Siemens 2013 Annual Report Download - page 238

92 A. To our Shareholders
117 B. Corporate Governance 155 C. Combined Management Report
156 C. Business and economic environment
173 C. Financial performance system
179 C. Results of operations
192 C. Financial position
204 C. Net assets position
207 C. Overall assessment of the economic position
209 C. Subsequent events
210 C. Sustainability
227 C. Report on expected developments and
associated material opportunities and risks
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in turn could adversely affect our business, financial condi-
tion, results of operations and reputation.
We may face operational failures and quality problems in
our value chain processes: Our value chain comprises all
steps, from research and development to supply chain man-
agement, production, marketing, sales and services. Opera-
tional failures in our value chain processes could result in
quality problems or potential product, labor safety, regulatory
or environmental risks. Such risks are particularly present in
our Sectors in relation to our production and construction fa-
cilities, which are located all over the world and have a high
degree of organizational and technological complexity. From
time to time, some of the products we sell might have quality
issues resulting from the design or manufacture of such prod-
ucts or from the software integrated into them. In particular,
our Healthcare Sector is subject to requirements of the U.S.
Food and Drug Administration, which require certain efforts
safeguarding our product quality. If we are not able to comply
with these requirements, our business, financial condition, re-
sults of operations and reputation may be adversely affected.
Furthermore, failures on the part of service providers we em-
ploy, such as in the area of IT, may have an adverse effect on
our processes and operations and our ability to meet our com-
mitments to customers or increase our operating costs. Any
operational failures or quality issues could have a material ad-
verse effect on our business, financial condition, results of op-
erations and reputation.
We may face interruption of our supply chain, including
the inability of third parties to deliver parts, components
and services on time, and we may be subject to rising raw
material prices: Our financial performance depends in part on
reliable and effective supply chain management for compo-
nents, sub-assemblies and other materials. Capacity con-
straints and supply shortages resulting from ineffective supply
chain management may lead to delays and additional cost. We
rely on third parties to supply us with parts, components and
services. Using third parties to manufacture, assemble and
test our products reduces our control over manufacturing
yields, quality assurance, product delivery schedules and
costs. The third parties that supply us with parts and compo-
nents also have other customers and may not have sufficient
capacity to meet all of their customers’ needs, including ours,
during periods of excess demand. Component supply delays
can affect the performance of our Sectors. Although we work
closely with our suppliers to avoid supply-related problems,
there can be no assurance that we will not encounter supply
problems in the future or that we will be able to replace a
supplier that is not able to meet our demand. This risk is par-
ticularly evident in businesses with a very limited number of
suppliers.
Shortages and delays could materially harm our
business. Unanticipated increases in the price of components
or raw materials due to market shortages or other reasons
could also adversely affect the performance of our Sectors.
Furthermore, we may be exposed to the risk of delays and in-
terruptions of the supply chain as a consequence of natural
disasters in case we are unable to identify alternative sources
of supply or ways of transportation in a timely manner or at
all. A general shortage of materials, components or sub-com-
ponents as a result of natural disasters also bears the risk of
unforeseeable fluctuations in prices and demand, which
might adversely affect our business, financial condition and
results of operations.
Our Sectors purchase raw materials including so-called rare-
earth metals, copper, steel, aluminum and oil, which expose
them to fluctuations in energy and raw material prices. In re-
cent times, commodities have been subject to volatile markets,
and such volatility is expected to continue. If we are not able to
compensate for our increased costs or pass them on to cus-
tomers, price increases could have a material adverse impact
on our business, financial condition and results of operations.
In contrast, in times of falling commodity prices, we may not
fully profit from such price decreases as we attempt to reduce
the risk of rising commodity prices by several means, such as
long-term contracting or physical and financial hedging. In ad-
dition to price pressure that we may face from our customers
expecting to benefit from falling commodity prices or adverse
market conditions, this could also adversely affect our busi-
ness, financial condition and results of operations.
We are dependent upon hiring, developing and retaining
highly qualified management and technical personnel:
Competition for highly qualified personnel remains intense in
the industries and regions in which our businesses operate. In
many of our business areas, we intend to expand our business
activities, for which we will need highly skilled employees. Our
future success depends in part on our continued ability to hire,
integrate, develop and retain engineers and other qualified
personnel. We address this risk with various measures, for ex-
ample succession planning, employer branding, retention and
career management. However, there can be no assurance that
we will continue to be successful in attracting and retaining all
the highly qualified employees and key personnel needed in
the future, including in appropriate geographic locations, and
any inability to do so could have a material adverse effect on
our business, financial condition, results of operations and
reputation.