd was the supplier of all those components for the current machine series not obtained from Siemens, and also had a strong business relationship with Gildemeister Lathes Ltd. Two established suppliers therefore found themselves in opposition. With a deep sigh, Mr. Schneider took another look over what seemed to him to be the relevant points concerning the parties involved as well as the actual project itself.

1. The Parties 1.1. The Customer: Gildemeister Lathes Ltd Gildemeister Lathes Ltd is a 100-% subsidiary of Gildemeister plc and develops and produces turning-technology machine tools for the world market. With a turnover in 1998 of approx. 130 million EUR and approx. 1100 machines, it ranks according to its own estimations among the Top 5 in this field. The business is one of four production plants within Gildemeister plc, which sees itself as an internationally-oriented technology group for the turning, drilling and milling sectors. Gildemeister Lathes Ltd located in Bielefeld is not only the traditional centre of the business, but also functions as the expertise centre and main production area for turning technology 1 within Gildemeister plc. Within Gildemeister, activities in the milling technology sector 2 are carried out under the business name of DECKEL MAHO. At the individual locations, various production series of milling machines and work centres are developed and produced. The services sector is operated by DMG Sales and Service Ltd and its subsidiary companies, and constitutes, with its products and services, its own business field. The services provided involve above all the service and spare-part business, training products and certification services. DMG Sales and Service Ltd, as a global sales and service interface for the market in all Gildemeister products, is the agent for almost 50 companies in all significant machine-tool purchasing countries worldwide. The production programme of Gildemeister Lathes Ltd includes three machine series, of which the largest in number of components and sales is the CTX production series with a total of approx. 700 machines. The various production series differ in their spectrums of application in two spheres in particular. Both the suitability for use in series production as well as the capacity to manufacture complex
1

“Turning“ is the term used to describe a wide-ranging working process, typically used in the manufacture of rotation symmetrical components, in which the work-piece rotates and the cutting tool executes feed motions along and across the rotational axle. 2 “Milling“ is the term used to describe a wide-ranging working process, in which the cutting tool rotates and produces various work-piece surfaces via feed motions of the tool and the work-piece in several axles.

workpieces and components differ greatly for each machine type. Decisive factors in this are for example the level of computer control and programmability, as well as the number of spindles of each machine type. The spectrum of application ranges from the manufacture of the simplest parts, such as those used in great quantities in the watch and clock industry, to the production of flanges or crankshafts for the automobile supply industry. Since the early 1990s Gildemeister Lathes Ltd has successively reduced its production range. Since then, the business has concentrated almost exclusively on end assembly at component level, while the suppliers have increasingly become system suppliers with high quality know-how and logistical integration. Since the “hardware” itself in the field of universal lathes, due to very similar performance properties of the different brands, is relatively inter-replaceable, the range of additional services offered plays an important role in product differentiation. For this reason it was decided some time ago to separate the sales and service sectors from the production of machines. The Gildemeister Lathes Ltd production plant is principally responsible – as are the other production plants – for efficient development, production and logistics within the framework of the service provision process. The marketing of the lathes is carried out by the DMG Sales and Service Ltd, the sales branch of Gildemeister plc (cf. Figure 1).

Gildemeister plc, Bielefeld
Gildemeister Lathes Ltd Bielefeld 100% DMG Sales and Service Ltd DMG-Holding 100%

Deckel-Maho Pfronten Ltd Pfronten 100%

6 Branches in Germany 9 Branches in Europe

DMG Turning Service DMG Milling Service DMG Training Academy DMG Secondhand Machines

Deckel-Maho Geretsried Ltd 100% Geretsried

3 Branches in the USA 7 Branches in SE-Asia

Deckel-Maho Seebach Ltd 62,5% Seebach

Production Plants

Sales

Technical Services

Figure 1: Company structure of Gildemeister plc (as at December 1998) The main role of the regional branches of DMG Sales and Service Ltd involves the sale of machine tools in all technologies of the joint production plants of Gildemeister plc and the supply of related services in the corresponding sales regions. A total of approx. 180 DMG sales representatives operate worldwide, supported by approx. 10 to 12 Gildemeister Lathes Ltd manufacturing-sales and production managers. Each significant sales region and DMG branch is assigned a permanent manufacturing sales agent, allowing product management for the separate machine series to be carried out by the same person. The various roles involved in lathe sales, customer-oriented performance provision and service are carried out jointly within Gildemeister by different organisational units which divide the work between them. This division of tasks is illustrated by Figure 2. The DMG branches are responsible in particular for key sales services such as acquisition and maintenance of customer relations, machine demonstrations, the drawing up of offers and the negotiation and invoicing of orders. The supply of direct customer services represents the second key area of activity. As well as standard provisions such as the initial commissioning of machines and the facilitation of end-user competence through DMG service staff, various optional additional

services are also offered. Among these are the machine and control systems training programmes operated as part of the DMG Training Academy, as well as the fault-repair and replacement-part services, negotiated individually with customers. Particularly worth noting in this connection is the after-sales service product DMG-NETSERVICE, which enables remote diagnosis of the machine from the central service centre via a telephone connection. The aim is thus to provide time-efficient and cost-saving fault diagnosis during the first phase of problem recognition which no longer requires the presence of a service employee on site with the customers, and to enable minor faults possibly to be solved directly on the telephone. This service is already being marketed by other competitors. Within DMG Sales it is planned furthermore to offer end-users technology support in the form of assistance with the programming of complex elements as a paid additional service. This additional service, conducted using MMC component control software, can have a significant effect on machine productivity.

DMG Service
- Implementation - Decentralized On-Site Service - Central Service Support and Replacement-Part Service - Training / Instructing - Service Products - Secondhand Machines After- Sales Phase Acquisition

DMG Sales
- Machine Demonstrations - Offer Elaboration - Marketing-Mix - Technology Support

Demand

Delivery

Market/ Customers

Negotiation Phase Order

- Product Development - Procurement & Logistics - Production / Assembly - Quality Assurance - Distribution

- Technology Elaboration - Time Studies - Machine Accessories - Customer-Specific - Process Solutions Service Provision

GM-Lathes Ltd
Development/Procurement/Production

GM-Lathes Ltd
Production/Sales/Applications

Figure 2: Service and process chain of DGM and Gildemeister Lathes Ltd Within Gildemeister Lathes Ltd, sales-related services involve two main areas. The sales-affiliated applications department provides sales-support services in the preparation of customer-specific offers for DMG branches. Offers are drawn up within the framework of customer-specific process solutions by order of the relevant DMG branch on the basis of the customer’s production data in the pre-sales phase. These may for example include component production time calculations for the components to be produced and specify tools such as clamping equipment as required machine accessories. The sales department of Gildemeister Lathes Ltd is chiefly responsible for product management. It is here that enquiries received within the DMG branches are collated, in order for to take account of these during product development. In addition, information from the DMG branches concerning new characteristics of the various machine series is checked, through regular visits or one-off product presentations.

1.2. The supplier: Siemens PLC AD MT MC Subsidiary Bielefeld The Bielefeld subsidiary branch is in charge of sales within a regionally delimited area in the strategical business sector of Machine Tools (MT) in the area of Motion-Control (MC), part of the commercial field of Siemens plc Automation & Drives (A&D). The sales responsibilities involved include acquisition, technical advice and order filling, as well as the provision of services for project planning and implementation of machine tools and any associated project management with the OEMs (original equipment manufacturers) as well as on-site fault and maintenance interventions for the end-users. The mission of the business area of MT involves development, production and worldwide sales of products and systems, consisting of hardware and software for control, drive and motor systems as well as accompanying or separate services for machine tool automation. In 1998 a turnover of approx. 600 million EUR was achieved, with a total of around 2,100 staff, representing a world market share of approx. 17% and giving a market position as “number 2 worldwide“ and “number 1 in Europe”. The Stuttgart branch of Siemens plc AD MT MC operates a lead-user cooperation agreement with the company Turntec-Werke GmbH in Chemnitz, Gildemeister Lathes Ltd’s strongest competitor in the European market. This means that the businesses involved can make use of exclusive Siemens control, drive and motor systems. Within the framework of its business relationship with Gildemeister Lathes Ltd the Bielefeld branch of Siemens plc A&D MT MC is primarily interested in achieving the greatest possible trade volume. Against the background of this aim it is of primary importance that the new CTX-2000 machine series is also once again equipped with SIMODRIVE as system platform for the drive and motor systems. The drive and motor systems for the CTX series currently represent approx. 40% of the trade volume with Gildemeister Lathes Ltd. Should Heidenhain Ltd manage to become involved with these components, this would mean the potential danger of negative repercussions not only with regard to the other machine series, but also far beyond these customers. Additionally, the greatest possible market share must be won in opposition to Heidenhain through the implementation of SINUMERIK control systems. A prerequisite for this is, however, either the successful transfer of the SIMODRIVE platform strategy, or else a non-manufacturer specific open drive-interface based on PROFIBUS (see above), since the SINUMERIK systems can only correspond with these two platform systems. There have been no drive or motor problems whatsoever with the SIMODRIVE System platform in the past. The Just-in-Time delivery of the control cabinets for the current CTX series allows Gildemeister Lathes Ltd to achieve minimal storage costs and lead-times. Within the framework of new developments for MF production, lathe, and product series, it has also been possible to jointly meet various deadlines and cost targets in the recent past. 1.3. The Competitor: Dr. Johannes Heidenhain Ltd Dr. Johannes Heidenhain Ltd in Traunreuth is the strongest European competitor to Siemens plc in the market for machine tool equipment. In recent years, thanks to targeted acquisitions and strategic cooperation agreements, Heidenhain Ltd has grown from a supplier concentrating solely on numerical control and measurement systems to a system supplier whose range of services also include drive and motor systems. One of the most important acquisitions in this regard was the takeover of Grundig-GildemeisterAutomation Ltd, in which Gildemeister plc held a 49%-capital share. As an independent subsidiary company, Gildemeister Automation Ltd developed in the early 1990s the control platform of the current CTX machine series in close collaboration with the sales and applications department of Gildemeister Lathes Ltd. To date there have been no difficulties whatsoever with the Heidenhain CNC200-type machine control. In particular, the use and programming system philosophy

employed has set new standards. Sales relations with Gildemeister Lathes customers are dealt with by a direct sales department through the parent branch in Traunreuth. Additional services such as project management or control-cabinet construction are not currently offered as part of the distribution service. Heidenhain Ltd is endeavouring, in the course of its transformation from a supplier concentrating exclusively on components to a system supplier, to increase its trade volume with Gildemeister Lathes Ltd through expansion of its own net product share, as well as to strengthen customer ties. The CTX-2000 series machines should if possible be equipped with the newly developed CNC300 system platform for control, drive and motor systems, in order to seek the largest possible supplier share. This involves the questioning of the mutual partnership in place until now between Heidenhain control systems and Siemens drive and motor systems, while the newly developed control generation is however suitable in principle for use with the SIMODRIVE drive platform. While the role of lead user in system development always fell in the past to Gildemeister Lathes Ltd, Heidenhain Ltd now appears, with the further development of the new system platform CNC300, to be concentrating on the area of milling cutter technology. 2. The Project: The Supply of Component Parts for CTX Machine Series The typical area of application for universal lathes is small and medium sized production series of component types of medium complexity. The lot sizes are in the two to three-figure region for each part produced. Programming of the parts to be produced is carried out directly on the machine using what is known as shop-floor programming and is not performed through a higher-level programming system. The electrical equipping package for a machine represents, depending on the individual construction specifications, 30-50% of the production costs. In the case of the current CTX series, the largest part of this (approx. 70%) is within the control cabinet, due in large part to its scheduleefficient Just-in-Time-Logistics system. If schedule-efficient delivery were not possible, this would have a negative effect on Gildemeister Lathes Ltd’s production processes and storage costs. The software aspect of the supply items for a lathe is principally composed of two elements:  A system software (“midware”) represents the basis for the basic movement control of the machine. The end-user normally has little interaction with this component, which is largely configured independently by the supplier. A control platform which is the “face” of the machine’s user controls and which functions as the user’s interface. For the design of this component at the application level, considerable planning services involving applications engineering in collaboration with the end-user are to be provided, in order to achieve optimal possible suitability for the specific production area. While the mechanical construction of a lathe contains only limited starting points towards the creation of a manufacturer-specific design, the control platform offers better possibilities for this.



The supplier shares between Siemens and Heidenhain Ltd are currently allocated in such a way that, through mutual interaction between Siemens drive and motor systems on the one hand and Heidenhain control and feedback-control systems on the other hand, an integrated system solution is created. The hardware level as well as the internal system interfaces for the midware and the control platform are in the case of Siemens and Heidenhain Ltd, as in the case of all other relevant competitors, currently still to the greatest possible extent of a proprietary nature. Since until now no standardised motor or drive interface (e.g. PROFIBUS 3) has established itself on the market,
3

The Profibus is an accredited field-bus concept, designed and enhanced beyond manufacturer level within the PROFIBUS User Organisation, and which Siemens would like to rework to the market standard.

the choice of software-system component also defines that the drive and motor level are de facto from the same manufacturer. “Twin-brand production” currently appears to be possible only with parallel use of two proprietary system solutions, which from the point of view of efficiency, for example with regard to logistics costs, appears problematical. Gildemeister Lathes Ltd products are valued by customers due in particular to the following advantages:    Unique machine operations and programming using the manufacturer-specific and CTX machine series tailored Heidenhain CNC200 control system. Extensive technological competence in the fields of turning, drilling and milling. Efficient, decentralised sales and service facilities from the pre-sales to the after-sales phase.

Further studies have shown that the following criteria in particular play an important role in the purchase choices of machine users:   Machine quality, replacement-part service and qualifications of the service technician (most important purchase criteria, which illustrates a desire for more reliable machines) and User-friendliness of the machine controls (in small series production this ranks equally with machine productivity and is considered more important than price).

With the new CTX-2000 machine series Gildemeister Lathes Ltd hopes not only to achieve improved coverage through lowering of manufacturing costs, lead times and logistical costs, but also to increase as much as possible its market share in the universal lathe market segment. Improved product quality and an adapted Product-Fit 4 should create the basis for opening up the US and Asian markets. Double-sourcing is to be employed as procurement strategy. The key components should whenever possible be obtainable from two alternative suppliers, requiring a high degree of compatibility and standardisation. For the MMC component in particular, a “twin-brand production” should be available to the greatest possible extent, in order to take account of end-user preferences for a particular use and programming philosophy. With the help of a modular construction concept based on standardised key components, the aim is to reconcile the potentially conflicting aims of cost-reduction alongside product differentiation. The supply of components for the current CTX machine series is regulated by framework agreements, which as well as the scope of supply on the basis of net prices with mutual price controls also contain volume and quantity-dependant rebate agreements. Against the background of the new development of the CTX-2000 series, new contractual conditions are to be agreed.

Questions for group discussion: 1. Analyze the given constellation of the customer relationship! Focus on the value for the customer and the existing switching costs! What would you recommend Mr Schneider in order to get a high share of wallet concerning the procurement of the parts of the new CTX machine series?

2.

4

Product-Fit = combination of product functionality and user acceptance.