Bill Krueger Senior Vice President, Manufacturing, Purchasing and Supply Chain Management for the Americas Nissan North America Inc.

Global Sourcing Strategies Automotive News Manufacturing Conference Supply Chain 15,000km, 150km …or 15km? Good evening and welcome to Nashville. As all of the speakers will likely mention in one form or another, every aspect of our industry has a global orientation. Supply chains can reach 15,000 km, 150 km or just 15 meters. Bill Krueger Automotive News Manufacturing Conference May 17, 2007

What’s the correct answer? INDIA INDIANA …or IN THE PLANT Another way of looking at it is, do we want to source our parts from India, Indianapolis or inside the plant. Which is right for the situation? It depends… Contrary to popular belief, global sourcing isn’t just about cost. If we can’t create a win-win situation with a suppliers -- wherever they’re located – it’s not a good deal for us. The new enemy of success is complacency – it’s stagnating our thought process and thinking we’ve made all the improvements we can make.

Low cost of labor availability 2,600 M 349 M 807 M

Technology map of the world Source: The Economist, June 24th 2000, p.81

Technology centers Stockholm, Sweden Hsinchu-Taipei, Taiwán Helsinki, Finland Cambridge, England Silicon Valley, CA Munich, Germany Boston, MA Sillicon Alley, NY Monterrey MEX Austin, TX Sophia Antipolis, France Singapur Tel Aviv, Israel Bangalore, India

Average Distance 350 Km →4,600 Km(13 x) Logistics Distances for Global Parts Europe - Local 600km US - Local 500km Japan – Local 130km Our positive opinion of the many advantages of global sourcing was tempered with a realization that our average distances were thirteen times what they had been with a local sourcing strategy. Lower labor → EUR　　 2500 - 8000Km 4-13 x　　 Lower labor→JPN　　　 2400 - 6500Km 　18-50 x　 Lower labor → NA　　　　　 2000 - 15000Km　 　4-30 x Average Distance 350 Km →4,600 Km(13 x)

Order Lead Time – Firm Horizon 86 D A Y S 40 Of course, the whole game changes as you go from local supply chains to global and LCC sourcing. The difference is obvious when you have lead times go from less than a week to three months. 16 4 U.S. Mexico Japan China

Risks associated with Global sourcing Financial Risks Obsolescence-Commitment for Fab & Raw materials due to extended supply pipeline. Currency Fluctuation/Stability-price adjust agreements Premium Freight-recovery & refilling the pipeline Inventory Carrying Cost Non-Price related Supply Chain Costs Warehousing Repackaging Expendable packaging disposal Sequencing parts Transportation Price Fluctuations Supplier Management & Oversight Cost

Risks associated with Global sourcing Supply Risks US Customs Delays due to lack of C-TPAT certification Transit Delays – Weather Carrier route changes Port of call cancellation Port labor or Customs disruptions/ strikes Freight Damage Systems failures Raw Material Supply Control & Stability Design Change & Engineering Change Coordination Global Supplier Capacity

And some of these supply lines are picturesque, but very different…

…and sometimes crowded….

VERY crowded!

Production Part Suppliers Parts Orders & Forecast SCM process map Production Part Suppliers Parts Orders & Forecast M&S Vehicle Orders & Forecast Parts Arrangement Scheduling Inventory Control Parts Ordering Vehicle Orders & Forecast Material Handling Production Material Manufacturing CCR International Logistics Domestic Logistics Transport Service Parts Nissan and Infiniti Dealers Vehicles I’m going to show kind of a slow-motion diagram of what our supply chain looked like not too long ago. Behind this inefficient process map were silos – business units that didn’t have common goals or a culture of communication. Not too long ago we actually had separate trucks delivering the same part from the same supplier to two buildings about 100 yards apart in Smyrna. On different days! It was more than communication… the problem was we had a system – shown here, that had a silo mentality and not an organizational efficiency point of view. We were getting the work done, but we weren’t working as a team in the big picture. Service Part Suppliers Service/ Accessory Parts Service & Accessories Service/ Accessory Parts

STRONG BUT INDEPENDENT MANUFACTURING PURCHASING CONSEQUENCES? Suppliers Customers Not long ago, each of these separate organizations within Nissan was producing very good work. But because they had no common culture for communication and because each reported up to a different executive there was little synergy taking place. A basketball analogy I like to use for this is Ohio State’s team. They had the best scorer, the best rebounder, best assist man – and they were very successful… but they eventually couldn’t stack up against an excellent, cohesive TEAM. SUPPLY CHAIN MANAGEMENT DESIGN

Optimal Purchasing Sub-optimal Logistics 10

MONOZUKURI – “MAKING THINGS” NOW MANUFACTURING PURCHASING VALUE NETWORK OPTIMIZATION REGIONAL INTEGRATION NNA, NMEX, NBA CONSOLIDATED OBJECTIVES CUSTOMER RESPONSIVENESS CUSTOMER QUALITY Suppliers Customers The concept of Monokuzuri is optimizing your value chain by setting team goals and creating a culture of synergy and communication that systematically squeezes waste out of the sytem. From silos we’ve evolved to a functional focus – and we’re moving toward real-time functional optimization of the value chain. Cost savings, quality gains and better efficiency are going to continuously occur as a result of a total system focus of monokuzuri. DESIGN SUPPLY CHAIN MANAGEMENT

MONOZUKURI’S Overarching Goal: Value creation by reducing the total delivered cost of high quality products to our customers.

Regional Supply Chain Management (Americas) Parts assembly level optimization Development of efficient packaging Transportation filling optimization Build the logistics corridor

P O Utilization of Efficient Packaging - parts per m³ + 1.00 P Packaging must guarantee parts QUALITY during transportation and handling. To achieve max. quantity of parts per m³. Use of returnable or disposable packaging based on optimum logistics cost. OK Best practice - parts per m³ + 0.50 O NG 0.00 - logistics cost (pkg & freight) +

P O Transportation fill optimization NG OK Key elements to succeed: Modular packaging “ok” Non modular packaging OK P “ng” (per piece) Dimensions according to AIAG standards (48” x 45” pallet footprint) to get maximum transport utilization NG O Key elements to succeed: Use of modular packaging (AIAG) Standardized transportation equipment Supplier responsibility as shipper of their own products

Logistics corridor Nissan Mexico & USA plants United States Mexico NNA-S Smyrna, TN(USA) Stamping Vehicle NNA-D NNA-C Aguascalientes (MEX) Stamping Engine & Transaxle Vehicle Eagle Pass, TX Laredo, TX Decherd, TN (USA) Engine & Transaxle Mexico NMEX-A Altamira Veracruz Manzanillo NMEX-C Lazaro Cardenas CIVAC (MEX) Vehicle Production of service parts Acapulco Canton, MS (USA) Stamping Vehicle

Critical success factors Manage the supply network, not just suppliers Effective supplier relationship management and supplier development Focus on total delivered cost, not price Involve all functions in the value network Develop parts commonization strategy – reduce complexity Seamless global processes, program discipline and efficient way of working KPIs and Goals aligned across all functions Perhaps the easiest way to illustrate our objectives is to show you how we determine success. As I mentioned earlier, we take a more holistic view of the network and strive to make our suppliers partners in managing the network. Talk to the slides

The Americas SCM Mission is to …. Support Regional Purchasing sourcing activities which result in the optimum Delivered Duty Paid (DDP) parts cost. Support the manufacturing process with the packaging designs, logistics routes and facilities which optimize the delivery of globally, regionally, and locally sourced parts.

VALUE NETWORK OPTIMIZATION MONOZUKURI – “MAKING THINGS” NOW MANUFACTURING PURCHASING VALUE NETWORK OPTIMIZATION The concept of Monokuzuri is optimizing your value chain by setting team goals and creating a culture of synergy and communication that systematically squeezes waste out of the sytem. From silos we’ve evolved to a functional focus – and we’re moving toward real-time functional optimization of the value chain. Cost savings, quality gains and better efficiency are going to continuously occur as a result of a total system focus of monokuzuri. DESIGN SUPPLY CHAIN MANAGEMENT