Breakout Session Andrew Manthei, Director, Governance, Strategic Sourcing & Supply

2. Optimizing the Supply Chain through Effective Contract Management Breakout Session Andrew Manthei, Director, Governance, Strategic Sourcing & Supply The Burlington Northern and Santa Fe Railway Company Thursday, September 2nd, 2004 11:40am to 12:40pm NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

3. Agenda • BNSF Railway: Who we are and What we do • History of Contract and Supplier Management • What BNSF wanted and really needed • The “Solution” • Conclusion and where do we go from here • Q & A NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

4. The Burlington Northern and Santa Fe NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

5. The Burlington Northern and Santa Fe Network Map NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

6. The Burlington Northern and Santa Fe • 33,000 route miles of track covering 28 states & 2 Canadian provinces • 36,000 Employees • $9 Billion annual revenue • $5 Billion annual spend NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

7. The Burlington Northern and Santa Fe Each Year BNSF Moves… • Enough sugar to make more than 3 million batches of cookies a year. • Every ten seconds a truck leaves the road to take a ride on the BNSF Railway • One out of every 6 cars sold in North America move on BNSF • Hauls enough coal to generate nearly 10% of the nations’ electricity. • Enough wheat for bread to feed 900 million people • Enough lumber to build 500,000 homes NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

8. History of Contract Management at BNSF • Inconsistent, manual processes • 16 step contract management process • Documents all paper based • No central repository for contracts • Lack of proper processes and controls • Lack of automated compliance reporting • No Corporate wide strategy for Contract Management Overall limited contract visibility organization-wide NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

9. History of Supplier Management at BNSF • Little understanding of supplier relationships • Inability to ensure supplier compliance with contract terms • Impossible to measure and evaluate supplier performance • No visibility with suppliers across departments All resulting in ineffective negotiation of agreements and sub-optimal contract terms with suppliers NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

10. Supply Management – Key Goals • Get more value out of business relationships • Centralize buying to optimize sourcing and drive cost savings • Provide better response and visibility for stakeholders, including suppliers • Monitor and manage compliance and performance • Electronic interaction with suppliers • Integration into overall supply chain management strategy NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

11. Contract Management Best Practices • Enhanced availability and visibility into contracts • Central repository for contracts • Standard contract templates and libraries • Configurable, automated workflows • Automated notification of significant events and contract milestones • Tracking and notification of contractual risk • Integration with existing systems NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

12. Solution • A commercial contract management system • Align with BNSF’s overall strategic sourcing initiative • A central part of BNSF’s eCommerce strategy • Integration with other key systems NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

13. Challenges Faced • Paradigm shifts • manual processes to automated ones – only involve those people that need to be involved, not the whole hierarchy • Getting away from paper – even though its not on paper it still exists • Centralizing buying – move to strategic sourcing • Getting field staff and contractors online • Existing contract and template conversion • Integration between all key systems (including old legacy systems) • Customer/contractor acceptance and adoption (comfort levels) • Customer/contractor training NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

14. Implementation Approach • Separate projects to contain scope • Cross Functional Implementation Teams • Close supplier relationship and involvement • Pilots with manageable groups and specific scope • Minimize product customizations where possible • Pre-implementation customer/contractor involvement • Integration between ContractSource, ERP, Fast Track eAP, and other Supply Chain systems. • easiest ones first • Service contracts first, then review other contract types • Plan future growth of the solution and integration scope NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

15. Success – Supply Chain Benefits for BNSF • Track and manage supplier compliance and performance • Analyze item cost and spend across multiple categories and departments • Integrate with AP to enable validation of invoices against contract terms • Evaluate and compare supplier effectiveness by tracking all agreements and related compliance, performance and risk data Overall improved efficiency and reduced costs through better supply chain management as a result of adopting contract management best practices NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

16. Success – Overall Benefits for BNSF • Increased Efficiency • 16 step manual process reduced to a 7 step automated process • Clerical staff reduced from 13 to 3 • Rapid Return on Investment • Full ROI in a short 62 days • Reduced Cycle Times • Contract cycle time streamlined from 30 days to 11 days • Exceptional Visibility into Contracts • Online access – available 7/24 • Improved Risk Avoidance • Proof of insurance compliance built into solution NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

17. Conclusions • The contract management solution has played a significant role in BNSF’s strategic sourcing initiative • Excellent understanding of BNSF’s supplier relationships gained by adopting contract management best practices • Measurable improvement in efficiency and cost reduction • Solution extends beyond the supply chain to address contractual risk and corporate governance issues NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

18. Ongoing Contract Management and Strategic Sourcing Efforts • Leverage spend and supplier analyses to adjust purchasing habits and contracts • Expand use of ContractSource into more business units • Roll-out RFX functionality in ContractSource • Expand system integration • Continually seek customer / user feedback • Participate in the CM vendor’s functional improvement programs • Continuous review and improvement of business processes • Support corporate governance initiatives and regulatory reporting requirements NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process

19. Questions / Contact Information • BNSF • www.bnsf.com • Andrew.Manthei@bnsf.com • Upside Software Inc. • See them in the sponsor’s exhibit area • www.upsidesoft.com • info@upsidesoft.com • Microsoft Case Study • http://www.microsoft.com/resources/casestudies/CaseStudy.asp?CaseStudyID=13670 NCMA 4th Annual Commercial Contract Management Conference Tools, Jewels, and Rules: Leveraging the Contract Management Process