1. Creating a Win-Win Environment with Suppliers  Strategy  Key activities of 1st PI  SRM as part of 2nd PI  Monitoring & Future plan  Strategy  Key activities of 1st PI  SRM as part of 2nd PI  Monitoring & Future plan SRM Team POSCO

2. POSCO – Company Overview 0 5 10 15 20 25 30 (m tons) 68 70 72 Crude Steel Production Net income 1.2b$ 900m$ 600m$ 300m$ Net Income Gwangyang Works phase 4 Oct. ’92 Pohang works phase 4 May ’83 27.66 m tons (Plan for’03) 90 92 94 96 98 2000 2001 2002 2003 1.03m ton (Jul ’73) 80 82 84 86 88 74 76 78 28.06m tons (’02.12.E)  Revenue(2002/E) : 11.7 trillion KRW (9,774 m USD)  Net income after tax (2002/E) : 1.1 trillion KRW (917m USD)  Employees : 19,169 (2002/E)  Revenue(2002/E) : 11.7 trillion KRW (9,774 m USD)  Net income after tax (2002/E) : 1.1 trillion KRW (917m USD)  Employees : 19,169 (2002/E) Founde d in April, ‘68

3. Establish a “Value-based Management” through PI Business Process (Customer-centric, e-Business) Corporate Culture (Mindset · Practices · Organizational Innovation) Information System (Proven Best Practices) PI Value-based Management Transparency, Principle-based, Accountability

4.  Improvement in operational efficiency was achieved after 1st PI.  Expanding on this, SRM focuses on enhancing competitiveness & collabortation thru joint efforts between POSCO and suppliers  Implementation Strategy I. Strategy

5.  Scope Requirements calculation Supplier selection Supplier selection Supplier Evaluation Supplier Evaluation Procurement Analysis Procurement Analysis Realize Best Purchase Practice Supplier Relationship Mgmt. Supplier Relationship Mgmt. E-Procurement construction E-Procurement construction Operational business process Strategic business process 2nd PI (‘02.1~’03.5) ERP-enabled central sourcing ERP-enabled central sourcing Auto. demand creation thru MRP Auto. demand creation thru MRP 1st PI (‘99.1~’01.6) Order process’g Order process’g Receipt Storage Consumpt’n Storage Consumpt’n Settle- ment

6.  Item Standardization – (i2 Explore 2000)  Reduced No. of items from 590,000 to 280,000 (53% down)  Simplified No. of item names from 5,553 to 892 (84% down)  Introduced item code structure in line with Global Standard Item Item code Site Spec. Unit price Supplier V-Belt 612011A037 PH 8V-2050x5207Lx25.4W $ 50.26 A x22.2T,KSM6593 V-Belt 6127802050 KY 8V-2050 $ 16.07 B Item Item code Site Spec. Unit price Supplier V-Belt Q1007352 PH,KY 8V-2050x5207Lx25.4W ? ? x22.2T,KSM6593 II. Key activities of 1st PI Now Pre- PI

7. e-Procurement POSCO e-Sales  Horizontal MRO - Set up J/V “eNtoB” in Oct. 2000 w/KT, Hanjin, Hyundai  Vertical Material (steel-specific items) - Opened Steel-N.com in Sep. 2001  Started sales of stock items via Steel-N.com in Aug. 2000  Started sales of normal ordered items via Steel-N.com in Sep. 2001  e-Business linking suppliers, POSCO & customers Int. corporate-wide ERP Operations control SCP

8. e-Transaction ERP POSCO Marketplace (Vertical) e-Sourcing e-Bidding Desktop Purchasing e-Procurement eNtoB (Horizontal Marketplace) Bank, Insurance Carrier, Inspection, Korean Railroad POSCO  More about e-Procurement system  electronic procurement system embracing all trading partners Supplier

9.  Vessel monitoring system using GPS INTER NET GPS satellite Shipment plan Port arrival schedule Vessel Monitoring SYSTEM INTERNET Carrier TELEX FAX Manually enter monitor’g info Shipment plan Port arrival schedule FAX  Real-time monitoring of vessel movement  Leading to reduction in raw materials inventory and better leveraging of vessels

10.  Automatic calculation of requirements using MRP ERP Item Master BOM Inventory Sourcing Rule SCP Forecast of sales order Auto. Create Purchasing Order M R P  Improvement in consumption/forecast planning by auto. calculating requirements based on production plan and BOM  Improvement in consumption/forecast planning by auto. calculating requirements based on production plan and BOM  No more coordination meeting between Production and Purchase depts.

11.  User-oriented purchase process  User responsible for placing PO and inventory management  Production plan and work conditions fully considered during purchase  Centralized purchase organizations based on commodities User dept PR Price rese -arch Bid Contract PO Recei -ving Inspec -tion Pay -ment (req. for BPA) Purchase dept Pre- PI User dept Purchase dept Contract Order (e-Pro) Pay -ment Recei -ving PR Bid Now

12.  Purchase made via e-Procurement  Open & Fair Policy  No need for personal visiting (40,000 people visiting POSCO/year)  Now focusing on SSP (Strategic Sourcing Process) activities SSP 79% SSP 79% SPOT 21% BPA 9% BPA 9% SPOT 91 % BPA 78% BPA 78% SPOT 22% Spend Activity Post-PI activity 53% ※ Relocation of MRO HR (purchase → marketing ) - Before: 117 in 11 teams, - Today : 59 in 7 teams ( ▽ 58 ) 0 0 98 %

13. III. SRM as part of 2nd PI 1.SRM Objectives  Improve competitiveness of the whole supply chain thru collaboration with good suppliers Share supplier performance result Supplier self- improvement Collab. w/ excellent suppliers Pursue mutual benefits Gain supply chain visibility Support decision making Strengthen competitive- ness of whole supply chain SUPPLIER POSCO COLLABO- RATION

14.  In steel industry, purchase cost makes up the biggest portion in revenue  Particularly true for POSCO given its high dependency on major suppliers * 1999, Fortune 500 research (2002, Gartner report) ** 2002, total purchase spend: $ 6.3 bill. Industry purch. spend to rev Remark Metal(steel) 64.6%* POSCO = 64.3%** Chemical 61.3% Plant, constr. 58.6% Big benefits are expected with SRM 6% in number = 83% in spend 150 suppliers $ 5.3 Bill.

15.  Key Milestones  Soft Landing Effort 2. Progress Area Supplier Buyer/Planner DomesticForeign Activity 1,1931381,003 Explained objectives 6 times Trained 27 times Explained objectives 8 times Explained at major raw materials supplier sites Explained at steel works managers, buyers & planners 32 times 02.1 03.403.102.902.4 Solution Selection (i2) Integration Test System Implemen -tation Detail Design Master Plan ’03.4.2 GO- LIVE

16.  Principles Auto. aggregation of data to boost objectivity in evaluation Characteristics of items used in defining measures External credit agencies leveraged (KCGF, D&B)  Supplier performance analysis system  System for supplier participation and continuous improvement Share evaluation criteria & results Supplier is given opportunity to raise disagreement or write improvement plan to any performance result Objective supplier performance analysis 3. Implementation Outcome

17. Category(6)Measure(33) CreditCredit rating Quality Reject rate (No./volume), Defect rate, Component/grain fineness defect rate Cost Price competitiveness, Winning bid price rate, Quality price competitiveness DeliveryDelay rate, Delay compensation rate Responsiveness Contract fulfillment satisfaction, Bidding participation rate Env. & SafetyEnv. friendliness, Construction safety control  Evaluation Indicators

18.  Differentiation Segmentation of suppliers into 4 groups based on performance analysis and stratification results Strategic Preferred Approved Prime Improve -ment Poor Good Excellent Performance analysis Value Stratifi- cation Circu- lation GroupRel. strategy Prime Long-term relationship Collaboration partner Value Volume concentration Continuous sourcing Improve -ment Consulting support (6 Sigma) Circula -tion Give opportunity to improve

19. Implement benefit-sharing, easy to implement programs first and roll out Introduce sanction program after performance analysis system gets stabilized  Phased-implementation of 19 differentiation programs in 5 areas Benefit typeProgram Honorary benefit Suppliers of the year, New Year’s celebration, Community support, PR in local newspapers Contractual benefit Better duration, Priority vendor, Bigger volume Tech/service exchange Share lab/R&D facility, More exchange of technology Financial benefitBetter payment terms, Less deposit liability Performance Improvement Consulting service, Improvement plan, Benefit sharing, Transaction stoppage  Differentiation Program

20. Supplier knows where to improve Supplier knows performance trend Supplier knows how much to improve Report Usage  Performance Report -Example 200020012002/Q12002/Q22002/Q32002/Q4 XXX 0.001 20000 80 100009210080 10000 8092

21. 1 4 01 3 0 1 0 0 POSCO enter Pull View shipped qty. Supplier enter commit qty. View POSCO forecast Fore -cast VMI JIT  Automate VMI, JIT, Forecast collaboration process on 218 suppliers  All prties in S/C (Buyer, User, Supplier) excute the collaboration on same screen  Implement collaboration system View daily projected stock Qty. mismatch alert Integrated view Inv. shortage alert

22. Collab. points Expected benefits Link forecast data to sales mgmt. system Forecate accuracy 40 → 90 % Share stock info. $ 6.7 Mil. reduction in supplier inventory Link delivery request and shipment plan Support collab. by linking s2s across the whole process Auto. link Invoice and tax invoice  S2S collab. w/ Chosun Refractories – Example Stock info.View stock DeliveryReceiving Payment Direct system link (ebXML) Create forecast Create invoice Create ship -ment plan Submit tax invoice POSCO Chosun Make prod. plan Create del. request

23.  Improve Steel-N.com (Two-way Communication)  Provides “Alert info.” suppliers should look at Pending bid, PO issued today, scheduled shipment today, etc.  Community (on-line video conference, archives)  New Product Introduction  Best Suppliers(suppliers of the year, best cost savings supplier)  Collaboration (VMI, JIT, Forecast)  Results of Supplier Performance Analysis  For major suppliers, info. like employee search and HR announcements is provided at the same level of POSCO

24.  Provide analyzed purchase info. to support decision making  Multi-dimensional info. useful in purchase activities Across 6 dimensions : commodity, supplier, user organization, buyer, time, AP type  Put together diverse supplier info. in integrated format Contract by supplier, performance analysis, transaction history Credit info. provided by external agency (e.g., D&B, KCGF)  Identify where to focus capabilities & support quick decision making  Secure stable source of supply by identifying potential risk of suppliers early on

25.  Analysis info. - Example 3.8 2,869 100M – 1B 38.5 28,808 10B – 100B 30,64812,09533216Amt.(100M) 41.0 > 100B 16.2 1B – 10B 0.44 10M – 100M 0.02 < 10 M % Area Enter search conditions Identify need to rationalize suppliers Identify collab. partners

26.  Integrated Supplier View - Example Demographic I/SB/SCash Flow RatiosSourcing

27. ERP/SCP/Maximo Corporate data analysis system BSC ABM Strategic Enterprise Management Operations System Refresh 6 Sigma Program Enterprise Portal e-Procurement Customer Satisfaction Business Support Mgmt. R & DFinance Procurement & Maintenance General Admin Data Warehouse e-Sales Corp./Div. 1st PI 2nd PI Legend HRM Extension KM Treasury Operational Data Minning Dept. Build integrated and web-based operational system SRM SRM Enhance collab. w/ excellent suppliers CRM Integrated customer data system Supplier Customer  System Architecture

28. 4. Expected Benefits of SRM  Expected benefits Increase in operating profit by $ 40 Mil. Revenue increase backed by enhanced competitiveness $ 24 Mil. cost savings, $ 65 Mil. inventory reduction a year Improved productivity by securing high quality materials KPIAs-IsTo-Be (‘04) % of spend to excellent suppliers30%80% % of VMI/JIT23%40% Av. No. of days stock held RM : 45 days MRO : 81 days RM : 41 days MRO : 68 days  Target by KPI posco Supplier

29. ’03.4.26.29.197.1 Monitoring & VOC Monitoring & VOC Performance Report release SCC & Community SRM SCCPerformance Report  2,950 internal- users  Integrated Supplier Info.  Performance Analysis Result  218 suppliers  8,529 items  Report : ’03.1/4 and 2/4  3,951 suppliers and 323 sourcing groups 1. Calendar of System Operation IV. System Launch and Monitoring

30.  SCC  SRM Class RMMROServiceE & CTotal Excellent 333432229 Good 5558837364 Poor 1281459 Sub Total 100%  No. of supplier : 3,591 Key FactorsTarget ’03.7’03.8 MRORMMRORM System Utilization100%997810085 Forecast Accuracy90%68717573  No. of supplier : 218 2. Results on Early stage (unit : %)

31. Continuous efforts to complement the analysis measures Improving the accuracy of forecast data Reinforcement of individual competence in S/C Needs of the systematic training scheme Modifying the system to achieve the user-friendly Developing new collaboration model Establishing the realistic differentiation program Enhancing the corresponding ability against supplier’s inquiry Set-up trainning Program Set-up trainning Program [ Action Plan ]  SCC  Others  SRM 3. Major monitoring results and Action Plan System Upgrade

32. 2003.1 SRM stabilization Supplier participation Go-live & stabilization Start with benefit-giving strategy Foster specialists to support suppliers 2004 Supplier support strategy in full swing Sanction scheme Differentiation roll out Successful collab. go-live Differentiation in place 2005 Roll out collab. scope  Encourage voluntary participation of suppliers  Continue to increase no. of collaboration partners  Establish the systematic trainning program to reinforce individulal capablities in supply chain  Attain the earliest system stabilization SRMSRM SRMSRM SCCSCC SCCSCC 2003 4. Future Plan

33. Key Success Factors  Philosophy of CEO = Size of Innovation  Innovative target setting & all capabilities focused on innovating Process/System/Organization to accomplish the target  Company-wide Integration & Standardization  Proactive adoption of latest IT technologies  Effort to form consensus among stakeholders and change management