Global Sourcing Strategies to Achieve Long-Term Success

1. Global SourcingStrategies to Achieve Long-Term Success Brandon Spear Senior Vice President - Operations bspear@quadrem.com

2. Global SourcingA Fundamental Strategic Objective • What is Global Sourcing? • The business process of identifying, evaluating, negotiating and configuring supply chains across multiple suppliers and geographies Common Reasons for a Global Sourcing Strategy • Reducing overall cost structure • Availability of new technology and capacity. Often domestic suppliers lack capacity and / or are not making the necessary investments to stay competitive. • Establishing alternative sources of supply – reduced risk. • Access to new designs or specialized intellectual capital. • Superior quality. This is typically due to supplier investment in technology and capacity to attract global business.

3. Global Sourcing Strategies • Develop and implement a plan • Take a multi-country approach • Move more spend to “Low Cost Countries” • Develop a plan beyond cost savings • Create effective Local Procurement Offices • Develop a strategy to mitigate risk

4. 1. Recognize the need for global sourcing and LCC opportunities 2. Establish Global Sourcing Steering Committee (include business unit executives) 3. Understand requirements and strategies of the business units 4. Identify opportunities to leverage and standardize on a global sourcing process 5. Prioritize opportunities (typically by commodity and/or process) 6. Develop LPO and integrate with cross locational / functional commodity teams 7. Achieve consensus and communicate global sourcing strategies • 8. Establish aligned approaches and processes • Procurement systems • Metrics • Teams 9. Execute sourcing strategies as appropriate 10. Measure Performance Global Sourcing PlanA typical approach

5. Emerging MarketsMulti Country Approach • China is the primary Low Cost Country (LCC) • But near shore countries need to part of strategy • Brazil, Mexico and Argentina are viable markets and closer to US based companies • Eastern Europe is growing and EU allows for free trade across borders A Multi-Country Approach is Leading practice

6. Emerging MarketsMulti Country Approach Weighted preference of top low-cost countries Brazil, 8% Argentina, 9% Hungary, 10% Mexico, 10% Poland, 12% India, 14% Czech Rep, 14% China, 23% China, 19% USA EU Accenture Survey 2004

7. Financial Benefits • Increasing Procurement Spend in LCC • Leading Companies expect to double the spend volume in LCC over the next 3 years, from 14% to 28% • Increase in overall savings expected to be ~10% • Benefits • Cost reductions averaging 19% from 14% to 28% • Total Cost of Ownership reductions averaging 12% • Downside • Inventory Investment increase of 3% • Increased Transportation / Logistics cost 2% Cost reduction benefit is significant

8. Moving Beyond Cost • After cost saving companies need to: • Ensure new suppliers will last over time • Help new suppliers to grow with you • Add new suppliers for additional products How? • Evaluate total value and total cost of global sourcing decisions • Find personnel with worldwide knowledge and skills • Increase visibility of available sourcing data • Enhance knowledge of available global suppliers • Make global sourcing part of overall company operations Establish a local Procurement Office is Leading Practice

9. Local Procurement OfficeCapabilities to achieve success • To conduct effective Global Sourcing, companies should establish a Local Procurement Office (LPO) • Step 1: LPO must have these fundamental capabilities: • Supplier Market Research • Supplier Identification & Qualification • Savings Opportunity Identification • Quality Inspections • Logistics Planning and Execution • Supplier Database Development • Integration into the procurement organization

10. Local Procurement Office – Cont’dCapabilities to achieve success • Step 2: To materialize the saving opportunities the LPO should have transactional capabilities: • Execute bidding processes • Establish and provide Logistics Management • Procurement transactions • Contract and project management • Invoicing and Payments

11. Local Procurement Office – Cont’dCapabilities to achieve success • Step 3: To maximize and maintain saving, the LPO should have advanced capabilities: • Category management • Develop supplier market strategies • Inventory management • Procurement and Sourcing training

12. Risk Mitigation • Global Sourcing is not without risks • Lengthened supply lead times • Increased transportation and logistics costs • Supplier delivery concerns • Supplier quality • Intellectual property • Lack of supplier responsiveness • Language issues

13. Risk Mitigation (cont.) • Risks are manageable with time and resources • LPO’s must work closely with global suppliers • Establish risk mitigation strategies • Dual source with low-cost suppliers (80% to one supplier, 20% to another) • Use low-cost supplier and on-shore supplier • Ramp-up supply with new low-cost supplier • Pick the right products for low-cost suppliers • Should have high labor cost component to outweigh risks

14. Summary • Worldwide competition is increasing Global Sourcing • Companies are looking at 31 – 40% of annual expenditure • China is the primary country but near shore is viable • Brazil, Mexico, Argentina, Eastern Europe • A corporate strategy for Global Sourcing is critical • The LPO is critical to creating and maintaining benefits • Must be integrated into core procurement organization

15. Questions

16. THANK-YOU Brandon Spear Senior Vice President - Operations bspear@quadrem.com