Philips Consumer Electronics Entertainment and Services Any Time

Philips Consumer Electronics Entertainment and Services ‘Any Time, Any Place, Any Where’ Luis Bellver Mei Han Rafo Helguero Johannes Mueller-Leiendecker Jeffrey Nie John Wang

Agenda • Company Background • Consumer Electronics Overview • Distribution – Strategy, Supply Chain and Execution • Distribution – Recent Developments • Summary 2

Agenda • Company Background • Consumer Electronics Overview • Distribution – Strategy, Supply Chain and Execution • Distribution – Recent Developments • Summary 3

Company Background One of the world’s largest electronics companies (#1 in Europe) Sales in 2003 € 29 billion Employees 164, 300 (in more than 70 countries) 5 Product Divisions consumer electronics, lighting, domestic appliances, semiconductors, and medical systems Global leader chip Reach color television sets, lighting, electric shavers, medical diagnostic imaging and patient monitoring, and one. TV products 30% of offices around the world are lit by Philips Lighting, which also lights 65% of the world's top airports, 55% of major soccer stadia, and 30% of hospitals 4

Agenda • Company Background • Consumer Electronics Overview • Distribution – Strategy, Supply Chain and Execution • Distribution – Recent Developments • Summary 5

CE Industry Analysis Trends • Multiple industries are converging • Internet is driving the content revolution • Globalization Threats • Changing competitive landscape • Increasing retail power • Short product lifecycles and commoditization Opportunities • Growth markets • Value added partnerships • Lifecycle management 6

CE Division Key Financials • Sales in 2003: € 9. 6 B (32% of Group) • Net Income: € 230 M (51% of Group) • Number of Employees: 19, 830 Key Statistics • #1 in Europe and #3 in the world in a wide range of products • Every second, more than 5 CE products are sold to consumers worldwide • Every minute more than 20 TV’s, 5 DVD players, 4 Audio home systems, 7 monitors, 10 phones, 3 portable CD players and 25 headphones are sold 7

CE Products Home entertainment Productivity Targeting consumers and businesses. Targeting innovators, people who want to access content that changes their at-home experience. Personal Expression Targeting young, mobile consumers with a natural affinity with today’s Internet-centric technologies. 8

‘Connected Planet’ Vision Broadband Internet Wireless Base Station Home PC USB adapter Kids’ Room Bedroom SL 300 i MC-i 250 Living Room Study MX 6000 i (built-in module) i. Pronto Des. Xcape 9

Vision to Distribution ‘a world where consumers enjoy great entertainment experiences & services whenever and wherever they want‘ Marketing Distribution ‘Deliver superior customer service through an integrated, demand-driven supply chain’ 10

Agenda • Company Background • Consumer Electronics Overview • Distribution – Strategy, Supply Chain and Execution • Distribution – Recent Developments • Summary 11

Supply Chain Providing total supply chain visibility from suppliers to customers Integrated, demand-driven supply chain Reducing planning lead times and increasing speed of reaction Improving the new product introduction process Developing realistic plans based on known constraints 12

Differentiated distribution channels Focus on mass merchants Explore new channels Direct Model Leverage the internet Build global e-platform Establish on-line brand Support B 2 B sales 13

Partnerships with major retailers Develop close relationships with leading retailers to take advantage of retail ‘muscle’ Retail power of mass merchants increases due to combination of growth and concentration Top retailers in Europe and US strengthen their positions in the market 14

Innovative alliances and new channels Telco alliances Building European Telco alliances network with leading telecommunication companies Marketing easy-to-install internet products including broadband, wireless home networks and connected entertainment Bringing the entertainment and services ‘Any Time, Any Place, Any Where’ concept to life 15

Innovative alliances and new channels Entering new markets through alliances and partnerships □ Philips – Nike (Sports) □ Philips – MTV (Entertainment) □ Philips – IKEA (Furniture) □ Philips – Visa (Payment Transactions) □ Philips – Direc. TV (Set Top Boxes) Global partnering deal with Yahoo to develop and deliver content and internet services 16

Enhanced Supply Chain Capabilities Simplify the Supply Chain • Use global product concepts • Obtain standard components • Standardize manufacturing processes • Continuous flow manufacturing • Optimize distribution structure Improve Supply Chain Planning • Collaborative planning (Filocity) • Synchronized re-planning cycles • Integrated processes and systems 17

Agenda • Company Background • Consumer Electronics Overview • Distribution – Strategy, Supply Chain and Execution • Distribution – Recent Developments • Summary 18

Recent Developments: Logistics Outsourcing North American Division of Philips CE • $2 billion annual turnover • Customers (Wal-mart, Best Buy, The Good Guys, etc. ) set high and encompassing standards for delivery performance • Consumer Electronics Products: • short life spans • “hot” demand hard to predict • large, heavy and fragile • high-value and easy to sell on street so theft a constant concern • Lack of end-to-end supply chain management produced a result which was neither consistent nor dependable • Needed a change! 19

Recent Developments: Logistics Outsourcing Ship Delivery Note Delivery Philips CE N. A. l l EDI Message to Philips Carriers Pick/Pack And Loading Inventory Accuracy 80% → 99% a new 756, 000 ft 2 warehouse total visibility to its shipments through Ryder’s online tracking system, Ryder. Trac l 48 -hour lead time l 2 million units/month l Optimize Cost-effective Transportation 2005 Organization Goals □ Outsourced, shared service centers □ Outsourcing of consumer service Ryder • a combination of in-house tools and optimization software from i 2 Technologies • a combination of cameras, door alarms and actual security guards 20

Recent Developments: RFID Introduction Tag Reader Antenna Base Station Host Computer 2. 5/3 G Air Interface Wired Connection RFID (Radio Frequency Identification) • Silicon-based electronic identification tags, consisting of a tiny processor, memory, and antenna • RFID tags can be read and written wirelessly and the data is transformed through a wired connection to PCs 21

New Developments: Bar Code vs. RFID Bar Code l l l Individual item scanning line of sight required Exposed labels may become unreadable Product-level identification only Static information Bar code must have minimum size and be visible RFID • • • Simultaneous multiple detection, multi-directional, line of sight not required Embedded tags less susceptible to damage Individual unit identification Potential for read / write capabilities In the long-term, the identification will be invisible 22

Recent Developments: RFID in action Philips & RFID 2003 January – produce RFID tags 2003 May – added “off-switch” 2004 January – jointly develop RFID system for supply chain with IBM Supply Chain Benefits l l l Reduce inventory Detect shrink Detect counterfeit Improve compliance capabilities Labor efficiency / accuracy Checkout, returns / warranty authentication 23

Agenda • Company Background • Consumer Electronics Overview • Distribution – Strategy, Supply Chain and Execution • Distribution – Recents Developments • Summary 24

Summary Philips and Consumer Electronics Supply Chain, Strategies and Execution Advancements and New Developments How important is distribution for Philips? 25