Where is the C-Level in Supply Chain?

1. Where is the C-Level in Supply Chain?

2. Objectives: 1) Introduce IBM 2006 Global CEO Study 2) Demonstrate IBM’s Supply Chain Transformation 3) Show examples of current Supply Chain Initiatives

3. Global CEO Study 2004 Global CEO Study: 2004 In 2004, growth was a top priority, with a focus on strengthening financial performance While growth and cost reduction remains a priority, the 2006 study reveals a shift in thinking – and cites Innovation as a key priority 2006

4. Innovation is about Business Models and Operations, as well as Products, Services and Market Areas of Innovation BUSINESS MODELS OPERATIONS PRODUCTS, SERVICES, AND MARKETS Innovation to improve effectiveness and efficiency of functional areas Innovation to restructure and extend the enterprise • Improving functions and processes • Integration with partners • Enhancing communication & collaboration • Eliminating redundancy • Increasing organizational effectiveness

5. Global CEO Study 2006: Sources of New Ideas and Innovation Employees (general population) Business partners Customers Consultants Competitors Associations, trade groups, conference boards Sales or service units R&D (internal) Academia 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Sources of Innovation ‘Two of the three most significant sources of innovative ideas now lie outside of the organization’

6. Case Study: IBM’s Integrated Supply Chain

7. The ISC Transformation began over 10 Years ago Revenue: $64B Profit: $3B RESULTS SUPPLY CHAIN JOURNEY Cost Center Profit Driver • Fragmented and not mission critical • Functional silos • Heavy asset based logistics • No common processes • Large number of legacy applications • Drives value primarily by saving money and increasing cash conversion • Still primarily product focused SUPPLY CHAIN EVOLUTION

8. Increased Inter-Business Unit Communication Previously ‘Functional Silos’ were brought together under the ‘Integrated Supply Chain’ BREADTH OPERATIONS TEAM STRATEGY TEAM TALENT TEAM MANUFACTURING PROCUREMENT CUSTOMER FULFILLMENT GLOBAL LOGISTICS DEPTH TECHNOLOGY COMMON DATA & GOVERNANCE

9. IBM Global Logistics continues to deliver significant business value... Global Logistics Savings - $1.2B Over 10 Years Cost-To-Revenue 1252 1159 GL HW Cost ($M) IBM HW Revenue ($B) 1037 M Dollars 886 763 632 510 348 193 59 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 2Q01 4Q01 2Q02 4Q02 2Q03 4Q03 2Q04 4Q04 IT Applications Internal Customer Value 93% 95% 96% 93% 97% 97% 97% 98% 98% 99% 99% Many….to some….to few….

10. INVENTORY AT THE LOWEST LEVELS IN YEARS +1% 30 IMPROVEMENT IN OVERALL CLIENT SATISFACTION And achieved impressive 2005 results IBM: $91B REVENUE NET INCOME $10.6 #2 IN CUSTOMER SATISFACTION Financial Results Operational Results Client Facing Results Another * TURNING ORDERS $6B COST AND EXPENSE SAVINGS * 32% FASTER CYCLE TIME PERFORMANCE +6% $580M CASH GENERATED * 25% IMPROVEMENT IN SALES FORCE PRODUCTIVITY AVERAGE PAYMENT TERMS IMPROVED BY 2 DAYS = $166M * Accomplished in 2004, but held steady for 2005

11. What’s next 2006 Revenue: $91B Net Income: $10.6B RESULTS Global Integration: Leveraging Our Multi-national Presence for Operational Advantage SUPPLY CHAIN JOURNEY Profit Driver Business Optimization • Goes beyond products to services • Extends success past financial metrics • Impacts customer satisfaction • Impacts sales team productivity • Fully synchronizes supply and demand • Sharing ISC best practices with clients SUPPLY CHAIN EVOLUTION

12. How the ISC is continuing to drive Innovation

13. Paperless Logistics Processing • Greater paperless visibility • Faster transmission times • Supply Chain Partners can pull/post documents • Can scan directly from IT interface, or Scanner/Printer International Shipping Documents Import Brokerage Documents Bank Documents Payables Documents Other Documents Export Invoice Paperless Document Repository Shared Access for all users

14. = accredited entity = various sensors signed evidence, documentation, location ManufacturerDistributor FreightForwarder Port Authority “A”Customs Port Authority “B”Customs DistributionCentre Ocean Carrier Ocean Carrier Cargo Security • TREC: Tamper Resistant Embedded Controller • Location tracking • Door lock tampering • Humidity and temperature • Radiation • Dropped container sensors TREC

15. Process Enhancement Process Improvementwhile Outsourcing Supply Chain BTO – In Response to Customer Needs The Integrated Supply Chain has introduced a new offering to help clients transform their businesses through outsourcing BTO Business Transformation OutsourcingAddresses tactical and strategic initiatives Extended Enterprise Continuous Strategic Change while Outsourcing Process Change Business Process Outsourcing Targets cost reduction for specific process Cost Reduction Cost Take Out BPO Return on Investment

16. Summary: Where is the C-Level in Supply Chain Myth: Innovation is too critical and proprietary to involve outsiders Collaborative innovation is indispensable Myth: Innovation means inventing new products and services Business model innovation matters The C-Level is increasingly looking to theSupply Chain to drive Business Value

17. Contact Information: Dipan Karumsi Business Consulting Services Logistics Practice dkarumsi@us.ibm.com Ph: 614.537.4575