© 2009 agilency all rights reserved agilency 1 Agilency is an international association of senior level executives who work directly with clients on-site to convert their vision into concrete, measurable results. “Ideas are easy … it’s the execution that’s hard” Jeff Bezos Founder & CEO Amazon.com Agilency - agility & efficiency

© 2009 agilency all rights reserved agilency 2 Goals are clearly defined, quickly communicated and readily accepted. The organization is fully empowered, enabling fast decision making. Processes are clearly defined and capable, owned by key players. Lessons learned are horizontally shared and incorporated into key processes. Process capability is continuously improved to enable speed and reliability. Capacity to rapidly respond and change becomes a company core competence. Agility & efficiency become powerful intangible assets of the company. Agility + Efficiency = Agilency Attributes of agile and efficient companies Agilency - our focus is business process improvement

© 2009 agilency all rights reserved agilency 3 Supply Chain Excellence in an R&D Environment D-SCE

© 2009 agilency all rights reserved agilency 4 D-SCE: Supply Chain Excellence in an R&D Environment Agilency - case study consumer products Findings from a company with a high management focus product development process (PDP): Between two thirds and three quarters (depending on product family) of the total product cost comes from external suppliers. 40% of the R&D projects have delays to SOP (start of production). 18% of the delays are “market significant”, i.e. more than 100 days. 55% of the R&D projects have cost overruns. 80% of the cost issues are linked with the supplier management process in product development.

© 2009 agilency all rights reserved agilency 5 D-SCE: Supply Chain Excellence in an R&D Environment Agilency - case study consumer products QuestionProject Manager 1. What percentage of your new development projects at your Business Unit have SOP delays due to external supplier issues? 55% 2. What percentage of the issues you face at start of production arise out of the performance of your suppliers during development? 73% 3. What percentage of your new development projects at your Business Unit have start-up quality or warranty issues directly due to supplier problems? 73% QuestionEngineeringQualityPurchasingProject Mgr. What percent of the SCM issues are caused by internal process or project inefficiencies, e.g. 1. Late availability of drawings and/or CAD data 2. Reactive planning for sample testing 3. Poor coordination between internal functions 70%77%74%75% Key results of a questionnaire survey: A clear recognition of the magnitude of the problem by the project managers Consensus on the extent of internal root cause

© 2009 agilency all rights reserved agilency 6 Company wide supply chain management (SCM) improvement initiatives focus on production and do not adequately address the issues in the Product Development Process. SCM improvement within the PDP is fragmented along product-lines  often in a “fire fighting” mode Globalisation of the R&D process drives globalisation of the SCM process:  Centres of Competence increase R&D effectiveness while also creating greater dependency on suppliers with new SCM branches.  Regional product development and manufacturing centres foster new, local supplier bases with unconfirmed supplier capability and capacity.  New supplier cultures add challenges to the communication process. Compressed and limited project durations leave less time for the supplier to develop their parts or tooling. D-SCE: Supply Chain Excellence in an R&D Environment Agilency - typical supplier management issues in the PDP

© 2009 agilency all rights reserved agilency 7 Supplier selection process is dominated by Purchasing, foregoing opportunities to strengthen cross functional and full project team ownership for the suppliers selected. Many issues attributed to supplier performance have their root cause at the customer, e.g.:  Delays in design freeze and availability of CAD drawings  Poor customer internal alignment on planning.  Inadequate communication and involvement with suppliers. Risk management does not adequately address supplier risks. Conclusion: Supplier management issues are a major driver of R&D project budget, schedule and quality problems and the ultimate product cost. D-SCE: Supply Chain Excellence in an R&D Environment Agilency - typical supplier management issues in the PDP (cont.)

© 2009 agilency all rights reserved agilency 8 All supplier relationships are not the same, and need to be managed differently. Transactional Relationship – useful for catalogue items and raw materials.  Request for quote (RFQ) or auctions can be used.  Lowest price and standard quality are key factors. Contractual Relationship – useful for custom designed parts & tools.  Component defined by customer – drawing or specification.  RFQ or long term relationship to establish contract.  Reliability of delivery and quality is essential. Development Partner – useful for supplying new technologies or capabilities.  Supplier defines the component or subsystem.  Acts as part of development team for product – development contract.  Unique supplier capabilities are essential.  Requires clear rules on Intellectual Property ownership and confidentiality. D-SCE: Supply Chain Excellence in an R&D Environment Agilency - key differences in supplier management

© 2009 agilency all rights reserved agilency 9 Selecting the right suppliers with the right capabilities at the right time:  Cross functional selection process (either by functions or project team)  Verification of supplier capability to make the part in question, both internally and through technical discussions with the supplier. Identifying and eliminating SCM specific issues to improving the overall PDP:  Alignment of the part testing & release process (communication process)  Timely availability of part prototypes and drawings.  More direct involvement of the suppliers in the project. Measuring SCM performance on both sides of the supplier/customer boundary:  Measurement system focused on supplier involvement in the development process (not normal supply chain measures for production)  Development of KPIs (Key Performance Indicators), which measure the development process performance at both supplier and customer. D-SCE: Supply Chain Excellence in an R&D Environment Agilency - our focus to improve supplier management

© 2009 agilency all rights reserved agilency 10 Estimate the extent of the supplier management process issues in PDP projects:  Questionnaire(s) and survey  Interviews of key participants. Estimate D-SCE improvement potentials:  Benchmarking process and barriers against other D-SCE initiatives  Correlating benchmarks to business & industry conditions  Scaling potential improvements to realistic expectations in terms of time and cost. Establish a D-SCE improvement team – cross functional, escalation to top management, drumbeat meeting schedule and review. Set up an appropriate set of KPIs to drive SCM process improvements via the D-SCE team. D-SCE: Supply Chain Excellence in an R&D Environment Agilency - our proposed next steps

© 2009 agilency all rights reserved agilency 11 TTM Success Factors Define Driver & Result Metrics Analyze & Quantify Root Cause Barriers Map Critical Processes Measurements Set a Vision of Entitled Performance VOE Set Operational Baseline & Entitlement Transform Driver Metric Improvements into Results LINK TABLE LINK CHART Prioritize Actions Eliminate Root Cause Barriers & Substitute Processes IST OPERATIVE LEISTUNG SOLL OPERATIVE LEISTUNG QUALITY ON TIME DELIVERY CYCLE TIME GANTT CHART WHO? - WHAT? - WHEN? Set Financial Baseline & Entitlement FINANCE OBJECTIVES INVENTORY TARGETS PARETO ANALYSIS Identify Barriers TASK CONTROL PROCESS Completed Active Backlog Filter CAUSE & EFFECT DIAGRAM “SOLL PROZESS” “IS” PROCESS” “SHOULD-BE” PROCESS” Agilency - how we drive to results “lessons learned” Cockpit Chart