Motorola SCC Award Submittal FINAL

8/8/2019 Motorola SCC Award Submittal FINAL

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MOTOROLA INTEGRATED SUPPLY CHAIN (ISC)Submission to Supply Chain Council (SCC) Award for Excellence

13 December 2006

Section 1GENERAL INFORMATION AND PROJECT COMPLEXITY (20 points total)

1. Indicate the award category of submission: Operations

2. Provide the name of the submitting organization:Stu Reed, Executive Vice PresidentIntegrated Supply Chain (ISC)Motorola, Inc.1475 W. Shure Drive

Arlington Heights, Illinois 60004

Point of contact:Pattie Schiele, Director, CommunicationsIntegrated Supply Chain (ISC)Motorola, Inc.Integrated Supply Chain (ISC)1475 W. Shure Drive, 2-H1Arlington Heights, Illinois 60004Phone: 847-632-7327E-mail: [email protected]

3. Identify the name of the organizational unit:Motorola Integrated Supply Chain (ISC)

4. Provide a brief mission statement of the organization.Motorola ISC Vision"We will be the #1 supply chain and an enabler and driving force behindMotorola's growth and profitability."

Motorola ISC Mission"Delivering seamless mobility solutions to our customers by focusing on our

Top 6 Priorities and 4 Key Behaviors."

5. Scope: Provide a brief description of the supply chain and theprocesses the submission spans.In 2005, Motorola saw an opportunity to significantly improve its growth andprofitability by centralizing its supply chain function. The companytransformed from multiple, decentralized business unit-specific supply chainsto a single, integrated organization that would seamlessly support all business


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units. The following diagram was used to explain, in basic terms, what thenew organization would do.

Today, the new organization includes the companys global manufacturingfacilities, customer fulfillment centers and strategic sourcing operations, andserves Motorola as one entity for maximum cost effectiveness, as the

business continues to grow. Motorola is realizing a significant competitiveadvantage from the new, high-performing Integrated Supply Chain (ISC)organization. In this submission, we share the transformation the companymade to establish a One Motorola supply chain organization and the progressthat has been realized to date.

6. External: Provide the names and number of people involved from eachsupply chain partner organization in the project.The project is the development of a supply chain organization internally atMotorola. While the new organizations increased efficiency and effectivenessis impacting our strategic external supplier partners, they did not play a role in

the development of the new organization.

7. Internal: Provide the names and the number of people involved fromeach functional organization and category of each organization.The effort to build the new ISC organization took the commitment ofthousands of Motorolans. The project was led from the top of the organizationby Chairman and CEO Ed Zander and Executive Vice President Stu Reed,


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with support from the rest of the companys senior leadership team and thecollaboration of all business unit leaders and employees.

Following is a sampling of the key architects of the new ISC.

From Motorolas senior leadership team: Pat Canavan, senior vice president, global governance David Devonshire, chief financial officer Mike Fenger, chief quality officer Rich Nottenburg, chief strategy officer Stu Reed, executive vice president, ISC Ed Zander, Chairman and CEO

From the ISC senior leadership team: Michael Annes, corporate vice president, law Judy Baranowski, corporate vice president, quality & supplier performance

management Lonnie Bernardoni, corporate vice president, new product introduction Jim Brennan, vice president, Connected Home Solutions Tim Cawley, senior vice president, global logistics Greg Fern, vice president, Mobile Devices Mike Fleming, vice president, Networks & Enterprise Shail Godambe, senior vice president, strategy Cathie Kozik, corporate vice president, information technology Rita Lane, chief procurement officer Henry Lewinsohn, corporate vice president, strategy and business

transformation Arlis McLean, corporate vice president, human resources Bob Perez, senior vice president, global manufacturing Stu Reed, executive vice president, Integrated Supply Chain Pattie Schiele, director, communications Carl Thielk, corporate vice president, electronic manufacturing services

(currently reporting to Bob Perez) Rich Valin, corporate vice president, finance

8. Provide a point of contact for each supply chain partner.As stated in Question 6 above, our supply chain partners have benefited fromour new organization, but were not involved in developing it. However, hereare names and contact information for a small sampling of our supply chainpartners that are able to share the positive impact our new organization hashad on their business.

Industry Expert: Kevin OMarah, senior vice president, strategy & market development,

AMR Research, Inc., 125 Summer Street, Boston, MA 02110; office: 617-542-6600


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Motorola Suppliers: Rich Templeton, president and chief executive officer, Texas Instruments,

Dallas, Texas, +1-214-567-7447 Yasutaka Murata, president, Murata Manufacturing Co., Ltd., 10-1,

Higashikotari 1-chome, Nagaokakyo-shi, Kyoto, Japan; +81-75-955-6786

Section 2IMPLEMENTATION (70 points total)

1. Describe the reason that the supply chain project was undertaken andhow it was selected.Motorola is a Fortune 100 global communications leader that providesseamless mobility products and solutions across broadband, embeddedsystems and wireless networks. Seamless mobility means you can reach thepeople, things and information you need in your auto, home, workplace and

all spaces in between, enabling smarter, faster, cost-effective and flexiblecommunication. Motorola is comprised of three businesses that powerseamless mobility: Connected Home Solutions, Mobile Devices and Networks& Enterprise.

When new Chairman and CEO Ed Zander joined Motorola, he saw anopportunity to improve Motorolas growth and profitability through its supplychain function. In fact, a key goal for the company is to achieve supply chainefficiency across all businesses to most effectively deliver seamless mobilitysolutions to customers. In April 2005, Motorola recruited 20-year IBM veteranand executive Stu Reed to develop and lead a transformation of thecompanys supply chain function and turn it into a competitive advantage. Adedicated team led by Stu formed a new ISC organization to reach across allcompany businesses, functions and regions to help achieve efficiency andcost effectiveness. Ed Zander said, The success of our seamless mobilityvision depends on our ability to build a Motorola that is seamless inside. Morethan any other change in recent years, transforming our supply chain into asingle, integrated function will help us operate as a unified, global technologyleader.

In November 2005, Motorola was named #15 on AMR Researchs rankingof Top 25 Supply Chains. Motorola was previously not ranked on thisindustry-wide supply chain list of leaders.We are going for #1 on AMRs2006-2007 ranking!(Note: AMR is implementing a change in timing for therelease of its rankings; and therefore, rankings will not be released in2006. Instead, AMR will release new rankings in spring 2007 inconjunction with the AMR Executive Supply Chain Conference.)


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2. Indicate the duration of the project. Note if the project was a pilot thatwas being rolled out. Note if the project is ongoing/still in process.After Stu Reed joined the company in April 2005, he and the ISC's 20,000+dedicated employees and some 15,000+ contractors -- representing one-thirdof the entire corporation -- fine tuned and began executing the strategy of thenew organization. As of December 2006, the new organization continues toimprove its efficiency and effectiveness and is proving to be a competitiveadvantage for Motorola. Institutionalizing the new ISC is an ongoing effort and

the organization continues to improve its performance to further accelerateMotorola's growth and profitability.

3. Describe, in detail, the process used to complete the project.Prior to the formation of the ISC, each of Motorolas business units wasrunning its own separate supply chain and was not fully leveraging cross-company strengths to enable better cost benefits. We knew there was abetter way to serve our customers and collaborate with suppliers around theworld through our supply chain. We undertook a strategic analysis of oursupply chain functions and identified six key priorities on which we needed towork to successfully optimize our supply chain.


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1) Execution Excellence: Our goal was to become a One MotorolaIntegrated Supply Chain organization, driving efficiencies in everythingwe do as a company. We developed a management system totransform the supply chain in the midst of an aggressive, competitive,ever-changing business environment. We supported Motorola's growthand financial performance while improving the value chain, resulting inincreased labor productivity.

Established new One Motorola ISC organization 51% increase in quarterly revenue per Supply Chain head 75% increase in quarterly units shipped per Supply Chain head

2) Deep Supplier Relationships: The first step to drive deep supplierrelationships was to align ourselves closely with all of the Motorolabusinesses to create One Motorola. Next, we wanted to position oursuppliers as business partners, bringing the right suppliers into the mix.We accomplished this through rationalization and by taking a logicalapproach to our sourcing needs and the strategic consolidation of oursuppliers through fact-based negotiations. Results include:

Achieved savings targets Rationalized supply base significantly (e.g., in one category the

number of suppliers was decreased from 170 to less than 10; in

ExecutionExcellence

Common,Leveraged IT

Solutions

OrganizationEfficiency

DeepSupplier

Partnerships

Manufacturingand LogisticsOptimization

QualityRenewal

ExecutionExcellence

Common,Leveraged IT

Solutions

OrganizationEfficiency

DeepSupplier

Partnerships

Manufacturingand LogisticsOptimization

QualityRenewal


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three additional categories, the number of suppliers was reducedfrom 42 to 10, from 14 to 5 and from 38 to 8, respectively)

Increased percentage spend (~ 91%) with Top 150 suppliers Raised quality expectations for suppliers: Perfect Quality Institutionalized supplier performance management

2

nd

Annual DELIVERMOTO Supplier Conference in Singapore

3) Manufacturing and Logistics Optimization: We strategicallyoptimized our manufacturing footprint and product flows to furtherimprove productivity, while growing the business. Simultaneously, welaunched Lean manufacturing processes and best-practice sharingactivities across all sites through our Teaming for ManufacturingExcellence (TME) initiative and eliminating non-value-added activities.An added resulting benefit is the creation of a consistent One Motorolalook and feel across our global manufacturing facilities. Specificresults include:

40% reduction in footprint by year-end 2006 (from year-end 2005) 22% improvement in inventory turns Realization of ongoing benefits of restructuring activities

4) Quality Renewal: To ensure product quality for our seamless mobility-inspired products, we had to instill a back-to-basics approach. Todate, we have cut customer-impacting quality spills by 30%.Additionally, and more importantly, at the base we have seen a 2Xreduction in defects from our suppliers.

30% fewer total spills to customers Sizeable cost of poor quality (COPQ) reduction 2X-defects reduction in supplier parts per million 20% reduction in factory-defective parts per million units

5) Common, Leveraged IT Solutions: For IT, we focused on processfirst, bringing our businesses together and then leveraging our ITspend across One Motorola. Also, we have done a better job atbringing our partners (i.e., customers, suppliers, etc.) onto oursystems. We've brought on three times as many partners as beforeand in half the time.

Greater than 80% of project spend on leveraged systems On-boarding capability for partners increased by 3X More comprehensive visibility tools for all businesses Leveraging leading-edge, competitively focused technology

We knew we were on the right path when InformationWeekmagazineranked Motorola #12 among the top 500 IT innovators in 2006 and #1


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in the manufacturing industry segment. This ranking represents asignificant jump from our #46 ranking in 2005 and marks the secondconsecutive year that Motorola has been ranked in the IT top 50.

Motorola achieved a #1 ranking in the manufacturing segment by

delivering new business value to the ISC through the use of innovativetechnology. One example of this value-add is the integration withMotorolas manufacturing partners. Powered by our improvedintegration between businesses that allows us to operate in a plug-and-play model, the ISC has been able to manage supplierrelationships more effectively, hold suppliers more accountable,achieve higher quality and reduce costs. This work also aligns to an ITstrategy called "business velocity," which focuses on delivering simplerbusiness processes. Another tangible, value-add example is theincreased visibility to data. For instance, Motorola executives canaccess a live business-results dashboard (i.e., product-shipment

data) which is available on an Internet portal as well as through theirMotorola Q devices, providing them with visibility to a virtual supplychain in a seamless manner anywhere, any time.

6) Organization Efficiency: We optimized a support structure for thetransformation of Motorola to create a pervasive culture and metricsthat would help foster this transformation.

Created culture of doers not talkers Encouraged brute-force commonality Improved indirect labor productivity a reduction of ~15% Achieved greater variability

By executing on these six key priorities, Motorola today is a muchmore operationally efficient and effective business and the SupplyChain serves as a distinct competitive advantage for the company.This has resulted in a dramatic improvement in our bottom line and hasgiven us the cost advantage to win.

While we have made great progress as a One Motorola Supply Chain,we know there is more to do in our quest to become #1, especially asour competitors and the marketplace continue to change. That said, wealso know that we are well positioned to win. The following shows avisual depiction of the organization of the supply chain function beforeand after the transformation.


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4. Identify significant challenges encountered, the process forresolution and the solutions. Identify best practices.


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4. Identify significant challenges encountered, the process for resolutionand the solutions. Identify best practices.

Below are three examples of significant challenges for the ISC organization.

Challenge Process Solution

Quickly integratingfour separate Motorolasupply chainorganizations (and itsemployees andcontractors --representing 1/3 of thecompany -- into OneMotorola IntegratedSupply Chainorganization

Move at record-pace to createa more efficient and effectiveorganization in order to delightcustomers (representedpictorially in the graphicsdirectly above this table) whilerapidly growing the business.

Quickly established a OneMotorola supply chain operationthat created leveragedorganizations supporting multiplebusinesses, common processesand a standard supplier qualityprogram. The new ISC frameworkreplaced the former structureconsisting of four separate supplychains focused on the verticalbusinesses which used dedicatedresources and business-specificprocesses and systems, as well assupported customers by fourseparate businesses.

Managing theexpansive globalsupply base

The Rapid Sourcing Initiative(RSI) is the new way of life inMotorola's Integrated SupplyChain (ISC). RSI is adisciplined, fact-basedapproach to categorymanagement that drivessignificant bottom-line impactfor Motorola while ensuringproduct quality, access to latesttechnology and supplyassurance. The RSI processrequires category teams todevelop a deep understandingof the key cost drivers and arobust long-term sourcingstrategy. RSI is an enabler to

building trusted relationshipswith key suppliers.

Achieved savings target. Morethan 90% of our total spend is withour top 150 suppliers. Oneexample of increased efficiencyand leveraging spend is in onecategory, for instance, where wewent from 170 suppliers to 10suppliers.

Measuring supplychain performanceacross businessprocesses

Analyzed successes andopportunities. Building the #1supply chain program based onbest-in-class focus on ISC Top6 Priorities

Identified six key priorities forimprovement in ISCtransformation. Executing onstrategies with significant resultsachieved to date, as evidenced by#15 AMR ranking.


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Motorola surveyresults indicated thatthe ISC needed toenhancecommunication

effectiveness andclarify roles andresponsibilities tomore clearly align withthe organizationsobjectives

Developed internalcommunication strategy toestablish processes, guidelinesand metrics across the ISC,including an award-winning

Employee Engagement LeaderToolkit; regular Straight Talkwith Stu email messages; anaward-winning ISC Intranet; thedevelopment, launch andinstitutionalization of a quarterlyglobal town hall process; andan internal campaign promotingthe ISCs 4 Key Behaviors andMotorolas five values, one ofwhich is One Motorola, of

which the ISC is a greatexample.

A year later, Motorolas follow-upsurvey showed that 63% ofemployees felt they were wellinformed about the progress theirbusiness unit or function is making

against its goals; 71% ofemployees agreed that within theirdepartment, they work welltogether as a team; 70% ofemployees see a clear linkbetween their work and ISCsobjectives and strategy, while 77%of employees believe theirperformance is critical to thesuccess of their business unit/function within the ISC. In

addition, 71% of ISC employeesknow and understand Motorolasfive values, and 63% of employeesbelieve that their senior leadershipteam supports them.

The graphics below have been used extensively to reinforce our 4 Key Behaviors.


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5. Indicate the metrics used to measure (a) progress and (b) success.In 2005, we told financial analysts that from 2004 to 2005, they would see a10% improvement in each of the major metrics outlined below, and that from2004 to the end of 2006, they would see a 40% improvement. To date, theISC is on-track with respect to meeting the major performance metricsoutlined below. (Also, please see additional results outlined in Section 2,Question 3.)

Inventory Turns Material Savings Conversion Costs Cost of Poor Quality Supply Chain Overhead


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On an earnings conference call, Motorola Chairman andCEO Ed Zander told financial analysts, shareholdersand the business community that the supply chain haddone a Herculean job." He called Supply Chainemployees the heroes, and said that without the

supply-chain improvements, we would have been reallychallenged to efficiently and effectively fulfill ourcustomer demand for the many new products welaunched that quarter.

In Motorolas Q206 earnings press release dated 19July 2006, Ed Zander said, Motorola continues todeliver excellent quarterly sales and earnings growth.With our solid financial performance and unrelentingfocus on innovation and customer satisfaction, Motorolais among the fastest growing large-cap technology

companies in the world. In the second quarter, all of ourbusinesses improved sales and grew profits sequentiallyversus the first quarter. Motorola is well-positioned tocontinue creating value for its shareholders.

6. Document and quantify cost and performance improvement benefits. In every second of every hour of every day in Q206, we produced and

shipped 6.6 handsets Growth of handset shipments from Q205 to Q206 was equivalent to

the total population of Mexico City On track for a 40% reduction in footprint by year-end 2006 (from year-

end 2005) 22% improvement in inventory turns 30% fewer total spills Sizeable cost of poor quality (COPQ) reduction 2X-defect reduction in supplier parts per million 20% reduction in factory-defective parts per million units For more details, please also see the response to Section 2, Question

3.

7. Outline how the success of this effort supports organizationalobjectives described in Section 1, Item 4.By building a world-class supply chain with significantly increased handsetshipments -- all while growing the business -- and inventory and qualityimprovements as proof points, Motorola ISC is achieving its objective ofenabling the delivery of seamless mobility solutions to customers.


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These same efficiencies are enabling Motorolas best-in-class ISCorganization to be a distinct competitive advantage. For example, oneyear ago, our #3, 4 and 5 competitors shipped 50% more handsets thanMotorola. Today, Motorola is ahead of the same three competitorscombined. The increase in growth of handset shipments has been

accompanied by record company growth and profitability.

The overall performance of our ISC accomplishments contributed to thefollowing company financial results announced from the third quarter of2006.

Record quarterly sales of $10.6 billion, up 17 percent versus the year-ago quarter

GAAP earnings of $0.39 per share, including income of $0.10 pershare from discontinued operations and charges of $0.05 per sharefrom items highlighted below

Record handset shipments of 53.7 million units, up 39 percent versusthe year-ago quarter Global handset market share estimated at 22.4 percent, up 3.8

percentage points versus the year-ago quarter Positive operating cash flow of $1.6 billion

The ISC team contributed to the companys solid quarter in big ways, includingrecord-breaking achievements across the organization. For instance, asreferenced above, we shipped 53.7 million Mobile Devices units, up 39 percentversus a year ago and up 3.6 percent compared to 51.9 million handsets shippedduring the second quarter of 2006. In addition, we set a new quarterly record inConnected Home Solutions, shipping nearly 2.5 million digital entertainmentdevices. In short, the ISC set manufacturing, packing, programming, ramping,shipping and sourcing records in just about every ISC facility and operation inQ306.

Section 3KNOWLEDGE TRASFER (10 points)

1. Describe the efforts to share lessons from this effort with otherinternal organizations.The ISC organization regularly communicates with the larger Motorolapopulation, which includes approximately 35,000 employees andcontractors in more than nine countries around the world. Some of theways we share our supply chain strategy and successes are highlightedbelow.


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The ISC organization launched Lean manufacturing processes andTeaming for Manufacturing Excellence, or TME. The objective ofTME is to leverage best practices to drive commonality throughoutour operations to achieve cost savings and quality improvements. Weparticipate in best-practice sharing activities across all sites through

our TME initiative and eliminating non-value-added activities.

Executive visits to Motorola facilities to share our best practices.Stu Reed, executive vice president, ISC, visited employees at morethan 15 facilities in 2005 and 2006 to share the companys supply

chain strategy, explain their roles in helping to achieve success anddiscuss best practices.

In addition to Stus efforts, other members of the ISC senior leadershipteam were visible around the globe to share best practices among theemployee base.

To name a few, in 2005-2006, Tim Cawley, senior vice president,global logistics; Shail Godambe, senior vice president, strategy; andBob Perez, senior vice president, global manufacturing, traveled to all12 of the ISC worldwide facilities, where they held operations reviews,toured the facility/operations area, hosted Town Halls with localemployees/contractors and recognized top performers.

Stu Reed holds an annual Destination One Leadership Summitwhere he brings together the top 150 ISC leaders to acknowledge theirgood work for the previous year, sets the strategy and cadence for theyear to come, and ensures all leaders are committed and heldaccountable for executing on the agreed upon strategy.

Ongoing visibility in Motorolas major communication vehicles,including the companys radio/ TV networks and employee portal, toshare our best practices.

The ISC organization publishes about 300 articles annually related toour strategy, performance and best practices for internalcommunication vehicles, including our award-winning ISC intranet (theISC intranet received three industry awards from the InternationalAssociation of Business Communicators in 2006), which is accessibleby nearly 10,000 employees, and the Motorola employee portal, whichis accessible by about 75% of Motorola's 63,000 employees worldwide.

Stu Reed, executive vice president,Integrated Supply Chain, Motorola, Inc.


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Approximately 50 leaders participate each quarter in the ISC quarterlyglobal town hall process, leading town halls around the world, usingconsistent messaging and customizing with local content.

Stu Reed was featured on Ed Zander's TALKMOTO radio show(podcast), heard by about 15,000 employees worldwide, and selected

messages have been featured on Motorola TV, which is viewed bythousands of employees at 10 of Motorola's largest facilities in variouscountries around the world.

The companys weekly e-news service for all Motorola employees,called Motorola Headlines News, featured 22 stories about theIntegrated Supply Chain in 2006.

Motorola Chairman and CEO Ed Zander includes updates on theperformance and best practices of the ISC throughout the year in hiscommunications to all Motorola employees.

Stu Reed updates ISC employees with a personal "Straight Talk withStu" email 1-2 times a month, reporting on new developments,

challenges and strategic focus areas. He also hosts a semi-annual"Straight Talk Live" broadcast that is viewed by groups of employees inconference rooms and/or by individuals through desktop computers.

2. Indicate how these results can be transferred to other organizations,and specify the likely candidates for transference.While were proud of our progress, we realize we have more work to do in ourquest to become a #1 supply chain and to continue enabling Motorolasgrowth and profitability through a high-performing, best-in-class ISC. Weanticipate sharing our transformation story with external audiences in 2007and 2008 at various industry conferences, where we plan to secure keynotespeaker engagements. The potential audience would be any companylooking to improve its supply chain operations through a demand-drivensupply network and achieve efficiencies, while contributing their companysbottom line. We believe this is an important way to transfer our best practicesto other organizations that may benefit from our challenges and key learnings,while highlighting Motorola as a thought leader. Likely candidates includesome of the organizations that were ranked lower than Motorola on AMRResearch's 2005 Top 25 Supply Chain list. We say this because we, too,have engaged in benchmarking activities with several companies rankedhigher than Motorola (i.e., Dell, Johnson & Johnson, etc.). In addition, weenvision Motorolas ISC transformation to be featured as a case study intargeted trade publications, as well as feature stories in key businesspublications (e.g., Business Week, The Economist, etc.). We will alsocontinue to communicate directly with our suppliers through our usualcommunication channels as well as during the 3rd Annual SupplierConference slated for fall 2007.


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What the Financial Analysts are saying

What the Industry Analysts are saying


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The Bottom LineThe bottom line is that by executing on our top 6 priorities, the Integrated SupplyChain organization is much more operationally efficient and effective, furtherenabling Motorolas continued growth and profitability. The Integrated SupplyChain serves as a distinct competitive advantage for Motorola, resulting in

improved bottom line results, while giving us the cost advantage to win! And inthe spirit of continuous improvement, we are committed to further increasing therate and pace at which we operate in our quest to become a #1 supply chain!

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Motorola SCC Award Submittal FINAL