Lalit Panda, SVP SC and IT, Harman Consumer Group, Inc. ProcureCon July 14 th 2008 KPI Based Supply Chain Management

© 2008 Harman International Industries, Incorporated. All rights reserved. Page 2  Global Sourcing  Long Supply Chains  Multi echelon procurement planning  Increasing SKU diversity and customization  Fast changing product life cycles  Dynamic demand needing short supply lead times  Proliferation of mode choices in transportation  Inflationary pressures on operational costs  Margin pressures in the market  Need for better WC efficiencies Business Drivers

© 2008 Harman International Industries, Incorporated. All rights reserved. Page 3 Supply Chain – Ideal for metric driven operational efficiencies  Supply Side Metrics:  Vendor Schedule Adherence  Lead time variability  Line item fills  Demand Side collaborative metrics:  Forecast Accuracy  Event Impact assessment  Customer Service Level  Service provider metrics:  Transportation metrics  Benchmarking  Financial metrics  Cash flow  Margin impact  Asset productivity measures

© 2008 Harman International Industries, Incorporated. All rights reserved. Page 4  Productivity measures  Units picked per person, system throughput per day per person  Efficiency measures  Units picked/put away per hour, average turnaround time from delivery drop to ship complete, number of consolidations/ shipment to order ratio, DC space/volume utilization ratios  Accuracy measures  Picking accuracy, shipment accuracy, location accuracy, inventory accuracy, invoicing accuracy  Cost measures  Fixed costs to budget, variable expenses per unit volume throughput Metric example – Distribution Center

© 2008 Harman International Industries, Incorporated. All rights reserved. Page 5  Process  Sourcing consolidation  Service procurement  Global S&OP Processes  Technology  Product visibility in Supply Chain  Spend visibility and control  CPFR and Working Capital Optimization  People & Organization  Development of a corporate SC organization  Skill development and Process orientation  Best practice development & standardization Focus areas in SC Improvement

© 2008 Harman International Industries, Incorporated. All rights reserved. Page 6  Applied in isolation KPI’s are the least effective way of improving accountability. –McKinsey Quarterly.  Process has to support metrics. People have to support process. Technology has to support people.  KPI should be SMART – Simple, Measurable, Accurate, Regular and Timely  Should be part of a regular business review process  Should have a root cause analysis and follow up component. KPI

© 2008 Harman International Industries, Incorporated. All rights reserved. Page 7  Spend analysis tools  Data warehouses  Global trade management and facilitation tools  Vendor extranets and communication tools  Collaborative forecasting tools  Shipment visibility tools Technology to support global procurement

© 2008 Harman International Industries, Incorporated. All rights reserved. Page 8  Keiretsu instead of confrontation  Shared risks – quid pro quo  Clear and effective communication  Consolidation of vendor base  Clear operational agreements  Regular vendor reviews Key to successful supplier relationships

© 2008 Harman International Industries, Incorporated. All rights reserved. Page 9  Required for on boarding  Specifies terms of relationship  Financial  Inco terms, payment terms  Operational  Flexibility, means of communication, lead times, procurement of long lead time items and financial obligations, schedule and capacity commitments  Legal  IP  Terms of protection  Logistical  Compliance with regulations and certifications, Border Security Initiatives, Environmental regulations, social commitments Vendor Agreements

© 2008 Harman International Industries, Incorporated. All rights reserved. Page 10  KPI’s are best identified with a business drivers analysis and appropriate enabling technologies & processes  As part of a regular review process, KPI based supplier relationship management not only drives excellence but also keeps the relationship on a mutual improvement path  The analysis and joint discussion following the KPI is the most significant element of an open mutually productive supplier relationship Summary