1. © 2002 IBM Corporation |August, 2004 | deeper IndustryWeek Value Chain Survey Conducted by IBM Energize your supply chain network GAIN New competitive advantage from existing investments Karen Butner IBM Institute for Business Value SCM Global Solutions

2. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 2 The Value Chain Survey provides a unique perspective on the views and priorities of SCM executives IBM Supply Chain Management Services and IBM Benchmarking Program, in conjunction with IndustryWeek magazine, conducted a comprehensive Value Chain Survey to ascertain what is “top of mind” with key SCM executives.

3. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 3 The survey provides a comprehensive assessment of the SCM executives’ agenda for the next two to three years  Target Group of Respondents −The Value Chain survey captured trends, practices and operational performance benchmarks in five key areas:  Framework −Each of the 5 independent surveys included 18-22 questions on business objectives, enabling technologies, and key performance measurements such as FTE’s, cycle times, and efficiency rates. −There were a total of 1,461 respondents. The number of respondents by survey:  New Product Development: 360  Supply Chain Planning: 270  Customer Order Management: 270  Procurement: 396  Logistics: 175 LogisticsProcurement Customer Order Management Supply Chain Planning New Product Development

4. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 4 The 1,461 respondents spanned all industries Source:IBM Business Consulting Services & IndustryWeek survey The survey reveals a remarkable convergence of views around major issues, across both size (revenue per site) and industries Participant Site’s Annual Revenue Percentage of respondents Industries Represented Retail 1% Other 3% Industrial Products 50% Energy 1% Consumer Products 34% High Tech 1% Distribution 14% Services 1%

5. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 5 The survey was rich in performance metrics and business practices Key Performance Indicators: Sample Data only All Companies Median Value All Companies Benchmark Value* Number of FTEs for the order materials process per $1 billion purchases12250 Percentage of sales due to product/services launched in the past year15%28% Customer lead time (order entry to shipment) in days72 Finished goods inventory turn rate1024 Cost of Goods Sold as a percentage of revenue67%23.2% Cash-to-cash cycle time in days67.544 * Benchmarks are computed as 80 th percentile

6. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 6 Revenue growth takes precedence over cost containment Welcome back to the top line  Four out of five CEOs across the world believe that revenue growth is their number one priority – and the means to achieve their financial performance objectives  At the same time, CEOs believe they must maintain their ongoing emphasis on cost containment  Most CEOs believe that differentiated products and services will be a key driver of growth in a hypercompetitive market – and product/service innovation will only be achieved through new capabilities

7. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 7 Primary objective for 2004 is increased profitability

8. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 8 To achieve profitability objectives, companies are adopting SCM advanced practices Key Focus Area for Strengthening Financial Performance Over the Next Three Years Widely Adopted Somewhat Adopted Not Adopted Responsive end-to-end supply chains Variable cost aligned with revenues Real-time information Shared risk

9. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 9 Innovative supply chain management performance is characterized by on demand maturity on demandTraditional Static Supply Chain Horizontal Process Integrationand Automation Functional Optimization Horizontal Process Integrationand Automation Functional Optimization on demand Supply Chain External Collaboration

10. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 10 Balancing customer requirements while managing costs and resources, is key to bringing new products and services to market in a timely fashion to meet profitability objectives

11. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 11 Despite the emphases on time-to-market reduction initiatives, most are challenged to meet on-time and on-budget attainment

12. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 12 Being able to respond to an ever faster changing environment is increasingly gaining importance Responsiveness – the new key competence  CEOs recognize that they need to sense, analyze and respond more effectively to continuously changing market conditions and risks  Agility has been made a high priority Yet very few CEOs rated their organizations’ ability to react to these changing conditions and external forces as being very good. Reinstituting a “customer responsive” organization is high on their growth agenda CEOs recognize the need to establish effective, real-time response capabilities CEOs are aware of the power of IT and the weaknesses that result from lagging behind

13. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 13 Companies are progressively adopting planning tools to increase both productivity and profitability

14. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 14 Companies are embracing customer collaboration processes

15. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 15 The overwhelming majority of respondents consider the implementation of these leading practices proved to be effective in supporting their objectives for profitability and performance

16. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 16 Customer Order Management practices influence customer demand and support increased revenue and profitability objectives

17. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 17 On-time delivery (OTD) continues to be a key performance indicator for customer satisfaction

18. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 18 Real-time customer order management capabilities are primarily in order entry/tracking and inventory reservation

19. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 19 The trend toward global sourcing is on the rise

20. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 20 Most companies are embracing logistics leading practices in the areas of differentiated logistics services by customer segment and flow through strategies

21. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 21 Outsourcing of logistics functions continues predominately in the areas of freight bill audit and payment, customs/export services, warehousing and transportation Of those outsourced functions most responded that they have met objectives: –Customs – 55% extremely effective, 44% somewhat effective –Warehousing – 43% and 55% –Transportation management – 62% and 35% –Facilities maintenance – 36% and 60%

22. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 22 Recommended Actions Focused and variable logistics network structures and processes are required for supply chain success in today’s global economy  Create competitive “fit for purpose” supply chain structures by focusing on differentiating competencies which support the customer value proposition and exploit the advantages of global sourcing and networked value chains  To accommodate the variability brought about by customer demand fluctuations and changing requirements, develop and implement dynamic and adaptive supply chain logistics structures  Control and marshal logistics assets and virtual assets acquired through outsourcing and partnerships in realtime. Integrate the entire end-to-end global logistics network and manage event exceptions proactively  Create competitive advantage through aggressive exploitation of new supply chain technologies (RFID) and reduced cost of operations through new ways to deliver and finance technology infrastructure.

23. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 23 New competitive advantage from existing investments: Profitability, Performance, Partnership Profitability Quest for profitability demonstrated through SCM initiatives that can deliver a rapid return on investment (ROI) Performance Strong focus on end-to-end supply chain visibility (sensing) and end-to-end responsiveness (adaptive supply chain) Partnership Collaboration is next frontier of improvement for renewed operational excellence. Partnerships are required to:  Develop new products/services faster  Produce hybrid and cost effective products/services  Deliver through multiple, global channels  Increase performance of operations Source: IBM / IndustryWeek Value Chain Survey, 2004 PartnershipPerformance Profitability

24. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 24 Questions? Karen Butner IBM Institute for Business Value kbutner@us.ibm.com

25. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 25 Summary  Traditional supply chain business models are giving way to emergence of new horizontally integrated, high-performance, on demand value chain networks  New supply chain strategies create competitive advantage opportunities  Companies must energize their supply chain through implementing new and innovative business models, while leveraging existing investments

26. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 26 SCM quest for profitability is demonstrated through initiatives that can deliver superior products and services with rapid time-to-market and return-on-investment Profitability 1.Create superior innovation processes of products and services to meet customer needs in collaboration with supply chain partners 2.Implement real-time accurate access to relevant customer & supply chain operational data Quickly identify root causes of issues Manage by exception through alert messaging Shared information on plans, issues and actions to enable rapid decision-making 3.Develop variable cost structures that can be controlled and managed in direct relationship to customer demand Initiatives support profitability objectives through growth, cost containment, and rapid ROI Source: IBM / IndustryWeek Value Chain Survey, 2004 PartnershipPerformance Profitability

27. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 27 Optimizing supply chain performance, productivity, and responsiveness are focus areas to achieve cost and service-level objectives Performance 1.Implement responsive, end-to-end and integrated processes to synchronize demand and supply and eliminate supply chain waste (time, inventory, effort, money) 2.Standardize and align measurements to monitor daily performance Scorecards to identify performance trends and recurring issues Integrated end-to-end supply chain measurements –Perfect order (on-time, right product, right price, damage free) –Cycle time reduction in on-time delivery & new product time to market –Customer service level attainment 3.Implement a robust capability to sense and respond to customer demands and other critical events as they occur Initiatives support performance objectives of cost containment and improved service levels through increased customer responsiveness Source: IBM / IndustryWeek Value Chain Survey, 2004 PartnershipPerformance Profitability

28. Energize your Supply Chain Network: Value Chain Survey Results March 2004 | © 2004 IBM Corporation 28 The number of players has increased dramatically, as well as the complexities involved in delivering customer value in the extended supply network Partnership 1.Develop and implement the ability to execute across the supply chain network in a synchronized way through collaborative planning and execution with customers and suppliers. 2.Rationalize the logistics network and outsource non-differentiating activities to partners 3.Develop and implement dynamic and adaptive supply chain logistics structures for variable cost control. 4.Develop and implement global sourcing and supply networks  End-to-end visibility and adaptability  Networks of supply chain partners that sense and respond in a coordinated fashion to changes in their environment Initiatives support objectives of growth, cost containment and improved service levels through collaborative partnership in the extended supply chain Source: IBM / IndustryWeek Value Chain Survey, 2004 PartnershipPerformance Profitability