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Industrial Automation Supply Chain Communications Meeting – 10/8/2009

Industrial Automation Supply Chain Communications Meeting – 10/8/2009. Agenda Overview/Logistics Commodity Teams Systems GMDC Best Practice . Industrial Automation First Half FY 10. Industrial Automation FY10 Expected. Industrial Automation Key Performance Indicators – $1,305M USD FY09.

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Industrial Automation Supply Chain Communications Meeting – 10/8/2009

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  1. Industrial Automation Supply ChainCommunications Meeting – 10/8/2009 Agenda Overview/Logistics Commodity Teams Systems GMDC Best Practice

  2. Industrial Automation First Half FY 10

  3. Industrial Automation FY10 Expected

  4. Industrial AutomationKey Performance Indicators – $1,305M USD FY09 With Intercompany

  5. 2010 eSourcing Update • 3 Divisions Remain Behind YTD Plan, But Expect to Catch Up • 2 Other Divisions Expect To Miss Plan For The Year • Challenge Both Scenarios In Your Group • * We Need Savings And We Need It Fast – eSourcing Drives This

  6. Business Group Direct Material DPO We Must Make A Significant Effort Now To Impact FY10

  7. Business Group DPO Actions to Improve DPO’s: • Top 25 Targets Developed For Commodity Teams And Managed By IA CDCM • Six Complete, Teams Engaged • Targeting 5th, 4th Where Possible • Drive Best Practices In Indirect • Mass Shifts To 5th, 2nd On Indirect Terms • Standard Terms On Capital Purchases At PTS • CT Developed Indirect Segmentation Tool To Analyze And Focus Payables

  8. Supply & Parts ManagementSuppliers by the Numbers Complexity Leverage 56.6 8% Move Avg. DPO Leverage Avg. DPO 62.8 64.2 64.5 67.7 82% 67.4 We Must Continue To Kill The Tail Over The Next 12 Months

  9. EU Legislation UpdateREACH 3,000 = Number Of Chemicals Expected . To Be Regulated By REACH 30 = Number Of Chemicals Currently . Being Regulated, Annex XIV • Enforcement Efforts Are Increasing Across Europe • Continued Pressure Form Green Party & NGO Groups For Stricter Enforcement And Increase In Regulated Substances

  10. Global TrendEU Is Setting Legislative Direction, But Others Are Following • Numerous requirements to meet all of the legislative requirements. Eco Design Waste Reduction Supply Chain Characteristics Energy Management Complex Global Recycle Management Water Management Long Reliant on Tier 1, 2 and 3 Suppliers Material Restrictions Emissions Management Best Cost Oriented Intercontinental Legislation Is NotGoing Away. Increased Awareness Of The Impact To Operations / Design / Sourcing / Sales Is Vital To Protect The Emerson Brand

  11. Procurement / Materials Must Haves • Hold The Line on Inflation – Metals Rising • Push Savings Projects To Offset Oncoming Inflation, Speed Is Critical • Make Sure Your Sales Group Knows The Market #’s • Eliminate Any <50 DPO Possible – We Must Cut It In Half In 2010 • Absolutely NO Pay On Receipt, Indirect Needs To Be Brought Into Focus • Leverage Preferred - Ruthless Execution On Supplier Consolidation • Continue To Drive Towards Latin America & Eastern Europe • Engage In S&OP – If You Are Not Part Of It, Insert Yourself • Supply Chain Risk Visibility – Both Financial And Capacity • Engage Supply Base With Lean – 5 Currently In Process • Drive AA, A,B,C,D – Supply Chain Focus • Institute Compliance Disciplines Across Your Company • Work Closely With Logistics To Remove Embedded Freight

  12. Industrial Automation Embedded Freight$400M Of spend With Embedded Terms By Family By Division ***Spend Shown is material spend with embedded freight opportunities

  13. Decoupling Embedded Freight$2M+ Potential Annual Savings Opportunity For IA • Based Upon MIN Showing ~$400m Of Material With Freight Terms Suggesting Freight Is Embedded In Material Costs • Realistically, About 50% Of This ($200M) Has Opportunity (Steel And Some Other Raw Materials Are Not The Best Candidates) • Assuming Supplier Freight Charge Is 10%, Equals $20M Of Freight • Potential Savings: 5% To 40% (Avg 20%+) By Controlling Freight • Assumed 10% Conservatively • Emerson Accounting Policy Requires Control Of Inbound Freight • Emerson Required Freight Terms (EMR2006) Are Incorporated Into The Standard PO Terms & Conditions And The Supplier MSA • In-transit Ownership & Risk Of Loss To Remain With The Supplier • Freight NOT Controlled By Emerson Is Excluded From The Supply • Chain Optimization Programs (IOA/NASCO) • Programs Provide Visibility, Improve Delivery, And Reliability • Reduce Cost Thru Proper Mode Selection & Freight Consolidation Decoupling Freight Improves the Cost, Delivery, And Reliability of the Entire Supply Chain 13

  14. Decoupling Embedded FreightRequires a Cooperative Efforts Across the Supply Chain Pilots Underway with Three Divisions: Energy Systems, Fisher Controls, and Climate (MX) Regional EMR Directors of Logistic Corporate eSourcing Team PBL SCBL Global Mode Team Leaders Ensure ALL Bids Run by Corporate/DivisionExclude Freight OR Detail Freight in the Cost Breakdown EMR Regional Mode Team Leaders GLBL/PBL Divisional Logistics/Procurement Resources Confirm the Opportunity Business Group Regional Mode Team Members Work with Divisional Logistics/Procurement Resources to Implement the Opportunity and Document Savings Corporate Audit Payment 1 Corporate GMDC Logistics Team Freight Payment/MIN Comparison Divisional Resources Provide Landed Cost Detail to the eSourcing Team Divisional Accounts Payable Landed Cost Calculator OTM Divisional Resources Air & Parcel Team Member 2 Supplier Accounts Payable Freight Term Data 4 Divisional Resources Updating the Program Savings Report Ground Team Member Divisional Resources Corporate NASCO/IOA Teams Divisional Resources Ocean Team Member Active MIN Suppliers Not in the Program 3 Updating the Quarterly KPI’s by BG Divisional Resources 14

  15. Division Program Savings ReportOne Stop Reporting For Logistics Activity IA Challenged By Monser To Generate $1M Of Additional Division Led Savings (non-team driven) $650K Identified Need Projects Started Now If We Expect Savings To Hit In 2010 15

  16. Supplier Connectivity Program StatusTargeting On-boarding 30 Suppliers in 2010 • Objective • Electronic System to System Transmission of Five ERP Transactions • Purchase Orders • PO Changes • Acknowledgements • Advance Shipping Notification • Invoices • Current Status • Three Suppliers (Rea Magnet, Fastenal, Benchmark) in Production Since August 2009 …With Three Divisions (Liebert NA, EMC, LSNA) • Obtained Agreement from Thirty Additional Suppliers at a Fee of $40k Each • Implementation Plan Being Developed for the First 10 Suppliers & 18 Divisions • Initial Focus is on Divisions with Oracle Systems to Minimize Division Impact and Increase Speed of Implementation • 2010 Implementation of Thirty Suppliers Accounts for $300M in Spend and Over 3 Million 16

  17. FY10 Supply Chain ObjectivesIndustrial Automation Procurement Logistics Materials Management • NMI: -2.6% • $40M Project Savings • $200M eSourcing Volume • Remove 800 Suppliers • Team Preferred 41% to 44% • NA Regional Best Cost • Shift $15M (+3%) • Europe Best Cost • Shift $12M (+3%) • 2 Days DPO Improvement • Contract Coverage 50% • REACH - 80% Plan B • $5M Savings Implementation • $8.8M eSourcing • 10% Mfg Air Freight Reduction • 20% Carrier Consolidation • Improve Ability To Measure • 3 Days DPO Improvement • Europe 4PL / Ocean • Europe LCC Kickoff • NASCO Maturation • Measure Speed & Reliability • 10 + 2 Compliance • S&OP Training & Process Best Practice Sharing • “AA” Items • Deep Dive Sessions For 4 Targeted Sites • Quarterly Follow Up • Lean Supply Chain • 1 Project Per Division • Tools & Process Assessment • Inventory Assessment Tool • Reduce Raw Inventory 10% • Organization Reviews & Recommendations – Q2 Discussions @ Each Division • New Division Integration – System Plast, Trident, SSB (systems, leverage, processes) • Supply Chain Risk Mitigation – Risks Identified, Elevate Needs, Shift To Capacity • New Product Development – Sourcing Review and Gate 6 On All Key Projects • Expand Supplier Transition Procedure – Improve Implementation Speed Emerson Confidential

  18. Cross Divisional Commodity Manager Update Dan Goodman

  19. Key MessagesEnsure Supply & Mediate Cost Impacts Major Bullwhip Limiting Global Supply  Is It Sustainable Mexico / China / USA Impacted Ensure Inventory Visibility Preparing Europe Worst Case Supply Issues Review Supply Protection for ECT “Hot Summer” Prices Increasing Substantially  Is It Sustainable Divisional P/L Alignment Critical 6M Contract Visibility  Locking 12M Contract Today is Dangerous Contract Length Determined By Divisional / Customer Needs E-Source Continues Expansion  $96M to $118M “Saving’s” Move to “Market Avoidances” of 10% Inventory  Decreased 0.6 Days DPO  Holding at 66 Days Key Strategies Short-term: Ensure Supply & Communicate Cost Impact Long-term: Deepen Relationships & Expand New Suppliers Expand Leverage & Tension of All Raw Materials STEEL TEAM Contract Visibility & Divisional Alignment Essential Begin 2011 Contract Strategies

  20. Electronics – Current Market Conditions ELECTRONICS TEAM

  21. Magnet WireMarket Update Jan 2010 analyst poll predicts copper at $3.20 for 2010 Chinese demand continues to be strong; imports increased 10% in February Jan 2010 analyst poll predicts aluminum at $.97 for 2010 Significant demand outpacing growth in global production, but 2010 will remain plagued by oversupply. MAGNET WIRE TEAM Average Copper Prediction of $3.20 Already $.38 Low MAC Hedge Positions Continue into 2011

  22. Plastic ResinsIssues & Actions RESINS TEAM • Lead Times have increased 3-4 wks with most EMR Suppliers due to demand increase, lack of Inventory, & reduced capacity from 2009 • Asked divs to update forecasts & Lead times and consider implementing Stocking Programs (direct & indirect @ Molders) • Asked key Suppliers to implement buffer inventory (Ashland, Hudson, Ravago, Matrixx, Mexichem, & others) • Suppliers are adding capacity to respond to increased Demand: Matrixx, Ticona, DuPont, BASF, Sabic, & others • Supply & availability issues with DuPont regarding Zytel - Nylon & Rynite – PET • Elevated issue within DuPont Mgmt • Requested assistance through DuPont’s distribution channel = PolyOne • Notified EMR divs using these DuPont Products to consider equivalents from Preferred EMR Suppliers: BASF, Rhodia, & others • Supply & availability issues with Sumitomo Bakelite (T-Set, Phenolic materials). SB has reduced its capacity 50% in NA & requested 30%+ increases to continue supply • Assist EMC & TOD divisions to qualify / approved equivalent materials from PLENCO (95% complete) • Locking up multiple year Agreement with PLENCO for 85%+ of our Phenolic material needs • Reduced Sumitomo Bakelite’s inflation impact from 30%+ increase to < 5% through negotiations with PLENCO

  23. DPO, Lean & E-Sourcing Opportunities

  24. Target 25 Suppliers for DPO Improvement Continued Drive on Suppliers less than 60 Day Terms

  25. DPO Opportunity Map Box Size Represents Quarterly Spend Color Indicates Terms POR 30 Days 49 Days 79 Days 80 Days 91+Days Several large opportunities below 50 Days. Next focus will be Improvement in 50 to 79 Day Category

  26. Lean Projects Speed is Critical to Maintain Service Levels and Control Inventory In Volatile Environment Lean Projects Being Implemented ASCO - Fastenal VMI to Launch Once Service Level Is achieved ASCO - Cathay Project Initiated LS - USSk Steel Stamped By TES – 50% DOH Reduction CT - Mitsubishi Project In Development CT - Jabil Project In Development SSB - Attended Lean Training In Germany Alpha, Yuxin, Fab Lab,Global Tech Completed Basic Lean Training in Mar10: Potential Opportunities PTS – 3 Projects Identified for Buyouts – Sprockets, Chain, Belts

  27. Regionalization – LASCO Projects Completed Will Be Following up with Commodity Managers to Track Progress and Capture Additional Projects

  28. Industrial Automation: Procurement Systems Blake Vogt April 2010

  29. 2010 YTD Identified SavingsTeams / Business Groups Through February Emerson Emerson Industrial Automation % Savings Down Across Majority of Commodities… Still Up Over ’07 / ’08… Window Of Greater Opportunity Closing

  30. FY10 Division eSourcing Summary Base Plan: $202M Financial Review: $199M Currently Loaded: $213M Completed (YTD): $86M Savings (YTD January): $6M (12.3%) Note: Forward Looking EAU Bid Volume ($M) FY10 Base Plan FY10 Financial Review Currently Loaded Delta To Base Plan Thru Feb. ($3M) ($11M) ($4M) ($12M) $4M ($3M) ($0M) Thru Mar. $2M ($8M) $2M ($8M) $3M ($2M) $1M Not Shown: SSB Wind Systems ($1M Currently Loaded In Plan) Seeing Upside Across Nearly All Divisions… Huge Turn Around… >$29M Behind Thru Feb. Now Only $12M

  31. Parts Analysis Update • Keeping Parts Analysis Up To Date Throughout The Year Will Result In Better Planning This Year And Next • Utilize GMDC Resources / Upload Piece Part Contract Prices • Currently Testing New ECM  PA Integration (ECM And Parts Analysis Will Soon Be Integrated • Build Into Sourcing Process $92M Remains In IA Top 80% Available… Great Effort To Review PA… >$135M Showing Available Week Of 3/8

  32. Project Tracking Across Systems New Project Tracking Report Will Allow Comparison of Projects Across Systems Savings Yield: ES vs. IM IM Savings: Current versus Fin Rev Pending Award, Savings Outstanding Number of Days: Plan Date to Actual Bid, Bid to Award, Award to Implement (based on IM), Bid to Contract Execution Report Relies on Matching WS #, Division Name, and Commodity Family in Inflation Model and Contract Management Inflation Model Contracts eSourcing Create Consistency Across Systems… Improve Accuracy Of IM… Measure And Influence Speed

  33. ES Savings TrackerIncreasing Project Visibility & Reclaiming ES Savings Industrial Automation Identified ES Savings Omitted From IM: $750K Avg. Bid To Award 24 Days Avg. Bid To Implement Improved From 58 To 54 Days > 140 ES Projects W/O Matches In IM… Significant Opportunity For Divisions To Update IM With Unclaimed ES Savings

  34. Contract Management • Utilize GMDC To Upload Legacy Contracts • Leroy – Somer Training Completed In Q2 FY10 Objective: Improve Spend Under Contract… 30% Improvement … More Improvement Needed

  35. Indirect Calendar And Project Status Challenges Contracts And Evergreen Clauses Industrial Gases Lost Multiple Sites Due To 7 year Agreements With Evergreen Clauses Not Ready / Interest Level Category Expertise Projects Completed YTD Yielding Significant Savings… Divisions Save Big, When They Participate

  36. New Procurement Solutions Website http://procurementsolutions.emrsn.com/default.aspx All Applications In One Site Indirect Event Calendar From Previous Slide Single Training Calendar • Webex Trainings • Now Offering ES Basic and ECM Basic in WebEx Format • Offering More Trainings (e.g. Process Training in More Regions • Online Training Video ~ 3-5 min “Snippets” • ‘Point and Click’ Video Tutorials Are Posted on SharePoint • Training Certifications - Optional

  37. REACHOver-all Status Increased by 4.5 % in 1st SVHC and 5.7% for 2nd SVHC completion compared to last month

  38. REACHIdentified Use of SVHC Out of 78 SVHC-Affected Suppliers, 9 are REACH Corp Team Managed

  39. REACHList of Suppliers Affected w/ SVHC Emerson Company Confidential

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