1. © AberdeenGroup 2009 Andrew Bartolini, Vice President & Group Director Aberdeen Group July 1, 2009 The CPO’s Agenda 2009 Smart Strategies for Tough Times

2. 2 © AberdeenGroup 2009 Discussion Topics  Research Background  CPO 2009  Best-in-Class Performance  Recommendations

3. © AberdeenGroup 2009 Research Background The CPO’s Agenda 2009

4. 4 © AberdeenGroup 2009 The CPO’s Agenda: 2005 to 2009

5. 5 © AberdeenGroup 2009 “Companies that deliver improved execution during the tough times will be the ones best positioned to capitalize on the economic turnaround which will most certainly occur. To be successful in 2009 we need to deliver on improving execution across the supply chain.” ~ Bob Eckert, Chairman and CEO, Mattel Inc. 4/17/09

6. 6 © AberdeenGroup 2009 Research Approach Hypothesis The global recession is taking no prisoners. Neither industry, nor region, nor company-size has provided shelter from its impact. Most business functions have been impacted. Yet, as this business downturn continues, the Chief Procurement Officer's agenda and the CEO's agenda have started to converge. The CPOs who successfully devise and execute smart strategies in these tough times will continue to rise. Approach  Aberdeen Group conducted an initial web-based survey to target professionals in our research membership pool  Conducted interviews with 20+ CPOs

7. 7 © AberdeenGroup 2009 Report Demographics: 220+ Participants Enterprise Size 53% 28% 19% Large (Revenue > $1B) Mid-Market (Revenue: $50M to $999M) Small (Revenue < $50M) Geography 62% 27% 8% 3% North America EMEA Asia-Pacific Rest of World Source: AberdeenGroup, April 2009

8. 8 © AberdeenGroup 2009 Source: AberdeenGroup, April 2009 36% 5% 9% 27% 13% 10% CPO VP/SVP/EVP C-Level Director Manager Other Job Title Report Demographics: 220+ Participants Industry Segments  Manufacturing – 12%  Hi-Tech – 7%  Food/Beverage – 6%  Chemicals – 5%  Financial Services – 4%  Health Care – 4%  Mining/Energy – 4%  30 other industries

9. 9 © AberdeenGroup 2009 “We intend to operate with strict financial discipline, maintaining a maniacal focus on cash. We're also closely managing all of our costs, renegotiating contracts around the world, localizing our sourcing…” ~ Indra Nooyi, CEO, Pepsi “We have worked closely with our strategic suppliers to achieve sustainable cost improvements….” ~ Olli-Pekka Kallasvuo, President and CEO, Nokia “And while we were committed to driving revenue across all channels, an equal focus was placed on improving operational efficiency, driving down costs and lowering inventories…” ~ Howard Lester, Chairman and CEO, Williams-Sonoma CEO Perspectives: Q1 Earnings Calls (April ’09)

10. © AberdeenGroup 2009 Chief Procurement Officer 2009 The CPO’s Agenda 2009

11. 11 © AberdeenGroup 2009 “My primary challenge is keeping my people aligned and focused while receiving such rapidly changing guidance from our executives…We don't even know what our plan for 2009 is.” ~ CPO, Fortune 100 Company “We face the extraordinary challenge of right-sizing to our business which has contracted by 45% in the past year. This means fundamentally restructuring our organization and resetting the scope of operations and our overall mission.” ~ CPO, Global Manufacturer CPO Perspectives

12. 12 © AberdeenGroup 2009 The Economy’s Impact on Procurement 2009 Budget 31% 30% 18% 19% 3% No Change Decrease (<10%) Decrease (>10%) Increase Not Sure 2009 Headcount 48% 22% 10% 17% 4% No Change Decrease (<10%) Decrease (>10%) Increase Not Sure 55% of CPOs have delayed a major 2009 initiative Source: AberdeenGroup, April 2009 48%32%

13. 13 © AberdeenGroup 2009 The Economy’s Impact on the Role of the CPO Source: AberdeenGroup, April 2009 34% 29% 28% 2% 5% 2% Improved visibility Viewed as more strategic No Change Less visibility Viewed as more tactical Don’t Know 63%

14. 14 © AberdeenGroup 2009 “Procurement is center stage. Our plan for 2009 is built into the P&L [profit and loss statement] of each business unit. In the past, we have been key to them making their plan. ” ~ CPO, Fortune 100 Company “Each year, we survey our top 50 to 60 internal users of our services. I sit in on as many of these as I can. It is important for our stakeholders to know that I’m fully vested in our performance and it’s motivating for my staff to know that I am getting first-hand feedback on how well they are doing. ” ~ CPO, Pharmaceutical Industry Smart Strategies

15. 15 © AberdeenGroup 2009 The CPO’s Agenda Source: AberdeenGroup, April 2009 25% 35% 40% No formal plan Formal one-year plan Formal multi-year plan

16. 16 © AberdeenGroup 2009 The CPO’s Top Priorities (next 24 months) Source: AberdeenGroup, April 2009 Top Three Priorities 45% 35% 32% 31% PEOPLE: Enhance department staff skills and capabilities EFFICIENCY: Improve operating efficiency of current department SPEND: Increase spend under management of procurement group SUPPLIERS: Improve supplier development and collaboration

17. 17 © AberdeenGroup 2009 Top CPO Pressures Source: AberdeenGroup, April 2009 24% 26% 47% 91% Optimize working capital Improve processes Mitigate supply risk Identify cost reductions

18. 18 © AberdeenGroup 2009 “Any procurement, sourcing or supply professional should be employing whatever tactic he or she can in order to take advantage of a depressed market and with it, an abundance of competitive opportunities.” ~ CPO, Industrial Chemicals/Products “It’s not just about unit cost reduction. Demand management is a critical area to manage as well.” ~ CPO, Financial Services Smart Strategies

19. 19 © AberdeenGroup 2009 Top CPO Strategic Actions Source: AberdeenGroup, April 2009 25% 30% 37% 50% Improve contract compliance / reduce maverick spend Develop supply risk mitigation strategies Develop strategies to improve cash flow Increase sourcing activity

20. 20 © AberdeenGroup 2009 “We are focused on process improvements and improving our use of technology. In some cases, we already have the technology in place and need to increase adoption and expand our capabilities ” ~ CPO, Government “We have a big initiative to move to completely automated workflows, with a global roll-out of a procurement system this year.” ~ CPO, EMEA-Based Enterprise Smart Strategies

21. 21 © AberdeenGroup 2009 The CPO’s Agenda - Technology Source: AberdeenGroup, April 2009 41% 34% 39% 30% 63% 50% 39% 49% e-Sourcing Supplier Networks or Portals e-Payables Contract Lifecycle Management Commercial Cards e-Procurement Spend Analysis Supplier Performance Management Currently use

22. 22 © AberdeenGroup 2009 The CPO’s Agenda - Technology Source: AberdeenGroup, April 2009 41% 34% 39% 30% 63% 50% 39% 49% 21% 37% 35% 44% 15% 30% 44% 41% e-Sourcing Supplier Networks or Portals e-Payables Contract Lifecycle Management Commercial Cards e-Procurement Spend Analysis Supplier Performance Management Currently usePlan to use

23. 23 © AberdeenGroup 2009 The CPO’s Agenda - Technology Source: AberdeenGroup, April 2009 41% 34% 39% 30% 63% 50% 39% 49% 21% 37% 35% 44% 15% 30% 44% 41% 38% 29% 26% 21% 20% 18% 10% e-Sourcing Supplier Networks or Portals e-Payables Contract Lifecycle Management Commercial Cards e-Procurement Spend Analysis Supplier Performance Management Currently usePlan to useNo plans to use

24. 24 © AberdeenGroup 2009 Top CPO Challenges Source: AberdeenGroup, April 2009 33% 38% 47% 52% Recruiting and retaining skilled talent Managing executive demands & expectations Aligning processes to systems Engaging the larger enterprise

25. 25 © AberdeenGroup 2009 “In the past, you might have data signals - 1, 2, even 6 months in advance. Now we're getting notices along the lines of 'Effective Monday, we are closing our plant.’” ~ CPO, Global Manufacturer “We have a pre-alert system designed to identify at- risk suppliers. This includes working with rating agencies, local banks, and performing financial analysis.” ~ CPO, Financial Services CPO Perspectives

26. 26 © AberdeenGroup 2009 CPO’s View of Supply Risk Source: AberdeenGroup, April 2009 Change in Last 18 Months 71% 19% 6% 4% Increased No Change Decreased Not Sure

27. 27 © AberdeenGroup 2009 CPO Plans for Supply Risk Management Source: AberdeenGroup, April 2009 42% 43% 58% Define ownership for managing supply risk Use external information services to monitor and assess supply risk Contingency planning for supply disruptions Clearly define metrics for supply performance and risk

28. 28 © AberdeenGroup 2009 “We have been driving a payment terms initiative that has extended our usual terms from 20 days to 60 days, resulting in an estimated annual cash benefit of between $50 and $60 million. ” ~ CPO, Fortune 500 Company “We're very focused on the working capital impact of the contracts we negotiate, how inventory is managed, and our payment terms.” ~ CPO, Manufacturing Smart Strategies

29. 29 © AberdeenGroup 2009 CFO’s Top Priorities for 2009 Source: AberdeenGroup, April 2009 43% 53% 70% 73% Mitigate risk Forecast financial performance Optimize working capital (cash mgmt) Reduce costs

30. © AberdeenGroup 2009 Best-in-Class Performance The CPO’s Agenda 2009

31. 31 © AberdeenGroup 2009 “There has been a change in context, speed, and risk. It's time for procurement to be the hero.” ~ CPO, Oil & Energy “Our goal is to achieve Best-in-Class performance. In good times or bad, we're focused on the right behavior." ~ Vice President and Director of Procurement and Strategic Sourcing, Retail CPO Perspectives

32. 32 © AberdeenGroup 2009 Maturity Framework Definition of Maturity Class Mean Class Performance Best-in-Class: Top 20% of aggregate performers 88% of spend under management 8.5% cost savings as a percentage of total spend Industry Average: Middle 50% of aggregate performers 64% of spend under management 5.2% cost savings as a percentage of total spend Laggard: Bottom 30% of aggregate performers 23% of spend under management 3.7% cost savings as a percentage of total spend Source: AberdeenGroup, April 2009

33. 33 © AberdeenGroup 2009 Maturity Framework Source: AberdeenGroup, April 2009 Best-in-ClassAverageLaggard Process Ability to leverage spend data to drive sourcing projects 79%56%40% Percentage of addressable spend that is formally sourced 71%52%32% Formal spend analysis program 74%38%31% Conduct regular reviews contract compliance 61%33%31% Organization Center-led procurement organization 56%45%20% Cross-functional collaboration with finance, HR, product, travel, etc. 74%55%45%

34. 34 © AberdeenGroup 2009 Maturity Framework Source: AberdeenGroup, April 2009 Best-in-ClassAverageLaggards Knowledge Formal supply risk management program 43%30%18% Enterprise-level spend visibility across all categories 62%48%39% Training to improve supply market knowledge 55%26%16% Technology Supply management solutions currently in use:  65% Automated Spend Analysis  64% Supplier Performance Management  50% Supplier Networks or Portals  38% Optimization- based sourcing analytics  36% Automated Spend Analysis  49% Supplier Performance Management  32% Supplier Networks or Portals  14% Optimization- based sourcing analytics  24% Automated Spend Analysis  36% Supplier Performance Management  27% Supplier Networks or Portals  8% Optimization- based sourcing analytics

35. 35 © AberdeenGroup 2009 Current Staff Training Source: AberdeenGroup, April 2009 68% 55% 46% 43% 33% 50% 23% 32% 28% 21% ProcessSupply market research Financial analysis Sales/MarketingSupply risk management Best-in-ClassAll Others

36. 36 © AberdeenGroup 2009 Best in Class Characteristics  Formal spend analysis program  Holistic sourcing process with significantly higher volumes  Active compliance program  Training focus/investment  Superior collaboration & communication  Multi-year strategic plan aligned with enterprise goals

37. © AberdeenGroup 2009 Recommendations The CPO’s Agenda 2009

38. 38 © AberdeenGroup 2009 Aberdeen Recommendations  Perform spend analysis on a regular basis.  Develop and track a pipeline for spend under management.  Incorporate savings quotas (or bounties) in the staff's incentive plan.  View strategic sourcing as a holistic process and leverage process automation wherever possible.  Conduct regular contract compliance audits.

39. 39 © AberdeenGroup 2009 Aberdeen Recommendations  Enhance supply risk management capabilities.  Lead your team…and defend it.  “Cash is King” - Engage the CFO to develop cash management strategies.  Hire category experts from industry (i.e. energy, steel, chemicals, services).

40. 40 © AberdeenGroup 2009 A Penny Saved is Ten to Fifty Earned Source: AberdeenGroup, April 2009 Revenue (in millions) $100 $161 $270 $476 Financial ServicesTelecomAirlines or Specialty Retail Food/Drug Retail Revenue, By Industry, Needed to Generate $10M Profit

41. 41 © AberdeenGroup 2009 Q&A (Contact Info) For More Research Please Visit: www.aberdeen.com Andrew Bartolini, Vice President & Group Director Global Supply Management, AberdeenGroup Andrew.Bartolini@aberdeen.com 617.854.5310