The Sales Portal A Strategic Marketing Effort To Providing Value The Customer Will Pay For.

The Sales Portal

A Strategic Marketing Effort To Providing

Value The Customer Will Pay For

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SFA Update

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SFA Update - cont’d

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Total Cost of Ownership



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Providing Value The Customer Will Pay For

• It is the mission of tough, informed and experienced budget holders and buyers to turn our products and services into a commodity, eliminating any semblance of unique value we provide – so that they can buy at the lowest price.

• The TCO progression – “The features and functions duals” to the “benefits battles” to the “return-on-investment wars”.

• KEMET forward looking TCO model – Focus our efforts on developing our sales team so they can consistently and convincingly provide real business value for our customers.

Educate on the business improvement our products bring. Train on how to articulate that value in a clear, concise, and compelling way. Consultants that observe, recommend and contribute to our customers’

success Marketing is responsible for developing strong positioning, sales must be at the

center of any effective positioning process

Source Sales and Marketing Management

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The Case For Differentiation

• Prevent the customer from treating our products and service like a commodity.

• Overcome the commodity challenge by knowing what the customer is really buying is business improvement.

• Build our case for our product and services as a medium to deliver business improvement to our customers and distributors.

• Focus to be on building and sustaining a difference that can’t be easily commoditized.

• Develop tools for the sales team that provide a layer of real business value for the customer beyond what our products and service do.

• Tools that provide product knowledge, sales skills, business improvements our products bring and how to articulate that value in clear, concise and compelling ways.

• If we can’t explain what we’re selling (product & service) how can customers see any benefit? Our goal – associate a benefit with having our product or doing business with our company.

Source Sales and Marketing Management

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Internal:The Process to Establish Differentiation

• OBJECTIVE: Educate customer and distributors in the true cost of doing business within their model (Total Cost of Ownership) and define what is important (WITY) to them, at the same time educating them on the value of doing business via the KEMET model.

• Definition of success Customer\Distributor understands:

• Cost associated with platinum grade quality, delivery and service, and thus the need for the associated piece price premium

• KEMET’s level of expertise in meeting the most demanding supply chain solutions• Customer Accepts the benefit of KEMET as it’s people and service and without that price is meaningless• Desire to award us more share

• Three types of buyers Distribution Management Corporate Management Buyer Branch Management Engineering Inside and Outside Sales

• Phase 1: Individual meetings with each buyer to cover Resonating and Position statements, Deficit question, and WITY (3D) with each “buyer” to define “What is Important” to the Customer\Distributor”. Afterwards, define “common ground” and differences between buyers.

• Phase 2: Group meeting with all the buyers. Demonstrate KEMET’s competence in areas they define as important (dollarizing where possible) and educating customer on why we believe our TCO model saves them money.

• Phase 3: Define sales strategy for account based on results of D-3 discussions.

TCO Must Start At The Top of

the organization

Total Cost of Ownership “WITY”


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Internal:Distribution “WITY” TCO Description Matrix

Important to Each Distributor SegmentWITY Corp. Branch Inside Outside Quantifiable Not $

MGT. MGT. Sales Sales In $s QuantifiableATOBuddy CallsCancellation PolicyCompetitive PricingCOOP \ Mktg. FundsCustomer ServiceDefined Distributor StrategyDirect Sales TeamEarly Payment TermsEDI \ RosettaNetError Free CreditsExpeditesGlobal AgreementGlobal Mfg. FootprintGross ProfitLead timesLocal PricingLocal SupportOn Time DeliveryPrice ProtectionQuality \ ReliabilityROIIROWCShip and Debit (automated)Stock Rotation \ ScrapTechnical SupportTransactional Cost

Automotive Johnny Boan


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What Is Important To You?

• GENERAL1. Quality & Reliability

2. Breadth & Depth of Products

3. Assurance of supply

4. Maquiladora Transfer

5. Direct Sales Force

6. Customer Service

7. Competitive Price

8. Technical & Application Support

9. Samples

10. Payment Terms

11. Cancellation Policy

12. Lead Times

13. EOL support

14. Global Manufacturing Footprint

15. Lean Collaboration

16. Information on Web Site

17. Financial stability

• AUTOMOTIVE Specific1. TS-16949

2. AEC• Q200 testing• PPAP• Change Control

3. Automotive testing

4. Conservative designs frozen @ qualification

5. Inventory• Buffer / Top side • 3rd party warehouse

6. Internet based B2B systems

7. Responsiveness• Delivery Issues• Quality Issues

8. DV and PV support

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Internal: Notes

• The next slides represent a real TCO exercise (with some additions based on our class) we did @ Visteon. In addition to the WITY results, I have some examples of the slides we will use @ our Phase 2 meeting to demonstrate to Visteon why the WITY defined in the Phase 1 meeting is best supported via the KEMET model.

• Participants and their position on the Buyers Grid Director of Purchasing

• Inside Influence Purchasing Manager

• Inside Influence Buyer

• Economic buyer Then later, the Component Engineer

• Evaluator & User

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The Process

• Phase 1 Resonating Statement Position Statement Deficit Question WITY (D1) Define criteria (D2) Diagnose motivation (D3)

• Phase 2 Group meeting with all the buyers. Demonstrate KEMET’s competence in

areas they define as important (dollarizing where possible) and educating customer on why we believe our TCO model saves them money

• Phase 3 Develop Strategy

Sort of did this but could have done it much better.

Where should we do the “Buyer’s Grid”?

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Resonating Statement

• These are trying times for all of us in the AUTOMOTIVE Electronics business (ref. Delphi). Performance requirement are increasing as well as price pressures.

• We have a new CEO who has charged us to return to profitability and to profitably grow our business.

• To this end we been challenged to be more “customer centric” and sensitive within our ETFB philosophy and have re-organized the company to drive accountability and responsibility to as close as possible to the customer.

• As long term supplier to Visteon we want to work with you to ensure we both are successful.

Per LoofCEO

Regional Units Corporate Business Units

Chuck MeeksVP MLCC

Conrado HinojosaVP Ta

J ohn SchneiderVP Asia-Pacific

Marc KotelonVP EMEA

Kelly Vogt VP Americas (acting)

D. ConstantineSr. VP & Chief of Staff

Dave GabelSr. VP & CFO

Larry McAdamsVP Human Resources

Dan LaMorteVP & CIO

Kelly VogtVP Strategic Marketing

Per LoofCEO

Regional Units Corporate Business Units

Chuck MeeksVP MLCC

Conrado HinojosaVP Ta

J ohn SchneiderVP Asia-Pacific

Marc KotelonVP EMEA

Kelly Vogt VP Americas (acting)

D. ConstantineSr. VP & Chief of Staff

Dave GabelSr. VP & CFO

Larry McAdamsVP Human Resources

Dan LaMorteVP & CIO

Kelly VogtVP Strategic Marketing

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KEMET Way Forward

Discussed…

• Priorities

• Themes

• New Logo

• Financials

• TY-KEC Strategic Alliance

• EPCOS

• KEC AUTOMOTIVE model

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What I should have done…

Added a: 1. Position Statement

2. Deficit Question

What follows are a possible few examples of these.

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Example AUTOMOTIVE Position Statement

• “Why should I do business with you?” In these trying times, you need an experienced, financially strong, supply

partner who understands your business model to ensure you get the components you need, when you need them, and that perform to your expectations.

• “So What” and “What is your uniqueness” Our 40+ years of experience in this industry as a major supplier to 10 of the

most demanding AUTOMOTIVE manufactures on the planet (including your company), supported via our ETBF philosophy and direct sales force, make us uniquely qualified to support your needs.

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Example AUTO Deficit Question

• FACT Delphi has declared bankruptcy.

• OBSERVATION This event, along with the ever increasing price pressures, is creating financial

stress throughout the supply base, even to the point that supply could be interrupted.

• QUESTION What are you doing to insure your suppliers stay financially healthy, and

therefore, able to meet you requirements?

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Another Example AUTO Deficit Question

• FACT Some AUTOMOTIVE Electronic suppliers are considering using “commercial”

components as opposed to “AUTO” grade component in an effort to reduce costs.

• OBSERVATION The AUTOMOTIVE grade requirements were created due to the higher

performance requirements associated with AUTOMOTIVE electronics and there is a measurable and demonstrated difference in the quality and reliability performance between “commercial” and “AUTO” grade parts.

• QUESTION How is your company going to handle the “walk home” (or worse) events that

WILL occur as a result of converting from AUTO grade to Commercial grade parts for the “piece price” savings (less than 15%) associated with this strategy?

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Copy of Hand Out . . .

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The Results…

Commodity Director

(MANAGEMENT BUYER)

Buyer Commodity Engineer

(TECHNICAL BUYER)

Quality & Reliability

Breadth & Depth of Product

Assurance of Supply

Customer Service

Competitive Price

Global Manufacturing

EOL support

Responsiveness to Delivery & Quality issues

Samples

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Follow-up Comments

• Good definition of what Visteon expects of supplier.

• Cannot really eliminate anything – “entry ticket”.

• Some things are “non-negotiable”, for example: Payment terms Cancellation Policy

• Some things do not matter if we do better, for example: TS certification PPAP

…all they want is the fact you have it.

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Example Slides for Phase 2 Meeting

• Quality & Reliability

• Assurance of Supply

• Competitive Pricing

• Global Manufacturing

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QUALITY & RELIABILITYCeramic SMD Capacitors – Internal Electrical PPM

0

2

4

6

8

10

FY05 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

AUTO

AUTO @ 0 PPM FYTD

KEMET AUTO Grade capacitors are ….1. Built:

• to EIA standards• in TS16949 certified factories• using conservative designs which are frozen at qualification

2. Exposed to an expanded test protocols3. Are qualified to AEC-Q200 via PPAP4. Covered under our QOD driven “Change Control” program

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Assurance of Supply

Ta Delivery Reliability

0

20

40

60

80

100

2004

Jul

Aug

Sep Oct

Nov

Dec

2005

Jan

Feb

Mar

Apr

May Ju

n

Jul

Aug

Sep Oct

• Processes to support Buffer Stock 3rd part warehouse FDM ETBF KMS

• Cost of line down What is the per hour charge @ Visteon

when a supplier shut down a line? What is the per hour charge to Visteon

from a Body & Assembly plant when you shut down a line?

Customize to particular customer

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Competitive Pricing Combined (Ta & Ce) ASP

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

AUTO Customer X EMS

15%

Customize to particular customer

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Global Manufacturing Footprint

• Plants located in North America, Europe, and Asia.• All plants operate under uniform manufacturing and quality system.• All plants report to common Business Unit VP (Ta or MLCC).• All plants certified to ISO/TS16949:2002.• Supported via our regional Distribution Centers

Electronic Manufacturing Services


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EMS Review

•EMS Value Proposition: To provide design, product development, supply chain, manufacturing and warranty/repair solutions more cost effectively, quicker and with more flexibility than the OEMs they serve.

•KEMET Segment Direction: To optimize and maximize top line and bottom line financial

performance.• Operating income data HAS to be developed down to the KPN level to measure

success To SELL our major value propositions with CREATIVE solutions in support

of the EMS value proposition using TCO and Sales Funnel ® concepts:• Logistics• Service• Technical Support

To REDUCE the cost of doing business within this space:• Account specific initiatives

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EMS Resonating Statement

The world of the Contract Manufacturer faces huge challenges ahead - challenges that can and will drastically affect whether or not your company achieves its financial and market objectives. Globalization of the market and your competitors, increasing demands for flexibility, reduced profit margins and increasing operating expenses truly make your job of sourcing passive components that much more important and even more difficult and strategic to your future success.

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EMS Deficit Question

Public records reveal that the erosion of selling prices in the capacitor industry over the past four years has exceeded the historical capacitor experience effect cost reduction curve resulting in little or no operating margin, the discontinuation of capital investment, and capped production capacities and supply in the industry. Continued dependence on component purchase price reductions and PPV to drive EMS profit margins in this environment will not allow the EMS segment to achieve its financial objectives and will drive the capacitor supply base away from this space. What can we do together to avoid this pending crisis?

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Current EMS Model –PPV Dominant Buying Motive

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EMS Opportunity – TCO/Lean Model

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EMS Challenge

• WITY items will vary by account and “buyer” Some accounts beginning to embrace TCO philosophy with metrics…

• Celestica• Jabil• Solectron

Other accounts don’t have a clue…• Flextronics• Foxconn/Hon Hai• Sanmina/SCI

Sourcing decisions at all accounts still heavily dependent on PPV• Weight is dependent upon where they are on the TCO journey

• Challenge is to: Re-focus the Dominant Buying Motive away from a primary PPV model to a

TCO solution at the executive COO/CPO level… … and establish operating alignment down to the metrics/MOPs of the

Commodity/Sourcing Manager!

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EMS WITY

Distributor ChannelJim Bruorton


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The Challenge

• Position KEMET with a strategy that differentiate us to win in the changing face of the global distributor business which has the large distributors with global footprints driving profit from “buying” not “selling” and driving a demand fulfillment sell and not a Introduction to Production sell.

• How to position KEMET to grow in our most profitable channel to market.

• How to position KEMET for a more quantifiable unfair advantage with our KEY Global Distributors that allows us to have business plans with teeth.

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How To Make More $ as a Distributor

• Buy Lower

• Sell Higher

• Turn Inventory More Often

• Collect Sooner

• Pay Later

• Increase Operating Efficiency \ Lower Costs without sacrificing service level

Research

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Distributor’s Financial Metrics

• Cost of Goods Sold - Amount paid by distributor for product and freight charges.

• Gross Margin In Dollars - Difference between the price paid by a distributor for a product (cost of goods) and the price at which it is sold (selling price).

• % of Gross Margin - Selling price minus cost of goods divided by selling price times 100.

• % of Mark Up - Selling price minus cost of goods divided by cost of goods times 100.

• Inventory Earns - Gross Margin on sales from inventory divided by sales from inventory.

• Inventory Turns - Cost of goods sold from inventory divided by average inventory investment.

• Inventory Earn / Turn Ratio - Inventory earns times inventory turns.• Gross Margin Return on Inventory (GMROI) - Percentage of gross margin times

inventory turns divided by one minus percent of gross margin.

• Return on Inventory Investment (ROII) – Net profit dollars times 100 divided by inventory dollars.

Research

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#1 Supplier

KEMET Type Products

Grow the

Business

Operational

Excellence Financial Leadership

Grow Faster than

The market – systematic

market share development

Regional Business

Strategies supporting

Growth objectives

Market Segment

Strategy

Military

Medical

Instrumentation

Automotive 2nd tier

EMS 2nd \ 3rd tier

Easiest to Do Business With

Voice of the distributor

RoHs – clear roadmap easy

To get information

Supply chain mgt. to include

Rosetta Net, EDI for collaborative

Forecasting

Proactive market pricing strategy

Profitable growth that is

Mutual (many customers

Across product segments)

Differentiate – understand

Performance metrics for

Disty- share in the gain(GP$ Growth, ROII)

Solid Channel Strategy

User friendly policies

And procedures

Build bench strength

Through central quoting

Inside sales to respond

To opportunities – Best

In Class

Going Forward

Strategy • Execution • Leadership

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Distribution WITY “ What’s Important to You Our Distributor”

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Internal:Distribution “WITY” TCO Description Matrix

Important to Each Distributor SegmentWITY Corp. Branch Inside Outside Quantifiable Not $

MGT. MGT. Sales Sales In $s QuantifiableATOBuddy CallsCancellation PolicyCompetitive PricingCOOP \ Mktg. FundsCustomer ServiceDefined Distributor StrategyDirect Sales TeamEarly Payment TermsEDI \ RosettaNetError Free CreditsExpeditesGlobal AgreementGlobal Mfg. FootprintGross ProfitLead timesLocal PricingLocal SupportOn Time DeliveryPrice ProtectionQuality \ ReliabilityROIIROWCShip and Debit (automated)Stock Rotation \ ScrapTechnical SupportTransactional Cost

Research

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Resonating Statement

• Distributors face many challenges as the supply chain has become much more complicated. These challenges are having an impact on distributor margins. These challenges are only going to continue in the future. We have built a good value exchange between our two companies over the last 20 years that we have been partners in business and we have both reaped the benefits of that, and I want to make sure I continue to provide you what you need so that our partnership continues to grow and prosper.

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Three Level Example

• Factual Statement- A recent NEDA survey shows distributors putting greater

emphases with Key Suppliers on delivery reliability, partnering, and business process improvements to assure customer satisfaction and profitability.

• Observation- I find that the criteria used by many distributors is not sufficient

to assure they get the results they need.

• Question related to the fact or observation- What criteria do you use when evaluating a key supplier to

assure your companies profitability?

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• Gross Margins GP%• Inventory Turns• Earn / Turns Ratio• Gross Margin Return on Inventory Investment• Line of Billing (L.O.B.)• Profit per L.O.B.• Return on Inventory Investment (R.O.I.I.)• Terms (cash discount)• Allowances (co-op $s, returns, price protection)

Distributor Evaluation of Supplier Profitability

Net Profit $s X 100 = ROII

Inventory $

Gross Margin $

Average Inventory Investment

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ROII ROWC - Benefits to Our Distributor

• You have said that inventory turns is a key financial measure of your profitability. By partnering together in a collaborative forecast model of “A” class inventory items, you can improve your inventory turns by reducing the amount of inventory you need on your shelf, - thus improve your earns\turns ratio and improve your Return On Inventory Investment (ROII) - two other key financial measures for you.

• The challenge for you Mr. distributor is selecting a supplier that understand the challenge of collaborative forecasting and has the flexibility and expertise to create solutions to satisfy your needs to improve inventory turns and support your long term business vision.

• We have demonstrated our ability to support the most demanding supply chain collaborative forecast efforts with our top notch team of forecast demand supply chain experts and gives us as a business partner to you an opportunity to differentiate KEMET in your company.

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ROII ROWC – Goal Metrics

Average Capacitor Supplier Line Supplier KEMET Goal

Distributor Profits Average

Average Gross 22.5% 21.9% 21.9%Profit

Average Operating 18.9% 17.5% 16.5%Expense

Net Profit 3.6% 4.4% 5.4%Before Tax

Product Sales Average KEMET Goal

Annual sales $65,000,000 $65,000,000 $65,000,000

Cost of Goods $50,375,000 $50,765,000 $50,765,000

GP$ $14,625,000 $14,235,000 $14,235,000

Operating Expense $12,285,000 $11,375,000 $10,725,000

Net Profit $2,340,000 $2,860,000 $3,510,000Before Tax

ROII 4 Turns 4.5 6Turns

Turns per year, Inv. $12,593,750 $11,281,111 $8,460,833Investment at cost

Net Profit $2,340,000 $2,860,000 $3,510,000

Inventory Investment $12,593,750 $11,281,111 $8,460,833

Return on Investment 18.6% 25.4% 41.5%

Net Profit perLine Item Billed Average KEMET Goal

Avg. Line Item Billed $85 $85 $85

Avg. Profit per $16 $22 $35Line Item Billed

Let’s set our teams today that will work

on implementing this project and

challenge them to implement a collaborative

forecast model of “A” Class Items In

90 days.

What else do you need to know to

be convinced that you have the right Partner?

Perceived value and < Perceived

Cost for deciding on us

-$39K in GP $s+$500K in Net Profit

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Goals for Next ROII Meeting

• Agree on implementation timeline.

• Agree on % of business for KEMET on forecasted items and time frame.

• Agree on financial rewards.

• Investigate next step in efficiency improvements against operating expenses to achieve our goal.

WITY Scripts for TEAM


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WITY Scripts Available in the Tool Box

Johnny Bruce Jim JoeGlobal Mfg. Footprint Quality \ Reliability Direct Sales Force Financial StabilityBreadth & Depth of Product Technical Support Samples FlexibilityMaquiladora Transfer Logistics Delivery Reliability Enviromental ComplianceATO Upside Volume Support Cancellation Policy IndemnificationTransaction Cost Payment Terms Information on the WEBTS 16949 Leadtimes Coop \ Mktg. SupportAEC Q200 Testing Lean Collaboration Defined Distributor PolicyAEC PPAP Cash to Cash Cycle\DPO ear;y Payment TermsAEC Change Control Expedites Error Free CreditsAutomotive Testin Customer Service Global Distributor AgreementConservative Designs - Application Support Price Protectionfrozen @ qualification EOL Support ROII\ROWC3PL AVL Position Ship and DebitInternal Based B2B Systems Stock Rotation\ScrapDV & PV Support

Total Cost of OwnershipSumming Things Up


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Total Cost of Ownership –Summing Things Up

• No greater commodity sector exist in electronics components than passives.

• The TCO concept suggest that supply managers adopt a long-term perspective, not a short-term, initial-price perspective, for the accurate valuation of buying situations

Cost must be examined from a long-term perspective and should include elements other than initial purchase price.

Supply managers must consider the impact of other business functions on the valuation of a specific purchase.

To value a purchase situation accurately, a supply chain manager must understand, and measure, the cost impact of all the activities associated with the purchase. Journal of Supply Chain Management

• Accurate total cost measurements are elusive, because most organizations either don’t understand the calculations or don’t have or won’t share the data necessary for such calculations. TCO is hard to measure so we have to raise as many supply chain risk as possible and sell KEMET’s value on what is important to the customer.

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Business Areas Impacted By Supply Chain Risk

0 20 40 60 80 100

Brand Perception

Customer Wins

Time-To-Market Cycles

Earnings

Stock Outs

Customer Relations

Source: Aberdeen Group

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• We must remember that it is the mission of many of today’s tough, informed, and experienced budget holders and buyers to turn our products into a commodity - - - whittling away any semblance of unique TCO value that we provide - - - so that they can buy at the lowest price.

• “My advise is when you think strategy, think about de-commoditizing. Try desperately to make products and services distinctive and customer will stick with you. Think about innovation, technology, internal processes, service add-ons - - - whatever works to be unique.” Jack Welch

• “Give the customer what they want and a little more. Let them know you appreciate them. Make good on all your mistakes and don’t make excuses, apologize. Exceed your customers expectations. If you do, they’ll come back over and over.” Sam Walton, founder of Wall-Mart

• Sales organizations that are overcoming the commoditization challenge know that what the customer is really buying is business improvement. Customers are buying from us for the benefits we provide, to make them more money, to save them more money, or to put the assets of there company at less risk. “Sales and Marketing Management\Aug. 2005” - - - We must think of our products and services as a medium to deliver business improvement to our customers and distributors.

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• So, we plan to focus some of our efforts and attention on building and sustaining a difference that can’t be easily commoditized. Starting with sales training using the “Sales Funnel Concept”, product and application training, and providing TCO sales tools centered around what is important to our customer. Our strategy is to develop our sales team so they can consistently and convincingly provide a layer of real business value to our customers.

• Our direct sales team will differentiate itself by leveraging its experience, network of contacts, knowledge of our customers’ industry and an above-average level of business and sales savvy.

• Our TCO sales tools are to help build a real differentiation and sales methodology for our direct sales team by education them on the business improvements our product and services bring to our customers and by using the “Sales Funnel” concept of selling how to articulate that value in a clear, concise, and compelling way.

Total Cost of Ownership



The Sales Portal A Strategic Marketing Effort To Providing Value The Customer Will Pay For.

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