1. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 1 2/13/90-PREZ-1 rev. 5/7/91 ANALOG DEVICES AT A GLANCE Headquartered in Norwood Massachusetts Publicly Held (NYSE Symbol ADI) $485 Million in Sales (FY1990) 48% of Sales Outside United States 5600 Employees Worldwide

2. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 2 5/8/91-PREZ-1a ANALOG DEVICES AT A GLANCE Products: ICs, assembled products, subsystems Applications: precision measurement & control Markets: data acquisition Integrated supplier (cont.) 50% industrial/instrumentation 25% military/avionics 13% computer 12% other design manufacturing (8 locations) direct sales (100 locations) distribution

3. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 3 9/12/91-09121-1.doc PeriodAccomplishmentsKey WeaknessesCorrective Action 1984-1986CEO awareness of TQMTQM organization TQM goal setting process established Corporate TQM staff 1987-1990established goals/metrics QIP teams 10x improvement its real top management involvement focus on management not everyone involved incomplete TQM infrastructure training slow progress -> plateau seek outside help expert: Professor Shoji Shiba networking: CQM 1991-1992business restructuring financial focus TQM planning TQM activity on back burnerrevitalize TQM implement TQM infrastructure 1992-1994Creating the New Analog >10x improvement ?? todayBetter understanding of the challenge TQM skills of senior managers Alignment of TQM with business goals Low quality of management systems Total participation CQM course(s) Rigorous Hoshin deployment Baldrige self-assessment, benchmarking, process redesign TQM diffusion TQM at ANALOG DEVICES

4. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 4 3/24/91-03241-1

5. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 5 9/12/91-09121-1 ADI CONTINUOUS IMPROVEMENT HISTORY 198619871988198919901991199219931994 0.01 0.03 0.1 0.3 1 3 10 30 100 year defect level 12 month halflife 6 month halflife

6. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 6 10/28/86-QIP-7 rev: 4/22/91-04080-2a METRICS IS culturescorecard projects GOALS SOLVING PROBLEM ADI QIP GOALS MARKET LEADERSHIP (RMS) REVENUE GROWTH PROFITABILITY BE RATED #1 BY OUR CUSTOMERS TOTAL VALUE DELIVERED BUSINESS OBJECTIVES: DRIVERS: IN TIME TO MARKET PROCESS PPM MANUFACTURING CYCLE TIME YIELD EXTERNAL LEVERS: INTERNAL LEVERS: PRODUCTS DEFECT LEVELS ON-TIME DELIVERY LEADTIME PRICE RESPONSIVENESS GENERALIZED CYCLE TIME

7. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 7 10/29/91-10291-1 rev 10/31/91 GETTING TO THE BENCHMARK defect level time 1.1.01.003.3.03 today us best in class

8. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 8 Source: Kenzo Sasaoka, President Yokagowa-Hewlett-Packard 7/84 Process Quality Improvement (Dip Soldering Process) Counter Action I Counter Action III Counter Action II % ppm 0.4% 0.4 0.2 0.1 0.3 0 Failure Rate 11 1 4 7 10 1 4 7 10 Masking Method Improvement Omit Hand Rework Process 40ppm Dip Solder was made to one worker job Basic Working Guide Manual Revision of Manufacturing Engineering Standards PC Board Design Instructions 3ppm 78 79 80 81 82 FY 10 1 4 7 10 1 4 7 10 1 4 7 10 month 40 20 10 0 30

9. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 9 12/12/85-ZD4 YOKOGOWA HEWLETT PACKARD 60483624120 Failure Rate % 1.1.01.001.0001 months 10,000 1,000 100 10 1 PPM 50 % improvement each: 3.6 months Dip Soldering Defects

10. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 10 3/11/87-IMPDATA1 OBSERVED HALF-LIVES HALF-LIFEIMPROVEMENT DESCRIPTION (months)CYCLESR2R2 operations sheet errors0.64.20.834 days late in delivery0.87.60.774 rejects due to bends and dents1.31.70.590 process sheet errors1.42.10.535 PCB photo imaging resist flake1.93.30.748 errors in purchase orders2.31.50.531 aluminum smears from IC test pads2.45.10.717 yield loss, die coat inspection2.42.30.733 scrap costs, die coat inspection2.42.00.754 defective stockings2.72.20.843 yield loss, PCB photo imaging2.92.30.843 typing errors in bank telegram dept.2.92.00.754 late orders to customers3.02.70.838 defects in PCB edge polishing3.31.90.188 insertion defect rate3.33.40.738 failure rate, dip soldering process3.78.60.980 down time of facilities4.51.30.562 COPQ, goggles manufacturer4.71.90.942 scrap and repair costs5.01.60.918 scrap and repair costs5.00.80.746 in-process defect rate5.31.10.550 late spare parts to customers5.31.10.471 defects due to pits, piston rings5.53.50.968 defects in vacuum molding5.64.60.882 vender defect level, capacitors5.76.30.812 --------------------------------------------------------------------------------------------------------- customer returns due to admin. error6.33.80.941 WIP6.31.10.979 accounting miscodes6.42.50.709 manufacturing scrap7.03.90.530 vender defect level, transformers7.25.00.842 vender defect level, IC linears7.44.90.906 WIP7.52.10.759 failure rate, line assembly7.53.20.886 manufacturing cycle time7.62.70.741 defects per unit7.64.60.948

11. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 11 3/11/87-IMPDATA2 OBSERVED HALF-LIVES (cont.) HALF-LIFEIMPROVEMENT DESCRIPTION (months)CYCLESR2R2 rework rate8.01.40.801 off-spec rejects8.85.10.513 set up time9.50.60.690 vender defect level, transistors9.63.70.997 defect levels, customers incoming QC10.17.10.989 defects10.45.20.965 software documentation errors10.51.20.173 --------------------------------------------------------------------------------------------------------- error rate, perpetual inventory12.13.00.862 customer returns due to product12.42.90.974 missing product features12.52.90.947 equipment downtime13.12.10.940 scrap costs13.81.70.805 absenteeism due to accidents14.84.00.956 defects at turn-on14.91.30.624 manufacturing cycle time16.92.50.937 defects on arrival16.92.00.848 non-conformances16.90.70.666 vender defect level, microprocessors18.51.90.838 post release redesign19.02.50.842 field failure rate20.31.30.857 accident rate21.52.80.907 defective lots received from vendors21.61.70.976 failure rate, PCB automatic test23.70.50.182 --------------------------------------------------------------------------------------------------------- first year warrantee costs27.82.60.950 computer program execution errors29.90.40.364 late deliveries to customers30.40.80.994 warranty fail rates36.22.50.769 failure costs (internal + claims)37.91.90.909 product development cycle time55.31.10.733 AVERAGE:10.92.80.77

12. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 12 6/11/90-06110-1 rev. 5/28/91 hi med low himedlow Organizational Complexity Technical Complexity 135 7911 141822 TARGET HALF-LIVES months

13. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 13 1/22/91-01221-1 PLAN WHAT IDENTIFICATION OF THEME WHY CAUSAL ANALYSIS WHO WHEN WHERE HOW SOLUTION PLANNING EVALUATION OF RESULTS STANDARDIZATION DO CHECK ACTION 1 2 3 7 6 5 4 AND IMPLEMENTATION DATA COLLECTION AND ANALYSIS REFLECTION AND NEXT PROBLEM THE PDCA CYCLE and THE 7 STEPS

14. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 14 5/9/91-05091-1a rev. 5/28/91 AUTOMOTIVE RELIABILITY IMPROVEMENT Consumer Reports, April 1991 1980198519901995 0 20 40 60 80 100 120 year problems per 100 cars GM Ford Chrysler Toyota Nissan Honda

15. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 15 5/9/91-05091-1 rev. 5/28/91 AUTOMOTIVE RELIABILITY IMPROVEMENT Consumer Reports, April 1991 problems per 100 cars year 1980198519901995 5 10 20 50 100 200 500 GM Ford Chrysler Toyota Nissan Honda 80 76 79 205 73 94 halflife (mths)

16. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 16 QS-16B ADI QIP GOALS IC OPERATIONS, ESTABLISHED PRODUCTS METRIC1987 HALF-LIFE 1992 On time delivery Lead time Manufacturing Cycle Time Yield Outgoing defect levels Time to Market EXTERNAL INTERNAL CORPORATE-WIDE COST MANAGEMENT WHILE AGGRESSIVELY PURSUING Process Defect Levels 85% 10 wks 500 PPM 9 9 9 >99.8% <10 PPM <3 wks 15 wks 20% 9 9>50% 5000 PPM6 <10 PPM 4-5wks 36 mths 24 6 mths

17. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 17 ADI QIP GOALS IC OPERATIONS, ESTABLISHED PRODUCTS METRIC198719901992 EXTERNAL On time delivery85%96%>99.8% Outgoing defect level500 PPM230 PPM<10 PPM Lead time10 weeks5.4 weeks<3 weeks % CRDs matched31%50%n/a excess leadtime3.9 weeks2.8 weeksn/a INTERNAL Manufacturing cycle time 15 weeks8 weeks4-5 weeks Process defect level 5000 PPM1100 PPM<10 PPM Yield 20%38%>50% Time to market 36 months?6 months 11/12/90-11120-3.doc

18. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 18 5/7/91-05071-8a

19. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 19 5/22/90-05220-4 rev. 5/7/91 GOALS IS culturescorecard projects METRICS SOLVING PROBLEM PERFORMANCE MEASUREMENT does not mean measurement improvement + monitoring If you don't monitor it, it will get worse. If you don't measure it, it will not improve.

20. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 20 4/8/90-04080-3 rev 5/13/90 GOAL: IMPROVE CUSTOMER SERVICE CUSTOMER SERVICE METRICS ON TIME % late % early % on time RESPONSIBILITY factory warehouse credit customer LATENESS/EARLINESS shipped late, how late? shipped early, how early? still late, how late? months to ship late backlog LEAD TIME customer requested lead time % CRD's matched excess lead time RESPONSIVENESS time to schedule an order GOALS IS culturescorecard projects METRICS SOLVING PROBLEM

21. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 21 % Late 3Q91

22. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 22 c. 1991 ON TIME DELIVERY HALF LIFE - IN MONTHS Analog Devices, Inc. 60 50 40 30 20 10 0 3Q884Q881Q892Q893Q894Q891Q902Q903Q904Q901Q91 21.57 22.77 18.39 16.41 15.15 15.12 15.15 16.95 21.18 43.50 60 +

23. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 23 % Late Sep 91

24. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 24 3/91-VRS Database 64 CUSTOMERS IN VENDOR RATING DATABASE ABF AGFA AirResearch Allen Bradley Allied Signal Amdahl Ametek Analogic Apollo AT&T Becton Dickinson Bendix Avionics Brown Engineering Compugraphic Coulter Electronics Digital Instrument Eaton Electronics & Space EMC Finnegan Fluke Ford (Aerospace) GEC General Dynamics General Electric Gould Hewlett-Packard Honeywell Hughes Instron JET Electronics Kodak Litton Loral Lucas M/A-COM Marquette Electric Martin Marietta Masscomp McDonald Douglas Measurex Microcircuits Semiconductor Parker Air & Space Penastar Perkin Elmer Pitney-Bowes Raytheon Recognition Reliance Electric Rockwell Sanders Siemens Sikorsky Spectra Physics Tektronix Teleco Teledyne Teradyne Texas Instruments Trillium United Technologies Walkins-Johnson Co. Waters Associates Westinghouse

25. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 25 c. 1991 Delivery Performance Customer Measured % Late 100 50 30 20 10 5 3 2 1 HALF LIFE = 9* QIP STARTED FeApJuAuOcDeFeApJuAuOcDeFeApJuAuOcDeFeApJuAuOcDeFe MrMyJlSeNoJaMrMyJlSeNoJaMrMyJlSeNoJaMrMyJlSeNoJaMr 1987 1988 1989 19901991 Actual Data Trend * Half Life is only calculated over the period of time that improvement occurred Note: There is an average of 22 companies per point

26. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 26 5/22/90-05220-1 HEWLETT-PACKARD VENDOR RATINGS yearADI ranktotal supplierscategory linear IC suppliers all IC suppliers linear IC suppliers all IC suppliers 16 8 15 12 8 5 5 1* 1986 1987 1988 1989 *tied with one other supplier

27. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 27 3/24/91-03241-3

28. ©1987-2000 Arthur M. Schneiderman All Rights Reserved. Slide 28 3/25/91-03251-1 rev 4/1/91 SOME LESSONS LEARNED (One Person's Opinion) "97% is good enough" -> no planned improvement PMI acquisition Reorganization (centralization) Manufacturing, QA Consolidation CLD+MDD+MED+IPD=IED (ACE+LSP)+DSP=SPD ADBV+ADS+PMI=? New business planning process Product/Market/Function Strategy Managers Eventually, you run out of "slack" need for cross-functional problem solving need for management participation If you don't monitor it, it will get worse! Fundamental re-evaluation of our QIP efforts Center for Quality Management (CQM) Shoji Shiba It's easy to be distracted (even by the right things) Input / Output Data Base TQM / CQM anti-Hawthorn Effect 7 steps weakness -> standardization -> control