Supplier Performance Mgt “Program Overview” June 17, 2014 Enhancing the value creation process together Quality Technology Innovation SPM Program •Annual Supplier Plan •Detailed Project Tracking •Quarterly Meetings •Balanced Scorecard •Annual Business Goals •Supplier Ranking Goals & Metrics Planning Step 1 •Recognition of Best •Adjust Action Plans on Results Step 4 Step 2 Recognition Execution •Broad Supplier and PACCAR Engagement •Clear Engagement Model Step 3 SPM Program Expectations –Step 1 PACCAR: • Cross -Functional Input • Data Consolidation • Information Availability • Regular Quarterly Updates • Review and Accept Performance Target Supplier: • Understand PACCAR KPI’s • Set Performance Targets together Current Scorecard on ePortal SPM Scorecard – KPIs Product Development Operations Support Business Alignment Desired Engineering Behaviors Lead time Requirement (OE) Financial Risk Assessment Score Design Related Cost Out Performance to Requested Delivery YOY Cost Impact PPAP Performance NCP PPM Performance Raw Material Cost Management Product Reliability Logistics Cost Performance Alignment to PACCAR Processes Aftermarket Warranty Lead time Requirement (OES) Aftermarket Profitability (nonproprietary) Aftermarket Program Support Aftermarket OTD (Past Due %) Aftermarket Profitability (proprietary) SPM Scorecard – KPIs Product Development Operations Support Business Alignment Desired Engineering Behaviors Lead time Requirement (OE) Financial Risk Assessment Score Design Related Cost Out Performance to Requested Delivery YOY Cost Impact PPAP Performance NCP PPM Performance Raw Material Cost Management Product Reliability Logistics Cost Performance Alignment to PACCAR Processes Aftermarket Warranty Lead time Requirement (OES) Aftermarket Profitability (nonproprietary) Aftermarket Program Support Aftermarket OTD (Past Due %) Aftermarket Profitability (proprietary) SPM Scorecard – KPIs Product Development Operations Support Business Alignment Desired Engineering Behaviors Lead time Requirement (OE) Financial Risk Assessment Score Design Related Cost Out Performance to Requested Delivery YOY Cost Impact PPAP Performance NCP PPM Performance Raw Material Cost Management Product Reliability Logistics Cost Performance Alignment to PACCAR Processes Aftermarket Warranty Lead time Requirement (OES) Aftermarket Profitability (nonproprietary) Aftermarket Program Support Aftermarket OTD (Past Due %) Aftermarket Profitability (proprietary) SPM Scorecard – KPIs Product Development Operations Support Business Alignment Desired Engineering Behaviors Lead time Requirement (OE) Financial Risk Assessment Score Design Related Cost Out Performance to Requested Delivery YOY Cost Impact PPAP Performance NCP PPM Performance Raw Material Cost Management Product Reliability Logistics Cost Performance Alignment to PACCAR Processes Aftermarket Warranty Lead time Requirement (OES) Aftermarket Profitability (nonproprietary) Aftermarket Program Support Aftermarket OTD (Past Due %) Aftermarket Profitability (proprietary) SPM Scorecard – KPI Performance Levels Product Development KPI Desired Engineering Behaviors Design Related Cost Out PPAP Performance Product Reliability Definition Evaluation of Product Innovation, Eng. Support and Problem Solving Abilities Level A Exceptional Product Design Cost Reduction (different design, material, etc) as a percent impact over estimated current year spend >1% On Time + Approval / 2 100% Warranty PPM (rolling 12 months) and recalls Aftermarket Warranty % of warranty recovery and % claim approval Subjective evaluation of supplier's support of PPD's Aftermarket Program marketing/sales programs as well as order and change Support management < 50 Warranty PPM AND zero recalls Warranty recovery is 98% or more and claim approval is 95% or more Excellent SPM Scorecard – KPI Performance Levels Operations Support KPI Definition Lead time Requirement Supplier lead time (average) compared to 14 days (OE) desired lead time excluding transit Level A 14 days or less Performance to Requested Delivery Monthly on time performance compared to our requested delivery date > 98% on time NCP PPM Performance Rolling 12 months PPM as defined in SQ manual < 50 PPM Logistics Cost Performance Percent improvement from a prev year cost per lb (Cost per lb = Total freight cost from all supplier locations to all plants / total weight) Lead time Requirement Current supplier lead time compared to desired lead (OES) time Aftermarket OTD (Past Due %) 3 Months Rolling Average Past Due % = lines past due / total lines due for that period > 3% 15 PDC and 2 DSP or better 0-1% Past Due SPM Scorecard – KPI Performance Levels Business Alignment KPI Definition Financial Risk Assessment Financial risk measured with the z score Score All cost movements (CMP's, LTA, raw material, YOY Cost Impact etc.) annualized dollar impact / current year estimated spend Raw Material Cost Management Alignment to PACCAR Processes Raw material impact measured via CPF for surcharges/increases Alignment with major initiatives at PCAR, 6σ, Overall Cost Competiveness, Warranty Recovery, etc. (non-proprietary) Supplier's Profit & Sales growth v. that of its competitors and Subjective evaluation of how Aftermarket Profitability supplier positions PPD v. competing channels. (proprietary) Compare PPD’s cost v. PACCAR OE cost Level A Consistently Healthy (3 Yrs) Able to deliver > 3% net fav impact for the year Able to offset or willing to absorb 100% of negative RM impact Fully Aligned Profit growth is positive and exceeds both its sales growth as well as the profit growth of its competitors. Supplier favorably positions PACCAR v. other aftermarket channels. OES = OE cost + reasonable packaging New SPM Scorecard SPM Program Expectations – Step 2 PACCAR: • Provide Annual Planning Format • Review and Provide Quarterly Feedback Supplier: • Establish Plans • Provide Quarterly Status Updates • Track Detailed Project Execution Supplier Annual Performance Plan Supplier Detailed Project Plan ID and Track All projects Track key dates Identifies Project Owners, Comments and projected Impact Supplier Loads plan to collaboration SharePoint and can be accessed by PACCAR Internal team members (Controlled Access ) SPM Program Expectations – Step 3 PACCAR: • Cross-Functional Support • Tools and Templates to Assist with Project Execution • Participate in the Regular Project Meetings Supplier: • Commit Resources • Drive Project Execution • Engage PACCAR Team • Regular Update of Performance and Action Plans SPM Governance – Engagement Process Review Type Characteristics Participants Annual Review • Performance evaluation and overall strategy discussion for the next year • Senior management (executive) representative from each side Quarterly Review • Based on agreed KPI’s and performance measures, checking to ensure that expected performance is likely to be met • Supplier Management Team • PACCAR Cross Functional Team lead by Purchasing Outputs • Agreement that the KPI’s and general direction and approach are appropriate • Agreement on actions needed to achieve KPI’s • Sr. Leadership as Desired Specific Review (monthly or as needed basis) • Focused on a particular area for improvement • Supplier Representative • Action planning, evidence based, uses tools to find causes and develop actions and improvement strategies, uses formal improvement process • SQ Representative • Based on a need to manage change in behaviors (of supplier or ourselves). Focused on shorter term issues rather than strategy or all KPI’s • Purchasing Representative • Process Owners • Clear action plan leading to specific improvement or to the behavior changes required • Review dates for next session Consistent Engagement Timeline Quarterly Review Annual Review J F M Meetings as Needed A M Quarterly Review J CMP Day J A Quarterly Review S Meetings as Needed O N D Innovation Day SPM Program Expectations – Step 4 PACCAR: • Recognize Top Performing Suppliers • Award Additional Business Based on Performance Supplier: • Review and Adjust Performance as Needed SPM - Recognition • Recognition: – Supplier Awards • Growth: – Additional Business – Improved Business Performance SPM Program Benefits • Business Growth • Improved Business Performance SPM Program SPM Program SPM Program SPM Program Next Steps • Identify Key Point of Contact for SPM Program – Set up SharePoint Access • Participate in the First Quarterly Review • Establish Annual Performance Targets • Develop Performance Improvement Plan Thank you Enhancing the value creation process together