© 2011 Eaton Corporation. All rights reserved.

Eaton Supply ChainIndirect Materials & Services Update

Terry WahlgrenDirector SCM – Global Indirect Materials & Services

22

SCM Indirect Supplier’s

Welcome to Eaton’s SCM

(Extended) Indirect Staff

Meeting!

Thank You for Your Support &

Contribution to Eaton!

33

Agenda

TIMEAGENDA ITEMS

11:45 a.m. →• Lunch

11:00 a.m. – 11:45 a.m.• Networking

10:40 a.m. – 11:00 a.m.• Q&A

10:15 a.m. – 10:40 a.m.• Supplier Engagement Process

10:00 a.m. – 10:15 a.m.• Break

9:30 a.m. – 10:00 a.m.• Indirect Strategy

• Indirect Global Organization

• Indirect Goals

8:15 a.m. – 9:30 a.m.• Introduction

• SCM Indirect Team

• R & R

• 2010 Award Winners

• Past Award Winners

7:15 a.m. – 8:00 a.m.• Continental Breakfast

44

SCM Indirect Materials & Services Team

� Brendan O’Malley

� Kim Cazzetta

� Janet Horvath

• Rod Bayliss

� Scott Morton

� Fernando Garza

� Rich Gorzé

• Jason Frisbie

� Larry Caston

� Gaston Alvarado

� Michael Garred

� Jacek Skowronski

• Barna Kato

• Stephane Venhard

• Craig Bolton

• Ralf Borkowski

• Giuseppe Donati

• Peter Loheitt

• Claudia Mary

� Chiara Benetazzo

• Birgit Gelbe

• Gerald Apfelthaler

• Emanuela Boggio

• Sara Wright

GLOBAL / NA EMEA APAC

• OPEN

• Jack Hou

• Sallin Lu

• Andy Feng

LAM

• Marcelo Coletta

• 6 Commodity Mgrs

• 6 Buyers

55

2010 Indirect Premier Supplier Award Winners

• Advanced Technology Services, Inc. (ATS)

• at&t

• Bartech Group, Inc.

• Commercial Metals Company

• Concept Packaging

• Houghton Fluidcare

• JP Morgan Chase

• Kite Packaging Group Ltd.

• MJ Brunner

• Motion Industries

• PSMi

66

Past Indirect Supplier Award Winners

• ATS, Inc.

• American Express

• at&t

• Bartech Group, Inc.

• Bruckner Supply

• ComDoc

• Commercial Metals

• Crown Packaging

• Hewlett-Packard

• Houghton International

• Kite Packaging

• Motion Industries

• National Car Rental

• Oracle

• Pratt Industries

• Saint-Gobain Abrasives

• Summit Energy

• Tata Consultancy Services

77

Eaton Organization Aligned to Better Serve our Markets

Industrial Sector

$7.3 B Sales

Vehicle – Truck & Auto

Aerospace

Hydraulics

Electrical Sector

$6.4 B Sales

Electrical Americas

Electrical Rest of World

88

Key Business Drivers

• Increased Customer Expectations

• Value - Quality, Service, Cost, & Sustainability

• Global Competition - Globalization

• New Products – New Technology

• Amount and Speed of Information

99

Eaton’s SCM Response

• Center-Led Global/Regional Organization

• Global Spend Visibility

• Standardized Sourcing Process – Centralized agreements

• Clear Supplier Expectations / Performance Metrics

• Organized “Voice to the Supplier”

• Partner with the “Best” continue to “Test”

1010

Indirect Categories / Commodities

PC’sServersMainframeSoftwareTelecommunicationsValue Added Reseller (VAR)

Air TravelHotelsCar RentalTravel AgenciesFleet VehiclesT&E & P-Card

Integrated MROConsumable Tooling

AbrasivesChemicals/LubricantsPipe/Vales/Fittings (P,V,F)Electrical SuppliesPower TransmissionEquip Maint Parts & Services Maintenance Supplies

Temporary LaborOffice SuppliesPrint MaterialPhotocopiers/Fax/MFDPromotional MerchandiseSignageService AwardsCopy ServicesDocument ManagementOffice Furniture

FinanceHuman ResourcesLegalMarketing Communications

Office Services

Energy

IT/TelecomTravel / Fleet

Capital

Utilities• Electricity• Natural Gas• Propane

Staff Standards

SCM/OPX/EHS Standards

MROFacility

Services

Scrap Metal SalesCompressed GasesPersonal Protection EquipmentWaste Management ServicesSecurity Services & EquipmentJanitorial ServicesCafeteria/CateringUniforms

Machinery/EquipmentCNC, Grinders, Shapers

Shears, Punches, PressesGear CuttingCompressorsHVAC EquipmentForklifts, etc.Surplus Asset Mgmt.

CorrugatedPallets/Wood ProductsFoam ProductsLabelsSupplies

Packaging

ProfessionalServices

1111

SCM - Indirect Materials & Services Strategy and Goals

• Indirect Strategy:• Strategically support the management of indirect cost

to maximize business profitability

• Collaborate with internal stakeholders to identify requirements – materials & services

• Categorize & leverage spend to maximize value

• Partner with core-competent suppliers to satisfy business & stakeholder requirements – eliminate poor performers & low valued suppliers

• Optimize total value - service, quality, support, & cost

• Drive continuous improvement – clear expectations & performance management

• Goals:• Satisfy Quality / Delivery / Service requirements

• 60% spend under management

• 4% Y on Y cost savings - productivity,

• 20% supplier reduction

• 7% MBE spend, 4% WBE, 2.5% VO

• DPO - >60 days

• Program user satisfaction

1212

SCM Indirect Center Led Organization

Global IndirectMaterials & Services

AmericasAPAC

Sub-RegionProgram Mgrs

Regional IndirectLeaders

Global CategoryManagers

Global CategoryManagers

EMEA

# Plants# Offices$ Spend

Regional Comm. Mgrs.

Regional Comm. Mgrs.

Regional Comm. Mgrs.

Regional CommodityManagers

MX/PRElectrical

(Open)Vehicle Group

FPGBrazil

(5)

31 22 39 16 8

UK/(Open)

Bene/France

CE/Aust.

ItalyGermany IndiaAustraliaSE AsiaKoreaChina

12 9 9 7 12 12 5 6 5 4

1313

� Maintenance

� Engineering

� Operators

� IT

� Finance

� HR

� EHS

Site/Staff Stakeholders

Sub-Region Indirect

Managers

SCM Center Led Teams

Category/commodity

Managers

SCM Indirect – Organization Structure

SCM center led regional teams –

category/commodity managers leverage &

source indirect materials and services

regionally & globally.

SCM indirect program managers coordinate

stakeholder requirements for commodity

managers and deploy lowest total cost

solutions.

Site and staff stakeholders have a single SCM

indirect point of contact. Deployment of

supplier solutions are coordinated &

prioritized with the site/staff stakeholders.

1414

SCM Global Indirect Materials & ServicesTerry Wahlgren

Director – Global Indirect Materials & Services

Jamie Pandy

Administrative Assistant

Rod BaylissGlobal Manager – MRO

Scott MortonGlobal Manager – Capital

Fernando GarzaManager – Facilities Svcs

Rich GorzeManager - Energy

Brendan O’MalleyManager – IT/Telecom

Kim CazzettaManager–Cont Wkfc/

Office Svcs

Janet HorvathManager – Travel/Fleet/HR

Linda BrentarTravel/Fleet Analyst

Rose WorthingtonFleet Analyst

Jacek SkowronskiManager Indirect – EMEA

Jason FrisbieProgram Mgr. – Vehicle Group

Category ManagersChiara Benetazzo – Deploy. Mgr.Giuseppe Donati – MROBarna Kato – Professional Svcs

Commodity ManagersClaudia Mary – Energy Peter Loheitt – Packaging/Capital Stephane Venhard – Office SvcsCraig Bolton – IT Ralf Borkowski – Fleet

Program MangersLarry Caston – Electrical Mike Garred – FPG HydGaston Alvarado – MX

David MontaninoIndirect – FPG Aero

Indirect Buyers(7)

OPENManager Indirect – APAC

GLOBAL CATEGORY MANAGERS

PLANT OFFICE REGION AMERICA’S

Marcelo ColettaIndirect Manager – Brazil

Program ManagersBirgit Gelbe – GermanyGerald Apfelthaler–Austria/CEEEmanuela Boggio – Italy Sara Wright – UK

Jack Hou – MROSallin Lu – Office

Andy Feng – Capital Pramod Nair – India

1515

SCM Indirect Team Collaboration

Global Plant Commodity TeamCapital / MRO / Facilities / Energy

Indirect Leadership Team

Global Office Commodity TeamIT / HR / Travel / Fleet / Office Services, etc.

EMEATeam

America’sTeam

APACTeam

1616

Category/Commodity

StrategyDiagnostics

Supplier Selection &

Award

Deployment & Transition

SupplierPerformanceManagement

• Customer Requirements

• Organization Requirements

• Spend Analysis

• Commodity Profile

• Market Analysis

• Supply Base Analysis

• Supplier Qualification

• RFQ – Supplier Negotiation

• Supplier Selection

• Contract Authorization

• Communication

• Implementation

• Contract Management

• Supplier Performance/ Metrics

• Performance Improvement

Continuous Improvement

SCM Strategic Sourcing & SupplierManagement Process

1717

Business Requirements – Supplier Expectations

Regulatory Requirements

Assurance of Supply

Quality

Delivery

Service & Support

Cost

Sustainability

Innovation• Technology• Collaboration

• Social Responsibility• Energy/GHG Reduction

• Price• Cost – Specification/Usage

• Relationship - Account Management• Technical Support

• OTD• Lead Times/Inventory

• Consistency• Reliability

• Financial Stability• Capacity/Footprint

• Compliance

1818

Materials Supplier Value Chain

Value

Low

Responsibility

High

Low High

Product

Cost Per UnitProduction

TotalCost

Life Cycle Cost(Sustainability)

• Price• Freight

• Specification• Quality• Volume

• “Best Solution”

• Lowest total cost

• Inventory Management

• Related Costs

• Tooling, chemicals, energy, etc.

• Requisition to Check

• Recycled Materials• Packaging• Product Emissions –

air, water• End of Life Treatment

Supplier

Customer

Salesman

Buyer

Engineering

Manufacturing

Sales Mgmt

SCM Mgmt

Business Mgmt

Business Mgmt

Engagement Level

1919

Category/Commodity

StrategyDiagnostics

Supplier Selection &

Award

Deployment & Transition

SupplierPerformanceManagement

• Customer Requirements

• Organization Requirements

• Spend Analysis

• Commodity Profile

• Market Analysis

• Supply Base Analysis

• Supplier Qualification

• RFQ – Supplier Negotiation

• Supplier Selection

• Contract Authorization

• Communication

• Implementation

• Contract Management

• Supplier Performance/ Metrics

• Performance Improvement

Continuous Improvement

SCM Strategic Sourcing & SupplierManagement Process

2020

SegmentKey

Suppliers

IdentifySupplier

KPIs

Measure &Review KPIs

SupplierPerformance

Review

Action &Follow-Up

• Identify Tier 1 & Tier 2

• Contract/SOW

• KPIs

• Targets/Goals

• Supplier Dashboard

• KPIs

• Supplier Scorecard

• KPIs

• Action Steps

• Responsibilities & Timeframe

Continuous Improvement

SCM Supplier Performance Management

• Monthly/Quarterly

• Stakeholder Involvement

• Supplier

• Semi-Annual/Annual

• Management/Executive Involvement

• Supplier

2121

Supplier Engagement - Segmentation

StrategicSuppliers

KeySuppliers

UnleveragedSuppliers

Suppliers who add significant

long-term value – multi BU/region.

Close relationship and highly

engaged.

Suppliers positively selected and

provide high value – multi-BU.

Greatest number, least value –

rationalization opportunity.

~ 25

~ 400

~ 20,000

Tier 1 & 2

Tier 3

$300M

$600M

$700M

Tier 4

Preferred SuppliersSpend Under Management

2222

Category Area

North

Am

Region/

Function SCM

Eaton

Average Supplier Difference

Cost Out / Cost

Avoidance 3 2.5 4 3.17 4 -0.83

Quality & Support 4 4 3.8 3.93 4.5 -0.57

SLA & Reporting 4 3 4.1 3.70 3 0.70

Account Support 3 3.5 3.2 3.23 3 0.23

Administration (ex:

Billing) 3 4 3.7 3.57 4 -0.43

Prof/Tech Services 2 3 4.1 3.03 4 -0.97

Strategic Roadmap N/A N/A 3 3.00 5 -2.00

Sustainability N/A N/A 3 3.00 4 -1.00

Totals

KPIs

Acct Mgmt

Innovation

SCM Supplier Scorecard – Example

Dashboards

Stakeholder

Surveys

Supplier

Review

2323

SCM Indirect Internal Collaboration

ManufacturingEquipment &

MachineryMRO

Facility ServicesEnergy

Materials & Services

ManufacturingOperations

MaintenanceEngineering

EHS

SCM

Commercial Operational

Business Stakeholder

OfficeIT/TelecomTravel/Fleet

Human ResourcesMarketing

Professional StaffIT

Human ResourcesFinance

Marketing

Supplier

Contract -SOW

2424

Eaton - SCM Indirect Opportunity

• APAC – 100%

• EMEA – 40%

• America’s – 20%

Regional Increase

$100–200M/yrIndirect Spend Increase

12–14% growth/yrEaton Revenue

2010 - 2014

2525

Carbon Disclosure Project

The Carbon Disclosure Project is an independent not-for-profit

organization holding the largest database of primary corporate climate change information in the world.

Some 3,000 organizations in some 60 countries around the world now

measure and disclose their greenhouse gas emissions and climate

change strategies through CDP

• The Carbon Disclosure Project was launched in 2000 to accelerate

solutions to climate change by putting relevant information at the heart of

business, policy and investment decisions.

2626

Eaton / CDP

Goal of CDP

• Extends awareness of an organization’s carbon footprint beyond the

internal greenhouse gas emissions to include carbon footprint across the

supply chain.

• CDP provides a global process for supply chain disclosure.

• Goal to drive action for companies and their suppliers.

Eaton’s Relationship

• Eaton started with CDP 2006

• In 2010, CDP ranked Eaton third in the Industrials Sector behind CSX

and Boeing.

• Eaton has a strategic focus and commitment to understanding business

issues related to climate change, and an ability to measure and manage the

company’s carbon footprint

2727

Eaton GHG Footprint Categories

Suppliers Footprint

Logistics

Air Travel

Fleet Vehicles

Electric/

Natural Gas

Current

Next

Future

2828

Thank you for listening!

Questions ?

2929

Thank You …for Your

Support to Eaton!