Supply Chain Complexity

1. Supply Chain Complexity Supply Chain Summit IV Break Out Session – Team 2 February 27, 2007

2. Supply Chain Complexity Issues • Introduce Supply Chain Complexity Issues – Dennis Sollberger • Preferred Suppliers – Dennis Sollberger • NPD Integration – Joann Donelon • Integrating PLM Solution – Pam Jackson • Lean Initiatives – Elio Fumagalli

3. Well Defined Criteria for PSL 50% of Team Managed Spend With Established History With Marquee Suppliers Scorecard Developed to Communicate and Improve Performance Improved Migration Via NPD Only Team Managed Spend Has Been Formalized Poor Integration With Engineering and Linkage to PDM PSL Utilization Reviewed Too Late (Gate 3) in NPD Process PSL Not Comprehensive for BCC Support PSL List Still Evolving (Too Fluid) Poor Scorecard Data Integrity Preferred Supplier Program STRENGTHS WEAKNESSES OPPORTUNITIES THREATS • Extend Formal Process to Division Managed Spend • Tie Into PLM • Correlate Scorecard to PSL Maintenance • Utilize IPO to Support BCC Needs • Increase Marquee Share Penetration • Improve Data Integrity • Failure to Consolidate to 1 PSL for All Purchases (by Division) • Lack of Resources for Supplier Development • Miss NPD Opportunities • PSL Change Process • Managing Supplier Relationships Appropriately

4. Driven by Strategic Sourcing Levers proven to provide competitive advantage Well defined requirements and review process Driven by NPD Specialists at 14 divisions Lack of teeth –programs that don’t meet expectations not being stopped Getting engaged too late Fragmented approach at most divisions Strategic Sourcing Reviews STRENGTHS WEAKNESSES OPPORTUNITIES THREATS • Reduce supply chain complexity by aligning with preferred suppliers and minimizing introduction of new parts • Reduce supply chain risk by qualifying multiple suppliers • Optimize cost at launch by integrating market tension into design process • Reduced logistics cost by aligning supply base with mfg location • Rubber stamping • Reviews becoming mechanical in nature • Requires top level resources be engaged in the process and be empowered to have real impact – culture change

5. Able to quantify number of parts added via MIN Parametric data captured in MIN a solid base for PLM integration High level visibility & resources Material selector philosophy established Process in Oracle to obsolete parts No common process for introducing new parts Tools to promote part re-use Getting engaged too late MIN data quality issues Part Predator Program STRENGTHS WEAKNESSES OPPORTUNITIES THREATS • Tie into Master Data Catalog / PLM solution • Leverage common parts / incremental volume • Drive global Emerson material standards • Supply chain complexity exponentially impacted by continued introduction of new parts • Ability to mitigate material cost impact reduced without use of common materials and parts • Cultural change required to implement discipline into process

6. Ensures standardized new product development process Links into existing ERP solution Brings Disconnected CAD Environments Under File, Change Management, & Part/BOM Control Experienced program management organization on this type of global implementation Product Lifecycle Management1. Improvements in Efficiency, Visibility & Quality of the NPD & ECO Processes STRENGTHS WEAKNESSES • Upfront investment • Smaller divisions may find implementation costly, or cost prohibitive • Emerson cost curve tied to division adoption rate • Continuous (re)training at all levels in the organization can slow down adoption THREATS OPPORTUNITIES • Substantially improve product development efficiency, time to market, consistency & waste • Global new product development is saturated with multiple tool sets using independent processes • Current global inability to share large data files efficiently • Less administrative work • Use of a third party system integrator will help decrease risk of fragmented solutions • Emerson’s global presence may make it difficult to implement a PLM system (e.g, local settings, languages) • Using a single PLM vendor (i.e. UGS /Siemens) can expose Emerson to lock-up risk • Divisions are independently implementing processes that are not global in scope. Ccan inhibit global sharing • Phased implementation approach (Teamcenter) may take years, yielding continual upgrades • If vendor product roadmap and future strategies diverge greatly from our needs, Emerson’s future switching costs may be prohibitive

7. Ensures standardized new product development process Supports Emerson’s design, source and build anywhere vision Experienced PMO on this type of global implementation Links into existing ERP solution Product Lifecycle Management2. Enable Global Design & Collaboration Activities with Global Design Centers & Business Partners (Customers and Suppliers) STRENGTHS WEAKNESSES • Upfront investment • Smaller divisions may find implementation costly, or cost prohibitive • Emerson cost curve tied to division adoption rate • Continuous (re)training at all levels in the organization can slow down adoption THREATS OPPORTUNITIES • Use of a third party system integrator will help decrease risk of fragmented solutions • Provides Real-Time Visibility For Global Supplier Parts Management • Less administrative work • Emerson’s global presence may make it difficult to implement a PLM system (e.g, local settings, languages) • Using a single PLM vendor (i.e. UGS /Siemens) can expose Emerson to lock-up risk • Divisions are independently implementing processes that are not global in scope and can inhibit global sharing • Phased implementation approach (Teamcenter) may take years, yielding continual upgrades • If vendor product roadmap and future strategies diverge greatly from our needs, Emerson’s switching costs in future may be prohibitive • Divisions may push back based on perceived loss of engineering autonomy

8. Links engineering design to supply chain management. Drives long-term Emerson value Design for sourcing becomes ‘automatic’ Greatly improves the parts proliferation issue by “going to the source“, i.e. engineering Experienced program management organization on this type of global implementation Ensure engineering change activity is integrated with the part catalog to keep the information current/accurate Product Lifecycle Management3. Integration of the NPD Process into the Supply Chain in Alignment with Overall Corporate Objectives STRENGTHS WEAKNESSES • Upfront investment • Smaller divisions may find implementation costly, or cost prohibitive • Emerson cost curve tied to division adoption rate • Continuous (re)training at all levels in the organization can slow down adoption THREATS OPPORTUNITIES • Increasing need to support global development by sharing technical & supply chain information across divisions • Use of a third party system integrator will help decrease risk of fragmented solutions • Opportunity to lower procurement cost, optimize resources • Improve collaboration between design, source, manufacturing and partners • Provides Real-Time Visibility For Global Supplier Parts Management • Less administrative work • Emerson’s global presence may make it difficult to implement a PLM system (e.g, local settings, different languages) • Using a single PLM vendor (i.e. UGS /Siemens) can expose Emerson to lock-up risk • Divisions are independently implementing processes that are not global in scope and can inhibit global sharing • Phased implementation approach (Teamcenter) may take years, yielding continual upgrades • If vendor product roadmap and future strategies diverge greatly from our needs, Emerson’s switching costs in future may be prohibitive

9. Leverage existing operation Lean program and training Divisions already seeing successes Existing MIN data and Supplier Scorecard can be used to develop program metrics Can facilitate and leverage existing e-Kanban and Logistic programs Program ties well with sourcing decision tool Makes focus suppliers more competitive System to insure focus on key suppliers needs to be developed Lack of mandates; decision to allocate resources division dependent Raw Inventory DOH not one of Procurements focus metrics Poor or no forecasts given to suppliers, driving expediting to their suppliers Expediting is status quo; suppliers factories seen as external to our control Supplier Lean Initiative STRENGTHS WEAKNESSES OPPORTUNITIES THREATS • Current raw inventory velocity is 43 days and world class is 15 days; potential inventory opportunity significant • Can represent a competitive advantage if executed well • Supplier lead-time reductions will improve Emerson responsiveness to customer • Independent divisional solutions • Multiple divisions approaching same suppliers • Business growth will increase supply chain complexity, cost and create capacity constraints • Increased customer demand for shorter lead times put more stress on supply chain • Competitors implementing at a faster rate could mean loss of Emerson competitive edge