1. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Strategy Objectives Provide a structured approach to supply management Prioritize and segment suppliers based on importance –Risk –Annual Spend Establish and document a standardized methodology to improve both company and supplier understanding Communicate strategic supply objectives Implement standard performance measures Facilitate on-going improvement activities –Business relationship –Process improvement –Cost reduction

2. March 8, 200121 November 2000Supply Strategy Profitability Review The 5S of Supply Management S ORT – Select suppliers for addition to or subtraction from the supply base. S ET-IN- O RDER – Segment supply base into appropriate categories based on risk and spend. S HINE – Survey processes and systems as well as measure overall performance. S TANDARDIZE – Define responsibilities and audit supply management processes. S USTAIN – Review the performance of overall supply management process.

3. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Management [S ORT ] Select suppliers to satisfy new or existing requirements –Define requirements –Review existing supply base capabilities –Search for supplier with capabilities –Qualify new supplier Remove unnecessary or under performing suppliers –Identify poor performance (delivery, quality, price, etc.) –Identify low business level and / or infrequent purchase activity –Define existing supplier capabilities and eliminate redundancies

4. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Management [S ET - IN -O RDER ] Establish A place for everything … –Partnership (High Risk/High Spend) –Contractual (Low Risk/High Spend) –Surveillance (High Risk/Low Spend) –Transactional (Low Risk/Low Spend) Segment the supply base into the 4 quadrants – Everything in its place … –Risk analysis (inherent and short-term) –Spend (annual business volume) –Identification of opportunities for changing quadrants

5. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Management [S HINE ] Survey –Site surveys –Supplier self assessments –Remote surveys –Third party certifications Performance Measurement –Establish a “base line” –Implement performance measures –Conduct periodic performance assessments

6. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Management [S TANDARDIZE ] Formalize procedures, schedules, and practices –SORT –SET-IN-ORDER –SHINE Review 3S implementation periodically Train supply management personnel, partnership teams, and suppliers in 3S implementation Implement MRP for purchasing and train purchasing personnel in its use

7. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Management [S USTAIN ] Periodic review of supply management process performance –Supply base segmentation –Supplier performance measurements –Critical project update –Supply management process effectiveness Annual S UPPLIER D AY for key suppliers –Rewards and recognition –Business review –Strategic planning inputs –Performance review and feedback

8. March 8, 200121 November 2000Supply Strategy Profitability Review Implementing 5S Supply Base Maintenance Worldwide Supply Strategy

9. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Management [S ORT ] Select suppliers to satisfy new or existing requirements –Define requirements –Review existing supply base capabilities –Search for supplier with capabilities –Qualify new supplier Remove unnecessary or under performing suppliers –Identify poor performance (delivery, quality, price, etc.) –Identify low business level and / or infrequent purchase activity –Define existing supplier capabilities and eliminate redundancies

10. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Management [S ORT ] Wastes Avoided by S ORT –Waste of clerical activity: too many suppliers –Waste of disruptions: excessive sales calls –Waste of poor quality / delayed shipments: high risk suppliers receive inadequate communication / follow-up

11. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Management [S ORT ] Value contribution by S ORT –Reduced administrative costs (reduced # of suppliers) –Improved quality (choosing best suppliers) –Improved on-time delivery (choosing more reliable suppliers)

12. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Management [S ET - IN -O RDER ] Establish A place for everything … –Define segmentation criteria (e.g., spend and risk) –Establish guidelines for segment improvements Segment the supply base into the 4 quadrants – Everything in its place … –Assign EVERY supplier to an appropriate segment –Establish supplier-specific improvement plans as appropriate for the assigned segment –Ensure cooperation of affected parties –Implement improvement plans

13. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Management [S ET - IN -O RDER ] Wastes Avoided by Set-in-Order –Waste of clerical activity: too many suppliers –Waste of travel: visiting the wrong suppliers –Waste of travel: lack of focus during visits –Waste of disruptions: excessive sales calls –Waste of poor quality / delayed shipments: high risk suppliers receive inadequate communication / follow-up –Waste of money: paying too much –Waste of money: participating in bidding for items that will not be moved

14. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Management [S ET - IN -O RDER ] Wastes Avoided by Set-in-Order –Waste of travel: visiting the wrong suppliers –Waste of travel: lack of focus during visits –Waste of poor quality / delayed shipments: high risk suppliers receive inadequate communication / follow-up

15. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Management [S ET - IN -O RDER ] Value contribution by S ET - IN -O RDER –Reduced costs: reduced # of suppliers, more appropriate actions with high spend suppliers –Improved quality: implementing improvement plans –Improved OTD: implementing improvement plans –Reduced lead time: implementing improvement plans –Enhanced design assistance: partnership focus

16. March 8, 200121 November 2000Supply Strategy Profitability Review Segmentation Matrix Surveillance (High Risk – Low Spend) Partnership (High Risk – High Spend) Transactional (Low Risk – Low Spend) Contractual (Low Risk – High Spend) High Low High Risk Annual Spend

17. March 8, 200121 November 2000Supply Strategy Profitability Review Segmentation Matrix Allows targeted control (risk control, cost control, inventory control) Enables targeted improvement (partnerships, LTAs, surveillance, etc.) Makes the best use of limited supply management resources (strategic, supply engineering, etc.) One size does not fit all

18. March 8, 200121 November 2000Supply Strategy Profitability Review Segmentation Matrix Surveillance (High Risk – Low Spend) 10% of Suppliers Partnership (High Risk – High Spend) 10% of Suppliers Transactional (Low Risk – Low Spend) 70% of Suppliers Contractual (Low Risk – High Spend) 10% of Suppliers High Low High Risk Annual Spend

19. March 8, 200121 November 2000Supply Strategy Profitability Review Segmentation Matrix Surveillance (High Risk – Low Spend) Partnership (High Risk – High Spend) Reduce risk thru redesign, manage risk thru partnerships Transactional (Low Risk – Low Spend) Contractual (Low Risk – High Spend) High Low High Risk Annual Spend

20. March 8, 200121 November 2000Supply Strategy Profitability Review Partnership Criteria High Risk/High Spend suppliers Strategic, long-term relationship Common business philosophy Activities Routine visits/annual surveys (ISO – annual periodicals, re-cert every 3 years) Active continuous improvement initiatives SWOT analysis and FMEA

21. March 8, 200121 November 2000Supply Strategy Profitability Review Supplier Partnerships Strategic supply agreement objectives –Specify partnership activities on both sides –Communicate volume expectations –Clarify quality requirements –Document design control, change notification specifics, and other details of the business relationship –On-going process improvement/cost reduction commitments –Identify key contacts in both organizations Periodic supplier surveys, including routine visits to/from both companies Participation in forecasting and strategic planning activities related to relevant products

22. March 8, 200121 November 2000Supply Strategy Profitability Review Segmentation Matrix Surveillance (High Risk – Low Spend) Partnership (High Risk – High Spend) Transactional (Low Risk – Low Spend) Contractual (Low Risk – High Spend) High Low High Risk Annual Spend

23. March 8, 200121 November 2000Supply Strategy Profitability Review Segmentation Matrix Surveillance (High Risk – Low Spend) Partnership (High Risk – High Spend) Transactional (Low Risk – Low Spend) Contractual (Low Risk – High Spend) High Low High Risk Annual Spend Consolidate & Reduce Risk Reduce Risk

24. March 8, 200121 November 2000Supply Strategy Profitability Review Surveillance Criteria High Risk/Low Spend suppliers Monitoring relationship Business/technical risk assessment Activities Routine surveys FMEA (risk assessment/prioritization of risks)

25. March 8, 200121 November 2000Supply Strategy Profitability Review Segmentation Matrix Surveillance (High Risk – Low Spend) Partnership (High Risk – High Spend) Transactional (Low Risk – Low Spend) Contractual (Low Risk – High Spend) High Low High Risk Annual Spend

26. March 8, 200121 November 2000Supply Strategy Profitability Review Contractual Criteria Low Risk/High Spend suppliers “Arms length” relationship Selection based on price Activities Group leverage Free Markets On Line reverse auctions Long Term Agreements

27. March 8, 200121 November 2000Supply Strategy Profitability Review Segmentation Matrix Surveillance (High Risk – Low Spend) 10% of Suppliers Partnership (High Risk – High Spend) 10% of Suppliers Transactional (Low Risk – Low Spend) 70% of Suppliers Contractual (Low Risk – High Spend) 10% of Suppliers High Low High Risk Annual Spend

28. March 8, 200121 November 2000Supply Strategy Profitability Review Classifying inventory (or suppliers) according to some measure of importance (usually annual spend) and allocating control efforts accordingly. A A - very important B B - moderately important C C - least important Annual Spend A B C High Low Few Many Number of Suppliers ABC Classification System

29. March 8, 200121 November 2000Supply Strategy Profitability Review ABC Analysis A Suppliers 20% of the suppliers 80% of the annual spend B Suppliers 30% of the suppliers 15% of the annual spend C Suppliers 50% of the suppliers 5% of the annual spend

30. March 8, 200121 November 2000Supply Strategy Profitability Review Segment Pareto: Spend 20% of $$$ 80% of Suppliers (B and C Class Suppliers) 80% of $$$ 20% of Suppliers (A Class Suppliers) Low High Annual Spend

31. March 8, 200121 November 2000Supply Strategy Profitability Review Segment Pareto: Risk 80% of Risk Only 20% of Suppliers 20% of Risk 80% of Suppliers High Low Risk

32. March 8, 200121 November 2000Supply Strategy Profitability Review Segmentation Matrix Surveillance (High Risk – Low Spend) 10% of Suppliers Partnership (High Risk – High Spend) 10% of Suppliers Transactional (Low Risk – Low Spend) 70% of Suppliers Contractual (Low Risk – High Spend) 10% of Suppliers High Low High Risk Annual Spend Consolidate

33. March 8, 200121 November 2000Supply Strategy Profitability Review Transactional Criteria Low Risk/Low Spend suppliers Approximately 70% of suppliers Convenience relationship Transaction cost vs. price Activities Move to Contractual through consolidation E-Business purchases Minimize administration costs (distribution, supplier managed inventory, etc.) Carry higher levels of inventory

34. March 8, 200121 November 2000Supply Strategy Profitability Review Transactional [Consolidation] Move to Contractual through consolidation Review all suppliers with low spend and / or low account activity Note redundancy in capabilities Consolidate buying activity with Best-in-Class suppliers Consolidate buying activity with competitive distributors

35. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Management [S HINE ] Survey –Define customizable survey process that may be used for any supplier in any segment –Train teams in how to survey a supplier Performance Measurement –Ensure measures adequately describe success, particularly for teams –Establish a “base line” –Implement performance measures –Clearly define required performance level –Conduct periodic performance assessments

36. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Management [S TANDARDIZE ] Formalize procedures, schedules, and practices –SORT: survey procedures and schedules –SET-IN-ORDER: segmentation, partnership, SWOT, Production Part Approval, and Failure Modes & Effects Analysis processes – also SSA and LTA documents –SHINE: Surveys, procedures for 3 rd party certification, and self- assessment Quarterly 3S supply group reviews Incorporate 3S duties into personal plans Train supply management personnel, partnership teams, and suppliers in 3S implementation with annual reviews

37. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Management [S USTAIN ] Periodic review of supply management process performance (Board Level) –Supplier performance measurements –Critical project update –Supply management process effectiveness Annual S UPPLIER D AY for key suppliers –Rewards and recognition –Business review –Strategic planning inputs –Performance review and feedback

38. March 8, 200121 November 2000Supply Strategy Profitability Review Supply Strategy Summary 5S provides a structured approach to supply management. All suppliers will be ranked based on importance. The method for improving suppliers will be documented and communicated. Standard performance measures will be adopted, while still allowing for customized partnership measures. The 5S approach will facilitate on-going supply improvement activities resulting in near-term and longer-term improvements in delivery, lead time, price, quality, and design support.

39. March 8, 200121 November 2000Supply Strategy Profitability Review Steps in Implementing The 5S’s of Supply Base Management Brooks Instrument - 2001

40. March 8, 200121 November 2000Supply Strategy Profitability Review 5S: Next Steps Checklist S ORT  Perform a quick sort of the existing supply base  Poor performers (delivery, quality, cost)  Low purchase volume  Redundant capabilities  Identify capabilities to add  New requirements  Expanded capacity

41. March 8, 200121 November 2000Supply Strategy Profitability Review 5S: Next Steps Checklist S ET-IN- O RDER  Agree on segmentation criteria  Segment all suppliers into appropriate categories  Establish supplier-specific improvement plans as appropriate (See segmentation checklists)  Ensure cooperation of process owners (purchasing, manufacturing, engineering, supplier)  Includes orientation meeting (purpose, philosophy, process, etc.)  May include ongoing team participation  Rank improvement opportunities and implement in order

42. March 8, 200121 November 2000Supply Strategy Profitability Review 5S: Next Steps Checklist S HINE  Define customizable survey process  Train survey teams and lead auditors  Define measures (Relate to strategic objectives)  Supplier measures (general, segment-specific, supplier- specific)  Customer-supplier team measures  Brooks Instrument supply-related measures (e.g., payment performance)  Establish measurement performance baseline  Establish required performance levels  Schedule performance assessments

43. March 8, 200121 November 2000Supply Strategy Profitability Review 5S: Next Steps Checklist S HINE  Define customizable survey process  Schedule audit team training  Define measures (Relate to strategic objectives)  Supplier measures (general, segment-specific, supplier- specific)  Customer-supplier team measures  Brooks Instrument supply-related measures (e.g., payment performance)  Establish measurement performance baseline  Establish required performance levels  Schedule performance assessments

44. March 8, 200121 November 2000Supply Strategy Profitability Review 5S: Next Steps Checklist S TANDARDIZE  Document survey procedures  Document segmentation (emphasizing key supplier partnerships and surveillance suppliers  Document supplier management processes  MRP procedures and reviews  Team guide for partnerships  SWOT analysis guide  Production Part Approval Process procedure  Failure Modes and Effects Analysis procedures  Strategic Supplier Agreement  Train supply personnel in supply management processes  Incorporate 3S duties into personal plans

45. March 8, 200121 November 2000Supply Strategy Profitability Review 5S: Next Steps Checklist S USTAIN  Schedule board level supply management review  Document for ISO management review  Supplier performance measurements  Critical project update  Supply management process effectiveness  Plan annual supplier day for key suppliers (prior to Brooks Instrument strategic planning process)