The Customer & Triple15

Bob FritzSVP VWS Quality

The road to Triple15 goes through the Customer

EDP

Stadtkraft

Cathiness

AES

RESTrust Power

Eon

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 2

Vestas can either:

Compete on Price or Differentiate

on Value

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 3

Vestas can either:

Compete on Price or Differentiate

on Value

Price wars are ”desperation” strategy. Who wins ?

We choose the Price we will Sell at !

The owner chooses the Value they will Buy at !

The smart guys know the RIGHT answer !!!

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 4

Discussion about the Owner (s)

• Most wind generation projects are financed on a non-recourse, off balance sheet basis.

• 60%-70% of the project cost is financed.

• Financiers have altered their risk acceptance levels… Recent global issues…

• Greater focus on revenue/cost variables..

• Higher acceptable wind probabilities

• More ”in depth” query on machine/ component capability

• More sensitivity to ”new technology”

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 5

How does the Owner(s) make the decision???

BUSINESS CASE CERTAINTY…….• Confidence in, or high probability of the Investment producing the expected

financial returns…

• Primary variables

• Revenue predictability

• Cost predictability

COST OF ENERGY…….• The PV total cost of the kWhr produced over the financial life of the

Investment.

• Primary variables

• Price (cost)

• Performance to specification

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 6

How does the Owner(s) make the decision???

COST OF ENERGY…….• The PV total cost of the kWhr produced over the financial life of the

Investment.

• Primary variables

• Price (cost)

• Performance to specification

AKA; the voice of the customer

BUSINESS CASE CERTAINTY…….• Confidence in, or high probability of the investment producing the

Expected financial returns…

• Primary variables

• Revenue predictability

• Cost predictability

The turbine represents about 70% of the initial project cost and almost 100% of the Business Case Certainty, depends on its performance.

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 7

INTERPRETING THE VOICE OF THE CUSTOMER :

Expectations controlled / Influenced by suppliers

Business Case Certainty (BC2) Revenue Predictability

Market kWhr price

Wind forecast

Initiation of revenue (delivery)

Cost Predictability

Perform to specification (quality)

5σ

L10 @ 20

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 8

INTERPRETING THE VOICE OF THE CUSTOMER :

Expectations controlled / Influenced by supplier

Cost of Energy (COE) Price (cost) (efficiency)

Direct cost

Perform to specification (quality)

5σ

L10 @ 20

Material & supply cost

LaborCOPQ

IDC

Cap cost

OH

WC

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 9

INTERPRETING THE VOICE OF THE CUSTOMER :

Expectations controlled / Influenced by supplier

Initiation of revenue (delivery)

Delivery management

Production plan

Logistics control

Construction control

The Business Case forecasted revenue to start at a certain point. Should this not occur, the Business Case will be negatively impacted and non recoverable.

Delivering the machine to a commissioned state on schedule

MUST Have “On Time Delivery”

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 10

INTERPRETING THE VOICE OF THE CUSTOMER :

Expectations controlled / Influenced by supplier

Perform to specification (quality) ‘The Quality of the design and its validation as well as the level of standardization in producing the product determine the life expectancy of the machine. Consistent performance between machines is expected by the Owner's).

REMEMBER:Owner (s) making an investment

• Expects a Return on the Investment

• The size and the confidence of the return determines If & What they will invest in !

• The Size of the return is COE (cost of energy)

• The Confidence of the return is the predictability of the performance (life expectancy)

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 11

INTERPRETING THE VOICE OF THE CUSTOMER :

Expectations controlled / Influenced by supplier

L10 @ 20 PERFORMANCE POLICY (LIFE EXPECTANCY)

Each component of the product is designed and validated to perform at its ratings and have failure rates no greater than (site dependant) 10% in a 20 year time frame unless otherwise specified.

Perform to specification (quality)

5σ STANDARDIZATION POLICY (PERFORM THE SAME)

Each process that either manufactures, assembles or tests the product and its components will demonstrate a process capability (CPK ) of 5σ .

The consistency of the performance of this standardization level provides a predictable life for the design. As the design has been validated to L10@20, the high level of standardization will assure that the validated life is met consistently across the production volume…

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 12

‘The Quality of the design and its validation as well as the level of standardization in producing the product determine the life expectancy of the machine. Consistent performance between machines is expected by the Owner's).

L10 @ 20

L 20 @ 20 has 18- 30 M€ greater cost than L10 @ 20L 20 @ 10 has 40- 61M€ greater cost than L10 @ 20

20

10

30

40

50

1 10 100Years

20

Perc

ent F

ailu

re

L10 @ 20

L20 @ 20

L20 @ 10

100 mw

L10@20 = 10% failure in 20 years

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 13

5σ standardization

SPANThe amount of processes

or suppliers that havecontrols installed.

LEVELThe standardization levelof the lowest performing

process or supplier

Degree of standardization control

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 14

Given a validated Design, ”early” Unplanned failures become the result of manufacturing variation (the absence of “control”)

20

10

30

40

50

1 10 100Years

20

Perc

ent F

ailu

re

L10 @ 20

L20 @ 20

L20 @ 10

100 mw

L10@20 = 10% failure in 20 years

The actual performance achieved is a combination of both design & production control

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 15

Given a validated design, ”early” unplanned failures become the result of manufacturing variation (the absence of “control”)

20

10

30

40

50

1 10 100Years

20

Perc

ent F

ailu

re

L10 @ 20

L20 @ 20

L20 @ 10

100 mw

L10@20 = 10% failure in 20 years

REMEMBER:Owners cost forecast is “flat” until late years. Only variation comes from unplanned failures

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 16

Excellence matrix

Quality

Safety

Delivery

CorporateResponsibility

Efficiency

Designvalidated toL10@20

Designproduced at5 σ

Design and

validate

Produce design at 5 sigma (σ)

Value execution

Designvalidated toL10@20

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 17

Excellence matrix – The ”How ”!

Quality

Safety

Delivery

CorporateResponsibility

Efficiency

Maintain the value created in production and design

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 18

Grandfather told me that:

“When it comes to Quality, a little Paranoia never

hurt anybody”

TODAY’S INTERPRETATION:

If you can’t find a process or performance to improve…… Look Harder !

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 19

Unconscious

8. Get on with it!

7. Find solutions

6. “Own it”

5. Acknowledge realityPOW

ERFU

LVictim Phobia

4. Wait and hope

3. “I can’t” excuses

2. Blame others

1. UnawarePOW

ERLE

SS

Organizations with Control of Quality demonstrate characteristics ABOVE THE LINE

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 20

IN SHORT

We must embrace Quality as a prime characteristic of your product.

We must have the determination to establish, control, improve the control AND sustain the improved control of the product production… and its performance.

This is a leadership issue…. The leaders must decide whether Quality is a part of their brand characteristic…

How do I Qualify as ”with control”….

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 21

Q & A

Vestas Capital Markets Day, USA – 1-2 September 2010Slide 22