SAP Ariba Direct Material Sourcing User Research 1

SAP Ariba Direct Material Sourcing User Research 1 DSC Product Costing

Interviews and Site Visits January 21 -22, 2016

Sourcing Teams Interviewed Sourcing Operations Sourcing Finance

Cristos Teriakidis Aaron Boltz Tom Liao Daniel Yeh Sourcing Brook Foust Teams Sourcing Operations Jonathan Simons Sourcing Finance Bill Hilleary Joanna Staebler-Kimmel

Goals and Objectives Provide best-in-class products, pricing, and quality Sourcing Secure a strong supply base with a Continuity of Supply (COS) Provide product development with the best parts to optimize technology

Goals and Objectives Responsible for pricing of finished goods for all hardware products Sourcing Finance Creates Push Quote and True-Up processes to obtain final pricing Puts pricing into SAP Purchase Information Record (PIR)

Goals and Objectives Supports Sourcing Org (70 worldwide) with KPIs, processes, governance, and tools Sourcing Operations Wants to make systems fast and usable, consolidate data, manage by exceptions, and maximize consistency Enable better decision-making with data, tools, and visualization

Sourcing Challenges Part Master No history kept for EOL or older parts; have to enter part and associated info again Systems are separate and disparate No hierarchy of assemblies or sub-assemblies to understand associations, relationships, ID numbers Constant volatility Process Reporting is manual and unstructured BOMs created late Volumes not available if needing Spend per Supplier (for fiscal year, year-to-date, year-to-go) Can’t view parts across multiple SKUs or BOMs Difficult to enter supplier splits and alternate parts Can’t filter for contracts needing amendments

Sourcing Finance Challenges Lack of process and discipline – can’t get timely and accurate data Get blind-sided by Planning; have to scramble to get pricing for POs Process Lack of system integration; no single point of truth Price negotiations happen after product ships Development process built on assumptions; find out until later what works or doesn’t

Sourcing Finance Challenges Part Master Overrides of historical part information with updates Can’t calculate weighted average for pricing with part splits Lack of reports to highlight problems/missing data BOM statuses not updated – some are obsolete Can’t add supplier splits Corrected prices not updated in tool Tools not stable – sometimes crashes or hangs BOMs not updated Lack of expertise using tool for Sourcing teams SKU names different (1 PDM name, internal code names, Contract Mfgr. Names Info about Make vs. Buy incorrect; Sourcing doesn’t know to source Discontinued BOMs still pinned; SKUs not removed

Sourcing Operations Challenges Part Master Does not have logistics information (factory addresses) Too much time spent collecting and validating data Process Limitations of systems limit processes Actual and forecasted volumes not available Don’t know reasons for changes – should be required Systems not built for hardware manufacturing Lack of integration between systems for data flow and data integrity and quality Takes a lot of data to piece together picture of spend Naming conventions different between teams/vendors Missing lead times BOMs have errors; detection too manual Need Excel expertise

Sourcing Managers Daniel Yeh Tom Liao • Director, Batteries • Team of 4: 2 Local, 2 Finland • At MSFT 5 years • Manage 20 -500 parts • Sr. Sourcing Manager, Electrical • Team of 11: 7 Local, 4 Finland • At MSFT 2 years • Spend: $5 -10 B Cristos Keriakidis • Manager, Flex Circuits • At MSFT 2 years • Prior life did SAP implementation Aaron Boltz • Manager, Flash, SSDs, EMMCs, DRAMS • At MSFT 2 years • New college hire, EE major

Sourcing Organization and Part Types Sourcing Team Commercial Team (Manages Contract Manufacturers) Strategic Parts A s s e m bl i e s • • Microsoft owns contract with vendor and dictates price/terms Tells CM which parts to use at what price, and Supplier splits Commodity Parts • • Consigned Materials • • Microsoft purchased Expensive – price is masked Stored in virtual plant Shipped to CM Low-level components (resistors, capacitors, packaging, etc. ) CM owns pricing

BMI Liability Planning Auditing Sourcing Legal Contract Mfgr. Engineering Quality Collaborations Config. Mgt. Compliance Sourcing Operations Factory Mgt. Sourcing Finance Risk Mgt. Project Mgt.

Sourcing Operations Brook Foust • • Group Manager Team divided by B/U Owns COGP budget Responsible to support Sourcing Org with needed tools, BI, KPIs Jonathan Simons • Sourcing Operation Lead • One of 6 team members • Distributes docs with needed information

Cost Accounting Auditing Planning Sourcing Engineering Contract Mfgr. Collaborations Sourcing Operations Compliance Quality Sourcing Finance Risk Mgt.

Sourcing Finance Bill Hilleary • Sr. Finance Manager • Team of 4 • Owns Push Quote and True Up Joann Staebler-Kimmel • Sr. Finance Analyst • Converted from Contractor to Full-time • Uses SQL to extract information

Planning Finance Sourcing Config. Mgt. Contract Mfgr. Collaborations Sourcing Operations Sourcing Finance

PLM Sourcing Quoting Manage Materials Market assessment Concept Dev. Awarding Sourcing Product design Change Mgt. Product costing Reporting Release to mfg. Launch market rollout

PLM Sourcing Quoting Manage Materials Market assessment Concept Dev. Awarding Sourcing Product design Change Mgt. Product costing Reporting Ariba area of focus Release to mfg. Launch market rollout

Journey Mapping

Sourcing Triggers and Process Product costing Product design New Product Intro (NPI) or Business Opportunity Proposal (BOP) High-level spec approved (preliminary BOM? ) Engineering Validation Build (EVB) Sourcing notified to get pricing S Work with Engineering to understand specifications and assumptions S Reference Cost of Goods Purchased (COGP) for similar pricing S Establish estimated target pricing S Create COGP Roll-up

Sourcing Triggers and Process Product costing SO SO Sourcing Production cycle begins S Checks owners/assignments for parts Engineering finalizes BOM Needs to enter pricing, splits, S lead times, INCO and payment terms BOM accessed and Pinned for assignments S Starts RFX process to gather above Part Master Parts assigned to Owners data S Works with Suppliers

Sourcing / Product Lifecycle Sourcing –Sourcing Part Quote – Part Quote PLM (Aras) BOM • . pcx standard format • Is a separate part list sent? • Push or Pull? Sourcing Costing Part Master BOM • Assign to Owners • Quantity Splits do not occur during this process • Select Items to quote and send; those that don’t have price/quantity • Estimate • Part Picker Process Quote Sourcing RFX • Quantity estimate may not be available • Quote two suppliers • Pre-Assign quantity % splits during this process such that suppliers see different qty. Analysis Part Master BOM • Send back to Part Master for BOM Analysis before awarding? . SAP PIR

Sourcing / Product Lifecycle Sourcing – Push Quote SKUs Associated Part Master BOM • SKU BOM from PM BOM Validation Compilation Calculated weighted average cost Related BOM w/Price • Weighted quarterly quote at Finished Goods SKU and Buy Component level Approval Data Cleansing • Complete Quote of SKU and Buy Component level • Updated Push Quote with corrected BOM • Push Quote updated with Transformation and Commodity costs • Approved Push Quote for specific quarter of FG SKU and Buy Component level

Sourcing Operations – Cost Lifecycle of Goods Produced (COGP) – Sourcing / Product Sourcing Part Quote Budget Part Master • Feb. -April create budget for all 130 products • 120 BOMs/month Cost Savings Part Master • Compares Budget to Actual to calculate • Incorporate ECOs • Updated prices • Missing configurations • Reasons required COGP Part Master • Reasons required Unit Performance Review Part Master • Roll-up of 130 COGP reports • 150 k records of data • Takes 2 weeks • Lots of validation • 167 configurations of product • 89 programs • 140 product versions • Add volumes to COGP to calculate spend (? ) • Calculate future spend (? )

Bill of Materials and Sourcing Metrics • Creating a Sourcing RFQ event maximum of 80. • Maximum total Number of Bill of materials is 120 per month in one SKU. • Each bill of material has a maximum of 100 Assemblies and Sub Assemblies. • Each Bill of material can maintain & manage in more than ten programs and plants. • Each bill of material has a minimum of 1000 and a maximum of 65000 components. • Depends on the program the sourcing managers owns the category part types. • Feb- April created a budget for all 130 products • Rollup of 130 COGP reports • • 150 k records of data • Takes 2 week to process • Lot of validation 167 configuration of product • 89 Programs Compares Budget to Actual to calculate • Incorporate ECOs • Updated prices • Missing configurations • Reasons required ?

Next Steps • • Interview team members of the Commercial Team Interview team members of the Compliance and Audit teams to understand Part Master challenges and needs FLI-1414 -2 DC-5 N

Questions?