The boss of Siemens, Europe’s largest industrial manufacturer, likens the global supply chain to a “roller coaster” because the prices of materials such as metals and resins fluctuate due to the uneven economic rebound.
“At least for the next two quarters, we will see this [price] Pressure,” CEO Roland Busch told the Financial Times. “The market is so turbulent. ”
The physicist, who took over at the helm of the German group in February, said that the speed of the global recovery is having a “delay effect” on Siemens’ suppliers, who are still struggling to meet demand.
Last fall, after the sharp drop caused by the pandemic, there was a sudden surge in orders, similar to a “very sharp V… in China, this is a very, very sharp V,” Bush said.
“If this happens in a large market, then your supply chain is like a roller coaster… You have this lag effect, which is exactly what we are seeing.”
Busch’s comments are up to date Purchasing Manager IndexAccording to a report released by IHS Markit on Wednesday, disruptions in the global supply chain—especially shortages of steel, copper, wood and plastics—have pushed up the input prices of Eurozone companies at the fastest rate in more than a decade.
PMI data, including the largest increase in average prices of goods and services since 2002, suggests that pressure may continue after May inflation rate was higher than the ECB’s target of slightly below 2% for the first time since 2018.
However, European Central Bank President Christine Lagarde and other central bank governors predict that the inflation rebound will be “temporary” and said that supply constraints will disappear next year.
In the June PMI report, Germany’s restrictions may be eased after “the number of companies reporting longer delivery times for materials and parts has decreased slightly”.
Siemens’ Busch said that at present, the group is able to pass on the increase in material prices to customers without losing business.
“Our competitors sit in the same boat and source from the same suppliers,” he said. “As long as we have innovative products, we also have certain pricing power.”
Siemens has undergone a deep reorganization and divested its health and energy businesses, and is preparing to announce its next step in the transformation from a large conglomerate to a more focused company group, supplemented by software expertise.
“Our customers benefit from our ability to combine the real world with the digital world,” Bush said.
He added that the group’s core business focuses on factory automation and digitization, construction and grid operations, trains and infrastructure construction, and will seek acquisitions in “very attractive neighboring markets.”
Busch cited the recent $700 million acquisition of California company Supplyframe, an online market for electronic components, as an example of the kind of acquisition Siemens hopes to make in the future.
Siemens said that its software revenue in 2020 is expected to be 5.3 billion euros, with a compound annual growth rate of about 10% in the next four years.