OEM SCR Expectations in a Zero Defects Environment Leading Edge Ceramic and Tantalum Capacitors May 22-24, 2007 Perspectives from you Supply Base Automotive Electronics Council Component Technical Committee

Agenda Outline Zero Defects Defined Impact of PPAP 4 th Edition Current State Process Maps Global Process Map Considerations Recommendations Automotive Electronics Council Component Technical Committee

Zero Defects Defined Scope of AEC-Q004 31Aug06 Draft  “…tools and processes for suppliers and users to use to approach or achieve the goal of zero defects.”  By definition = change. AEC-Q004 31Aug06 Draft Section 7.2, Process / Product Improvements  “…Change in material or process, either to address a root cause issue or as an evolution of a process or design, to improve device function, yield and / or reliability.”  Reference to JESD-46, Customer Notification of Product / Process Changes by Semiconductor Suppliers. Requires change notification for major changes JESD-46, Section 3.2.1, Classify change(s)  "...Customers must be notified of major changes, whereas notification of minor changes may or may not occur depending on customer requirements.“  IC major change definitions included and also repeated in Q004 draft Automotive Electronics Council Component Technical Committee

Impact of PPAP 4 th Edition PPAP 4 th Edition Extends well beyond these requirements  IQC Webinar Presentation Customer notification is required for ALL proposed changes. Any change from the original PPAP requires re-PPAP.  At least notification to the appropriate customer PPAP representative. Automotive Electronics Council Component Technical Committee

Impact of PPAP 4 th Edition “Customer Notification” is misleading  Implies one-way communication.  In reality, two-way communication is required. “Must not implement prior to customer written approval”  Significant implementation delays occur. SCR approval cycle duration problematic  Agreement on this fact by multiple EIA / ECA participating suppliers: KEMET, AVX, Vishay, TDK, KOA Speer, others. KEMET LEAN project  Process impact sufficient to have been assigned a project reviewed by Executive Leadership and Board of Directors.  LEAN process maps pinpoint significant issues. Automotive Electronics Council Component Technical Committee

Current State Process Map - Customer Automotive Approval Process Issues  Customers describe their process as Not well-defined, Non-existent, Dysfunctional 100% of customers asked for their approval procedure provided the supplier submission procedure  Automotive SCR Volume 300 – 500 change “requests” received per month 1000 – 2500 in the system at any given time Processing them is at least 6 months behind  Capacitors typically apply to every program, adding to the confusion  Some customers’ customers deny any mid-year changes  Eliminates immediate realization of improvement effects. Automotive Electronics Council Component Technical Committee

Current State Process Map - Supplier Supply Base Change Approval Process Issues  Nearly 40% extend beyond 1 year Done in succession, equivalent to 8.5 years All 2006 notifications would equal 68 years  At least 50% of the process not visible to Suppliers Purchasing, Quality, Component Engineering, Material Planning, and all Program Managers always involved Actual process differs for each customer  1 Change grows exponentially between notification and approval 13 automotive accounts grows to 90 total Locations and Involves 29 total account Managers. Multiple hand offs on both customer and supplier side.  Results in negative impact to suppliers’ revenue stream Decreases sales time Prolongs realizing manufacturing cost reductions or quality improvements Reduces focus on new product development or process improvement Automotive Electronics Council Component Technical Committee

Global Process Map – Customer + Supplier Process Current State  2300 Steps assumes 1 affected program per location 170 steps could have up to 5 iterations per customer step count based on average of 3 iterations per customer  5 months estimated Value Added Time  11 months estimated Waste You are already familiar with a very similar process Automotive Electronics Council Component Technical Committee

Global Process Map – Customer + Supplier  Increasing customer expectations for level of communication outpace our ability to comply their ability to manage  Complicated approval process, extending supplier implementation lost revenue from cost improvements takes technical resources away from product development or process improvements missed opportunities for sales  No infrastructure exists to support multiple approval cycles in tandem Customer + Supplier Current State Maps = The Titanic Factor Automotive Electronics Council Component Technical Committee

Considerations Each Zero Defects Tool includes Estimated Cost vs. Benefit  Are improved quality effects or costs savings diluted by the overall process? **Actives in double-digit better position on business margin than passives Actual Approval Automotive Electronics Council Component Technical Committee Optimum Approval

Considerations If nothing changes, the tidal wave is coming. Where are all of us relative to supporting this change?  Customers need additional support and streamlined systems.  Suppliers need to understand their customers’ processes and alignment to facilitate faster approvals. Is Q-200 effective?  1000 hour testing extends qualification time.  Questionable relationship between tests and actual field performance.  Does not support zero defects in the long run. 12 Month advance notice of changes is not practical  Delays process improvements and / or cost savings by up to 2 years. Automotive Electronics Council Component Technical Committee

Recommendations Take a pragmatic, no-nonsense approach to define requirements. Improve business processes to support shorter approval cycles. Educate suppliers on customer processes so they can better align their change strategies. Use cost – benefit analysis vs. risk to determine what changes really require this level of scrutiny. Partner with suppliers to find more effective testing than current Q-200 test protocol. We all need strategies to improve the bottom line while maintaining or improving customer satisfaction relative to performance and reliability. Automotive Electronics Council Component Technical Committee