TechSource

1. TechSource June 2006

2. Characteristics of the Technical ToolsPurpose, Attributes, and Benefits • Common Purpose of all technical tools • Encourage communication across the organization • Help drive an informed, objective(technical perspective)decision making process • Key Attributes for all technical tools: • Maintains an objective, technical focus • Employ a “data driven” approach to maintain objectivity • Capitalizes on internal and external expertise in development • Requires interpretation of results by qualified individuals • Benefits: • Help Understand Our Parts and Suppliers • Help Expose What We Don’t Know that We Don’t Know about Our Parts and/or Suppliers • Help Expose Technical Issues for Resolution/Mitigation • Help Manage Supplier Performance • Help Understand Supplier Process Capabilities

3. Supply Base Management ToolsTechSource

4. TechSource HistoryWhy Did We Need This Tool? • Changing Suppliers Highlighted Issues: • Dramatically increased the number of parts/products being moved from one supplier to another • Issues: • Incumbent suppliers sometimes only ones who know how to make part • Divisions do not know how to fix the problems • Divisions did not “plan” appropriately prior to making move • Root Causes: • Divisions do not have all parts properly documented • Divisions sourced complex parts to suppliers who do not have the technical expertise to produce them • Emerson’s Need: • Technicaltoolto help understand Supplier’s overall capability • Technical tool to help the Divisions understand their part complexity TechSource

5. TechSourceWhat is it? • A “technical tool” that: • Enables “pre-screening” of suppliers • Characterizes a supplier’s attributes • Is objectiveNOT subjective • Does NOT indicate “good” or “bad” (ECAT does) • Requires engineering to participate • Supplier’s engineering for Supplier Survey

6. A C B HIGH RISK LOW RISK TechSource is a Characterization Tool3 Primary Objectives • Characterize the Supply Base • Better understand the breadth and depth of capabilities of our Supply Base • Source the right parts to the right suppliers tosave $ • Help the Divisions think through the process of moving parts • Maximize the Benefits from using Reverse Auctions • Identify the RISKS associated with moving a part from one supplier to another • Mitigate risks to expedite implementation time Emerson Confidential 6

7. Part and Supplier Characterization ToolObjectives 1 & 2 • Characterizes suppliers into 3 categories: • A (Little to no technical expertise) • B (Significant experience base resident) • C (Significant technical expertise resident) • Emerson staff must determine the complexity of their parts and select the appropriate Supply Base that is capable of meeting the needs. Does NOT indicate “good” or “bad” Emerson Confidential 7

8. Understanding Technical RisksObjective 3 • The risk statements are in the context of changing suppliers • Each risk statement has a risk level assigned to it • Extreme, Significant, Minor, Potential, or No Apparent • The tool only identifies risks - the Division and/or Commodity Team must evaluate, validate, and define risk mitigation plans, as appropriate • The intent is to reduce chances of major issues and accelerate implementation by addressing risk prior to the move

9. TechSource OutputsScorecard & Risk Report Generated (supplier example) Scorecard Risk Report Both reports needed to determine the supplier’s characterization Emerson Confidential 9

10. Who is managing TechSource?Data Collection, Analysis, and Management • Corporate Commodity Teams • Collecting Supplier Surveys • Requirement for a Supplier to participate in a Reverse Auction (full source) for Stampings • Running the Surveys through the TechSource Analysis and Analyzing the Data • Storing the Data • Integrating the Supply Base with overall Commodity Strategy • Divisions • Responsible for Part Portion of TechSource (available for Plastics and PCB only) • We are trying to develop a more “automated” way of determining a part’s complexity using parametric parameters • Copeland is participating in beta tests for Stampings and Plastic parts

11. TechSource Tool StructureInputs and Outputs Inputs Outputs Analysis (Step 1) (Step 2) (Step 3) Supplier Survey Analysis File Import Survey Data into this File Corporate Procurement Distributes Surveys Corporate Procurement Runs Analysis Divisions Have Reports to Review/Analyze Emerson Confidential 11

12. Step 1: Distribute the Supplier SurveyInput Provided by Supplier (PCB Example) General Supplier Information Technical Questions For the Supplier Point and Click Data Entry Emerson Confidential 12

13. Step 2: Analyze the Supplier’s DataImport Supplier Survey into Analysis Tool • Corporate Procurement staff at the GMDC typically run the Analysis for the Supplier Surveys

14. Step 3: Review Supplier ScoreCardTechSource Output (PCB Example) Characterizes this Supplier 1. Categories 2. Confidence Levels 3. Scores for each category of questions General Information gathered in Section A of the Supplier Survey Emerson Confidential 14

15. Step 3: Review the Supplier Risk ReportTechSource Output (Stamping Example) Histogram of Risk Levels based on the Supplier’s Responses Risk Level and Risk Statements Risk Mitigations Emerson Confidential 15

16. Interpreting TechSource ResultsWhat do the reports mean? Scorecard • Provides a numerical score that classifies the supplier or part into the three categories of A,B,C. • Do NOT use the numerical scores as exact values rather use them on a relative basis. • For example, a Supplier who scores 34 should be considered in the class of high A to low B. Compared to a Supplier whose score is 63 in the higher B low C range. • Use the category scores on the Scorecard to determine the strengths and weaknesses.

17. Interpreting TechSource ResultsWhat do the reports mean? Risk Report • The Risk Report was developed in the context of moving a part from one supplier to another. • This report highlights areas that may pose risk for a specific supplier or a part from a technical perspective only. • You may modify the risk level in the report so that it aligns with Emerson’s assessment of the risk.

18. Interpreting TechSource ResultsWhat do the reports mean? • Valid assessment of a supplier/part requires the user to use the Scorecard and the Risk Report together. • These reports do not “give you the answer”–it is only a tool to help in the assessment • Requires someone to think about the results, possibly ask some questions, then formulate an assessment • Keep in mind that there is no good or bad score • TechSource merely characterizes the supplier in terms of their overall abilities/offerings, Emerson Needs A, B, and C Suppliers (Servicing Broad Range of Products)

19. TechSource ToolsAvailability • Done • Plastics (thermoplastic and thermoset) • In the process of upgrading/revising – target completion 10/06 • PCB • Stamping • Machined Parts • Castings • Tooling • In-Process • PCBA (December 2006)

20. TechSource Demonstration • Stamping TechSource Tool

21. Commodity Team Data

22. TechSourceCommodity Teams Using the Data • Technical, objective methodology to understand our supply base • TechSource is complete for all commodities (except PCBA) • Commodity Teams are developing supply base profiles showing the distribution of our supply base capabilities Emerson Stamping Supplier Distribution • Stamping Commodity • 186 Suppliers • ~$265 M of Spend Capture (top 62%) • Supply Base centered around high B • Extensive data sorting to analyze supply base (i.e., sales of supplier, geographic, etc.) • Available for other commodities Number of Suppliers Stamping TechSource Score

23. TechSource DataNumerous Data Sorts Available Machined Parts • Machined Parts • 236 TechSource Surveys completed • $201M of $330M Spend Captured (61%) A B C

24. Significant Data AvailableStamping Example

25. Use This Data Today • Reverse Auctions • Suppliers to needed for parts • Suppliers to invite • Supplier evaluations Talk to Your Commodity Managers - They Have Access to this Data Today

26. So How Do We Predict The Part Complexity

27. Manufacturing Difficulty Index (MDI)Developing an Emerson Part Complexity Profile Can we predict how difficult a component is to manufacture by evaluating a limited number of parametric parameters that are found on a part print or specification? Working on this concept – shows promise but a fair amount of work is needed to prove feasible

28. The Vision for MDITwo Primary Uses • Product Development Input • Design engineers have a reference for how difficult the part will likely be to manufacture (and hopefully be able to modify the design to make it easier…) • Supply Base Management • Knowing how difficult the part is to manufacture tells us what type of supplier will be needed to produce good parts • TechSource tool characterizes our supply base in terms of capabilities (broad sense). • MDI tool will characterize our parts in terms of difficulty to manufacture • Assumptions • All inputs should be specified on a part specification and/or drawing • MDI will help us determine the blue line • TechSource tells us the red line