Breakout Session # 1209 Dennie Norman, Worldwide Strategist, Supply Chain Intelligence

1. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

2. Leveraging Analytic Supplier Relationship Management forCompetitive Advantage Breakout Session #1209 Dennie Norman, Worldwide Strategist, Supply Chain Intelligence SAS Institute Benny Östh, Manager, Contracts and Shipping, Market Department ABB Power Technologies AB, Components April 28, 2004 10:00-11:00 am NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

3. Fulfilling Corporate Goals – Reducing Global Spend Dennie Norman WW Strategist, Supply Chain Intelligence SAS Institute NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

4. Focus Topics • Introduction to Strategic Supplier Relationships • The ABB Challenge and Business Case • An SRM system as support - critical success factors • Aligning SRM results with Corporate Strategy • Delivering ROI on your SRM Strategy • Summary NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

5. Why a SRM system? Supply Chain Management Sell Source Make Ship Store Supplier RelationshipManagement • Manage spend, leverage total buying power and identify sourcing opportunities for most profitable supplier relations NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

6. How can I act on this insight? What is the best that could happen ? What will happen ? Why did it happen ? What happened (hindsight)? Analytics Drive the Power of Information Scenario modeling & root cause analysis Enterprise Performance Optimization Predictive modeling Descriptive modeling Ad hoc reports & OLAP ROI Standard reports Raw data Data Information Knowledge Intelligence Hindsight Vs. Insight NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

7. Focus Topics • Introduction to Strategic Supplier Relationships • The ABB Challenge and Business Case • An SRM system as support - critical success factors • Aligning SRM results with Corporate Strategy • Delivering ROI on your SRM Strategy • Summary NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

8. P&L Efficiency P&L Efficiency P&L Efficiency P&L Efficiency P&L Efficiency ERP & SCM Systems ERP & SCM Systems ERP & SCM Systems ERP & SCM Systems ERP & SCM Systems The ABB Challenge 5 Divisions 26 Business Areas 1200 Business Units 125 countries Take out duplicate costs and look for unique revenue opportunities by taking a “horizontal cut” The Transmission Division The Building Services Division The Oil & Gas Division The Global Processes Division The Automation Division • $ 10 billion of spend captured in 300+ ERP:s Goals: Manage spend, leverage total buying power and identify sourcing opportunities for most profitable supplier relations NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

9. Focus Topics • Introduction to Strategic Supplier Relationships • The ABB Challenge and Business Case • A SRM system as support - critical success factors • Aligning SRM results with Corporate Strategy • Delivering ROI on your SRM Strategy • Summary NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

10. Critical Success Factors • Top management “buy-in” and active support • Solid project management • Data collection strategy • Agreed to goals, expectations and specification • System quickly available to users; phased approach • Spend, “5 basic questions” (what, volume, who, supplier, when) • Contracts, preferred suppliers • Supplier performance rating and ranking • Scorecarding NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

11. Answering the five basic questions: What? How much? From whom? By whom? From where? Providing: Link to contracts Dependency ratios Contacts Supplier/Buyer profiles “Usability / User Friendliness” Detailed Selection Criteria- Example • Application intuitive & easy to use • Visual support • Consistent look-and-feel • Application self-explanatory • Easy-to-learn • On-line support & adequate documentation • Easy to customize • Built in help function –”Top 10 most asked questions” • Possibility to enter data on line NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

12. Overview ABB Vendor Selection Process From Long List to Final Selection Long List Short List Narrow again Final Vendor 1 8 4 3 2 List of suitable candidates Initial Screening Finalize candidates Narrow further Select Package • Info from Gartner Group & AC • ABB contacts • Company • Product Data • Company • Product • 2 levels of requirements • RFI • 3 levels of requirements • Reply Evaluation • Demo with ABB data • RFQ • Workshop • Gap Analysis • Implementation Scenarios • Final Vendor Decision NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

13. Critical Success Factors (cont’d) • Involvement from SM and IT community • Interaction agreement • User friendly system that will “deliver” • A project schedule (<6 months to launch) with • Resources, financing and manpower • Milestones • Deliverables • A thorough “Change Management Program” • Formation of commodity teamsROI within 12 months NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

14. Status for SRM (eSMART) in ABB today • >100.000 suppliers • >475 business sites • >$14.000 mill (rolling 24) • > 12 mill transactions • >92% accuracy rate • >30 countries (4 continents) • Web based (1 server) • >3,000 named users • Weekly update • User friendly (e-learning!) • On line in < 6 months • In operation > 2 years Note! Out of 140 central IT projects started 3 years ago; the only project (of 4, surviving 9 exec reviews) delivering according to initial business plan, on time and under budget! - Controllers use for weekly cash flow forecast and payment term compliance NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

15. Focus Topics • Introduction to Strategic Supplier Relationships • The ABB Challenge and Business Case • An SRM system as support - critical success factors • Aligning SRM results with Corporate Strategy • Delivering ROI on your SRM Strategy • Summary NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

16. The Strategy! (Enabled by an Analytical SRM Solution) • Leverage total buying power • Commodity Segmentation • Pool and move volumes to fewer suppliers • Partnership contracts, for critical commodities • Premium Partners, to receive 80% of total volume • Prices based on 2-year forecasted volume, no guarantees • Management • Change program • Commodity teams • Cost savings metrics • Goals for cost savings • 15% >10% >5% Drive your future! NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

17. Focus Topics • Introduction to Strategic Supplier Relationships • The ABB Challenge and Business Case • An SRM system as support - critical success factors • Aligning SRM results with Corporate Strategy • Delivering ROI on your SRM Strategy • Summary NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

18. How Much Can A Company Save Using SRM ? Experience so far; Cost Savings for a company using SRM with $ 100 Million of Spend • Request Automation - $0.1 Million • Procurement Operations - $0.6 Million • A/P Operations - $0.1 Million • Reduction of Spend - $6.6 Million !!! Approx. 7% “Purchasing Magazine” Benchmarking Partners Research: 2000 NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

19. Focus Topics • Introduction to Strategic Supplier Relationships • The ABB Challenge and Business Case • An SRM system as support - critical success factors • Aligning SRM results with Corporate Strategy • Delivering ROI on your SRM Strategy • Summary NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

20. SRM as support for the “Real Time Enterprise” Requirements Analytical SRM Software, Consulting Services, Training Investment challenge Find sponsor for 0.2% of total spend as an investment How get return on investment? • Leverage total buying power • Reduce supplier base • Reuse of contracts • Mitigate risk • More accurate forecasting • Monitor trends • Improve contract compliance • Reduce rogue spending • Utilize best supplier partnerships • Pool volumes • Optimize your options • Experience so far: • In less than 12 months break even; Focus: keep market share, improve service levels, gain top line growth; • In same period stock value up $1.20 to $6+ NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

21. Knowledge or Awarenessin SRM ABB Power Technologies Benny Östh NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

22. Topic • A Supply Management strategy everyone can understand within a few minutes • SRM system eSMART, up and running since January 2001. Management supported for business improvement • Improved business NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

23. Introduction • The main criteria's for my conviction and way of practising Supply Management comes from 20 years of experience in global business, together with well proven theories, combined with impressions from excellent professional colleagues and suppliers. Benny Östh NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

24. 1. Positioning 2. Challenging Impact High Strategic Leverage $ Commodities Bottleneck Strategic Products Low Many # of supplier One 4. Based on facts Critical and Bottleneck Products Supplier Relationship Management - eSMART Commodities Supply Management Strategy 3. Group strength NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

25. 1. Positioning • Example, Leverage supplier:“Many thanks for your good news today. We are so happy to hearing your information.………Many thanks again.” • Example, Strategic supplier:How do I make sure I am a Strategic Customer to my Strategic Suppliers? How many Strategic suppliers can I deal with? - Strategic Supplier can distinguish us from our competitors in our degree of excellence, but only if the Strategic Supplier support our business strategy • The perspective used for positioning is the key for success. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

26. 2. Challenging • Demanding and challenging at same time • Management to Management, MtM. Investment in Management support • Know-how Investment in competence • Supplier Investment in supply chain • Relations are still important in business NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

27. 3. Group strength • Knowledge is a strength! Knowledge must be updated on-line and available for users. How much resources and time can I spend on being updated? Today’s knowledge is tomorrow's awareness. Have my Supply Management organization knowledge or awareness? • Benefits of scaleExample, product A. Leverage and very high impact: Volume allocated to supplier having acceptable mix of price-sensitive and less price-sensitive customers. Supplier can meet our demands for price- and cost reductions. Example, product B. Bottleneck: Purchasing value 0,2-0,4 MUSD/year. ABB group buys for 15-20 MUSD/year from 25 companies worldwide in suppliers group. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

28. 4. Facts • The 20-25 percent of suppliers representing 80-90 percent of the value know all important facts about their ABB customers; • Volumes • Pricing • Conditions • Performance • People • … • The “80-90 percent” suppliers marketing strategy towards ABB are based upon their knowledge about us. • A good businessman in purchasing can do successful business without facts to apply his strategy upon, but only if he is lucky. • Collecting facts must be easy and accurate. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

29. Summary • Cost and payback - There are already a certain cost when collecting information out of own ERP system- The cost increases when collecting information from a group- The regular information to eSMART server needs a responsible person, able to act if necessary- What potential savings will knowledge instead of awareness give me? - Achieved savings better than group target! NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

30. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”