 2005 by The Walt Disney Company

1. Consumer Driven Transformation The Wonderful World of Differences  10 am – 11 am Tuesday April 5, 2005 Rita Carton, VP Supply Chain Buena Vista Home Entertainment Lawrence Layden Supply Chain Management Business Consulting Services, IBM 2005 by The Walt Disney Company

2. Agenda • The Walt Disney Company and BVHE Home Entertainment Industry Overview • Order Fulfillment Challenges • Key Transformational Undertakings • Results- The Wonderful World of Differences • Q&A

3. The Walt Disney Company is a $30+ Billion diversified worldwide entertainment company with operations in four segments Studio Entertainment Live-Action and Animated Motion Pictures, Television Animation Programs, Musical Recordings and Live-Stage Plays Media Networks • Television andRadio Networks Including Cable/Satellite and International Broadcast Operations Consumer Products Licenses Disney Characters and Other IP to Manufacturers, Show Promoters and Publishers Worldwide Parks and Resorts • Walt Disney World • Disney Cruise Line • Disneyland • ESPN Zone • Anaheim Sports • Licensing Operations for Tokyo Disneyland and Disneyland Paris

4. The Home Entertainment Division (BVHE) business is characterized by two distinctly different profiles • New Release: • Titles New to Video/DVD, Required on Store Shelves for All Channels by “Street Date” • 20 Million Units of Finding Nemo • Catalog: • Entire Library of Titles

5. Component POS (Title Specific) Customer Orders Manufacturing Orders Retailer DCs Customer Orders Raw Material Orders Shipments Camarillo, CA Retailer Stores Materials Returns Livonia, MI Memphis, TN Distributor DCs Guadalajara, MX SUPPLIERS CUSTOMERS MANUFACTURING DISTRIBUTION BVHE Supply Chain Overview

6. Mass Marketing Mass Production Distribution Only Retail Power-Shift Retail Domination “Wal-mart World” Differentiation Marketing Media Offering VHS Beta DVD Time Steady State Steady State Steady State Steady State Supplier / Manufacturer Home Entertainment has been characterized by evolving retailer profiles, dominance of 1 or 2 media formats and reliance on 1 key supplier

7. DVD Introduction and growth along with maturing of the category brought on a new set of challenges: • Increased Product Complexity • Retailer Friendly Marketing Approach • Short Manufacturing and Distribution Lead Times Being part of a great marketing driven company, the Supply Chain has been expected to “Figure it Out”

8. In the future, the Supply Chain must accommodate more channels of trade, more media types, diverse product lifecycles and multiple sources of supply Media Driven Opportunity Marketing Wal-Mart Others Best Buy Grocery & Drug Stores C- Stores Web High End Retail Movies.com Volume DVD Media Offering Extended Red Laser Personal Media Devices Advanced Optical Disk VHS pHD Hard Drives Cell Phones Portables DVD-HD E-bridge Windows Media 9 EZ-D Flexplay Media Sticks Blu-ray Time No. of Suppliers Supplier / Manufacturer MFG Other Dry Goods Unknown Distributors Time * Note: 1) Timeline Source: DVD Entertainment Group & CNET

9. Agenda • The Walt Disney Company and BVHE Overview • The Home Entertainment Industry • Order Fulfillment Challenges • Key Transformational Undertakings • Results- The Wonderful World of Differences • Q&A

10. Success at BVHE required us to address critical supply chain challenges • Business Environment Challenges • Increasing Service Demands from Retailers • Media Proliferation and Format Uncertainty – Shorter Lifecycle, Lower Margins • Order Profile and Complexity • Significant Small Orders • High Product Mix • Order Fulfillment Visibility • Demand and Supply De-linked • Customer Service and Distribution Miscommunications • Better Inventory Management We needed to focus on the Customer

11. Agenda • The Walt Disney Company and BVHE Overview • The Home Entertainment Industry • Order Fulfillment Challenges • Key Transformational Undertakings • Results- The Wonderful World of Differences • Q&A

12. Transformation Action • Strategy Confirmation • Voice of the Customer • Operational “Big Ideas” Guidelines • Life of a Title Analysis • Core vs. Non-core Business Processes • Future State Gap • Foundation Projects • Preparation Projects • Transformation

13. Support BVHE Creative (flexible and responsive) Own the Customer Minimize Supply Chain Assets We developed a set of supply chain principles built around three overarching “big ideas” Business Goals • Improve Customer Service • Improve Cash Flow and Reduce Cost • Reduce working capital • Increase Productivity Drives Value

14. A key output of the diagnostic effort was identification of Core & Non-Core processes • 16 Level One processes • 132 Level Two processes • 79 Core • 53 Non-core Manage Supply Chain Operations Create / Plan Promotion Process Orders Acquire Components Produce & Manage Inventory Distribute Product Returns, Invoice & Collect Manage 3rd Parties A. DevelopProducts B. Create NR Program C Create & Manage Configuration D. Devise Promotion Plan E. Manage Sales Orders F. Plan Demand G. Plan Component Supply H.Fulfill Component Requirement I. Plan/ Sequence Production J.ProduceFinished Goods K. Inventory Management L. Distribution M. PrepareInvoices N. Manage Returns O. UpdateS/CAccounts P. Vendor Manage- ment Perform Customer Care / Support

15. A plan was developed to address each major component of the Supply Chain “Supplier” FY ‘06 “Product” FY ‘04 “Customer” FY ‘05 “Finding” FY ‘03 Supply Chain Diagnostic Foundation Distribution Consolidation Product Management Supply Planning Retail Replenishment Customer Management Supplier Performance Mgmt

16. Agenda • The Walt Disney Company and BVHE Overview • The Home Entertainment Industry • Order Fulfillment Challenges • Key Transformational Undertakings • Results- The Wonderful World of Differences • Q&A

17. Variable Resilient Responsive Focused The Wonderful World of Differences • Dynamically respond to changes and conditions faster than traditional supply chains achieve competitive marketplace positioning • Supported by applications and an open architecture that can enable instant or real-time, accurate information visibility • Use real-time information to sense shifts in the marketplace and dynamically redirects resources to address these shifts • Adaptive and can seize market opportunities based on real demand and market conditions, not just perceived demand

18. Multiple projects were undertaken to manage the level of inventory Manufacturing Postponement Strategy Inventory Management Practices New Release Over-Production Asset Recovery Management Finished Goods Inventory (Millions of Units) Distribution Consolidation Model As Is Demand Planner: Catalog Forecast Enhanced Inventory Model & Product Stratification

19. New Release and the Catalog processes have been redesigned Demand Planner (i2) implementation Consensus Meeting New Business Process “Ways of Working”

20. Performed logistics network optimization – nearing completion of consolidation of catalog to 1 DC Original Catalog Network 3 Distribution Centers Recommended Network 1 Distribution Center - Memphis Benefits • Greatly simplified planning • Reduced inventory – lower carrying cost by 10-15% • Cost neutral for combined storage, handling and transportation • Improved fill rates & maintained service within 3 days to 83% of customer base

21. Efforts Underway • Transportation Mgmt Outsourcing • Product Data Management Implementation • New Release Process Change • Advanced Responsive Retail Replenishment

22. Our efforts are positioning us for the future, but have yielded significant short term benefits as well • Inventory Management- finished goods inventory reduction – 20% • Returns – doubled the utilization of returned product during initial 8 weeks of release • MRP – reduced workload for Catalog planners • Order Management – initially reduced small orders from 45% to 15% and driving to 5% goal • Postponement Strategy – added flexibility (priceless)

23. Transformation Recap • Phase I- Define vision, business case and plan • Phase II- Capture “quick wins”, enable foundation of Supply Chain vision • Phase III- Focused and Responsive Supply Chain