Breakout Session # 2105 , Supply Chain Management and Logistics track

2. Supply Chain Management through Market Intelligence Breakout Session #2105, Supply Chain Management and Logistics track Robert L. Linville - Certified Managing Consultant IBM Global Business Services 877-836-1935 rlinvill@us.ibm.com Date April 24, 2007 Time 1:40 - 2:40

3. What is Market Intelligence? Definition: Collecting and analyzing data to provide insights on the business environment, customers, and suppliers to empower successful strategic sourcing/planning and decision making. Market Intelligence Biz Decision Club Type? Shot Angle? Ball lie? Opponent Strengths? Wind Direction & Speed? Club Length? Flag Location? Leader Board? Obstructions? Peer status? Score? Air Temperature? Hole number?

4. Market Assessments Market Decomposition Map History Key Market Drivers & Segment Trends Key Suppliers / Forecast Leading Market Shares Forecast Supplier Profiles Company Background: Overview, History Top Competitors Reported Segments: Offerings, Key Competition, Impacting Trends, Key Financials Related Segments: Company Financial Health Facility Risk Appraisals Mergers/Acquisitions/Divestitures Key Programs DoD Prime Contract Awards Commodity Spend Analysis Sample Types • Best Practices Benchmarking Studies • Company visits and interviews • Case studies • Emerging Trends • Demand Trends • Technology Trends • New Market Players/Entrants • Forecasting • Demand Trends, Industry Growth, Market Shares • Recommendations for Action • Implications for SCM staff

5. Types of Research Projects The goal is to obtain information to enable your council to make the best decisions possible. • What kind of research projects could you be asked to complete?

6. Subject Matter for Industry Analysis • What subject matter could be included in an industry analysis?

7. Subject Matter for Specific Acquisitions What subject matter could be included in a research project to support a specific acquisition?

8. Getting Started - Industry Analysis • Step 1: Determine just what you are looking for and what you need. • “Anything about the industry” is too broad. • Narrow focus. • Step 2: Develop relevant data. • Get a general overview of the industry first and then focus on more detail. • Will help you: • recognize important items when you see them. • avoid the tendency to accumulate a lot of data without a general framework in which to fit it. Overview Details

9. Industry Analysis - Purchasing Strategy • Power: Understand the supplier’s power vs your (the buyer’s) power. • Goal: Find ways to offset the supplier’s power. • Supplier power stems from: • Industry is dominated by a small number of suppliers • There are few substitute or alternative product options • Industry is not an important customer of the supplier • Supplier’s product is very important to the buyer • Supplier has unique product or customer would incur large costs to switch

10. Industry Analysis - Purchasing Strategy • Points to consider: • Stability and competitiveness of the supplier pool. • Purchase from suppliers who maintain and/or improve the competitive position of their products or services. • Allocation of purchases among qualified suppliers. • Spread purchases among multiple suppliers to improve bargaining position. • Creation of maximum leverage with chosen suppliers. • Don’t spread purchases among too many suppliers.

11. Transforming Data Into Intelligence Data Facts and information you’ve discovered. Findings Information that answers a research question or objective Analysis Using statistics, making calculations to get means, distributions, correlations, etc Information Observations from your analysis Conclusions Summary of findings Recommendations Informed suggestions for actions.

12. What is Market Intelligence? CONTINUOUS PROCESS FOR GATHERING DATA Suppliers’capabilities Product characteristics MARKET Intelligence Surrounding business practices Plus the analysis of that data to make acquisition decisions Market Intelligence is the sum of two processes + Tactical Strategic

13. Market Intelligence Value Defensive • MI Reduces Business Risk: • Validate or refute commodity council strategies with respect to a specific acquisition or general market assumptions. • Measure the cost of Market Research vs. the cost of Strategy/Business Failure. • Provideclient with legal compliance • MI Provides Business Headlights: • Identify new industry threats and opportunities for growth (new industry trends, technologies, materials, competition, & suppliers). • Take the industry “pulse”. • Raise client awareness of innovative start-ups, trailblazers, and first movers. Follow today’s innovators to tomorrow’s industry standard. • MI Extends Business Reach: • Locate potential new business partners (internal & external), procurement partners (e.g. 3rd parties), customers, channels, M&A candidates. • Prepare client to implement tomorrow’s innovative solutions. • Forecast the impact that tomorrow’s solutions will have on a company’s procurement and SCM staff (e.g. required skills, processes). • Share best practices. Offensive

14. Example: MI helps Strategic Sourcing Teams Envision Strategic Solutions • MI helps Sourcing Teams (ST’s) to envision strategic solutions: • Strategic (vs. tactical) plans are characterized by a broader business impact, long-term focus, and are more conceptual in nature than tactical projects. • Strategic thinking leads to questions about how to prepare and succeed in an uncertain future (see table to right), raising awareness of informational gaps that only MI can fill. • Migration toward strategic research will take coaching & time: • Initially STs will want tactical research support for their tactical projects. They will be easily confused about how to apply strategic research (“what am I supposed to do with this?”). • However, with MI team coaching, this can change and improved over time.

15. MI focuses sourcing teams on new Strategies, not Tactics • Why is strategic research emphasized over tactical research? • Tactical projects defined: Tactical projects focus on how to implement current strategies today. They reinforce the current way of doing business by making nominal changes to an established pattern of implementation. In procurement, tactical research is research for a near term an instant acquisition / purchase. • To use an analogy, if the objective (strategy) is to drive from point A to point B quicker, a tactician may recommend I get a tune-up for my car or make fewer stops along the way. • Strategic projects defined: Strategic projects, however, prepare me for success tomorrow. They question the fundamental underlying assumptions about current ways of doing business. Strategic research applies to a range of acquisitions /purchases. This is the heart of Strategic Sourcing. • Rather than recommend an upgrade for my current automobile, a strategist asks what other speedier forms of transportation are available?…why not take an airplane? Or why get to point B at all? Why not transport what’s at point B to point A.

16. How do strategic sourcing teams get MI started? • Market Intelligence suggests the following ten starter questions for Sourcing Teams beginning MI efforts:

17. How do strategic sourcing teams get MI started? (cont.)

18. SelectSuppliers & NegotiateAgreement Manage Supplier Performance Develop Implementation plan Analyze Supply Markets Develop Category Strategy Assess Customer Requirements Conduct Spend Analysis Where does MI fit into the Strategic Sourcing process? MI inputs here Define market Analyze trends / competition Market provider analysis Purchaser buying power Supplier bargaining power Prepare activity based analysis Understand future requirements Validate & finalize requirements Assess total cost of ownership

19. The Market Intelligence Team Who does Market Intelligence? Everyone has a stake in it Technical Team Logistics Specialist Cost/Price Analyst Finance Legal Counsel Program Manager Stakeholder / End user Contracting Officer Procurement Small Business Auditing

20. Other MI Research Areas • Identify operators, users, suppliers of common goods/service. • What savings and benefits are operators realizing? (e.g. product improvements, improved availability). • Determine perceived and actual user benefits, costs, and risks. • Quantify pitfalls and typical operator investments over time. • Determine practice applicability to operators. • How much does product/service X cost? • How do I address current obsolescence issues? • How do I expand use of item solutions & best practices? • Assisting In the development of Acquisition Strategies: • Tailor Contract Terms And Conditions • Identify Small Business Opportunities • Promote Best Value Acquisitions • Provide A Good Understanding Of The Market Sector • Estimate typical contract length. • Measure penetration of contracts within target group. • Recommend contract negotiating points.

21. Market Intelligence Process

22. Market Intelligence within PSCM Organization at the United States Air Force Real Life Air Force Example

23. Market Research Goals • Expand Use Of Commercial Item Solutions And Commercial Practices • Identify Emerging Technologies • Address Current Obsolescence Issues • Expand Use Of Non-developmental Item Solutions • Assist In The Development Of Your Acquisition Strategy: • Tailor Contract Terms And Conditions • Identify Small Business Opportunities • Promote Best Value Acquisitions • Provide A Good Understanding Of The Market Sector

24. Central Market Research Team (CMRT)

25. Commodity Council8-Step Process Market Research efforts and Input here

26. Market Research Policy The Federal Acquisition Streamlining Act of 1994 (FASA) requires that federal agencies to the extent practicable • buy commercial items, commercial services, and non-developmental items to meet agency needs, • require prime contractors and subcontractors at all levels to incorporate commercial and non-developmental items as components of systems they develop for federal agencies, • state specifications in terms that enable and encourage companies to supply commercial and non-developmental items, and • revise procurement policies, practices, and procedures—not required by law—to remove impediments to the acquisition of commercial items.

27. Market Research Value • Value • Substantiate compliance with policy and statutory requirements established by the Federal Acquisition regulations (FAR) • Supports development of your acquisition strategy • Market Research will be an integral part of our sourcing / planning process and will improve Government’s sourcing leverage in global markets • Consistent process across materials organizations and regular availability of information • Combination of centralized and decentralized solution will improve data availability and result in better cross sharing of information • Economic indicators and supplier specific information available centrally to all sourcing professionals and management • Government Agency can change its sourcing strategies real time with the available information

28. Surveillance (Strategic) Level Market Trends • Identify the state of the over all economic conditions (U.S. & World wide) • If economy is weak (may be a buyers market) • If economy is growing fast (seller may be in the drivers seat) • Identify Commodity specific economic trends • What is the current capacity utilization • Some commodity areas may require specific raw material content overview (metals prices and supply) • Identify Supply Chain for the Commodity • Union issues, exchange rates • Suppliers • New Comers • Identify PPI Trends (Producer Price Index) • Identify Employment cost Trends • Labor rates, • Benefit cost

29. Investigative Market Analysis Acquisition Specific Level • Identify potential sources of supply • Application of commercial technologies, services, products • Are we going to apply FAR12, or other FAR acquisition procedures • Identify possibilities for minor modification to an existing commercial item to meet a military requirement • Application of non-developmental items (other government Agencies products, technologies, services) • Identification of Small Business, Native American, and HUD zone set aside opportunities • Identify Best Commercial Practices / processes as applicable to the acquisition (extended warranties, packaging, terms & conditions) • Challenge / validate user requirements when they fall outside of the commercial market (ie: Test equipment specs)

30. Gathering Market Research Data Product/Service Characteristics Source Capabilities Business Practices; Terms/Conditions Supportability/ Sustainment • Availability • Technology • Specs/Standards • Integration/Open Systems • Impact • Quality Assurance • Market Prices • Services • Competition • RAMP Report • Size • Production • Distribution • Support • Management Consistency • Team: Maturity Stability Availability • Obsolescence • Cycle time • Equipment • Technical Data • Parts availability • Impact of Replacement Items • Warranties • Financing and Discounts • Marking and Packaging • Inspection and • Acceptance • Price data • Insured/Bonded/ Licensed • Govt Leverage • Payment

31. Market Research Techniques • Update Past Market Research • Review Similar Market Research Reports on File • Issue Surveys and Questionnaires (Sources Sought & RFI) • Conduct Site Visits • Perform Internet Searches • Host Industry Days • Contact Small Business/Source Development Office • Review Trade Journals • Contact Professional Societies • Attend Trade Shows • Cold Calling (Yellow Pages) • Contact Professional Contacts • Not All Inclusive – Use Judgment and Imagination

32. Market Research Tools Primary Market Research Websites • Market Research Support Tool The Market Research Performance Support Tool was designed to be a job aid for the Air Force Acquisition Community. Market research tool can assist Air Force personnel in outlining requirements, conducting market research queries, assessing query results, documenting market analysis and more. • Market Research Report Templates Templates for use in generating market research reports • Market Research Search Engines Website listing of search engines with specific information for conducting on-line market research activities. • Market Research Data Repository • Sources Sought Guide (ALC Toolkit) ALC Market Research Home Page • Guide for assisting teams in preparing a formal survey of the marketplace.

33. Market Research Documentation • The documentation of the results of the market investigation is a critical aspect of the process. FAR 10 states that agencies “should document their market research in a manner appropriate to the size and complexity of the acquisition.” • A copy of the market intelligence report should be placed in the contract file as a matter of record. The technical team should maintain a copy for their files to share with other teams and to provide a starting place for future acquisitions. • Upload a copy of the Market Intelligence Report to Market Intelligence tool so the information can be shared and accessed by other activities.

34. Market Research Key Elements of Success • Start early • Involve users • Communicate • Think of market research as an iterative process • Tailor the investigation • Refine as you proceed

35. Home Page for Market Intelligence Site

36. Sample commodity Assessment

37. Sample Market Assessment

38. Sample Market Research News Flash

39. Sample Supplier Profile Market research page

40. Market Research ToolsInternet Search Engines • www.thomasregister.com Commercial (Broad) • www.gsaadvantage,gov Government (Broad) • www.testmart.com Test Equipment • www.ccr.gov Government • www.globalspec.com Commercial (Broad) • www.eem.com Commercial Parts • finance.yahoo.com Financial Information • www.bmpcoe.org Best Practices • www.dmoz.org/Business Broad Based • www.bigyellow.com Yellow Pages • www.bbb.org Better Business Bureau

41. Technology Trends • What new technologies are being developed • When will they be production ready • Identify economical cost curve Phase in time frame to cross over to new technology (new product = cost of old product) and minimizes change over cost • Investigate research activities historical databases (ie: Air Force labs, research institutes, local colleges / universities) • Evaluating aging technology to address obsolete parts issues and diminishing manufacturing resources • Review the application of emerging commercial technologies for insertion into weapon systems platforms

42. Suppliers • Who are the Suppliers currently in this arena • Identify each suppliers market share • Identify the technology leaders • Who are the technology followers • Identify any new entrants • Identify Diversity, small business, MBE businesses

43. Analysis Time Stealers • Locating / interviewing distributors, OEM’s, trade magazines, etc. == 30 hrs • Interviewing competitors, reviewing annual reports, product • literature, press releases, == 25 hrs • Interviewing Wall street analysts, retrieve analysts reports, locating and interviewing Customers regarding Suppliers approach == 25 hrs • Locating / retrieving loan filings, suppliers of Mfg. equipment to the Supplier, examine Union activities / contracts, locate / interview major supplier to the target company == 32 hrs • Review any patent filings, attend trade shows to retrieve literature == 20 hrs • Look for possible advertising agencies that may support specific trades, review 3 years of historical data == 10 hrs • Total Hours spent gathering and analyzing data == 142 hrs (7 hrs per day) == 20.3 days SAMPLE ONLY

44. Rockwell Collins Profile Selected Highlights from Profile By Robert L. Linville Update Mar 2006

45. Introduction Profiles include the following information about each supplier*: • Company Background Fact Sheet • Background Info.: current CEO, HQ location, size metrics, socio-economic status, DoD contractor status, etc. • Subsidiaries/Affiliates • Top 3 Competitors • Company Overview • Company History • Reported Segments • Offerings, Key Competition, Impacting Trends, Key Financials • Defense-related Segments • Facilities • Recent Mergers/Acquisitions/Divestitures • Key Military (Air Force) Programs/Platforms • DoD Prime Contract Awards • Air Force Spend Analysis by Commodity Council • Company Risk Appraisals • Air Force Risk Assessment • Company Financial Stability * when available

46. Rockwell Collins Background Fact Sheet • Background Information: • HQ Location: Cedar Rapids, IA • Founded in 1933, renamed in 2001 • Current CEO: Clayton M. Jones • Company website: www.rockwellcollins.com • Socio-Economic Status: Large Business • DOD Contractor status: Prime • Subsidiaries: • Intertrade Limited, Inc. • Rockwell Collins Air Show Systems • Rockwell Collins Electromechanical Systems • Rockwell Collins Optronics, Inc. • Rockwell Collins Services, Company • Rockwell Collins Simulation & Training Solutions, LLC • Rockwell International Credit Corporation • Rockwell Collins France S.A.S.  France • Rockwell Collins Deutschland • Rockwell Collins Australia • Rockwell Collins (U.K.) Limited   United Kingdom • TELDIX, a Rockwell Collins Company • Top U.S. Competitors (segmented by Market) • Commercial Aerospace: Honeywell, Garmin, L-3 Communications • Defense Communications: Harris, General Dynamics, Raytheon, and L-3 Communications • Defense Electronics: Northrop Grumman, L-3 Communications, BAE Systems, Honeywell

47. Figure 1. Rockwell Collins 2005 Customer Mix Commercial Government Figure 2. Fiscal 2005 Sales by End Market Rockwell Collins Overview Rockwell Collins (COL) Description: • COL is a leading manufacturer of aircraft electronics for both commercial customers and the military. • The Government Systems business also offers products and systems for ground and shipboard applications. • Service offerings include: equipment repair and overhaul, service parts, field service engineering, training, technical information services and aftermarket used equipment sales. • Sales are fairly evenly split between markets. (see Figure 1) • Commercial: COL offers an integrated avionics suite (bundles cockpit multi-function display systems, communication systems, control systems, navigation systems, and computers). COL also provides in-flight entertainment systems. • Government Systems: Defense electronics and communications systems These include subsystems, navigation, and displays, to the U.S. Department of Defense, other government agencies, civil agencies, defense contractors and foreign ministries of defense. These systems and products support airborne (fixed wing and rotary), ground, and shipboard applications. Source: Yahoo Finance, Rockwell Collins 10K report