Creating a Win-Win Environment with Suppliers Creating a Win-Win Environment with Suppliers

Strategy Key activities of 1st PI SRM as part of 2nd PI Monitoring & Future plan

Strategy Key activities of 1st PI SRM as part of 2nd PI Monitoring & Future plan

SRM TeamPOSCO

POSCO – Company OverviewPOSCO – Company Overview

0

5

10

15

20

25

30

(m tons)

68 70 72

Crude Steel Production

Netincome

1.2b$

900m$

600m$

300m$

Net Income

Gwangyang Works phase 4

Oct. ’92

Pohang works phase 4 May ’83

27.66 m tons

(Plan for’03)

90 92 94 96 98 2000 2001 2002 2003

1.03m ton (Jul ’73)

80 82 84 86 8874 76 78

28.06m tons (’02.12.E)

Revenue(2002/E) : 11.7 trillion KRW (9,774 m USD) Net income after tax (2002/E) : 1.1 trillion KRW (917m USD) Employees : 19,169 (2002/E)

Revenue(2002/E) : 11.7 trillion KRW (9,774 m USD) Net income after tax (2002/E) : 1.1 trillion KRW (917m USD) Employees : 19,169 (2002/E)

Founded in April, ‘68

Establish a “Value-based Management” through PIEstablish a “Value-based Management” through PI

Business Process(Customer-centric,

e-Business)

Corporate Culture

(Mindset · Practices ·Organizational Innovation)

Information System

(Proven Best Practices)

PIPI

Value-based ManagementTransparency, Principle-based, Accountability

Improvement in operational efficiencywas achieved after 1st PI.

Expanding on this, SRM focuses onenhancing competitiveness & collabortationthru joint efforts between POSCO and suppliers

Implementation Strategy

I. Strategy I. Strategy

Scope

Requirementscalculation

Requirementscalculation

Supplier selection Supplier selection

Supplier EvaluationSupplier

EvaluationProcurement

Analysis Procurement

Analysis

Realize Best Purchase Practice

Supplier Relationship Mgmt.

Supplier Relationship Mgmt.

E-Procurementconstruction

E-Procurementconstruction

Op

eration

alb

usin

ess p

rocess

Strateg

ic b

usin

ess p

rocess

2nd PI(‘02.1~’03.5)

2nd PI(‘02.1~’03.5)

ERP-enabledcentral sourcing

ERP-enabledcentral sourcing

Auto. demandcreation thru MRP

Auto. demandcreation thru MRP1st PI

(‘99.1~’01.6)1st PI

(‘99.1~’01.6)Order

process’gOrder

process’g Receipt Receipt Storage Consumpt’n

Storage Consumpt’n

Settle- ment

Settle- ment

Item Standardization – (i2 Explore 2000) Reduced No. of items from 590,000 to 280,000 (53% down) Simplified No. of item names from 5,553 to 892 (84% down)

Introduced item code structure in line with Global Standard

Item Item code Site Spec. Unit price Supplier V-Belt 612011A037 PH 8V-2050x5207Lx25.4W $ 50.26 A x22.2T,KSM6593 V-Belt 6127802050 KY 8V-2050 $ 16.07 B

Item Item code Site Spec. Unit price Supplier

V-Belt Q1007352 PH,KY 8V-2050x5207Lx25.4W ? ?

x22.2T,KSM6593

II. Key activities of 1st PI II. Key activities of 1st PI

Now

Pre-

PI

e-Procurement POSCO e-Sales

Horizontal MRO - Set up J/V “eNtoB” in Oct. 2000 w/KT, Hanjin, Hyundai

Vertical Material (steel-specific items) - Opened Steel-N.com in Sep. 2001

Started sales of

stock items via

Steel-N.com

in Aug. 2000

Started sales of normal ordered items via Steel-N.com in Sep. 2001

e-Business linking suppliers, POSCO & customers

Int.corporate-wide

ERP

Operations control

SCP

e-Transaction

ERP

POSCO Marketplace

(Vertical)

e-Sourcing

e-Bidding

Desktop Purchasing

e-Procurement

eNtoB(Horizontal

Marketplace)

Bank, Insurance

Carrier, Inspection, Korean Railroad POSCO

More about e-Procurement system

electronic procurement system embracing all trading partners

Supplier

Supplier

Vessel monitoring system using GPS

INTERNET

GPS satellite

Shipment plan

Port arrivalschedule

Vessel

Monitoring SYSTEM

INTERNET

Carrier

TELEX

FAX

FAX

Manually entermonitor’g info

Shipment plan

Port arrivalschedule

FAX

Real-time monitoring of vessel movement

Leading to reduction in raw materials inventory and

better leveraging of vessels

Automatic calculation of requirements using MRP

ERP

Item MasterBOM

Inventory Sourcing Rule

SCP

Forecast of sales order

Auto. Create Purchasing Order

M R P

Improvement in Improvement in

consumption/forecast consumption/forecast

planning by auto. planning by auto.

calculating requirements calculating requirements

based on production plan based on production plan

and BOMand BOM

No more coordination No more coordination

meeting between meeting between

Production and Purchase Production and Purchase

depts.depts.

User-oriented purchase process

User responsible for placing PO and inventory management Production plan and work conditions fully considered during purchase Centralized purchase organizations based on commodities

User dept PR

Price rese-arch Bid

Contract PO

Recei-ving

Inspec-tion

Pay-ment

(req. for BPA)

PurchasedeptPre-

PI

User dept

Purchasedept Contract

Order (e-Pro)

Pay-ment

Recei

-vingPR

Bid

Now

Purchase made via e-Procurement

Open & Fair Policy No need for personal visiting (40,000 people visiting POSCO/year) Now focusing on SSP (Strategic Sourcing Process) activities

SSP

79%

SSP

79%

SPOT 21%

SPOT 21%

BPA9%

BPA9%

SPOT 91 %SPOT 91 %

BPA

78%

BPA

78%

SPOT22%

SPOT22%

Spend Activity Post-PI activity

53% ※ Relocation of MRO HR (purchase → marketing )

- Before: 117 in 11 teams, - Today : 59 in 7 teams ( 58 )▽

00 98 %98 %

III. SRM as part of 2nd PI III. SRM as part of 2nd PI

1. SRM Objectives

Improve competitiveness of the whole supply chain thru

collaboration with good suppliers

Share supplier performance result

Share supplier performance result

Supplier self-improvement

Supplier self-improvement

Collab.w/ excellent suppliers

Collab.w/ excellent suppliers

Pursue mutual benefits

Pursue mutual benefits

Gain supplychain visibility Gain supplychain visibility

Support decision making

Support decision making

Strengthen competitive-

ness of whole supply chain

SUPPLIER

POSCO

COLLABO-RATION

In steel industry, purchase cost makes up the biggest portion in revenue

Particularly true for POSCO given its high dependency on major suppliers

<purchase spend ratio to rev. by industry>

* 1999, Fortune 500 research (2002, Gartner report) ** 2002, total purchase spend: $ 6.3 bill.

Industry purch. spend to rev

Remark

Metal(steel) 64.6%*POSCO

= 64.3%**

Chemical 61.3%

Plant, constr. 58.6%

<Transactions w/ major suppliers>

Big benefits

are expected

with SRM

6% in number6% in number=

83% in spend83% in spend

150 suppliers150 suppliers $ 5.3 Bill.$ 5.3 Bill.

Key Milestones

Soft Landing Effort

2. Progress

Area Supplier

Buyer/PlannerDomestic Foreign

Activity

1,193 138 1,003

• Explained objectives 6 times

• Trained 27 times

• Explained objectives 8 times

• Explained at major raw materials supplier sites

• Explained at steel works managers, buyers & planners 32 times

02.1 03.403.102.902.4 Solution Selection (i2)

Integration Test

Integration Test

System Implemen -tation System Implemen -tation Detail Design Detail DesignMaster PlanMaster Plan

’03.4.2

GO- LIVE

Principles

Auto. aggregation of data to boost objectivity in evaluation

Characteristics of items used in defining measures

External credit agencies leveraged (KCGF, D&B)

Supplier performance analysis system

System for supplier participation and continuous improvement Share evaluation criteria & results Supplier is given opportunity to raise disagreement or

write improvement plan to any performance result

Objective supplier

performance analysis

3. Implementation Outcome

Category(6) Measure(33)

Credit Credit rating

QualityReject rate (No./volume), Defect rate, Component/grain fineness defect rate

CostPrice competitiveness, Winning bid price rate,Quality price competitiveness

Delivery Delay rate, Delay compensation rate

ResponsivenessContract fulfillment satisfaction, Bidding participation rate

Env. & Safety Env. friendliness, Construction safety control

Evaluation Indicators

Differentiation

Segmentation of suppliers into 4 groups based on performance

analysis and stratification results

Strategic

Preferred

Approved

PrimeImprove

-ment

Poor Good Excellent

Performance analysis

Value

Stratifi-cation

Circu-lation

Group Rel. strategy

Prime • Long-term relationship

• Collaboration partner

Value • Volume concentration

• Continuous sourcing

Improve-ment

• Consulting support

(6 Sigma)

Circula-tion

• Give opportunity to improve

Implement benefit-sharing, easy to implement programs first and roll out

Introduce sanction program after performance analysis system gets stabilized

Phased-implementation of 19 differentiation programs in 5 areas

Benefit type Program

Honorary benefit

Suppliers of the year, New Year’s celebration,Community support, PR in local newspapers

Contractual benefit Better duration, Priority vendor, Bigger volume

Tech/service exchange Share lab/R&D facility, More exchange of technology

Financial benefit Better payment terms, Less deposit liability

Performance Improvement

Consulting service, Improvement plan,Benefit sharing, Transaction stoppage

Differentiation Program

• Supplierknowswhereto improve

• Supplierknowsperformancetrend

• Supplierknowshow muchto improve

Report Usage

Performance Report -Example Performance Report -Example

2000 2001 2002/Q1 2002/Q2 2002/Q3 2002/Q4

XXX

0.001 20000

80

10000 92 1008010000 80 92

1 4 0 1 3 0 1 0 0

• POSCO enter Pull

• View shipped qty.

• Supplier enter commit qty.

• View POSCO forecastFore

-cast

Fore-cast

VMI VMI

JIT JIT

Automate VMI, JIT, Forecast collaboration processon 218 suppliers

All prties in S/C (Buyer, User, Supplier) excute the collaboration on same screen

Implement collaboration system

• View daily projected stock

Qty. mismatch alert

Integrated view

Inv. shortage alert

Collab. points Expected benefits

• Link forecast data to

sales mgmt. system

• Forecate accuracy

40 → 90 %

• Share stock info. • $ 6.7 Mil. reduction

in supplier inventory

• Link delivery request

and shipment plan

• Support collab.

by linking s2s

across the whole

process • Auto. link Invoice

and tax invoice

S2S collab. w/ Chosun Refractories – Example S2S collab. w/ Chosun Refractories – Example

Stock info. View stock

Delivery Receiving

Payment

Direct system link (ebXML)

Createforecast

Create invoice

Create ship-ment plan

Submit tax invoice

POSCOPOSCO ChosunChosun

Make prod. plan

Create del. request

Improve Steel-N.com (Two-way Communication)

Provides “Alert info.” suppliers should look at

Pending bid, PO issued today, scheduled shipment today, etc.

Community (on-line video conference, archives)

New Product Introduction

Best Suppliers(suppliers of the year, best cost savings supplier)

Collaboration (VMI, JIT, Forecast)

Results of Supplier Performance Analysis

For major suppliers, info. like employee search and

HR announcements is provided at the same level of POSCO

Provide analyzed purchase info. to support decision making

Multi-dimensional info. useful in purchase activities

Across 6 dimensions

: commodity, supplier, user organization, buyer, time, AP type

Put together diverse supplier info. in integrated format

Contract by supplier, performance analysis, transaction history

Credit info. provided by external agency (e.g., D&B, KCGF)

Identify where to focus capabilities & support quick decision making

Secure stable source of supply by identifying potential risk of suppliers early on

Analysis info. - Example Analysis info. - Example

<No. of suppliers by spend size (Pareto Analysis)>

3.8

2,869

100M – 1B

38.5

28,808

10B – 100B

30,64812,09533216Amt.(100M)

41.0

> 100B

16.2

1B – 10B

0.44

10M – 100M

0.02

< 10 M

%

Area

Enter search conditions

Identify need to rationalize suppliers

Identify collab. partners

Integrated Supplier View - Example Integrated Supplier View - Example

< Provide single place for displaying 86 types of supplier data >

Demographic I/S B/S Cash Flow Ratios Sourcing

ERP/SCP/Maximo ERP/SCP/Maximo

Corporate data analysis systemCorporate data analysis system

BSC ABMStrategic Enterprise ManagementStrategic Enterprise Management

Operations System RefreshOperations System Refresh

6 6 Sigma ProgramSigma Program

Enterprise

Portal

e-Procurement

Customer Satisfaction

Business Support Mgmt.

R & D Finance Procurement

& Maintenance

General Admin

Data Warehouse

e-Sales

Corp./Div.

1st PI2nd PI

Legend

HRM Extension KM

Treasury

Operational

Data Minning

Dept.

• Build integrated and web-based operational system

SRMSRM• Enhance collab. w/

excellent suppliers

CRMCRM• Integrated customer

data system

Su

pp

lier

Cu

stom

er

System Architecture System Architecture

4. Expected Benefits of SRM

Expected benefits

• Increase in operating profit by $ 40 Mil.

• Revenue increase backed by enhanced competitiveness

• $ 24 Mil. cost savings, $ 65 Mil. inventory reduction a year

• Improved productivity by securing high quality materials

KPI As-Is To-Be (‘04)

% of spend to excellent suppliers 30% 80%

% of VMI/JIT 23% 40%

Av. No. of days stock heldRM : 45 days

MRO : 81 daysRM : 41 days

MRO : 68 days

Target by KPI

posco

Supplier

’03.4.2 6.2 9.197.1

Monitoring& VOC

Monitoring& VOC

Performance Report release Performance

Report release SCC & Community SCC & CommunitySRMSRM

SRM SCC Performance Report

2,950 internal- users

Integrated Supplier Info.

Performance Analysis Result

218 suppliers

8,529 items

Report : ’03.1/4 and 2/4

3,951 suppliers and 323 sourcing groups

1. Calendar of System Operation

IV. System Launch and MonitoringIV. System Launch and Monitoring

SCC SCC

SRMSRM

Class RM MRO Service E & C Total

Excellent 33 34 3 22 29

Good 55 58 83 73 64

Poor 12 8 14 5 9

Sub Total 100% 100% 100% 100% 100%

No. of supplier : 3,591

Key Factors Target’03.7 ’03.8

MRO RM MRO RM

System Utilization 100% 99 78 100 85

Forecast Accuracy 90% 68 71 75 73

No. of supplier : 218

2. Results on Early stage

(unit : %)

(unit : %)

Continuous efforts to complement the analysis measures

Improving the accuracy of forecast data

Reinforcement of individual competence in S/C

Needs of the systematic training scheme

Modifying the system to achieve the user-friendly

Developing new collaboration model

Establishing the realistic differentiation program

Enhancing the corresponding ability against supplier’s inquiry

Set-up trainningProgram

Set-up trainningProgram

[ Action Plan[ Action Plan ]]

SCC SCC

OthersOthers

SRMSRM

3. Major monitoring results and Action Plan

SystemUpgradeSystemUpgrade

2003.1

• SRM stabilization • Supplier participation

Go-live & stabilization

• Start with benefit-giving strategy

• Foster specialists to support suppliers

2004

• Supplier support strategy in full swing

• Sanction scheme

Differentiation roll out

Successful collab. go-live

Differentiation in place

2005

Roll out collab. scope

Encourage voluntary participation of suppliers

Continue to increase no. of collaboration partners

Establish the systematic trainning program to reinforce individulal capablities in supply chain

Attain the earliest system stabilization

SRM

SRM

SCC

SCC

2003

4. Future Plan

Key Success FactorsKey Success Factors

Philosophy of CEO = Size of Innovation

Innovative target setting & all capabilities focused on innovating Process/System/Organization to accomplish the target

Company-wide Integration & Standardization

Proactive adoption of latest IT technologies

Effort to form consensus among stakeholders and change management