1. CONFIDENTIAL
Policy Overall

2. The Role of CPO (Chief Procurement Officer)
CPO Performs various roles from setting up the procurement strategy of company to executing & supporting with comprehensive perspective. Also, CPO ensures the enormous leadership is not limited in procurement organization, but company-wide.
CPO Role
CPO Agenda
Strategist
Emerging Trends
Ensure a global view on new principles & Trends
Planner
Multi-year planning
Define Procurement Strategy Corresponding Financial / Non-Financial Target of the Company
Must go with “Leadership” …
Controller
Total cost focus
Consider Total Cost Ownership (incl. Risk, Innovation, Service Cost)
… Inside the procurement group AND outside the group
Innovator
Supply base rationalization
Harmonize & Rationalize Suppliers Based on Procurements Expense & Strategic Plan
Integrated systems and processes
Decide over common IT platform for Efficient Process Integration and Extension
Supporter
Supplier & Staff development
Coordinate Purchasing teams in monitoring and reviewing company relationships with the Supply Base
Source by: Accenture CPO Community 2008 Autumn Session

3. Introducing Status of CPO
Introduction of CPO allows all global & local market leader to rationalize process leveraging and optimize procurement cost
Local Company
Global Company
LG Electronics
Sam Sung Electronics
LG Display
LG Household & Healthcare
The Office of Supply
Han Kook Tires
Hyundai-Kia Motors
Sam Sung Petrochemical
LS Cable KT
Automotive / Automotive Parts
Logistics
Toyota
Volvo
VW Audi
Good Year
Fedex
Airlines
High-Tech & Consumer Goods
United Airline
IBM
Lucent
Nortel
Tyco
Sara Lee
Chemicals/ Energy /Pharmaceuticals & Medical Products
Finance
Aventis
Astra Zeneca
Arcelor
BP Castrol
ABN Amro
Deutche Bank
HFC Bank / Dow

4. HMM CPO (Chief Procurement Officer) Vision & Mission
HMM CPO performs its Vision & Mission to attain cost optimization & visibility enhancement
“ Strategic1) Partner2) for Achieving Global Level3)
Cost Leadership4)”
Vision
Cost Optimization
Visibility Enhancement
Mission
CPO Role Enhancement
CPO Strategic Direction
for Executing CPO Mission
Cost Optimization
Sourcing Capability Enhancement
Strategic : Transform its Role from Simple Procurement & Settlement of Account to High Value Strategic Sourcing
Partner : Conducting HMM Cost Optimization as a Partner/Collaborator & Coordinating Cross BU as a Coordinator
Global Level : Global TCO Managing Level Competing with Other Global Shipping Company
Cost Leadership : As Org. under immediate control of CEO, CPO Performs a TCO (Total Cost Ownership) Cost Optimizing Role Cross Over BU

5. CPO Transformation Project
CPO Project established strategic sourcing & service procurement management structure in 1st wave and conducts global rollout in 2nd wave based on implications from executing pilot project in 2nd half of 2008
2009 1~2Q
2009 3~4Q
2010 ~
CPO
Mission
CPO Transformation Wave I
“Foundation & Conceptualization”
CPO Transformation Wave II
“Stabilization & Rollout”
CPO Transformation Wave III
“Enhancement & Integration” 1
SVC Procurement Management Structure 4
Strategic Sourcing Stabilization 7
Strategic Sourcing
Enhancement
Cost Optimization
- Establish Procurement Policy
Design & Define Procurement Process & R&R (8 SVCs)
Rollout Strategic Sourcing Structure
Set Up Strategic Sourcing System Base
- Complete Rollout of Strategic Sourcing Structure 8
SRM* System 2
Strategic Sourcing Execution 5
Visibility Enhancement
- Implement Strategic Sourcing System
- Execute Strategic Sourcing (Long Term Lease / Dry Dock Repair)
Rollout Procurement Policy
Define Monitoring Operational Rule
CPO Role Enhancement 9
CPO EIS** 3
Strategic Sourcing Structure
- Implement EIS System
Define Strategic Sourcing Framework/Approach(5 SVCs)
*SRM : Supplier Relationship Management
**EIS : Executive Information System 6
Procurement Staff Capability Enhancement
Managing
Portion
(19 Categories)
1 Billion (USD)
(38.1%, 8 SVCs)
2.7 Billion (USD)
(100.0%, 19 SVCs)
Cost Management Enhancement
&
Completion
CPO Cost Optimization
Target : 5 SVCs (Acc. 80 Million)
Expected Saving : Accumulated
11 Million(13.96%)
To Be Estimated
(After CPO 2nd Wave)
To Be Estimated
(After CPO 3rd Wave)
* $1 = 1,250 KRW

6. Value Creation of CPO Activities
Applying procurement policy to HMM will have an effect on supplier selection and contract all over the company. For those implication and improvement opportunity by applying procurement policy, CPO will contribute to saving procurement cost & maximizing profitability by providing strategic sourcing approach & supporting to set up procurement strategy
Cost Visibility
Improvement Opportunity
Value Added
Cost Competitiveness
High Profitability
What kind of Procedure does HMM follow to make a payment? Which Supplier Does HMM Pay for?
What is the Improvement Opportunity for Cost Saving or Procurement Visibility?
As a Procurement Policy Owner (incl. Strategic Procurement Knowledge), What Kind of Guideline does CPO Provide?
What is the detailed Execution Plan for Cost Optimization?
Contribute High Profitability for HMM by achieving CPO Vision & Mission
Policy
Gate
Truck
Feeder
Depot
M&R
Fuel
Parts …
Supplier Evaluation Method
Supplier Management & Differentiation/
Segmentation
Volume Allocation Rule
Others
“High Profitability of HMM”
CPO Transmits Strategic Sourcing Value for Improvement Opportunity to related Operating Team
 Conducting In-house Consultant Role
Cost
Optimization
CPO
Vision & Mission
Achievement
Revitalize Supplier Competition Circle by Procurement Visibility & Fairness
Ensuring Visibility & Fairness of Supplier Evaluation/Selection/Contract

7. Definition of Procurement
What is Policy?
Definition of Procurement
Procurement is the acquisition of goods and/or services at the best possible total cost of ownership, in the right quality and quantity, at the right time, in the right place and from the right source, generally via a negotiation, contract and purchase order.
Objective
Maximize the impact of procurement by securing the visibility in procurement activity, managing risks in advance and acknowledging improvement opportunity
HMM Value Maximization introducing Supplier Competition Structure
Enhancing Procurement Capability by Managing Strategic Suppliers
Minimizing External/Internal Risk of the privities of Contract
Section
Details 1
Procurement Ownership & R&R
Procurement Ownership/ Changing Procurement Ownership / CPO R&R 2
Procurement Process
Supplier Qualification / Bidding & negotiation / Supplier Selection / Contract Management / PO (Purchase Order) Management 3
Supplier Management
Potential Supplier Management / Supplier Evaluation / Supplier Differentiation & Segmentation / Special Management 4
Risk Management
SOD (Separation of Duties) 5
Information Management
Procurement IT System

8. Transformed Operation by Applying Procurement Policy
Applying procurement policy will lead to improve compliance by self-check for supplier evaluation & selection
Transformed Operation
Role & Responsibility
Do (Operate)
Self-Check
Verification
Competitive Bidding 1
Supplier Selection/ Contract / Management
Monitoring Compliance Procurement Policy (Supplier Selection / Contract / Management)
Confirm / Verify Result of Self-Check
Supplier Evaluation/Selection as Defined Procedures (incl. Competitive Bidding)
[Case 1 : Operation by RHQ]
Inform
Zoom In next Page
RHQ
Regional or HQ CPO
Supplier Selection 2
[Case 2 : Operation by RHQ & Approval by HQ]
Inform
Periodical Supplier Capability & Performance Evaluation for ensuring Supplier Competitiveness
RHQ
Regional or HQ CPO
Approval/Confirm HQ
Inform
Potential Supplier Qualification
[Case 3 : Operation by HQ] 3
Inform HQ
HQ CPO
Minimum Qualification Standard for Potential Suppliers to Minimize Risk
[Case 4 : Operation by CPO]
Inform
RHQ / HQ CPO
HQ CPO

9. [Example] Practical Use of Supplier Evaluation
Operating team has an ownership for supplier evaluation part, one of policy gate keeper’s roles, and the result will be used for core supplier selection, volume allocation, leading fact-based negotiation and supplier risk management 2
[ Zoom In – Practical Using of Evaluation Result]
[ Supplier Assessment – Operating Team]
Result
Supplier
Result Utilization
Value Add
Score
Grade
Segmentation
[Evaluation Template]
Proper Supplier Selection
‘A’
‘B’
‘C’
‘D’
‘Y’
‘Z’ …
‘A’
‘B’
‘C’
‘D’
‘Y’
‘Z’ … 93
Excellent
Excellent Gr.
Core Strategic Supplier Selection
Asset & Liability, Sound Finance, Profitability, Liquidity
Finance
Capability
Performance
Information Management, Facilities/Providing Service, Quality Assurance, CRM, System, etc
Price History, Service Quality History, OTD, etc
Supplier Differentiation 90
Excellent
Excellent Gr
Volume Integration
Core Supplier-oriented
Operation 86
Good
Excellent Gr
Volume Allocation Rule
Service Level Improvement 79
Normal
Emerging Gr.
Supplier Improve Opportunity Survey
Supplier Collaboration
Fact-Based Negotiation
Supplier Competition 69
Bad
Improvement Gr.
Fact Based Negotiation
Sharing Evaluation Result / Competition
Contract Management
(Singing/Expiration/Renewal)
Advanced Warning Supplier Bankrupt 63
Bad
Improvement Gr.
Advanced Procurement Activity

10. Efficient Operational Plan for Procurement Policy
For managing procurement value driver in actual fact, procurement policy will be operated considering the characteristic of service and operation
HMM Procurement Policy Operational Direction
“In Principle, Procurement Policy Applies 100% of Total Spend for each Service” but,
1. Considering
The affiliates/partners/spot/small Sum Supplier
 80% (minimum target) of total spend will be managed considering operational efficiency.
[Reflection of Operational Reality]
“In Order to attain the most effective Result of Supplier Evaluation for Actual Selection & Management..”
1. Integration of former evaluation system & best practice from market leaders”
 Define & apply differentiated supplier evaluation (capability/performance) for each service
[Improvement of Supplier Evaluation Effectiveness]
[Differentiated Applying Level for Policy Provision]
“In Principle, Competitive Bidding & Supplier Evaluation Applies all Supplier in Scope..” but,
1. Considering sole & single supplier due to special condition
 There are only exceptional cases for competitive bidding, not for supplier evaluation
“To Find Out Improvement Opportunity for Value Enhancement from Result of Applying Procurement Policy”
1. Spend ratio (supplier evaluation), competitive bidding, supplier evaluation
 Define right Direction for those opportunities & enhance the level of supporting strategic sourcing activities
[Indicator Selection & Management]