Business Transformation Initiative (BTI)

– Supplier Collaboration

Sales Package

October 2010

05/01/2020 CGN & Associates Confidential 1

 Level 1: Brief Intro

January 2011

05/01/2020 CGN & Associates Confidential 2

 BTI: CGN’s Supplier Collaboration methodology provides a fundamental recipe for transforming and
sustaining the OEM-supplier relationship to drive long-term price performance and mutual benefits.
Encourage supplier to profitably innovate for OEM

Collaboration Strategy
The magic is • Use Relationship to Drive The key levers to drive
in the $$ the Performance Across Cost, Business Innovation in
supplier Quality, Capacity, etc.
invests back • Understand How OEM Collaboration
the relationship
into Competes in Market
innovation • Building the OEM
Ecosystem around Supplier
• Deal with Conflicting Needs

GE
Across Supply Chain

RA

En Strateg
nt
VE

dC
me
f LE

ust ic Align
e
gag
eo

om
En
rc

of

er
Sou

les
Business

VA t
Ru
Innovation
a

LU
me
st &
as

Competition Strategy Compensation Strategy

E
n
• Design
M

Tru

• Managed Competition - • Intellectual Property (IP)

• Supply Chain &
OE

Portfolio of Suppliers • Support in New Regions

Logistics
• Portfolio Based on • Commercial • Growth
Technology, Geography & • Diversification
Capacity • Benefit-Sharing
• Mitigate Business & Financial Health & • Collaboration with Other
Supply Chain Risk Competition Supplier Commitment Compensation Suppliers
• Business with Value Chain
Supplier CHOICE Partners
• Technology Validation

• Supplier 360 • Business Innovation

CSFs • Understand Motivation (of Supplier’s Leadership) • Alignment around OEM’s End Customer Requirements
• Win-Win Relationship • Relationship-Based vs. Control-Based

05/01/2020 CGN & Associates Confidential 3

 Leading companies have realized significant financial benefits by migrating to
interdependent relationships with their suppliers

Interdependent:
• Supplier focused on OEM
competitiveness & success
• Shared Strategic Objectives
• Honda
Sustainable Cost & Competitive Advantage

• Managed by relationship- OEM looks out

• Toyota for supplier well being
• Deere • Supplier- Discretionary efforts &
10X investments in OEM success

nt
• Inclusive – Open exchange of challenges,

me
ideas & approaches

e
gag Partnering:
f En
• Shared business objectives
o

• Supplier maximizing value

les
Ru

• Limited OEM directed innovation

6X • Full lifecycle- NPI to delivery
• Business earned –transaction by
transaction

Co-operative:
• Maximize profits through waste
elimination
3X • Focus on operational costs (Supply
chain/Quality/Warranty)

Combative:
• Maximize profits via price
X • Low relationship value
• Price based negotiation

05/01/2020 CGN & Associates Confidential 4

 Our approach has four key phases focused on building a win-win relationship to create
sustainable competitive advantage

• Rationalize Supplier • Total Cost (TCO) Analysis Process Highlights

Portfolio • Purchasing Practices
• OEM & Supplier Strategic • Product Group Alignment
Objectives • Ensure financial goals are met
• Shared Beliefs
• OEM & Supplier 360 • Create and implement structural cost
reduction
Assess • Sustain relationship transformation

• Identify Strategic Suppliers

Business Design • Collaboration Levers & Structure
• Win-Win Relationship Design
• Transformatio •
•
Value Creation Sustain •
Common Goals
Cultural Transformation n Implementation Roadmap
• Ongoing Governance • Shared Investments
• Tracking & Reporting • Increase Leverage with Key Suppliers
• Portfolio Management

Execute
• Joint Teams
• Relationship Structure
• Quick Wins – Consolidation & Collaboration
• Collaboration in Product Design & Supply Chain
• Performance Improvement / Cost Reduction

05/01/2020 CGN & Associates Confidential 5

 Case Study: Summary of results for a single supplier

• Evaluated the supplier’s current relationship with the different groups at the OEM
• Identified waste in the relationship (10-20% of the total spend with the supplier)
• Designed a structure to transition the relationship to an interdependent partnership based on trust and mutual benefit

• Prior to BTI, the supplier was

requesting an $8M price Value Creation -$8M +$12M +$46M
increase (2.2%)
14% 3/09 5/09
• The initial best offer from the 12%
Relationship Re-Design Timeline $11M
supplier was a contract based 10%
commodity reversal of 3.6%, 8% 2.3%
resulting in $12M impact to the 6% 1.5%
OEM OEM (+) 1.4% $35M
4%
2% 3.6% 3.6% 4.1% 4.1%
• By the end of Relationship Re-
0%
Design, by accounting for LCC -1.5%
impact and collaborating on -2% -0.7%
OEM (-) -4%
value engineering and quality
improvement levers, a win-win Supplier
Carraro2009 Contract Based
2009 Contract Based Carraro
SupplierInitial
First Supplier
Carraro Relationship
Negotiated Additional
Additional
Proposal
Proposal Expectation
Expectation Offer
Offer Intermediate
Negotiated Design
Agreement Bottom-Line
Bottom Line
agreement had been reached Agreement Agreement
Agreement Lifecycle Impact (Logistics
Impact -
that yielded 9.3% price reduction (LCC Impact +
(LCC Impact +
(Lifecycle
Impact
& Quality)
Logistics &
Price Increases) Impact)
($35M) and logistics and quality Price Increases) Quality
improvements adding $11M to
bottom line impact for a total of LCC Impact Yr over Yr Incremental Price Increases One time only
$46M for the OEM Commodity Value Engr. Quality

$46M - Estimated cumulative savings over 4 years (2010-2013)

05/01/2020 CGN & Associates Confidential 6

 Overall, the program achieved 7% in material cost reduction alone & saw tremendous
additional benefits in OEM-supplier collaborative relationships

380

370
$11
360
$26 $26M Impact
Millions

350

340
370
330 359

320
344

310

300
2010 Projected Spend Supplier Price Increases Adjusted 2010 Spend Negotiated Reductions New Spend

  No. of 2010 Spend 2010 Spend After Improvement % Improvement

suppliers Before BTI $M BTI $M $M

Target 37 $ 548 $ 522 4.8% $ 26

Outcome – Phase I 18 $ 370 $ 344 7.1% $ 26

05/01/2020 CGN & Associates Confidential 7

 Level 2: Full Sales

January 2011

05/01/2020 CGN & Associates Confidential 8

 BTI: CGN’s Supplier Collaboration methodology provides a fundamental recipe for transforming and
sustaining the OEM-supplier relationship to drive long-term price performance and mutual benefits.
Encourage supplier to profitably innovate for OEM

Collaboration Strategy
The magic is • Use Relationship to Drive The key levers to drive
in the $$ the Performance Across Cost, Business Innovation in
supplier Quality, Capacity, etc.
invests back • Understand How OEM Collaboration
the relationship
into Competes in Market
innovation • Building the OEM
Ecosystem around Supplier
• Deal with Conflicting Needs

GE
Across Supply Chain

RA

En Strateg
nt
VE

dC
me
f LE

ust ic Align
e
gag
eo

om
En
rc

of

er
Sou

les
Business

VA t
Ru
Innovation
a

LU
me
st &
as

Competition Strategy Compensation Strategy

E
n
• Design
M

Tru

• Managed Competition - • Intellectual Property (IP)

• Supply Chain &
OE

Portfolio of Suppliers • Support in New Regions

Logistics
• Portfolio Based on • Commercial • Growth
Technology, Geography & • Diversification
Capacity • Benefit-Sharing
• Mitigate Business & Financial Health & • Collaboration with Other
Supply Chain Risk Competition Supplier Commitment Compensation Suppliers
• Business with Value Chain
Supplier CHOICE Partners
• Technology Validation

• Supplier 360 • Business Innovation

CSFs • Understand Motivation (of Supplier’s Leadership) • Alignment around OEM’s End Customer Requirements
• Win-Win Relationship • Relationship-Based vs. Control-Based

05/01/2020 CGN & Associates Confidential 9

 Leading companies have realized significant financial benefits by migrating to
interdependent relationships with their suppliers

Interdependent:
• Supplier focused on OEM
competitiveness & success
• Shared Strategic Objectives
• Honda
Sustainable Cost & Competitive Advantage

• Managed by relationship- OEM looks out

• Toyota for supplier well being
• Deere • Supplier- Discretionary efforts &
10X investments in OEM success

nt
• Inclusive – Open exchange of challenges,

me
ideas & approaches

e
gag Partnering:
f En
• Shared business objectives
o

• Supplier maximizing value

les
Ru

• Limited OEM directed innovation

6X • Full lifecycle- NPI to delivery
• Business earned –transaction by
transaction

Co-operative:
• Maximize profits through waste
elimination
3X • Focus on operational costs (Supply
chain/Quality/Warranty)

Combative:
• Maximize profits via price
X • Low relationship value
• Price based negotiation

05/01/2020 CGN & Associates Confidential 10

 An OEM engaged CGN to fundamentally restructure their business and improve profitability

Challenges:
Challenges
Significant drop in volumes
Increased investments required to meet government regulations
High commodity volatility
High financial risk
OEM not as vertically integrated as competitors
Inbound supply chain inefficiency (supplier proliferation)
Lack of enterprise focus on suppliers (each manufacturing facility managed their
own suppliers)

Priorities:
Implementing
Priorities end-to-end business model
Reducing structural cost by 4% - 7% (business imperative)
Driving supply chain / material flow & handling improvements
Improving global positioning of the product (value, distribution)

05/01/2020 CGN & Associates Confidential 11

 Our approach has four key phases focused on building a win-win relationship to create
sustainable competitive advantage

• Rationalize Supplier • Total Cost (TCO) Analysis Process Highlights

Portfolio • Purchasing Practices
• OEM & Supplier Strategic • Product Group Alignment
Objectives • Ensure financial goals are met
• Shared Beliefs
• OEM & Supplier 360 • Create and implement structural cost
reduction
Assess • Sustain relationship transformation

• Identify Strategic Suppliers

Business Design • Collaboration Levers & Structure
• Win-Win Relationship Design
• Transformatio •
•
Value Creation Sustain •
Common Goals
Cultural Transformation n Implementation Roadmap
• Ongoing Governance • Shared Investments
• Tracking & Reporting • Increase Leverage with Key Suppliers
• Portfolio Management

Execute
• Joint Teams
• Relationship Structure
• Quick Wins – Consolidation & Collaboration
• Collaboration in Product Design & Supply Chain
• Performance Improvement / Cost Reduction

05/01/2020 CGN & Associates Confidential 12

 We conducted Supplier 360 for target suppliers, involving OEM & supplier resources to
understand strategies & challenges and identify levers to drive relationship transformation

Analysis:
• Supplier-OEM Business Profile
– Spend History & Projected Trends
The Business Profile highlights the importance of the Supplier-OEM relationship

$ 180M
$ 160M
$ 140M
$ 146M
$ 163M

$ 117M
80%
70%
60%
Projected spend (12 months)

Decatur
Bridgestone, $
67M, 20%
MWL, $ 34M,
21% LMT, $ 25M, 15%

QCT, $ 17M, 11%

– Supplier Significance by Product Group
$ 120M $ 116M
50% Aurora
$ 100M Michelin, $
$ 78M 40% Gosselies Goodyear, $ 55M, 163M, 50%
$ 80M LWL, $ 15M, 9%
Clayton 17%
$ 60M
$ 40M
$ 20M
0
$ 47M

Supplier has
20%
10%
30%

0%
Leicester
been the largest supplier of components to OEM
Peterlee
Brazil
Others
Others, $
44M, 13% ART, $ 43M, 26%
MG, $ 10M, 7%
WTS, $ 7M,
• Relationship History
Others, $ 2M, 1% SWL, $ 6M, 4%
2005 2006 2007 2008 2009 2010* BHL, $4M, 1%
CAT-MX Spend (in Millions) Overall % Volume (share)0 by component
MX Share of CAT Tire Volume (%)
$ 20M $ 40M 4%

100% 2008 Spend by Product Groups

* - based on projected spend Supplier
4% Supplier Cost Premium over Bridgestone
Competition
• Supplier sales
–
in 2008 was $16.4B (Specialty Business was12%
80%
2008 OEM spend 6%
was 0.75% of Supplier
28 %
$2.3B)
17%

(Supplier) and 5.3% of Supplier Specialty

30% Business
40%
34.06%
• Supplier Relationship Pros & Cons
– 60%
Supplier Specialty Business revenue from mature markets
Commercial (US, Canada, Western
disagreements continueEurope, Japan)
to be the~governing factor in this relationship and
24% 20%
70%; fast growing markets ~ 30% -- DETAILS AVAILABLE IN FINANCIAL PROFILE
40% hamper discussions on strategic possibilities

•
–
–
Sales to replacement 66
OEM is estimated
20%
market
% ~ 75% of all component sales
to be 40% of the Supplier Earthmoving OE business (GP)
Strategic supplier with OEM Executive Sponsor 0%
10%

37 %
6.65% • Current Initiatives & Issues
Relationship History
17.5R2520.5R2523.5R2526.5R2529.5R25 24R35 45/65 R 45/65 OEM Supplier
• 0%
1 of 3 suppliers capable of providing quality components for OEM products 39 R45
2002 2003 2004 2005 2006 2007 2008
Supplier was2009
chosen2010
as the only supplier for Lane 1 machines across OEM. Later due to capacity
– Supplier has the largest share Bridgestone
of OEM OEM component businesswas(2008-
added.40% ofMGoverall component + -
•
buy; 50% of%radial
100%
OEM-Supplier contract history
Michelin
component
Volume (share) bybuy)
constraints
Goodyear
component Supplier
Supplier
Bridgestone
Others
– Radial Only
communicated to end customer
MG MWL MWL MWL

3-piece rim design and notCurrent Supplier

its components
Vol.
QCT

12,800
relationship
LWL
2008 that component slippage issues were due to the OEM
path is
LWL

10,800
combative3,200 and leaves 1,500 - key risks and
many + opportunities on • Benchmarks & Alternate Supplier Options
– Working on LTA terms for past 6 years OEM allows customers to change
both component
sides selection upto 42 days before ship date. Supplier
unaddressed
–
80%
1995-2003: Long-term agreement
was able to support these needs due to excess inventory in 2009. in 2010, Supplier cannot
• Supplier share (as % of OEM - Neutral
support this due to their long lead times and dwindling inventory.
component buy) has dropped
(Supplier Leverage)
OEM granted Supplier price increase from July 2010. US – 14.1%, EU – 11.4%, JP – 10.8%; BR –
60%
2010 7.1%. - Supplier Relationship
+ Risks
between 2003 to 2008
+ –– Current capacity and support for growth
3 OEM visit to Supplier France concluded with potential terms for the long -term agreement in
40% 81% July Interdependent: -
In
50%
• Supplier components has a wide range
• Supplier focused on OEM
August, Supplier reverted with different terms (from the July discussion). Among other
competitiveness terms,
& success
Substantial price gap vs. other component
brands
20% Supplier is also asking for being the sole Radial supplier to the emerging markets –Objectives
• Shared Strategic India, China,
of cost premium (6-35%) over - • -
and Brazil. OEM does not agree to Supplier LTA terms
• Managed by relationship- OEM looks out
for supplier well being

competition
Impact on product group cash flows from
switch to other component brands
• Culture fit
Structural Cost & Competitive Advantage

• Supplier- Discretionary efforts &

10X
0% investments in OEM success • Machine price competitiveness for
• Inclusive – Open exchange of challenges,
2002 2003 2004 2005 2006 2007 2008 2009 2010 ideas & approaches customers who prefer Supplier brand
Partnering: – Price volatility (impacting margins)
• Shared business objectives

4 • Supplier maximizing value – Supply chain waste – no collaboration to

6X

Co-operative:
• Limited OEM directed innovation
• Full lifecycle- NPI to delivery
• Business earned – transaction by
transaction
reduce cost
•
•
Demand variability –
57% delivery performance (95% expected)
• Current Relationship Status
• Maximize profits through waste • Excess inventory levels > $1M* waste
elimination
3X • Focus on operational costs (Supply – Misaligned strategies on growth markets
chain/Quality/Warranty)
– Lack of engineering collaboration
Combative:
• Maximize profits via price Current State of Michelin • Except for one PG - missed opportunities to
5 X optimize machine performance and cost
• Low relationship value relationship
• Price based negotiation

Internal Alignment Risks

– Customer choice versus procurement
strategies (% first fit share) Key Outcomes:
6
• Gaps in Alignment with Supplier Strategies
• Levers for Relationship Resetting
• Supplier Capability and Options for
Incremental Business

05/01/2020 CGN & Associates Confidential 13

 We benchmarked competitor & best-in-class pricing and applied multiple pricing paradigms
& models to identify design inefficiencies & opportunities

Analysis:
• Target Pricing
– Should-Cost Modeling
Sample Cost Model Housings

2699207
ABC Genesys Housings Cost Breakdown by Process vs
– Competitive Pricing
Actual
18.00

– Economic Pricing
Current Price
16.00
Profit
Comparison of14.00Pricing to the Open Market Outbound freight

12.00 Pr. Testing

Premium to Supplier
Premium A (positive),
to 10G (positive), Savings
Savings (negative)
(negative)
Sub-Problem Debur
Analysis
Price ($)

10.00 Painting FOB LCC Effect

• While Supplier A / Supplier B
– Historical Pricing
Saving (Risk) to
2275848
XYZ 8.00 Machining
Avg. of Quote
Avg. of
Quote Std. Avg. of Quote
Avg. of
Quote Std.
Cat
seems very competitive on low Annual Volume
Range Means Dev. Means Dev.
Casting
volume part (<5,000), 6.00 < 5k / yr 53% 38% 32% 36% ($7,255,016)
Sheetmetal
• On higher volume parts the
Un-optimized Economic Production Quantity
4.00 FOB
costs of LCC supplier are less.
> 5k / yr

TOTAL
-15% 13% -2% 9%

Total($6,589,974)
$665,042

2.00 Cost by Run Quantity (EOQ)

• Design Waste
• However, when the premiums (CAT 300-7649 GENESYS L0 FGW Total)
0.00
of operating in an LCC country TCO
Analysis
TC O

Other (SG&A, Margin, etc.)

Cat Us age by Premium
Area Rev enue (20 09) from LC C
US 82%

Cat Usage by
37 .3%

Premium
Eu ro pe 12% 25 .9%
Asia 1% 6.5%
Cost of Missed Point of Use
the 227-5848
XYZ model
Sub-Problem Model 227-5848 Actual
XYZ actual 269-9207
ABC modelModel 269-9207 Actual Revenue (2009)
ABC actual
So uth Ame rica 5% 29 .7%

are taken into account,

Tota l 10 0% 35 .2%

Area TCO

from LCC Cost of Inventory

Part No.
Ca t U s
ag eby P r em ium
A r
ea Rev enue( 2 009) f r om LC C

U S 82% 37. 3%
E urope 12% 25. 9%
A sia 1% 6.5%
S outh Am er ica 5% 29. 7%

Set-up Cost
T ot
al 10 0% 35. 2%

opportunity is much smaller US 82% 37.3% Variable Production Cost

OEM demand signals are very low on many parts
Europe 12% 25.9% BOM
Asia 1% 6.5%
and it does itper
not aggregate demand.
USD

Opportunity South America 5% 29.7%

year Time versus

• Cultural focus on inventory Movement
total cost ofStudies
10G or TMC Quote Price
(Total Cost(Historical
of Ownership)
Total

Supplier A and Supplier B Quote Studies (Total Cost of Ownership)

100% 35.2%

Pricing Model) – Over-Spec

• Different parties focused on 200%
400%
different metrics Competitive Quote 1
Analysis
Competitive Quote 2
Preliminary Recommendations ABC
2699207 $101,000
in isolation (e.g. piece part cost, 175%
inventory, set- Competitive Quote 3
SE Asian SupplierProduct level

of XYZ is cost) $2,000 Sub-Problem

Last product level supplier

• If an average savings2275848
150%
% Over (Under) 10G or TMC Price

processes and
Build
Buildto
toCat's Order Supplier
TMC CurrentB Current
Run Optimized
Optimized Run
Run

– Over-Design
2%up OEM Order volumes
newRun
(maybe
Quantity
supplier)
Quantity
exits, parts becoming
obsolete
Quantity
Quantity
125% Co mparing:

compelling, resource to another Prices on100% parts do not remain static over Fully Burdened Cost =
EOQ Strategy
BOM + Labor + Direct & Period Overhead + Aftermarket supplier

supplier, or buy directly from time: 75% Amortized Tooling (10 years)
(10 years)
Cost+ of
Amortized
Pa rtNRE
alternatives, new
Annual Saving and technology
Volume
from Order Optimiz at ionmainstream
(EOQ)
becomes
Suppliers exiting,
technology becoming
outdated
Why is this 2 GB
USB drive more
Parts ($) expensive than the 4

Supplier B rather than Supplier A. GB?

• Changes
Plus non-FOB LCC Premiums 30,000
50%
in commodity and
Saving fro m Optimiz ed EOQ

Graph shows % Curren t Volume P rojectio n for 2010

• *** Still a question exists of which

A n n u a l S a v in g (U S D )

25,000

Preliminary
the low volume parts are being
Recommendations 25%
the supplier productivity prices A n n u a l V o lu m e
Standard manufacturing
efficiency glide path

– Over-Process
20,000
0%
quote is higher
subsidized by the high •volume than 10G•(above
0 0 9 0 1
00 1 0 00 4 0 0

Use model provided toPinning

calculate prices
the forces perverse
economic -1 - 1 P3 - 19 - 55 2 16
- 1P2 00 000 000 00
P1 P4 P5 39
- 10 P6 4 - P7 - 10 P8 - 1 P9 - 4P10 50 20 XY P16500P17 0000P18 P19 00
- P11 - 5 P12 - 1 P13 - 15 P14- 25 P15RO
6 2 9 50 00 15,000
-25% rt rt rt t
11
t 10 t6 t 2 - -1 2 00
t3 t7 t5 t8 t5 t5 5 P 1 1-
Pa Pa Pa Par Par Par Par Pa
rt
Par Par Par Par
rt rt t1
Par Par Pa Pa P
ar
Pa
rt
10,000

orbehavior, such as cross-subsidization

Prototypes Early Late Production & Service with high Product becomes, Classic,

production quantity
the x-axis)for each-50%part Production Early Service Only volumes in field Antique, or obsolete

5,000

• Follow recommendations • In the

5.00
-75%
lower (below) case
nextofslide
on-100% legacy, no accounting for 0 4.50
WO Size Vs Labor Content

• Start focusing on Totalstep Cost,function decreases

not inventory in in volume and
4.00

Part and Approximate Quote Volume

3.50 Prototype and
isolation batch sizes.
– Over-Price
3.00
"Specials" Regime
Hrs/unit

Part
2.50

• All actions to reduce a component of Total Cost P1 P2 P3 P4 P5 P6 P7 P8

Part
P9 P10 P11 P12 P13 P14 P15 2.00

1.50

must be evaluated for interaction with other

Recommendations 1.00

0.50

components • Reset prices when legacy parts are -

- 200 400 600 800 1,000 1,200 1,400 1,600
Work order size

moved to Supplier A that account for

BOTH manufacturing efficiencies over
time and the increase in price do to Change from Full Production Annual
Increase (Decrease) Savings (Risk)
volume & run quantity plunges Scenario Price
• Separate legacy and production Run Under Change fro m Fu ll Production An nual

Key Outcomes:
Increa se (Dec reas e) S avings (Risk)

business with two different pricing Volume Quantity (over) to Cat

S ce nario Pri ce
Ru n Under
Volume Quanti ty (o ver) to Cat
Vo lu me Cha nge f rom P ricing P oin t
(A nnua lize d YT D S hipm ents) - 54 % - 45% -4.5% ($1,471, 122)
Vo lu me Drop (2 01 0 Pro jectio n) - 17 % - 45% 0.3% $137,974

models and supplier codes Volume Change from Pricing Point

(Annualized YTD Shipments) -54% -45% -4.5% ($1,471,122)
Volume Drop (2010
(Year Projection)
1 Projection) -17% -45% 0.3% $137,974

• Should-Cost Price
• Inefficiencies & Opportunities in Design
• Competitor Pricing / Benchmarks
• Historical Management of Prices

05/01/2020 CGN & Associates Confidential 14

 We analyzed the supply chain to identify waste across the value chain & opportunities to
eliminate the waste & share benefits

Analysis:
• Supply Chain Waste
Current Supply Chain Performance
– Supply Chain Length
Current Supply Chain Set-up:
Key Perfo rman ce In d iOEMo rs (2009):
Component 1 Facility 1
(-<US)
Facility 2
(-<US)
Overall
Target
– Delivery Performance / Issues
Supplier Fac 3

– Transportation Performance / Issues

OEM fac 3 Total Freight (as % of 0.7% TBD N/A
Sup plier purchasing)
Fac 2 OEM Fac 1

Total Cost of Ownership

Sanf ord
– Current StateExpedited Freight (% of total 0% 0% N/A
Sup plier Fac 1
freight)
Del Performance 74% 34% 95%
AS-IS Total Cost of
Ownership (based on
2009)
Supplier – Facility
1
Supplier – Facility
2 PPM
Supplier – Facility 3

Supplier lead time

Supplier – Other
2,700
2 days
Supplier
3,500 – Total 800
90 days N/A
% of Spend

– Inventory Management
Purchase Price $21,738,569 $10,988,850 $3,619,820 $3,619,820 $45,444,544
Inventory Turns 13 TBD 20

Supplier
Factory
SC Cost
Transportation Total Cost of Ownership – Future State
Component 2 Facility 1
(-<US)
Facility 2
(-<US)
Overall
Target – Demand Variability
Ocean/Truck Total Freight (as % of 2% 4.2% N/A
Key Observations: $207,221 $117,547
purchasing) $67,090 $ 4,854 $ 396,712 0.87%

– Supply & Demand Planning

freight/Delivery
• Supplier is required to achieve Quality CertificationAS-IS Total Cost in of Supplier – Facility Supplier – Facility Supplier – Facility 3 Supplier – Other Supplier – Total % of Spend
Premium freight $8,771 Expedited
$3651 Freight (% of 2total
$73,036 0%
$1,748 0% $83,919
N/A 0.18%
2009 Ownership (based on
freight)
Returnable stillage
• Current warranty agreement specifies that Supplier is2009) $17,694 $654 $- $230 $18,579 0.04%
Inventory $291,787 Del Performance
$86,220
$21,738,569 $83,937 78% $3,619,820
$127,486 18%$589,43095%
liable for 20% of warranty cost for Component Purchase Price
2 and 15% $10,988,850 $9,097,305 $45,444,544
1.30%
Warehouse 1. Total warranty $257,803 $69,155 $32,706 $79,730 $409,311

• Cost of Poor Quality

of warranty cost for Component cost in PPM 10,000 6,200 800 0.90%

2008 is $1.2M, 7.7% ofCost of Poor

total Quality90% SC
spend. ofCost
warranty $316,641
is $273,756 Cost of Defects
$63,152 - Quality and Supply
$197,364 Chain
$850,913 1.87%
(Supplier Inbound) Supplier lead time 15 days 17 days N/A
associated with Product GroupRework and 1. Return $186,130
Transportation $116,529 100%
59%
$- $- $302,659 0.67%
• Long lead time to Facility 2Warranty
results in high supply chain Inventory Turns
$520,853
32 22 20
$886,723
Ocean/Truck $292,372 $884,864 $2,584,811 5.69%
Current State:
$134,694 $76,406 $53,672 $ 4,854 $269,625 0.59%
freight/Delivery
Current State

cost to both OEM and Cost Supplier, local

of Supplier Perf sourcing should be Break up of 12% for •

– Warranty
Cost of Defects - Quality & Supply Chain:
explored or find ways to reduce lead time. Premium freight $6,735Cost of Defects - Quality
$365 $2,684 & Supply chain$1,748 $11,531 0.03%
–
$4.9M

Failure to ship on-time $16,352 $12,693 $18,851 $ 25,762 $73,657 0.16% Warranty Issues (~$2.9M) - Design & non design
8 Returnable stillage $11,501 $425 $- $230 $12,157 related 0.03%
replacement/ repair cost
Total Cost Of Supply Chain $2,189,124 $1,197,772 $631,145 17% $1,322,036 $5,340,077 11.75%
– Rework,0.61%
Return & Scrap (~$850K) – Parts, labor and
Inventory $133,409 $67,438 $22,215 $55,830 $ 278,893
Total Cost of Ownership $23,927,693 $12,186,622 $4,250,965 $10,419,341
12% $19,059 $50,784,621 handling cost involved in production part rework
Warehouse $117,901 $59,635 $42,480 $239,075 process0.53%
Supp Chain as % of TCO 10% 11% 17.5% 14.5% 8%11.75% $24,671

– Return & Rework

Cost of Poor Quality $123,605 $44,800 $17,108 2% $167,143– Inventory carrying cost (~$590K) – Cost of Capital to
0.37%
2%
stock components
Rework and Return $43,477 $21,978 $7,240 $18,195 $90,889 0.20%
Cost of Warranty Rework Inventory Ware Premium Delivery – Warehousing cost (~$410K) – Cost involved to
Warranty $391,294
Quality (Supplier$197,799
Return Cost $65,157 $163,751 1.80%
house Cost Freight Performance $818,002 receive, store, retrieve, damage, salvage components
Cost of Supplier Perf & OEM) Scrap – Expedited Freight (~$84K) – Air shipment to prevent
stock out

• Operational Waste
Failure to ship on-time $5,241 $2,047 $2,142 $3,788 $13,219
– Delivery0.03%
performance cost (~$73K) – Incremental
100% 19%
Total Cost Of Supply Chain $967,858 $470,894 $189,276 $315,546 $1,900,533 cost due4.18%
to delayed shipments

Total Cost of Ownership $22,706,427

4%
$11,459,744 6% $3,809,096 $9,412,851 • Issues with responsibility on both sides
$ 47,345,077
Future State

5% 0% 0% • Direct bott om line erosion (OEM) - ~$3.4M

66%
Supp Chain as % of TCO 4% 4% 5% 3% 4%
$4.9M

– Operational Inefficiencies
Opportunity

Levers for change:

Benchmark Feasibility
$3.4M

Should-Be TCO • Improved quality system (collaborative)

Estimate 4-7% of Total Cost of Ownership can be saved
by both parties if we jointly focus on improving quality – Warranty
management & Supply chain – Return
– Rework

– Additional Period Costs

Cost of Warranty Rework Inventory Ware Premium Delivery • Inventory & Warehousing Cost reduction opportunity
Quality (Supplier Return Cost house Cost Freight Performance (Pull Implementation & Line Delivery)
& OEM) Scrap
• Air shipment avoidance
• 4%-7% potential savings from TCO through
collaborative efforts (~$3.4M)

Key Outcomes:
• Current & Future Total Cost of Ownership (TCO)
Model
• Project Ideas to Eliminate Waste and Share Benefits

05/01/2020 CGN & Associates Confidential 15

 We drove consensus & alignment on relationship structure, trade-off options, risks, strategies
and mutual business goals for a long term win-win partnership model between supplier & OEM

Design:
• Supplier and OEM Collaboration
Opportunities
– Design
Relationship Directions with the Supplier

Strategic (Set for growth)

• 48-72 months (through long term)
– Supply Chain
• Incremental Focus (over Collaborative): Reduce non-value Set for Growth

– Forecasting & Value Chain Visibility

added design, manufacturing, supply chain costs, & value
engineering while maintaining OEM differentiation
• Improve performance to merit portfolio growth

•
•
Hierarchy of Strategies
Collaborative (Source of Diversification)
36-60 months ( Committed mid term)
Incremental Focus (over Transactional): Sharing LCC benefits,
collaborate on eliminating waste in supply chain & quality
Reset the
relationship
Opportunity to
grow together
– Opportunities for Growth
defects, reduced lead time, better communication, increased

• Win-Win Strategies and Trade-Off Options

collaboration • Market leader
• Expand in emerging markets
• World class distribution
• Focus on people, safety & quality
OEM
• Low cost provider to end customers

• Internal Consensus on Relationship

Transactional (Status Quo)
• Supplier Growth Opportunities
Positioned for Tier IV supply with some modifications
• Competitive quote based
• Limited engineering collaboration • Expand global footprint to support OEM
• Warranty reimbursement after analysis of claims (pay 20% of • Deliver sustainable cost reductions
where responsible) • Match customer value needs with product quality
Product 2009 Spend Breakdown – Current State Mid Term Long Term
Division
• Better quality and reduced warranty
Past trend,
Supp lier
potential future…
AllTransactional Overall
Others
path… Spend
Supplier
• Pric ing reflec tiv e of business c onditions (Rev is ionof legac y parts)
Overall
Spend
Supp lier
• Supplier to be LCPv
Direction
• Agreement on Strategic Options for the
•Su p pLeverage
lier Pro p o sal
economies of• Res
scale
olution on hidden c os ts driv en by the partnership OEM Pro p o sal • Warranty rec overy c ontrac t – Proposed 100%

Procurement
Com po nent 1 $15M• Optimize
10% strategic
$135M supplier
90%partnerships
• Warranty rec overy c ontrac t –Proposed 10% • SQEP certific ation by Dec 2010

Team • Ensure responsive supply base Opt ion 1 ( Dissolv e) Opt ion 2 ( Legac y) Option 3 ( Growt h)
H&HS INTERNAL • Establish long-term relationship with
• 3 – 6 months . Supplier c eas es suppliers
to exis t as a legal enti ty • 3 – 6 months . Supplier transitions production parts to Supplie r • Long term interdependent rela tionship … sus tain able benefits
• Supplier tak es ov er legac y and productionparts and be treated lik e any other • Supplier s upplies legacy parts and prototype buil ds • Address all partner driv en in efficiencies / hidden c osts with equitable sharing of
s upplier • Supplier to c ompetitiv ely quote productionparts benefits
• Supplier to c ompetitiv ely quote for le gac y and produc tion parts • Incremental focus (ov er O ption 1): Address portio n of partner driven inefficiencies / • Natural decline of legacy busines s offset by growth
Com po nent 2 $9M 100% $0 0%
• M inimal com mitm ent with minimal reward for bothpartners hidden c os ts and sharing of benefit s • Supplier respons ible for legac y & production and prototy pe builds

Relationship
Options & Considerations • Lim ited benefits from elimin ation of hidden cos ts • Warranty reim burs em ents (10%) after analy s is of claims • Supplier to c ompetitiv ely quote produc tion parts
• Duration • Best-In-Class systems / components
• No inc entiv e to jointly eliminateineffic ienc ies
• Internal as ses s ment to eliminate hidden c osts , cros s- • Warranty reim burs em ents (Proposed %) after analys is of c laim s
• Dem ons tration of Supplier’s tec hnic alc ompetenc erequiredto earn engineering
c ollaboration opportunit ies
• Warranty reim burs em ents (Proposed %) after analys is of c laim s
• Dem ons tration of Supplier’s tec hnic alc ompetenc e
• • Limited engineering collaboration opportunities on new program s
Shift to “build-to-spec” capability
s ubsidization to provide pric ing trans parency • No c ross -subs idiz ation of legac y and produc tion parts • No c ross -subs idiz ation of legac y and produc tion parts

Design Team
• Natural dec line of legacy business due to bac kward c ompatibil ity of produc ts • Expand product and c ustom er portfolio … inc rease in Supplier overhead cos ts

• Significant NPI collaboration • Supplier c os ts inc reased as Supplier shifts resourc es in-house
• Rev iew pric ing rev is ion for legacy andproduction parts (6% - 8%)
related to marketing, c ustomer serv ice, etc.
• Supplier to define c ore c om petency - produc t group anddesig n/engin eering or

Com po nent 3 $7M • Uninterrupted

100% $0 supply
0% of legacy parts
world-c las s m anufacturing
• Rev iew pricing rev is ion for legacy and production parts (6% - 8%)

• Honor all form al c om m itm ents on ex isting agreement, negotiate fa ir s ett lem ent of • Infus e “working c apital” ($2M) to enable EPQ • Infus e “work ing c apital” ($5.4M ) to enable run time quantit y optim ization (target
all outs tanding c ommercial is sues • Prov ide res ources to reduce warranty, quality and trans portation cos ts (target 3%) 7%)
• Continue to work with Supplier on power ele c tronic s .Supplier to earn future – 1.5 FTE • Work collaborativ ely to reduce supply chain cost and achieve identi fied effic ie nc y
c ollaborativ e opportunit ies • Exec ute M DA … “pay as y ou go” for ECO ’s andprototy pes improvem ent (target 6%) – 3 FTE
OEM Commitments • Ass ume OEM ’s portion of as s ets and liabilitie s • M aintain legac y s trategy withSupplier • Exec ute MDA … “pay as y ou go” for ECO ’s andprototypes
• Exec ute MDA … “pay as y ou go” for ECO ’s and prototypes • Continue to work withSupplier on power ele c tronic s. Trans itio n production to • Continue to work withSupplier on power elec tronic s and c ons ider colla borating for
Com po nent 4 $6M 24% $19M 76%
• Cons ider legacy pric e adjustments where appropria te
• Re-absorb/re-as s ign O EM em ploy ees
Supplier m ature and emerging tec hnologie s
• Enable Supplier to im prov e tec hnic al capabil ity and in vest in tale nt to servic e the
• Warranty reduction offs et pric e legacy inc rease entire value c hain, e.g., m anufacturing, purchasin g

Key Outcomes:
• Honor all form al c om m itm ents on agreement until dissolu tion • Prov ide res ources to optimiz eorder process and EPQ (5%) –1.5 FTE • Prov ide resourc es to optimize order process and EPQ (5%) –2 FTE
• M aintain steady and uninterrupted s upply of legacy parts onreasonable • Enable Supplier to m aintain steady & uninterrupteds upply of le gacy • Work collaborativ ely to reduce supply chain cost and achieve identi fied effic ie nc y
c om merc ial term s • O ngoing s upport for k ey quality , delivery and des ig n iss ues improvem ent (target 6%) – 0.5 FTE
Com po nent 5 $3M 19% $10M 81%
• O ngoing support for k ey quali ty , delivery and des ign issues
• Pay propos ed % warranty on FIR’s referred per agreement
•
•
Pay proposed % warranty on FIR’s referred per agreem ent
Res pond in a timely fashion to quote requests
• O btain SQEP certific ation by Dec 2010
• Exec ute MDA
Supplier Commit ments • Res pond in a tim ely fashion to quoterequests • O btain SQ EP c ertific ation by Dec 2010 • Improve tec hnic al c apabili ty and inves t in talent to serv ice the entire value chain,
• O btain SQEP certific ation by Dec 2010 • Exec ute M DA e.g., manufac turing, purc hasing, engin eering
• Exec ute MDA • Support trans ition of k ey res ourc es to Supplier suc h as purchas ing • Create global footprint to m atch OEM’s expansion in emerging m arkets

• Strategic Relationship Direction &

• Ass ume Supplier’s portionof assets and lia bilit ies • M ak e effort to ex pand into other in dustry groups (automotive, locom otiv e, etc.)
• Re-absorb/re-as s ign Supplier employees
Com po nent 6 $1M 100% $0 0%
$51M Spend O pp. % Supplier Benefit OEM Benefit Date Supplier Benefit OEM Benefit Date Supplier Benefit OEM Benefit Date
Opportunities

Run Tim e Q uantity Optimiz ati on 6-7% +1% 0% Oc t 2010 +3% 0% Oc t 2010 +4.5% +2.5% Oc t 2010
Com po nent 7 $10M N/A N/A N/A
Supply Chain
5-6% +0.5% +1% Jul 2010 +1% +2% Jul 2010 +2% +4% Jul 2010
• Warranty & PPM Reduction

Restructuring
O rder Proc ess , ECO s and Prototype
1-2% +1.5% 0% Oc t 2010 +1.5% 0.5% Oc t 2010 +1.5% 0.5% Oc t 2010
Proces s O ptim ization

Net 12-15% 3% 1% 5.5% 2.5% 8% 7%

• Supplier Benefit: Can bid separately without Supplier overhead; keep effec ts of • Benefit: Lev erage legac y expertis e across other OEM s ; trans parenc y in c ost, • Benefit: Lev erage tec hnical le aders hip andinnovations across other OEMs and
s truc tural c os t reduc tio ns pric ing and operations indus try groups for profitable growth;transparenc y in c os t, pricing and operations;
• O EM Benefit: Minimiz es disruption of legac y bus ines s ; no addit ionalinvestm ents • Supplier Benefit: Can bid s eparately for production parts without Supplie r leverage operational effic iency to other parts of business
on an ongoing basis ; c an evaluate addit ional sources overhead; keep effec ts of s tructural cos t reduc tio ns • Supplier Benefit: Keep effec ts of structural cos t reduc tio ns ; im prove m argins ;

• Alignment of Strategies (Internal &

• Supplier Drawbac k : Compete heads on with other s uppli ers; lim it ed growth • O EM Benefit: Minimal dis ruption of legac y; no transition to alt ernate sourc es; safe ineffic iency elimination offsets pric ingm is alignments
Supplier & OEM Out comes opportunity and potential for los s of future business plac e for IP; partial realizationof cost reduction goals • O EM Benefit: Minimiz es disruption of busines s; no transitio n to alternate s ources
• O EM Drawbac k: Limited c olla boration with nos afe place for IP; unable to ac hieve • O EM Drawbac k : Adv antage of to provide te c hnic al le adership and innov ation required; safe place for IP; com ple te reali zatio n of cos t reduction goals
10% cos t reduc tion goals acros s electronic s platforms is lost
• Supplier Drawbac k : As legacy business dec lines , pos s ib ility for Supplier to los e
O EM as a captiv e c ustom er

• J ointly dev elop and ex ecute M DA (by J une 30, 2010) • J ointly dev elop and ex ecute MDA (by J une 30, 2010) • Com bined governanc e teams for proje c t exec ution and res olu tionof outstanding
• J ointly dev elop legac y bus ines s transit ion pla n (by J une30,2010) • Rev is e agreement to spell out legacy term s is sues
Next St eps / A c tions & Terms • O EM and Supplier to dev elop plan for re-ass ignin g employ ees • J ointly ex ecute effic iency im prov em ent projec ts • J ointly develop and ex ecute M DA (by J une 30, 2010)
• O EM to dev elop plan for des ign c ontrol transition • Rev is e agreement (O wners hip of IP, Profitability )

Supplier)
• Key Relationship Stakeholders for Both
Sides
• One Enterprise Voice
• Empowered Team to Reset the
Relationship

05/01/2020 CGN & Associates Confidential 16

 We facilitated finalization of OEM & Supplier commitments, project launches, execution &
governance and monitored progress to achieve mutual business goals

Reports / Plans:
• Post-Design Commitment & Agreement
• Project Execution & Governance Framework
Supplier Negotiated Agreement
(All % are landed cost reductions on the entire product portf olio)

Incremental Target
2009 2010 2011 2012 2013 • Strategic Relationship Management
OEM Supplier OEM Supplier OEM Supplier OEM Supplier OEM Supplier
yr over yr

Commodity 10%+ - 3% -2%* - -

LCC
OEM – Supplier collaboration communication
10%-14% -
(7/10)

Supplier Executive Collaboration Team

framework
4.4%
-4.6
(1/10)
6.4%
-1%
(1/11)
-
-1%
(1/12)
-1%
(1/13)
Communication Framework
Collaboration Champion Key Benefits
(Owner/(s): BCP VP, TBU Biannually CEO
Quality (BCP + GP + Component BU- Leadership - • OEM
- and supplier organization
VP)- - - - - - -

• Supplier Relationship Management

Teams) structure established
4%-7% Supplier collaboration roles (Supplier) – Leadership Team
Logistics Portfolio
- Management- Team - - - - - • Defined
- supplier
- communication
-
Quarterly (in Relationship touch points
Internal CAT Supplier Relationship Owner
Collaboration
person)/Monthly Roles Collaboration Teams
Supplier
-0.8%Delivery Mgr -2.7%**
Catalyst Mgr. - • 1.8%
Cadence set for
- overall relationship
Resource Name

Value Engr. 4%-6%** - (Primary - - - -

(Owner: BTI (Primary Owner : (1/10) Owner : (1/12)
Supplier Delivery
Current CAT

management
designation

Component Mgr.)
Overall Project

BTI Team Lead

Management
Collaboration

Collaboration
Project Leads

Process Owner) Category Mgr.) Portfolio Mgmt.

Relationship

Organizational Structure
BTI Process
Champion

Executive
Manager

Manager

Portfolio
Supplier

Supplier

Resource Supplier
SAMPLE PROJECT DASHBOARD
Owners

• Project update reporting structure

Owner

Cumulative
Team

Team
0% 7.4% -7.4% 13.8% (Owner: BTI 13.8%Organization
-8.4% -12.1% 15.6% -13.1% 15.6%
Benefit Team Lead.)
Project Teams • Ongoing collaboration framework to
Project: Project 1 Supplier Overall
drive innovation and efficiency
Overall Project Project Beh in d, reso urce

OwnersOwner: A Weekly Project

through the collaboration owners On Sch edu le
Not on sched ule; or help n eed ed or
* 2% Commodity reversal effective July 1, 2010 adjusted for Milano Index movement Owners
vs Oct 1, 2008 (Jul 1date, based on the anticipation
High co n fid en ce to
deadline will be
Status meet deadlin es.

• OEM & Supplier Roles & Responsibilities

missed .
that volumes/common leverage allows A recovery from OEM CEO
suppliers) R
• Defined owners to communicate &
Project Leads Sub project status resolve issues/risks across
** 60% will be the minimum OEM Bbenefit sharing OEM for allVP
Value Engr. Initiatives. Each initiative will be evaluated to determine the savings
organizations
Potential Cost
mix based on the OEMDesigninvestment &Purchasing
customer value impactSupply Chain
Status Category Major Task List Product E Savings Effective Date Owner Comments
Collaboration Team Collaboration Team Collaboration Team (2009-2013)
- Base agreement on targets reached but agreement on formal targets, timing & action plans, is required• Clear issue/risk escalation
16 C Product Sourcing Task1 Product 1
communication hierarchy
$18M 1-Jan-10 C
Design Purchasing
E Supply chain resource not
Manager Manufacturing
SC Management
Sourcing Task 2 Product 1 $6,.5M 1-Jan-10 D
identified to complete analysis
Supplier

• Communication Framework (Internal &

Management Management
Owner (Supply Management Weekly Task 3 Functional • Owners defined to $5.4M 01-Jan-11/1-Jan-
initiate additional
Owner (Engr. Owner (Category
D TBD Sourcing ALL E
Chain Analyst) Owner (SDE) X supplier communicationRoutside of 12/1-Jan-13
R
Mgr) Buyer) Leads
established cadence$0.5M
to communicate01-Jan-10 Supply chain resource not
Logistics Task 4 Product 1 A
Collaboration Owners and resolve potential risks identified to complete analysis
E OEM GP
Issues/Risks X E
Metrics & Measurement Project Level LOS
Communication Cadence Director Existing OEM roles
F roles Impac
Component Resolution
New OEM Issue/Risk
OEM Execution & Relationship Resolution Owner Norton Gap Chart 7/3 1/0 5

17 t X X Date E R (Actual Thru J uly Projected Aug - Dec)

($000's )

Supplier)
Mgr. Mgmt teams
Identify SC resource to $ 6,000

G H Issue
Category 1
Mgr. X analysis X
TBD
X
06/22/09
R $ 4,000
R
YT D $

complete
$ 2,000

$0

H TBDM Jan Feb

2005 A ctua l Y TD R
Mar Ap r May June July
2005 P redicted A ctual
Aug Sept Oc t
Line o f S ight '05B P Go al
Nov Dec
S tretch T arget

Supplier Collaboration Relationship Management Councils

L

• Prioritized Project List for Execution

18 Role Owner R – Required Attendee
18
E – Exception based attendee
Key Actions Initiated from last report - 6/12/09 Key Milestones/Next Steps
Target
Action Owner Target Date Update Milestone Owner Status
Date
Detailed Project plan created A 06/22/09 Completed Agreement on pilot plan C 15-Aug-09 On Schedule
Behind schedule
Detailed quality mgmt plan &

– Owners
C 31-Aug-09 expected date 1-
implementation
Oct-09
19 Supply Chain Mgmt Planning D 31-Aug-09 On Schedule

– Detailed Project Plans

– Execution team
– Communication model
– Risk Mitigation / Escalation Plans

05/01/2020 CGN & Associates Confidential 17

 Executive focus and governance was critical to ensure that the new collaborative culture was
embedded across the organization
BTIExecutive
BTI ExecutiveCouncil
Council •• Provide
ProvideExecutive
ExecutiveSponsorship
Sponsorship
90 Day ExecutiveLeadership
Leadership(OEM
(OEM&&Supplier)
Supplier) • Build Business-to-Business Relationship
• Build Business-to-Business Relationship
Executive withSupplier
SupplierExecutives
Executives
Cadence with
• Set Expectations withSupplier
• Set Expectations with Supplier

BTIExecutive
ExecutiveSteering
SteeringCommittee
Committee •• Develop
DevelopProgram
ProgramObjectives
Objectives&&Metrics
Metrics
BTI • Establish Program Charter
• Establish Program Charter
Monthly RelationshipStakeholders
Stakeholders(OEM
(OEM&&Supplier)
Supplier)
Relationship •• Define
DefineScope
Scope&&Prioritization
Prioritization
Cadence • Define Selection GuidingPrinciples
• Define Selection Guiding Principles
• Provide Governance & Management
• Provide Governance & Management

•• Set
SetSupplier-Specific
Supplier-SpecificObjectives
Objectives&&Goals
Goals
BTI Assess & Design Team • Define Supplier Stakeholders
• Define Supplier Stakeholders
OEM-Supplier & CGN Program Managers •• Define
DefineEngagement
EngagementTeamTeam
Regular • DefineLevers
• Define Leversfor
forCollaboration
Collaboration
• Define Supplier Collaboration
• Define Supplier Collaboration
Interaction Framework
Framework
& Weekly Supplier Pricing Waste Relationship • Designthe
• Design theWin-Win
Win-WinRelationship
Relationship
Reviews 360 Analysis Analysis Design •• Create
CreateAction
ActionPlan
PlantotoClose
CloseGaps
Gaps
• Establish Clear OEM and Supplier
• Establish Clear OEM and Supplier
Hybrid Team Hybrid Team Hybrid Team Hybrid Team
Responsibilities
Responsibilities

•• Collaborate
Collaboratewith
withSupplier
SupplierResources
Resources
BTI Execute & Sustain Team • Align with Supplier Collaboration
• Align with Supplier Collaboration
Frameworks
Frameworks
Regular • Manage//Drive
• Manage DriveExecution
ExecutionofofAgreed
Agreed
OEM-Supplier & CGN Execution Managers
Upon Initiatives / Projects
Upon Initiatives / Projects
Interaction
•• Track
TrackPerformance
Performance&&Savings
Savings
& Weekly • Train OEM & Supplier Resources
• Train OEM & Supplier Resources
Reviews • Drive Change Management
• Drive Change Management
Execution Team •• Identify
IdentifyAdditional
AdditionalOpportunities
Opportunities
• Escalate Issues
• Escalate Issues

05/01/2020 CGN & Associates Confidential 18

 Summary of results for a single supplier

• Evaluated the supplier’s current relationship with the different groups at the OEM
• Identified waste in the relationship (10-20% of the total spend with the supplier)
• Designed a structure to transition the relationship to an interdependent partnership based on trust and mutual benefit

• Prior to BTI, the supplier was

requesting an $8M price Value Creation -$8M +$12M +$46M
increase (2.2%)
14% 3/09 5/09
• The initial best offer from the 12%
Relationship Re-Design Timeline $11M
supplier was a contract based 10%
commodity reversal of 3.6%, 8% 2.3%
resulting in $12M impact to the 6% 1.5%
OEM OEM (+) 1.4% $35M
4%
2% 3.6% 3.6% 4.1% 4.1%
• By the end of Relationship Re-
0%
Design, by accounting for LCC -1.5%
impact and collaborating on -2% -0.7%
OEM (-) -4%
value engineering and quality
improvement levers, a win-win Supplier
Carraro2009 Contract Based
2009 Contract Based Carraro
SupplierInitial
First Supplier
Carraro Relationship
Negotiated Additional
Additional
Proposal
Proposal Expectation
Expectation Offer
Offer Intermediate
Negotiated Design
Agreement Bottom-Line
Bottom Line
agreement had been reached Agreement Agreement
Agreement Lifecycle Impact (Logistics
Impact -
that yielded 9.3% price reduction (LCC Impact +
(LCC Impact +
(Lifecycle
Impact
& Quality)
Logistics &
Price Increases) Impact)
($35M) and logistics and quality Price Increases) Quality
improvements adding $11M to
bottom line impact for a total of LCC Impact Yr over Yr Incremental Price Increases One time only
$46M for the OEM Commodity Value Engr. Quality

$46M - Estimated cumulative savings over 4 years (2010-2013)

05/01/2020 CGN & Associates Confidential 19

 Overall, the program achieved 7% in material cost reduction alone & saw tremendous
additional benefits in OEM-supplier collaborative relationships

380

370
$11
360
$26 $26M Impact
Millions

350

340
370
330 359

320
344

310

300
2010 Projected Spend Supplier Price Increases Adjusted 2010 Spend Negotiated Reductions New Spend

  No. of 2010 Spend 2010 Spend After Improvement % Improvement

suppliers Before BTI $M BTI $M $M

Target 37 $ 548 $ 522 4.8% $ 26

Outcome – Phase I 18 $ 370 $ 344 7.1% $ 26

05/01/2020 CGN & Associates Confidential 20

 Appendix

January 2011

05/01/2020 CGN & Associates Confidential 21

 The approach resulted in significant financial benefits in multiple areas for our clients

CSFs Typical Areas of Opportunity Benefits

1. Championed at 1. Short to mid term cost
executive level reduction..supply chain,
quality, warranty

Long Term
2-3%
2. Initiative led by strong
team leader 2. A win–win attitude to
2-3% improve supplier

8-12%
collaboration
3. Joint team. Driven with 1-2%

sense of urgency,

Short Term
1-2%
willingness to take risk 3. A commitment plan &
2-3%
collaboration structure
4. Leverage existing work
to maximum benefit 5/1/20 5/1/20 5/1/20 5/1/20 5/1/20 5/1/20 4. Enterprise alignment
and velocity
5. Integration into OEM
5. Willingness to change sourcing process

05/01/2020 CGN & Associates Confidential 22

 We use a workshop-based approach to drive consensus & commitment throughout the
lifecycle of the initiative
Post
Pre-Work - Supplier Strategic Relationship Relationship
Implementation /
Analysis & Data Relationship & Design & Restructuring &
Program
Collection Waste Analysis Supplier Options Commitment
Management
• Identify Stakeholders – • Conduct Supplier and • Identify Multiple Touch Points • Agree on Commitment • Monitor Progress of
Internal / External OEM 360.. Financial and with Key Stakeholders Plan Projects & Relationship
• Gather Supplier Footprint / Relationship • Align OEM Enterprise & Supplier • Identify Relationship • Monitor Execution
Part level Information • Perform Internal Strategies Owners for Execution Quality & Commitment
Activities

• Collect Price & Relationship Stakeholder Analysis • Drive Consensus to Finalize • Allocate Resources for • Track LOS and
History • Analyze Supplier Strategic Options Execution Performance Metrics
• Identify Plans In-Progress Stakeholders • Determine Ongoing • Launch Supplier • Implement Change
• Obtain Forecast by Part # • Develop Pricing Models Collaboration Areas & Benefits Collaboration Teams Management Plan
• Gather Supply Chain, • Build TCO View : Supply • Identify Multiple Simultaneous • Establish Governance & • Drive Cultural
Quality & Warranty Data… Chain , Quality and Options Program Management Transformation…
Warranty… • Identify Risks… Framework…

Supplier Program
Data Planning Stakeholder Consensus & Planning Relationship Planning
Workshops Workshop Workshop Restructuring Workshop
Workshop

• Stakeholder • Stakeholder Priorities • Hierarchy of Strategies • Relationship Restructuring • Supplier Collaboration –

Communication • Supplier Objectives • Trade-Off Options Framework Specific Targets
• Flexible and Scalable Data • Consolidated Enterprise • Supplier Relationship Handbook • Supplier Collaboration • Collaboration Plan
Repository of Critical View of Supplier • Strategic Options Sheet Teams • Realized Commitments –
Deliverables

Information • Total Cost of Ownership… • Message Map and Options • Communication Plan Financial & Soft
• Preliminary Relationship More than Part Price Worksheet • Single Point of Contact… • Change Management
History • Preliminary Strategies for • Consensus on Supplier One Voice Plan
• Operating Footprint Value Creation Relationship • Governance Framework • Internal Communication
• Assessment of Supplier Fit • 360 View of Supplier-OEM • Enterprise Alignment • Commitment Plan Plan for Follow-Through
for BTI Relationship and Priorities • Win-Win Strategies and • Project Execution and • Commitment and
• Stakeholder Commitment • Pricing Models Scenarios Management Collaboration Awareness
• Supplier Related Data in • Connection at Business level
One Location • One Enterprise Voice
• Win-Win Mindset

05/01/2020 CGN & Associates Confidential 23