1. Realizing the Value of an e-Enabled Supply Chain Robert Pyzdrowski RR Donnelley October, 2003

2. 2 Generating Value And ROI From papiNet  papiNet offers the opportunity to improve the entire supply chain  papiNet is an enabler for collaboration, information sharing, process improvement and shared decision making  A critical mass of participants across the value chain is needed in order to generate significant value

3. 3 Merchandisers & PublishersPaper SuppliersPrinters  Improved total cost of ownership  Supports better decision making through feedback & transparency  Emulate JIT and best practices used in merchandising supply chain  Easier to manage paper across multiple printers  Clear view of demand for better forecasting & planning  Consolidate shipments  Less storage space  Decreased inventory  Enhanced data collection for manufacturing & materials optimization  Consistent inputs  Greater inventory turns and less storage space  Better equipment effectiveness  Enhanced data collection for manufacturing & materials optimization Universal Benefits  Lower working capital requirements  Increased consistency throughout the process  Lower inventory  Lower transaction costs  Reduced staffing needs for order and process management  Better customer service & reporting  Global standards enhances ability to service global customers Collaboration Across The Supply Chain Benefits All Parties The Network Effect: the payoff and benefit of using a system increases exponentially as the number of users increases

4. 4  Too many supply chain managers  Poorly coordinated and non-standardized communications and work flows  Excessive inventory at printer and/or manufacturer  Mediocre returns on invested capital in paper and printing  Investor pessimism results in low stock prices and P/E ratio  Third party intervention: Paper brokers, dot-com’s  Customer distrust of mills and printers  Slow adoption of XML and e-business links  Declining pace of technological innovations compared to 1970’s and 1980’s  Growth rate at 1% and declining  Lack of collaboration and shared decision making These problems will not be solved through further industry consolidation The Merchandiser/Publishing, Paper & Print Supply Chain Is Not Optimized Today

5. 5  Product Attributes  Planning  Request For Quotation  Availability  Purchase Order  Order Confirmation  Call-Off  Order Status  Inventory Status  Product Quality  Usage  Inventory Change  Product Performance  Delivery Message  Goods Receipt  Invoice  Credit/Debit Note  Business Acknowledgement  Information Request  Complaint  Complaint Request Plan Make Deliver Source Utility papiNet Provides Standards For Communication Between Partners Standards are fundamental to an efficient supply chain:  Enable timely, efficient and effective communications  Avoid costly non-value added translation activities  Enable fast and widespread connectivity  Avoid “one-off”custom connections

6. 6 Transactional Efficiency Trim waste Web breaks Process delays Yield Excess freight Late Deliveries Transit damage Multiple handling End-to-end cycle-time Warehouse fees Data Critical to Making Improvements: Press delays Delays Press damage Inventory turns Strip waste Damage Perceived Value Intrinsic Value The Supply Chain “Iceberg”

7. 7 E-Business Link PerspectiveCollaboration Perspective Approach:“Efficient and cost effective transactions” “An efficient and cost effective supply chain” Scope:Transaction between trading partners The entire supply chain Objectives:Transactional efficiencyOperational improvement ROI:Break-even (at best)Positive Impact:Enables reduced admin and systems cost Enables reduced operating costs, improved quality, throughout and working capital Potential $ Return: Tens-hundreds of thousands/company Tens-hundreds of millions/company How viewed:An IT projectA margin improvement project and strategic enabler for supply chain improvements Different Perspectives Lead To Different Viewpoints Of The Value Of papiNet

8. 8 Data Collection: Merchandisers & publishers Printers Paper Companies Data Collection: Merchandisers & publishers Printers Paper Companies papiNet is the Foundation… papiNet Is An Enabler For Collaboration And Creating Value … for enabling collaboration that will generate value within the supply chain. Supply chain partners can leverage data to drive improvement and eliminate waste Data Transmission (XML) Data Transmission (XML) Specifications: PapiNet Messages Common Definitions Standards Specifications: PapiNet Messages Common Definitions Standards Implement improvement projects Implement improvement projects Identify improvement opportunities and select improvement projects Identify improvement opportunities and select improvement projects Data Review and Analysis Data Aggregation Data Aggregation

9. 9 To achieve maximum ROI potential, data must be: Collected Analyzed Used to inform and identify improvement opportunities Collaboration Is The Key To Value Creation The opportunities must be acted upon to deliver value!

10. 10 Project Example: Increase Average Roll Diameter To Reduce Total Cost Increased roll diameter reduces waste, number of SKU’s, and material handling 1.Establish papiNet links between printer & paper supplier 2.Co-develop scorecard and feedback metrics 3.Use data results to increase the average roll diameter and reduce total cost

11. 11 Project Example: Lower Number Of Web Breaks To Reduce Waste 1.Use scorecard and feedback metrics to measure paper performance on press 2.Paper supplier used data to change how paper was produced 3.Resulting paper ran better on press, reducing waste, delays and web break penalty charges Web breaks result in paper waste, delays and web break penalty charges

12. 12  A 20% reduction in inventories would cover the annual dividend payout for a major paper company  Four large paper companies have a total of over $5 billion tied up in inventory  One large printer has approximately 15% of manufacturing floor space consumed by paper storage – the equivalent of 3 large plants  One large paper company reports recovering only a small portion of the millions of dollars of annual freight damage  Merchandisers and publishers can free-up cash flow to startup or acquire new properties The Opportunities Are Significant For All Parties Within The Supply Chain

13. 13  Use E-Business as an opportunity to review your entire supply chain  Recognize that papiNet is an industry-wide opportunity to lower costs  Position papiNet as a partnership with your key trading partners to improve the supply chain –include suppliers, publishers, merchants, printers, component vendors  Develop a vision of a papiNet-enhanced future business model that includes your trading partners  Sell the project as essential to this future model of doing business How Do I Get A papiNet Project Started?

14. 14 Next Steps:  Mobilize the “critical few” major players  The “critical few” establish timelines for implementation and expectations of their trading partners  Confirm message selection and priority with major trading partners  Focus on collaboration, not just implementing papiNet links There Must Be A Critical Mass Of Users To Improve The Efficiency Of The Supply Chain The IT cost of implementation will not be justified by the transactional efficiency alone. Participants will only generate significant ROI through collaboration to improve supply chain efficiency.

15. Enabling Supply Chain Collaboration

16. 16 Appendix

17. 17 “papiNet is the global initiative to develop, maintain and promote the implementation of standard electronic transaction standards to facilitate the flow of information and facilitate computer to computer communications among all parties engaged in the buying, selling, and distribution of forest, paper and wood products. The set of standards is referred to as the papiNet standard. The standards include common terminology and standard business documents (e.g. purchase orders, shipping notices, and invoices). The goals are to improve the reach and richness of communication throughout the supply chain, increase efficiencies in transactions and marketplace activities, and to support interoperability among trading partners. The papiNet standards are open and freely available.” Source: papiNet website papiNet Mission & Goals

18. 18 Needs for and Benefits of Standards "The Internet offers new opportunities for efficient and cost-effective execution of transactions. It is a truly global infrastructure available to all. It is also more cost- effective than the value-added networks (VANs) that EDI is built upon. “ "The papiNet standard is open, free, and easy to adopt, providing common benefits to supply chain participants. With the papiNet standard, companies will no longer need to negotiate and agree on data definitions and formats with each trading partner, a costly and arduous task. Instead, papiNet provides a common messaging interface to enable supply chain partners to have: a simplified process for dealing with multiple suppliers and customers through use of common business solutions. reduced manual work, resulting in fewer entry errors and improved supply chain management (e.g. replenishment, VMI). more "real-time" exchange of information and greater electronic information availability. the opportunity to participate in e-business transactions, irrespective of company size or technical expertise. " Source: papiNet website

19. 19 “ A company's demand management, direct material procurement, logistics, part management and order fulfillment processes are closely linked to supply chain partners. Value is created by close integration of these processes among the company’s suppliers, logistics & service providers and customers. Collaborative processes that provide visibility to forecasts, inventory levels, order execution, and shipments between trading partners achieve this. The collaborative process is hampered by lack of industry- wide processes and data standards that enable system-to-system automation of core processes…..” “In today’s competitive world, well-oiled and responsive extended supply chains are increasingly becoming a foundation for competitive advantage. No longer can companies restrict their focus on increasing supply chain efficiencies within the four walls of the enterprise. The supply chain that extends beyond a company’s organizational boundaries increasingly determines its effectiveness. There is an increasing dependence on "collaboration" as key to bridging the boundaries – not only within the enterprise, but also between enterprises and across industry boundaries.” “Adoption of RosettaNet standards could well be a critical factor in bringing the high technology dream of dynamic value chain management to fruition.” Source: RosettaNet website, Implementing RosettaNet E- Business Standards for Greater Supply Chain Collaboration and Efficiency The RosettaNet Value Proposition

20. 20 Mill Warehouse Train/Truck Warehouse Warehouse Warehouse Warehouse Press Warehouse Warehouse Printer Dock Distribution Center Distribution Center Truck Warehouse Warehouse Bind Customer/ Consumer Customer/ Consumer W,QW,QI,W,C,HI,W,C,H W,C,Q,HW,C,Q,H I,W,C,HI,W,C,H I,W,C,HI,W,C,H W,C,QW,C,Q I,C,HI,C,H I,W,HI,W,HW,HW,H C,QC,Q I,C,HI,C,HQ,HQ,H C Improvement Opportunities: I: Inventory/Working Capital W: Waste C: Cycle-time Q: Quality H: Multiple handling The Print Supply Chain – Improvement Opportunities

21. 21 The Need for Collaboration "90% of enterprises that fail to provide visibility and supply chain automation by 2004 will lose their status as preferred suppliers." Karen Peterson, Director, Gartner Inc., August 2002

22. 22 Total papiNet Trading Partner Implementations: In Production & Short Term Plans Status:  Implementation benchmark survey completed November 2002  80 trading partners engaged in implementation  2003 goal –All 80 in production –50 more in testing  Quarterly surveys throughout 2003 Comments:  Basic messages are used most frequently including Delivery Message, Purchase Order, Invoice, Order Confirmation, Business Acknowledgement and Goods Receipt  There is still a long way to go on Basic messages before other messages will be implemented  Europe is moving faster than North America Implementation Status

23. 23 Population and paper consumption per capita in 2001 Source: PPI Annual Review 2002 Western Europe China Other Asian countries Japan Latin America Africa Oceania Worldwide North America Paper consumption, kg per capita: 52 Other Europe 303 527 316 340 31 392 201 15 2456 127 242 148 30 35 1285 807 29 6 Populations, millions: 6,090 Market Size

24. 24 Getting a Project Started  Use E-Business as an opportunity to review your entire supply chain  Recognize that papiNet is an industry-wide opportunity to lower costs  Position papiNet as a partnership with key trading partners to improve the supply chain  Include suppliers, publishers, merchants, printers, component vendors  Develop a vision of a papiNet-enhanced future business model that includes your trading partners  Sell the project as essential to this future model of doing business  Partner with Solution Providers

25. 25 Other Industry Benefits From Standards  Electrical safety  Quality systems  Internet  Electronics Supply Chain  Paper Supply Chain  UL (Underwriters Labs)  ISO  HTML  RosettaNet  papiNet IndustryStandard

26. 26 Message Priorities Top Priority Next Priority