Bridging the Great Divide – Supply Chain Management and Information Technology

1. Bridging the Great Divide – Supply Chain Management and Information Technology Ken Hartman, C.P.M. SAP Procurement Business Process Manager Boston Scientific Corporation

2. Brief Background • 19 Years of systems implementation experience • 11 Years implementing SAP at PwC / IBM Business Consulting Services • Industries: • High technology • Publishing • Consumer Products • Investment Banking • Aerospace and • Defense • Public Utilities • Media • Processes: • Purchasing and Strategic • Sourcing • Inventory • Accounts Payable • Warehouse Management • Planning

3. Boston Scientific (NYSE: BSX) is a worldwide developer, manufacturer and marketer of medical devices with revenue of $5.6 billion in 2004. For more than 25 years, Boston Scientific has advanced the practice of less-invasive medicine by providing a broad and deep portfolio of innovative products, technologies and services.

4. The Boston Scientific Mission To improve the quality of patient care and the productivity of health care delivery through the development and advocacy of less-invasive medical procedures. This is accomplished through the continuing refinement of existing products and procedures and the investigation and development of new technologies which can reduce risk, trauma, cost, procedure time and the need for aftercare.

5. Boston Scientific Businesses Business Groups Cardiovascular Endosurgery Neuromodulation (Advanced Bionics) Neurovascular Electrophysiology Endoscopy Interventional Cardiology Peripheral Interventions Vascular Surgery Oncology Urology Gynecology

6. BSC Worldwide Locations • Worldwide headquarters Natick, MA, • 16,000 employees (approx.) • 22 manufacturing facilities Direct Sales January 2004

7. SAP Procurement Business Process Manager • Build a high functioning BPL organization • Implement best in class business processes • Advance the use of supporting technology

8. Today’s Agenda • I. What’s the problem? • II. Three organizational methodologies • Special Project • Business as Usual • Cross Functional • III. Five techniques for implementing and maintaining a Cross Functional organization • Business Process Leadership Role • Knowledge Management • Shared long-range vision and integrated planning • Project management • Metrics

9. SCM and IT Challenges • SCM initiatives fail to achieve anticipated benefits • Company isn’t in “upper right” quadrant • Implement SCM best practices or enabling technologies • Limited budget for IT projects in support of SCM • IT and SCM see the company’s needs differently • Initiatives take “forever” to get off the ground “To achieve results in Supply Chain improvement projects, and to maintain these results, companies must craft a collaborative Supply Chain/IT culture”

10. Observations Information Technology Supply Chain • Functional “tribes” • Objectives, expertise, management • Perspectives • Differing definitions of “success” • Different languages • Companies hire professional translators: Consultants

11. Project Team Materials Procurement Internal Audit IT Training Change Management Special ProjectOrganization • Large project team • Big $ budget • High visibility • Program/Project manager • Focus on user requirements • Design optimal IT solution • New technologies/systems • Well -trained users • Manage org. change • Track and report benefits • Top management cross functional commitment However: these are exceptional events!

12. Business As Usual Organization After the Special Project … • One tribe “drives” the initiative • Other tribe may not be included • Not all tribes contribute to defining objectives • Differing options on critical success factors • Little thought to post-implementation support • Difficult to secure top management support • Disconnect between IT and end-users • Communication is strained

13. Common SCM Initiatives and Tribal Perspectives

14. Six σ/Lean • Supply’s Perspective • Visual measurements • Elimination of waste • Process analysis • IT solutions are last resort • IT’s Perspective • Mostly a process – oriented • activity • Generates some IT requests • Easier than implementing new technology • Common Ground • Implement automated methods of collecting performance metrics • Involve IT expertise to automate manual activities • Sequence process improvement to match IT initiatives

15. e-Procurement • Supply’s Perspective • End-user focus, self service • Easy to set-up and maintain • Simpler than ERP • Technology solves all issues • Focus on deployment • IT’s Perspective • New systems, technologies • Vendor communication • challenges • Very technology dependent • Not as easy as purchasing thinks • Benefits not well understood • Common Ground • Equal technology and process requirements • Without both halves, e-procurement will not achieve promised ROI

16. Strategic Sourcing • Supply’s Perspective • Mission Critical • Need 3rd party technology • Process intensive • Excellent ROI • Relies on better reporting • IT’s Perspective • Questionable new technology • Painful interfaces to ERP systems • Primarily a process activity? • Reporting requirements must be defined • Common Ground • Need for intensive automated reporting • Can be greatly facilitated by technology • Must be supported by robust process re-design

17. Implementing a Cross Functional Organization

18. Resulting In • Reduced implementation costs • Faster implementation of key supply chain initiatives • Greatly improved ROI • Reduced “back sliding” • Recognizing follow-on savings opportunities • Effective use of scarce available resources Objectives of Cross-Functional Organization • Integration of processes and technology • Increased communication of value-added ideas • Increased peer-to-peer communication • Shared long-range planning • Culture of collaboration

19. Implementing a Cross-Functional Organization “A business philosophy that recognizes that process and IT cannot be completely successful in isolation” Five activities necessary to sustaining a cross-functional organization: • Business Process Leadership Role • Knowledge Management • Shared long-range vision and integrated planning • Project management • Measure Success - reinforce

20. Business Process Leads • Resident in each facility or business unit • High credibility within the organization • Trained and experienced in process and IT • Viewed as a career path • Adept at leading or participating on teams • Will work in these 3 areas: • Enablers • Business Process redesign • Lean/6 Sigma • Change management • SOP documentation • Training • Project management • Supplier negotiation • Technologies • ERP configuration • System implementation • Data clean-up and enhancement • Barcode/RFID • Supplier communication (XML, EDI) • Business Warehouse and data analytics • SCM Processes • Kanban • Consignment • VMI • e-procurement • Spend datamart • Supplier collaboration • Pay on receipt (ERS) • Recurring payments • Supply normalization

21. Boston Scientifics' BPL Program Who are they? • Virtual team of 30 people • 50/50 IT and process backgrounds • 30% are dedicated BPL’s, 70% have line responsibilities • Support purchasing, planning, and/or inventory • 2 are new hires Results to Date • Implemented new SAP functionality • Shared best practices resulting in significant efficiencies • Prioritized IT projects - quarterly voting • Increased visibility for initiatives • Cross communication between materials functions

22. Boston Scientifics' BPL Program (continued) Characteristics of a Successful BPL • Experienced in either IT or process • Former “super user” • Demonstrated aptitude in the other discipline • Experienced managing or working on virtual teams • Politically neutral – savvy • Comfortable working with conflicting objectives • Creative problem solver • Good sense of humor!

23. BPL Career Progression

24. Your BPL Program Action Items • Secure top SCM and IT management support • Identify personnel in each location/function • Identify strengths and development opportunities • Work with HR to formalize role • Build the virtual team • Determine and agree on the team’s objectives • Schedule face-to-face meetings • Document value added by the program

25. Knowledge Management • Information Technology • System configuration decisions • Rationale for scope of technology • Potential new IT functionality not yet implemented • Short, medium, and long range IT strategy • Business Process • Process decisions for system configuration • Clearly documented SOP’s • Up to date system training documentation • Accessible best practices • Public metrics and results

26. Knowledge Management • Access to Information • E-mail newsletters “Gazette” • SCM/IT Intranet site • Discussion forums • Tie in with help desk – disseminate answers to questions • Reinforce BPL as the source for information • “Learn @ Lunch” • Appoint at department liaison “Knowledge is only useful if you can quickly find it and put it into practice”

27. Your Knowledge Management Action Items • Assess current state of knowledge – IT and process • Assess accessibility and usability of knowledge • Determine Knowledge Transfer status (consultants) • Build KT into all professional services contracts • Document Knowledge Management objectives • Build KM value proposition and metrics • Implement!

28. Source Transact Partner Internal Research Market Research Supplier Research Demand/ Supply Alerts/POs Constraints Supplier Portal Req. PO Receive Pay Bid/RFx Negotiate Implement Analyze Business Warehouse User Interface Classification Analytics Business Information Supplier Data Commodity Data Contract Data AVL Integrated Planning • Short Term – within 6 months • Medium Term - within 12 months • Long Range – 12 months + Must be joint IT Business Process!

29. Integrated Planning (cont.) Elements of Integrated Planning include: • SCM functional initiatives • Technology initiatives • What are the anticipated ROI – business benefits? • Level of resources to implement and sustain • Sequence and priorities • Coordinated and reconciled plan • Small, medium and large initiatives Must be packaged for all to understand

30. Integrated Planning (cont.) • Short Term Planning - Tactical • Within 12 months • Immediate resource requirements • Redirect current year budget $ • Prioritize current projects? • Intermediate Term Planning - Semi Strategic • Next calendar or fiscal year? • Budget cycle? • Prioritize initiatives according to ROI? • Require RFP for software/services

31. Integrated Planning (cont.) • Long Range Planning - Strategic • Capital Funding • Infrastructure, other IT constraints • Technology upgrades • New product introductions • Business acquisitions/divestments • Integration issues

32. Your Integrated Planning Action Items • Locate departmental plans (if any) • Engage SCM and IT management • Research current and future best practices • Create an overall vision • Identify opportunities and constraints • Document 3-year plan • Communicate!

33. Project Management • Develop PM skill set: • Budgeting • Planning • Resourcing • Issue Resolution • Stakeholder Management • Benefits realization • MS Project • Fundamentals are valid regardless of size of initiative • Awareness of process, IT, change management etc. considerations • Must be part of job competencies for promotion

34. Project Management • Focus on objectives and measurable benefits • Rotate PM responsibility among PBL’s • Methodology – Process, IT • Project Templates - accelerators • Consistent deliverables • Project charter • RICE design documents • Issue resolution • Project status • Understand IT, process project interaction • Ex: system test and end user training

35. Your Project Management Action Items • Identify successful projects • Identify successful project managers • Determine if accelerators and pro forma deliverables are available • Work with HR to build PM competencies into job descriptions • Create a PM curriculum for all team leads and team members • Create a library of standard project metrics • Begin compiling project “actuals”

36. Measure Success • Define “success” • Reduced cycle time (8 days to 2 days) • Reduced transaction cost ($29 to $8 per transaction) • 5% Unmatched invoices • Aim for industry benchmarks • How do you know if you are successful? • How will you collect raw data? • Who is responsible for data analysis “Start with metrics and work backward to design processes and systems”

37. Your Measurements Action Items • Identify areas where performance metrics are being used successfully • Ensure that every proposal contains a section entitled “How I will know if I am successful” • Ask senior management for their definitions of “success” • Ensure that all initiatives are capable of capturing success metrics • Include IT and process metrics

38. Business Process BPL’s Technology Closing Thoughts • SCM/IT disconnect costs $ • Cross Functional Organization • Business Process Leads • Knowledge Management • Integrated Planning • Project Management • Top management must believe This is a journey that has short term and long term benefits

39. Questions - Comments

40. Thank You! Ken Hartman C.P.M. SAP Procurement Business Process Manager Boston Scientific One Boston Scientific Place Natick, MA 01760-1537 508-650-8316 Hartmank1@bsci.com