Lean Supply Chain

1. Lean Supply Chain September 2002 Kevin R. Byrne, VP Lean Supply Chain

2. Lean Supply Chain – our progress AS WAS CURRENT RECOVERY • Best-in-class strategic sourcing • Insufficient commodity specialization Strategic Sourcing • 30+ commodity leaders • 7-step sourcing • Full participation with global LSC teams Digitise the Buy • Reverse auctions • Data-warehouse • eProcurement solution • eSourcing, systems & • processes = cost takeout • Reverse auctions & post-award negotiations • = margin improvement • Little or no use of tools such as eSourcing. • Very difficult to get basic data • Lowest Cost Sourcing • Develop expertise and execution skills to use LCR’s where ever they are • Not enough focus on Low Cost Regions • Low Cost Region Strategy • • Move spend from high cost regions • Establish LCR International Purchasing Office Supplier Engagement • First supplier day in 3 years held 9/9 • Many supplier initiated ideas will be acted on • Suppliers not part of the strategy • Collaboration and partnerships increase INVEST Process • Systematic approach • Significant early wins in facility costs and travel • No systematic process to • improve behaviors that • affect costs • Only tactical reductions of • indirect spend • Continuously attack • behaviors that influence indirect costs • Process thinking becomes • part of our culture

3. Strategic initiatives, how it ties together INVEST Alex Tregellas Lean Supply Chain Mgt Shelley Stewart Teams Corp Centre 10 PMD INVEST Program Mgrs Processes 7 Step Sourcing Contract Authority Communication Processes INVEST Team Leader Training INVEST Project Process Teams Commodity Teams Digitisation Team Pacific Rim PO Tools FreeMarkets Contract Database LSCM Website Tools INVEST Toolkit Common Tools Common Processes Leveraging Spend and Knowledge Production Management Division Lean Supply Chain Mgt - Kevin Byrne LSC Strategy Improve Commodity Focus Digitise the Buy Low Cost Region Supplier Engagement Spending Behaviour Focus INVEST LSCM Teams Operating Spend Impacted 94 Commodity Projects, 14 Corp >$450m 19 Active eSourcing Projects >$60m 13 LCR Projects, Pac Rim, Mexico >$60m Supplier Conference and Actions 19 Active teams >$122m

4. Metal fabrications Tanks & vessels Fasteners Travel Printed materials Packaging Castings & forgings Logistics MRO Non-ferrous metals Utilities IT/telecoms Plastics Electronics Commodity focus progress to date Divisional/Business Unit Leverage • 80 additional teams • >$350m operating spend impacted Cross-divisional leverage • Fully engaged with 14 cross-divisional Commodity Teams* • >$100m PMD spend impacted • Conducting 5 on-line bidding events (Freemarkets) • Cutting tools, safety supplies, air, truckload, ocean *Cross Divisional Commodity Teams

5. Case study: a truckload of savings Background Cross-functional team from all 4 divisions sourced Group FTL requirements across US/Canada. Project included data collection, RFQ development and an online bid supported by FreeMarkets. Total time from team formation to implementation:<20 weeks Bidding Event - Overview Representative Bid Lot Items up for Bid: Over 2,100 FTL lanes across US & Canada Number of Lots: 74 lots based on point-to-point lane groupings Historic Cost (Group): $9.6m Historic Cost (PMD): $1.2m Historic # of Suppliers: 133 Number of Bidders: 35 Number of Bids: > 1,000 Totals Identified Savings: $2.6 mm Percentage Savings: 27% Final # of Suppliers (Target): 20 Group Leverage, eSourcing working Many more such projects in pipeline

6. Invensys Firewall Supplier Firewall Lean Supply ChainDigitising the buy Development Exchanges BaaN Cincom Epicor Marpac Mapics Rexlink SAP Lawson Others Data Feeds Transactional Data Indirect e-procurement Data Translation Programs iBaan E-Procurement Data Warehouse Energy Agreements Database Openworld BaaN BPCS Oracle QAD SAP PRMS Others iBaanBis Indirect & Direct Material Suppliers Integrated Digitized Environment PDM, Collaboration, Sourcing Suppliers Supplier Collaboration Tool Supplier Measurement iBaanBIS Data Feeds Production Collaboration, Sourcing, B2B Server Transactional Data BaaN Epicor SAP 4thShift Others Auctioners Collaboration, Sourcing, B2B Server Our strategy leverages existing investments in processes & tools to gain efficiencies & drive compliance

7. Low Cost Region (LCR) sourcing Electronics 3rd Party Assembly: Continue to move board manufacture to our LCR plants in Reynosa Mexico & Shanghai (SFCL) Panel Integration: Globally, move operating spend in high cost regions to LCR driving savings Low Cost Engineering: Maximise use of existing low cost centres in India (software & engineering). Materials: Castings Tanks/Vessels Motors etc… Eastern Europe Shanghai - SFCL APAC Korea - Castings Mexico - Reynosa India - Engineering, Panels, Castings Software Egypt - Engineering LCR • Enablers: • International Purchasing Offices • India – July 02 • Pacific Rim – Aug 02 13 projects moving $60m+ to Low Cost Regions Substantial targeted savings 7

8. Supplier conference Supplier day at Invensys Showcase • 60+ key suppliers • All categories, direct/indirect • Partnership examples and opportunities • New cost savings ideas presented by our supply partners Exposing our suppliers to the NEW Invensys

9. Spending behaviour focus • Our overheads are too high • Many of these costs are controllable • Cost-related behavior (not price) is the key driver • Empowered teams* are changing policy, driving compliance, and changing expectations in the business • 19 major teams • affecting >$122m spend • driving substantial savings potential, of which >33% realized to date Teams* Facility costs Travel Office supplies Contract labour “Changing the behaviours that affect cost”