Analyst Roundtable – Global Supply China: The Lenovo...

© 2008 Lenovo

Analyst Roundtable – Global Supply China: The Lenovo Transformation Story

Gerry P. Smith Senior Vice President, Global Supply Chain

December 3, 2008 – Hong Kong

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The Legend Behind Lenovo

1990s Today1980s

• US$16+ billion in revenue• 23,000+ employees in 60+ countries• Customers in 160+ countries

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Closed the acquisition ahead of schedule

Since 2005, Lenovo has…

Become a global PC leader (US$16B in FY07/08; sales in 160 countries)

Reached record high share in China (#1 for 11 straight years)

Made unprofitable business profitable

Accelerated innovation across the product line

Increased customer satisfaction

Transformed the Global Supply Chain into a competitive weapon

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Diverse global perspectives

Input and ideas from everywhere

Distributed decision-making

No headquarters

Operate in the time zone called “now”

Serving markets anywhere

Worldsourcing Drives Innovation

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Exceptionally Engineered Products

ThinkCentre M57/M57p ECO

The FIRST Lenovo ThinkStation

ThinkPad Silent Owl Blade

BatteryStretch Activated.

Battery life extended +1:04 minutes

Click here to view settings.

.

ThinkVantage – Battery Stretch

ThinkVision - Best 4-Display Solution

Slim AC/DC Adapter

The Perfect Laptop - X300!

Green Initiatives

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A True End-to-End Global Supply Chain Organization

WW Services Operations &

Planning

Global Manufacturing

Global Logistics

Global Procurement

EMEA Supply Chain

APSupply Chain

AGSupply Chain

GCR Supply Chain

PMI / Consumer

Strategy & Comms

Lean Six SigmaChief of Staff

Legal Counsel Human Resources

Enterprise Products

Supply Chain

Chief Financial

Officer

SVPGlobal

Supply Chain

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Lenovo’s Global Supply Chain Network

Monterrey, Mexico

Beijing, China

Campinas, Brazil

Fulfillment Operations &/or Distribution Center

Yamato, Japan

Tilburg, NL

Raleigh, NC U.S.A

Panama

Paris, France

Bangalore, India

Pondicherry, India

Baddi, India

Legnica SEZ, Poland

Shanghai, China

Toronto, Canada

Kunshan, China

Huiyang, China

Shenzhen, China

Singapore

Bratislava, SlovakiaGreensboro, NC U.S.A

Paisley,Scotland

Manufacturing

GSC Professional Center

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Become #1 Supply Chain in the PC Industry

Our Mission

• Exceed Our Customers’ Requirements– Delivery– End-to-End Cost– Quality

• Enhance Lenovo’s Financial Position - CCC

• Build Strong Partnerships With Our Suppliers

• Create Flexible & Efficient Supply Chain

• Build Team & Talent

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Stabilize operation and

close performance

gaps

Phase 1 Phase 2

Enable competitive

advantage for Lenovo

Phase 3

Achieve best practices in the

PC industry

..and Our Journey

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Keys to Success

BMS

Strategy

KPIs

Talent

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Building a World Class Supply Chain Organization

GCRSupply Chain

EMEA Supply Chain

AGSupply Chain

APSupply Chain

Chief Financial Officer

Legal Council

EnterpriseProducts Supply Chain

HR

SVPGlobal

Supply Chain

Global Procurement

• Building on a strong foundation• Infusing new diverse talent• Across breadth and depth of the organization

Global Logistics

Global Manufacturing

WW Services Operations & Planning

Strategy & Communications

PMI / Consumer

Chief of Staff

Lean Six Sigma

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Lenovo’s Strategic Focus

Accelerate Trust-Based & Performance-Driven CultureAccelerate Trust-Based & Performance-Driven Culture

1Pursue

Operational Excellence

2Embrace Customer Intimacy

3Win in Priority

Businesses

4Gain Scale

Profitably

5Build Our

Brand

Grow faster and more profitably than the industry by delivering exceptionally engineered PCs and an unequaled ownership experience.

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GSC Strategy

Accelerate Trust-Based & Performance-Driven CultureAccelerate Trust-Based & Performance-Driven Culture

1Pursue

Operational Excellence

World-Class Serviceability

Best-in-Class Quality

Industry- Leading

E2E Costs

Seamless Execution on BT/IT Future

Releases

Premier Cash

Conversion Cycle

AccelerateLean Six Sigma Processes WW

Grow faster and more profitably than the industry by delivering exceptionally engineered PCs and an unequaled ownership experience.

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WW OrderWW Order--toto--Delivery

Three-Year Trend

Keys to Success:• Leading With Lean – Speed / Efficiency

• Improved Materials Management

• Re-engineered Logistics

• Manufacturing Cycle Time Improvement

Jan2006

Jan2007

Jan2008

Oct2008

89% Improvement

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GSC KPI Results Q2 FY06/07 – Q2 FY08/09

Two-Year Improvement

E2E Cost 32%Material Cost Achieved Target

8 Straight QuartersCCC (Days):

DPO 22%E&O 286%Serviceability

WW NBWW DT

77%102%

QualityDOA +30 NBDOA +30 DT

54%37%

End-to-End Cost =+ Manufacturing+ Logistics+ Excess & Obsolete+ Overhead

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Leading with Lean Six Sigma

• Key Success Factors– Part of Corporate KPIs, Financial & Operational Metrics

• 30% Improvement (cost, speed, quality) of Core Business Process– Aligned to strategy through Hoshin planning– Across all Lenovo business functions– Part of Lenovo Business Management System, CEO review 2x per quarter

• Key Successes

• 81% reduction of custom image cycle time• Latin America Kaizen drives +30pt serviceability uplift• Logistics enables 4x increase in end-of-Q shipments• Forecasting improves global process E2E• Service parts savings opportunity

Completed projects deliver:Financial, operational & quality improvements

YTDHard Savings

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Stabilize operation and close

performance gaps

Phase 1 Phase 2

Enable competitive advantage for

Lenovo

Phase 3

Achieve best practices in the PC industry

Our Journey Continues…

• Expand mfg / logistics footprint• Use LEAN to drive efficiencies• Hit material cost targets• Maintain commitment to green• Consistently achieve E2E costs• Develop leaders with global mindset

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Procurement Transformation: The Challenge Of Two

Lenovo’s Supply Base

LenovoInternational

LenovoChina

• China’s Golden Supply Chain• Cost Advantaged• Serviceability Excellence• Unique Requirements• Unique Relationships

• Internationally Dispersed• Cost Challenged• Serviceability Challenged• Unique Requirements• Unique Relationships

• Conflicting Messages• Conflicting Priorities• Unreliable Forecast• Unclear Requirements

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Procurement Transformation: The Power Of One

Lenovo’s Supply Base

• One Focus• One Message• One Team• One Business Management System

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Cost TargetCost Target

P&L DrivenIndustry

Benchmark

SVP OfficeManagement Review

Deliverables:

• Over-achieve SVP cost targets across all commodities

• Over-achieve industry average

• Weekly deep dive across all commodities (SVP driven)

• PTI retention system shields savings from Sales Geo’s

Stretch Challenge Weekly Review

Procurement: Material Cost Management System

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Procurement: Continuity of Supply

GOAL: 95% Delivery in 8 Days in Mature Markets

• Regional Based State-of-the-Art Manufacturing Facilities

• Focus on Parts Shortage Prevention Management

– Key Parts Stocked in Geo Supplier Hubs Worldwide

– DOI Compliance

– Lead-time Reduction

– 30% Upside Flexibility

– 13 weeks supply outlook

• Consolidated Purchasing Org. with COS Accountability

• Process Continuously Improved via Lean Six Sigma

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Engagement• Commodity Strategy• Supplier Selection• RFQs and E-Bidding• Share Allocation

Agreement Management• CTA & Tech. Agreement• Statement of Work• Long Term Agreement

Evaluation• Quarterly Exercise• Score Metrics• Weigh Adjust by Commodity

SUPPLIER

MANAGEMENT

Procurement: Supplier Management Approach

Execution• Best Price - DMO, Clean Sheet• Supplier Collaboration

Daily Commit/ Hub Mgmt• Quality Insurance - LRR, DOA+30

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Procurement: Excess & Obsolete – Parts Inventory

• Weekly Management System

– Enhanced Visibility and Accountability by Geo

– Interlock with all Geographies

• Focus on EOL-LTB & Shell LTS (Left To Sell)

• Improved Supply Demand Conditioning

• Align with Suppliers on E&O consumption

• GCMs have KPI for E & O

Parts Inventory E&O

0

2

4

6

8

06/07 Quarterly Rate 07/08 Quarterly Rate 08/09 1Q 0809 2Q

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Manufacturing Transformation: Quality Management System

Integrated Lenovo Quality Management System

LenovoInternational

LenovoChina

• Rigid & comprehensive new product release

• Premium brand quality• Conservative incident recovery• Consistent DOA performance• Multiple geographic complexity

• Balanced time-to-market new product release process• Common quality KPI, key processes and reporting tools• Time & quality efficient incident recovery process• Consistent & industry-leading DOA performance• Common daily/weekly management review system

• Flexible & fast new product release• Improving brand quality• Best-in-class incident recovery• Fluctuating DOA performance• Localized process & decision-

making

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Lenovo Desktop Pure Manufacturing Cycle Time

Actions:• Re-Layout project • Balance mfg steps capacity

FY 06/07 FY 07/08 FY 08/09 (1H)

Lenovo Notebook Pure Manufacturing Cycle Time

Data: Lenovo International Production

Manufacturing Transformation: Cycle Time

Actions:• Test process optimization

• Reduce workmanship defects

• FPY improvement

Actions:• New test deployment• Idle time reduction• Further line re-balancing• FPY improvement

39% Reduction

27% YOY reduction 16% YOY reduction

Actions:• LEAN mgmt set-up• Process optimization• Line modification

FY 06/07 FY 07/08 FY 08/09 (1H)Actions:• Line balance• Idle time reduction• Test time reduction• Improve assembly efficiency

Actions:• LSS method extending• Quality optimization• New test deployment

16% YOY reduction 16% YOY reduction

28% Reduction

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Manufacturing Transformation: Quality - DOA

Notebook DOA+30

06/07 07/08 1Q08/09 2Q08/09

Desktop DOA+30

06/07 07/08 1Q08/09 2Q08/09

29%Improvement

Key DOA Improvement Initiatives• Early manufacturing involvement• Lessons Learned review & implementation• Commodity quality improvements• Smart Launch deployment• Incident management system & DOA failure analysis process enhancement

44%Improvement

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Logistics Transformation: YOY Cost Reductions

3Q07/08 4Q07/08 1Q08/09 2Q08/09

Prior YearCurrent Year

Cost Per Box (Ex Fuel)Keys to Success:• Network and carrier optimization

• Shipment consolidation

• Shifts to lower cost MOT’s

• Tight accessorial management

Avg 15% YTYImprovement

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Logistics Transformation: Delivery Performance Improvement

WW Global Logistics Performance 3-Year Trend

50%

60%

70%

80%

90%

100%

Q1FY06/07

Q2 Q3 Q4 Q1FY07/08

Q2 Q3 Q4 Q1FY08/09

Q2 Q3% D

eliv

ery

Per

form

ance

to T

arge

t

• Key Success Factors– Redesigned networks– LSS improvements on end-to-end processes– Direct shipments & reduced deferrals

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IR Contacts (Hong Kong)Gary Ng – [email protected] / +852 2516-4840Feon Lee – [email protected] / +852 2516-4843

IR Contacts (Beijing)Sun Kai – [email protected] / +8610 5886-5679

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