The Adaptive Supply Chain

1. The Adaptive Supply Chain Jerry Huang Director Enterprise and Public Sector Marketing

2. CAGR CAGR '98-'02 '02--'07 1.000 Total COGS 6.0% 4.4% 783,0 800 632,0 600 501,0 Other COGS 4.6% 2.9% 400 200 CMs 10.0% 9.6% ODMs 21.5% 10.2% 0 1998 2002 2007 E Global High Tech Outlook $ Bn Combined CM-ODM penetration 12-14% 19-21% 23-28% By focusing on core competencies and outsourcing the remainder, High-Tech companies create integrated eco-systems needing to adapt themselves continuously to the changing demand of the market. CM = Contract Manufacturer, ODM = Original Design Manufacturer

3. High Tech Market Market Pressures • Market Globalization • Emergence of lower cost manufacturing countries • New low cost incumbents • Dominated by global players • Global suppliers • Customer/Market Requirements • Good technology at lowest cost • Address specific needs • Service and support • Regulatory • Technology Waves • New Technologies (eg. MP3, DVD) • Standards defined through market dominance • R&D critical for innovation • Cost & Price Pressure • Fast erosion of market prices • Stock market pressure to keep profits • Complex distribution channels

4. Company approaches • Mass Customization • Create regional versions of the product • Coordinate Marketing and delivery • Outsourcing of non-core activities • Manufacturing outsourcing in low cost manufacturing countries • Collaborative manufacturing & potentially design • Research & Development • Establish R&D consortia around potential standards • Invest heavily in R&D around the world • Brand Management • Global brand development • Creative Marketing Campaigns

5. Research & development Brand management Order to cash management Supply/demand management Consolidated buying Manufacturing Purchasing Product design (ODM’s only) Process Efficiencies Innovation Optimization Bipolarization of Companies Manufacturing driven Product driven Industries in High tech can be broadly divided into two groups with different Key Success Factors

6. High Tech Supply Chain Ecosystem • Distributors • Resellers Industrial Electronics CM/ODM Industrial OEM Channel Partner End User Semicon Fab Virtual Semicon Channel Partner Consumer OEM Retailer End User Channel Master Consumer Electronics

7. High Tech IndustryResulting Key Business Priority INCREASE PROCESS EFFICIENCY Pressure on prices erodes margins and creates strong case for cost reduction in many areas INTEGRATE ACROSS THE VALUE CHAIN Value chain (CMs, distribution) is rapidly changing and impose fast integration to speed up product lifecycle INCREASE OUTSOURCING Outsourcing in manufacturing, design and procurement reduces cost but poses process integration challenges INCREASE DELOCALIZATION Cost reduction and access to new promising markets at the same time can be achieved by delocalizing activities ADOPT CUSTOMER ORIENTED APPROACH Customers expect more and more customized products. This requires companies to become customer-centric MANAGE PRODUCT LIFECYCLE VOLATILITY Technology windows continue to shorten and the network of partners is becoming more complex

8. High Tech IndustryAgility-relevance map of priorities Relevance How relevant is this priority for the success in this industry? In High Tech product innovation and customer oriented approach are key themes Agility How important is being agile for the success on this priority?

9. Strategy Processes Manage& control Application Services Supply of Services Demand of Services Adaptive Infrastructure High Tech agility Within the Enterprise and across the Ecosystem 1990 My Enterprise 2003 My Trading Partner 2010 My Ecosystem HP integrated approach to the different component of the adaptive enterprise is critical to foster the ongoing changes into the High tech ecosystem

10. Business Processes • Eco-System Management • Supply Chain Visibility and event management • Ecosystem strategy • Order to Cash management • Procurement & Sourcing • Forecast Collaboration • PO Collaboration • E-Auctions • Supplier Managed Inventories • Price & Spent Monitoring • Supply Chain Management • Supply Chain Planning • Production Scheduling • Event Management • Manufacturing • Quality and SLA Management • Inventory Management • Channel Management • Forecast Collaboration • Supplier Managed Inventories • Logistics Management • Postponement & Mass Customization • Warranty Management • Product Lifecycle Management • Collaborative Product Development • Supply & Manufacturing Strategy Definition • Product Costing & Pricing • End-of-life Planning

11. Associated Key Performance Indicators • Eco-System Management • Speed of reaction to Supply Chain event • Order to Cash Cycle (in days) • Procurement & Sourcing • # Component Shortages • Days Inventory Outstanding • Price paid versus market least price • % business auctioned • Supply Chain Management • Days Inventory Outstanding • CM/ODM compliance to SLA’s • # Delivery Delays • % Dead-on-arrival • Channel Management • Days Inventory Outstanding • Forecast Accuracy • Warranty Costs • Product Lifecycle Management • Product Break-even time (Time to profitably develop new functionality) • Actual Product Margins • End-of-life costs • Warranty costs

12. High TechThese KPI’s address Agility Order to Cash Cycle (days) Days inventory outstanding Product Gross Margins Increased Profit (margin or total) Cost Forecast Accuracy Order to delivery av. time (days) Defects (%) (Dead on arrival) Increased level of service to customers Quality Reduced operational and financial risk Risk Average downtime (Min/yrs.) Strategic partnerships (N°) Increased agility and readiness to competitive changes Product Break-even time (mo.) # days of delivery delays End-of-life costs Agility HP solutions have impact on KPIs covering any aspect of Adaptive Enterprise

13. Application framework Product Design Go-To Market Sourcing/Procurement Supply Chain ODM & CM CIM/MES ProductLifecycle Mgmt Logistics Reference Data Management ProductLifecycleCollaboration Supply/Demand chain Collaboration

14. Underlying Architectural Framework

15. Conclusion • Global Market pressures have pushed the High-Tech Industry to transform itself in a number of competing ecosystems • This has resulted in the appearance of: • Contract Manufacturing and Original Design Manufacturing • Postponement and Mass Customization • Global Brand Management • Strong R&D focus • To respond to the changing demand of the market, the ecosystems need to gain in agility and responsiveness • KPI’s can demonstrate the level of agility of a particular eco-system: • Order to Cash Cycle • Days outstanding Inventory • Product Break-even Time • # delays in delivery • An Architectural framework exists to develop the IT backbone required to create this agility

16. Adaptive Supply Chain in HP

17. To Shareholders… Superior SC performance dramatically increases Market Capitalization Companies with best supply chain systems had stock market capitalization growth rates at 7 to 26% points above industry averages.. Accenture Ltd ’95-’00 study of 600 world’s largest Companies Why Supply Chain MattersHP Success Story Customer Measures Product Quality Order Cycle Time Price Predictability Transit Time Availability To Customers… Supply Chain performance directly impacts Customer Satisfaction $64B Total Spend At hp… Supply Chain actively manages ~$51B of Company Spend (80%) non-SC Cost Material Cost * 20% SC Cost 67% 13%

18. HP Today $21B access devices business $23B imaging and printing franchise $15B IT infrastructure business, encompassing servers, storage & software $15B services business; consulting, support & outsourcing #1 personal computers #1 in mobile computing #1 in pocket pc handheld devices #1 in PDA manufacturing #1 in UNIX® servers #1 in fault-tolerant servers #1 in Windows®-based IA-32 servers #1 in Linux®-based servers #1 in enterprise storage #1 in mgmt. software #1 in high-performance technical computing #1 in inkjet printers #1 in laser printers #1 in scanners #1 in wide-format plotters #1 in all-in-one devices #1 in print servers #1 mission-critical infrastructure services #1 services for open IT environments #1 enterprise-ready Microsoft integration & support services #3 in IT services #1 industry’s largest channel partner network

19. Broadest Portfolio

20. #1 in material spend – $40B Memory – #1 Microprocessors (Intel & AMD) – #1 Windows software (Microsoft) – #1 Hard disk drives – #1 Laser engines – #1 Optical disk drives – #1 Chipsets (Intel) – #1 LCD panels and many more – #1 #1 in contract manufacturing/ODM – spend ($5B) #1 in electronics industry logistics procurement – $1.7B 1M service support parts per month Industry’s Largest Supply Chain • Every day you spend at the NMW conference, HP delivers: • 1.3 Million Inkjet cartridges • 110,000 Printers • 75,000 Personal systems • 3,500 Servers • 1B customers - 178 countries • 21,000 patents • 675 new products in FY03 • 142,000 employees

21. "It is not the strongest of the species that survive nor the most intelligent - those that do, are the ones most adaptive to change."Charles Darwin

22. Adaptive Supply Chain Customers demand more- and supply chains must be agile enough to adapt to constant changes in their markets improve agility • Speed-up introduction of new products and services to market • Design and provide anything anywhere • Manage change and global operations more easily • Enable profitable growth mitigate risk manage costs increase quality

23. The Challenge… Largest Tech Merger in History 1,200+ sites networked 63 manufacturing plants 142 logistic hubs 119 call centers 7,000+ applications 900+ web servers 21,671 servers 215,000 desktops 30M B2B messages monthly Proof point the merger The Result… Supply Chain specifics • $2.7B in savings • Direct material procurement annual savings of $1.1b • Redesigning products & re-qualifying components $300M • Manufacturing overhead reductions of $295M • Logistics achieved annualized savings of $235M+ • Indirect Procurement annualized savings of $525M • Systems and Programs $265

24. Adaptive Supply Chain Strategies • Put your customer first • Leverage your purchasing power • Leverage the extended enterprise • Collaborate • Leverage common processes improve agility mitigate risk manage costs increase quality

25. Adaptive Supply Chain Strategies • Put your customer first improve agility mitigate risk manage costs increase quality

26. HPS HP’s Supply Chain portfolio OrderFulfillment Mfg Procurement Logistics Planning Customer Segment Product Set Business PC & Workstation No Touch Consumer Consumer PC PSG Portables & Handhelds Monitors & Options Low Touch Supplies SMB Personal Printing IPG Shared Printing Configure-to-Order (CTO) Product/Service Generation Digital Imaging Direct / Indirect GTM Commercial Printing Business Critical Servers Public Sector High Value & Solutions ESG Industry Standard Servers Network Storage Solutions Solutions (ESG / HPS) Services Consulting & Integration Sol.. Managed Services Solutions Enterprise Customer Support Solutions

27. Adaptive Supply Chain Strategies • Put your customer first • Leverage your purchasing power improve agility mitigate risk manage costs increase quality

28. Leveraging Purchasing Power • Aggregate and analyze spend • By category • By supplier • Rationalize and simplify • Specifications • Terms and conditions • Supply base • Utilize a broad tool set • eSourcing • Absolute Best Cost (ABC) • PRM

29. Adaptive Supply Chain Strategies • Put your customer first • Leverage your purchasing power • Leverage the extended enterprise improve agility mitigate risk manage costs increase quality

30. The extended enterprise HP Design/CM Build OEM Turn-key • Use a range of design models from OEM to Internal • Chose a particular model to best match the strategic intent of a particular product at a particular time • Focus internal innovation where it matters most to your customers ODM Directed Design CDM CM+D Joint Development Leveraged Development CM HP HP design/HP build

31. Adaptive Supply Chain Strategies • Put your customer first • Leverage your purchasing power • Leverage the extended enterprise • Collaborate improve agility mitigate risk manage costs increase quality

32. HPS HP’s Supply Chain portfolio OrderFulfillment Mfg Procurement Logistics Planning Customer Segment Product Set Business PC & Workstation No Touch Consumer Consumer PC PSG Portables & Handhelds Monitors & Options Low Touch Supplies SMB Personal Printing IPG Shared Printing Configure-to-Order (CTO) Product/Service Generation Digital Imaging Direct / Indirect GTM Commercial Printing Business Critical Servers Public Sector High Value & Solutions ESG Industry Standard Servers Network Storage Solutions Solutions (ESG / HPS) Services Consulting & Integration Sol.. Managed Services Solutions Enterprise Customer Support Solutions

33. End to end visibility Order Event Management Purchase Order Receipts Demand Management Logistics Shipments Manufacturing

34. Buy/Sell Inventory Collaboration Information & Analytics Order & Forecast Collaboration e-Sourcing, Auctions & Disposition Collaboration with partners Solution Components Supplier Business Units CM Business Units OEM Business Units Business Units Factory

35. Design for Supply Chain Commonality Variety control Logistics enhancement Postponement Part and platform re-use Environment & Takeback

36. Adaptive Supply Chain Strategies • Put your customer first • Leverage your purchasing power • Leverage the extended enterprise • Collaborate • Leverage common processes improve agility mitigate risk manage costs increase quality

37. Leveraged processes at HP Global Supply Management Strategic sourcing, enterprise spend leverage and multi-tier inventory visibility processes and solutions Supply Chain Collaboration Tools (KeyChain) for inventory visibility, automatic supply/demand matching, and order evisibility, forecast and PO management Demand / Supply Planning SAP Processes and Systems Data Management & Reporting Evaluation and decision-making tools and capabilities

38. Adaptive Supply Chain Strategies • Put your customer first • Leverage your purchasing power • Leverage the extended enterprise • Collaborate • Leverage common processes improve agility mitigate risk manage costs increase quality