Siemens plans labor reductions; focuses on efficient production

October 7, 1992

Siemens will reduce its worldwide medical work force by 1800 jobsin fiscal 1993 (end-September). Half the reductions in force willtake place in Germany and half elsewhere. The move reflects bothsluggishness in medical equipment sales worldwide and the

Siemens will reduce its worldwide medical work force by 1800 jobsin fiscal 1993 (end-September). Half the reductions in force willtake place in Germany and half elsewhere. The move reflects bothsluggishness in medical equipment sales worldwide and the trendto less labor-intensive manufacturing methods, said Peter H. Grassmann,vice president and group executive for Siemens Medical EngineeringGroup in Erlangen, Germany.

While the fall in value of the U.S. dollar has cramped thebottom line of foreign medical imaging manufacturers, Siemensis reacting more to fundamental shifts in the market, Grassmannsaid. Other vendors, notably GE Medical, have reduced staffinglevels to lower per-unit costs and compete better in a price-sensitivemedical imaging market.

"A low dollar is not favorable of course, but that isnot the main reason (for the cuts)," Grassmann told SCAN."As market growth slows, we want to be efficient in logistics,production, computer and communication systems."

Vendors are building medical imaging equipment with increaseduse of computer-aided design and manufacturing technology. Productsrequire fewer hours of both direct and overhead labor, he said.Positions affected in the layoffs this year will involve a mixof direct and support personnel.

Siemens built up its medical labor force substantially in reactionto past growth in the market. It is natural that the company shouldtrim back now when that growth is receding, he said.

Medical imaging market growth is slowing in the U.S., the Commonwealthof Independent States, and other important international markets.This slowness reflects both short-term economic factors and structuraldevelopments, he said.

"The big growth waves in innovations like MR and beforethat CT (have passed). Growth is still there but it is reduced.Naturally, you look to reducing personnel. That is certainly typicalfor our industry," Grassmann said.

Siemens has improved its U.S. MR market share, compensatingsomewhat for slowness in that market. This imaging modality hasperformed better than some others for the company, but growthin MR does not create as many jobs as x-ray, for instance, hesaid.

U.S. sales make up 30% to 40% of total medical equipment salesfor Siemens. The German vendor is active in medical markets outsideof imaging, including cardiac testing and dental equipment.

"The U.S. market has gotten slower," he said. "Ourfeeling is that people are looking at possible changes politically,that a new administration may look differently at health careand its investment side. It is somewhat slower, but other worldmarkets are also slower."

Siemens has a strong market presence in the former Soviet Unionand countries of eastern Europe. While there is much interestin obtaining advanced medical equipment in those states, the nationalauthorities have not provided funds to back orders, Grassmannsaid.

"The Eastern Bloc is down, Japan is slower, France is slower.Generally, we see a number of countries where business is slower,"he said. Most of this slackening demand is recessionary, particularlyin the developed countries, and can be expected to come back upagain.

"In any case, we want to be on the careful side and expectslower growth or maybe a flat business for a couple of years,"Grassmann said.

Interest rates are high in Germany and there has been a shufflingof the public budget that has dampened medical capital acquisitions,he said.

Siemens experienced strong medical sales growth in some fields,such as ultrasound and dental equipment, in the newly unifiedeastern states of Germany, but this rate slowed after the firstburst of demand. Meanwhile, the normally robust markets of theolder western states are slowing as resources have become tight,he said.

"Much of the budgetary system in Germany is government-regulatedand now there is a leveling off. You see a slower business inthe old states, while the new ones keep rising slightly. Overall,that leads to a flat market," Grassmann said.

In addition to transitional costs of German unification, pressureshave built up in this national market that will lead to greaterautomation and smaller work forces over the long run.

"German labor cost is very expensive," he said. "Thereforepressure is greater to see if we need everybody we have."