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Agenda

Agenda. Overview Bill Estes Procurement Mark D’Amico Spend Demographics Performance Overview Commodity Strategies Trade Working Capital Improvement – Inventory & DPO Logistics Traci Grever Logistics Profile Key Programs Supply Chain Network Optimization. Key Messages.

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Agenda

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  1. Agenda • Overview Bill Estes • Procurement Mark D’Amico • Spend Demographics • Performance Overview • Commodity Strategies • Trade Working Capital Improvement – Inventory & DPO • Logistics Traci Grever • Logistics Profile • Key Programs • Supply Chain Network Optimization

  2. Key Messages • Net improves from 0.8% to (1.2%) • Reorganized to drive Supply Chain improvement • Logistics in sharp focus – now we optimize • Achievable Plan built on reasonable Commodity assumptions • Will embrace and deploy full Emerson toolset • High performing Supply Base synchronized with Manufacturing • Performance vs. Emerson KPI’s

  3. Supply Chain Execution Vision EGS Supplier Portal Logistics Optimization Supplier Scorecard Bar Coding Forecasting eKanban Vision Evolving – clearly a target rich environment

  4. Supply Chain Impact

  5. Materials Generates $9.1M SavingsDuring FY06-FY11 Period • Plan Assumptions: • Program savings $9.1M • Projects save $8.1M, metals add $1.0M • Steel prices effectively flat – Jan‘07 Commodity Team Forecast CAGR (1.6%), inflation set at (1.4%) • Zinc inflation model CAGR set at 4.3% • Increased tempo of eSourcing • Focus on total cost improvement • Savings programs include operations related improvements • Part rationalizations, i.e. corrugated & fasteners • Align with manufacturing • NPD gating process • Full supply chain integration improves total cost and customer service

  6. Aggressive Programs Generate Savings

  7. Atizapan Barstock E-Source • E-Sourcing conducted Q1FY07 • Value of bid: $5.5M • Savings Achieved: $351K • 9 suppliers: 1 mill, 3 cold drawn companies and 5 distributors • Incumbents: ATP, OIS and Castle Metals • Business awarded to Simec local supplier for high volume steel bar

  8. Hedged Metals – Zinc • Zinc buy is primarily zinc die casting alloy • Hedging program in place • FY07 – 85% hedged • FY08 – 33% hedged • Future opportunities • Continue hedging program • Logistics • Payment terms

  9. Hedged Metals – Copper • Copper buy consists of bar and wire • Currently following Hedging Program • FY07 – 86% hedged • FY08 - 55% hedged • Future opportunities • Continue hedging program • E-Sourcing events • Review long term contract opportunities • Logistics

  10. India Mexico Mexico USA USA Supplier Lean Supply Chain Initiatives Beginning Stages • Integrating efforts of quality, planning & procurement to develop robust processes • MRP-Oracle • Data standards • Procure to pay • eKanban • Supplier Quality- scorecard, integration, linked to awards • Success story – realigned die casting supply base • Transitioned from USA to México suppliers • Took 8 days out of the cycle • Moved low value castings to India > México capacity • Saved $150K • Success story – Atizapan corrugated consolidation • Reduced corrugated SKU’s from 241 to 106 • Cost savings $60K annually, implementing March 2007 • Phase II Columbus/Stephenville • Success story – suppliers ship to distribution centers - 20 days out of the cycle • Lock nuts & reducing washers 49 SKU’s – complete

  11. Alignment With ManufacturingAction Plan Stampings 15% localized, $1.1M from US Mexico – Atizapan • 62% localized today • Strong local supply chain team • Integrated with LAPO • Specific FY07 eSourcing projects • Key Commodity gaps • Stampings • Plastics/T Set • Wiring harness Europe – ATX & Cluj Startup • Historically ATX not on sourcing radar • ATX in MIN Q3 FY07 • CEEPO driving localization of key components – Lamp thermoset & thermoplastic • Localization a top priority due to lead time & logistics impact Auto-form Gem Mfg Hessels Howard Eng Taco Platt Bro Accurate Metal Connector Mfg Cookson Group Deringer-Ney Gilbert Spring Griffiths Corp Line Tool & Stamp Manor Tool & Mfg Nu-way Ind. Stanley Spring Clampco Jones Metal Prog Die Dex M Corp Wire Prod A.L.P Ltg NC Auto Rummel Ind. Topco Blazer Mfg Chief Ind. Superior Metal Mohrmann Tool Deaver Artmark Dayton Rog Atizapan

  12. Sourcing StrategyBuyouts Future State Current State Mechanical • High volume, low mix • India material stock in local warehouse in USA • China material order in full containers Total Spend $29.3M Electronics • Low volume, high mix products • Migrate power supplies from China to Mexico • Implemented Lean Supply Chain initiative • Incorporated NPD process and Sourcing Decision Tool Electronics • Low volume, high mix products • Migrate power supplies from China to Mexico • Implemented Lean Supply Chain initiative • Incorporated NPD process and Sourcing Decision Tool Total Spend $15.8M

  13. E-Sourcing Material Velocity FY06-FY11 By Category

  14. NPD Program Summary NPD coming into focus

  15. DPO Improvement Plan Continuing to Improve

  16. DPO Improvement Plan FY07 DPO 64 Days (2.3) Mexico Supply Base Growth (1.1) Eastern Europe Supply Base Growth +3.3 Integrated MRO Supply Chain Project +2.2 eSourcing Events +1.1 Contract Negotiations +0.8 Go Get FY11 DPO 68 Days

  17. EGS Raw Inventory FY06 $16.3M MPS Process Control ($2.0M) ($4.5M) eKanban ($1.0M) Excess & Obsolete Management ($0.8M) Go Get FY11 $8.0M

  18. MRO Integrated Supply • FY06 • Perishable tool E- Sourcing event $2.2M • Bid covered 550 SKU’s • Cost savings $311k • 2 locations involved • 5th 2nd Prox • FY07 • Integrated Supply Chain E- Sourcing event $4M • Bid covered 22,000 SKU’s • Cost savings $638k • 7 locations involved • 5th 3rd Prox • Consolidated approximately 500 suppliers to 1 $949K in MRO Savings

  19. EGS Supply Chain Data IntegrityDriving Improvement Will Require Clean Data

  20. Emerson Programs Will Be Crucial To Offsetting Inflation FY06 $27M Spend ($1.4M) LTL = Competitive Tension and Mode Shift to TL Ground Parcel = Small Package eBid/ Shift Prepaid/Add to Collect ($1.3M) FTL = eBid / Optimization TL Weight / Control Surcharges ($0.8M) Other = Air eBids, Further Ocean Participation ($0.2M) LTL = Carrier Consolidation, Fuel Surcharges, Increased Labor Costs + $1.7M +$1.3M FTL = Shrinking Trucker Workforce, Fuel Surcharges, New Engine EPA Standards +$0.9M Ground Parcel = Fuel Surcharges Other = Ocean/Rail Increase, Air Freight/Security Surcharges +$0.5M FY11 $28M Spend

  21. As Emerson Logistics Programs Gains Further Traction, EGS Will Net Further Benefit

  22. Completed Projects Simplified Transit Of Freight FY06 Savings $151K • Direct shipments from Atizapan to Europe • EU – MX Free Trade Agreement, orders can be imported into EU duty free only if there is a direct shipment from Mexico • Savings = 2.7% in EU Duties, $41K • Lead Time Reduction = 14 days by not shipping through US • Canadian customs brokerage • Before – EGS Canada and Easy Heat Canada used 4 import brokers • Now – Both utilize Emerson Canada • EGS Canada Savings = 30%, $18K • Easy Heat Canada Savings = 62%, $34K • Direct shipment of cordsets from HK to Atizapan • Before – Ship to New Carlisle and truck to Atizapan • Now – Ocean containers direct to port of Manzanillo, Mexico • Savings = 55%, $37K • Lead Time Reduction = 20 days • Lighting housings from HK to ATX • Before – Circuitous route from Texas to Mexico to Canada to France • Now – ATX orders direct from Modern Metals • Savings = 11%, $21K • Lead Time Reduction = 60 days Before After

  23. FY06 FY07 FY08 FY09 FY10 FY11 Cost Containment and Further Utilization of Emerson Transportation Programs NSC Program – Asia - MX FY06 Q4 = 10% Savings NSC Program – Asia – EU; EU – US FY08 Q1 = 10% Tgt TL eBid (EGS, Motors, Tools) FY07 Q2 = 5% Savings Cross Divisional LTL, TL, & Air Freight eBids Air Freight eBid FY07 Q3 (IA) 7% Tgt Analysis of EGS Freight Policies Shift of Pre-Paid and Add freight costs to Collect – EGS Purchases Carrier Non Compliance Reporting “Milk Run” Analysis TL Weight Optimization EMR TL Call Center Reduction of “Premium Freight” FY07 To FY11 – Work With Emerson To Leverage Spend And Optimize Transportation Network

  24. Supply Chain Summary EGS Is Committed To Building A World Class Supply Chain Organization

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