From Compliance to Competitive Advantage Eric Karofsky AMR Research

Copyright © 2006 OSIsoft, Inc. Company Confidential. All rights reserved. 2 GO SOX! Agenda Sarbanes Oxley General compliance Competitive advantages

Copyright © 2006 OSIsoft, Inc. Company Confidential. All rights reserved. 3 Waves of Compliance Cost  Time  A Long Tail Do It & You’re Done Systemic Change

Copyright © 2006 OSIsoft, Inc. Company Confidential. All rights reserved Executive sign-off Requires corporate officers to personally sign off and attest that financial information is true and internal controls have been evaluated 90 days prior to the reporting date Requires continuous evaluation of internal controls and procedures for financial reporting Requires real-time notification within 2 days on material changes in a company, such as loss of or a significant reduction of major account, large write- off Key Sections of SOX “Real time notification within 2 days on material changes” Plant shutdown? Plant failures? Quality deviations? Recalls? Loss of raw material supplier? etc. Evaluate controls Timely disclosure

Copyright © 2006 OSIsoft, Inc. Company Confidential. All rights reserved. 5 SOX needs multiple inputs Procedures Reporting Real time notification SOX requirements ERP HR Financial AP / AR Suppliers Customers Procurement Operations Data!!! Real time input Repeatable processes Audit trails

Copyright © 2006 OSIsoft, Inc. Company Confidential. All rights reserved. 6 When Compliance is talked about, it’s usually Sarbanes-Oxley Act of 2002 (SOX) But it’s just the tip of the compliance iceberg

Copyright © 2006 OSIsoft, Inc. Company Confidential. All rights reserved. 7 Regulations Abound Financial (e.g. Sarbanes Oxley, Basel II) Supply Chain Traceability (e.g. RFID, CTPAT, Bioterrorism Act, Country of Origin Labeling) Import / Export / Trading (e.g. ITAR, Denied Parties Screening) Product Approval / Certification (e.g. FDA 21 CFR, REACH) Manufacturing Process Approval / Certification (e.g. FDA, Mil-Spec Compliance) Manufacturing Traceability (e.g. eBR, eDHR, RoHS, TREAD) EH&S Compliance (e.g. EPA, OSHA) Recoverability (e.g. ELV, WEEE) Information Management (e.g. HIPAA, GLB, FACTA) Corporate / Industry Sustainability Initiatives (e.g. CAFÉ, Minority Sourcing, Code of Conduct / Training) 65% - 78% of spending is not SOX related

Copyright © 2006 OSIsoft, Inc. Company Confidential. All rights reserved. 8 Regulation complexity Process / info coordination x Applicable regulations Complexity !!! = Customer regulations x EU (15  27) Japan / ChinaUSARest of world +++ x

Copyright © 2006 OSIsoft, Inc. Company Confidential. All rights reserved. 9 The Risks and/or Costs of (Non)-Compliance Financial Fines, penalties Legal expenses Audit Fees Operational Inability to conduct business Process/Product change Entry barriers to new markets Reputation Brand value Reduced sales Reduced stock price BUT COMPLIANCE ALSO YIELDS BENEFITS!

Copyright © 2006 OSIsoft, Inc. Company Confidential. All rights reserved. 10 What specific business process(es) do you ALSO plan to support with your compliance investment(s)?

Copyright © 2006 OSIsoft, Inc. Company Confidential. All rights reserved. 11 Recommendations for Investment Increase investment in technologies that automate testing your internal controls –Key technologies can reduce the cost of SOX compliance upwards of 25% Better visibility though portals, dashboards, and scorecards Training and education activities necessary for effective adoption Talk with auditors about material events in manufacturing!

Copyright © 2006 OSIsoft, Inc. Company Confidential. All rights reserved. 12 “When all regulated entities face the same obligations under the law, the smartest corporations will find a way to comply with imagination and less cost.” Ben Heineman, Jr: SVP for law and public affairs at GE

Copyright © 2006 OSIsoft, Inc. Company Confidential. All rights reserved. 13 Thank you. Eric Karofsky AMR Research GO SOX!