This document summarizes Agilent Technologies' experience managing services spend through an indirect spend reduction program. It discusses how Agilent analyzed its services spend, identified savings opportunities through strategic sourcing and spend management strategies, and was able to achieve 10-15% reductions compared to benchmarks. Key factors in Agilent's success included executive support, aligning procurement goals with business units, understanding spend trends through analysis, and establishing clear accountability for managing categories strategically.

1. Managing “Services” Spend in Today’s economy Peter Woon Asia Pacific Procurement Director, Global Sourcing Agilent Technologies [email_address]

2. Presentation Part I : “Services” Spend Management What is “Services” Spend Mgt ? Types of “services” Spend Management Strategy Challenges of “Service” Spend Management Part II : Agilent Experience Introduction : Agilent the company Indirect Spend Reduction Program at Agilent Best Practices Comparisons Conclusion Critical Success Factors Q&A Session

3. What is “Services” Spend Management ? Key Buzzwords in Today’s competitive environment : Improve profitability, productivity, efficiency, cost reduction etc… Spend management + “Services” Spend Management ($$$) New “value add” approach aka Cost Savings Cost Savings ; typically price per unit focused, one off program / project Spend Management : rigorous, discipline on-going approach to re-look at People, Process and Technology around Procurement Cost savings + Cost avoidance  Optimise spend $$$ to deliver same utility / consumption value

4. Why Services Spend Management ? Total Purchasing Spend $$$ at typical company averages 30%-60% of revenue ** For Contract Mfg and turnkey companies : 60-80% Direct vs (Indirect & Services) : Average is 50% / 50 % Depend on Industry type Gen Mfg : 70 / 30 Consumer Products : 45 / 55 Chemical / Pet. : 60 / 40 ** exclude services companies “ Services”  Indirect Goods & Services Source : CAPS Critical Issues report : Indirect Spend 09/2003

5. Some types of “Services” Spend Professional services Telecommnications & Networking services Human Resources Marketing & Advertising services Transportation & Logistics services Travel & Hotels Real Estate & Facility Management Energy / Utilities Offshore services Outsourced services Direct procurement : Product or Commodity groups “ Services” : Category groups

6. Typical “Services” Spend distribution Source : CAPS Critical Issues report : Indirect Spend 09/2003 Indirect / “Services” Spend has great potential !!! (mostly untapped)

7. Spend Management Strategy : 3-step Find-Get-Keep Find Savings : gaining an understanding of current expenditures . gather data from internal business systems, classifying into categories . The spend management discipline can be described as an iterative three-step Find-Get-Keep savings process.. . Get Savings : Identifying top spending categories, for highest potential for savings , and how they can best leverage sourcing. Target efforts / activities such as rationalizing their supplier base and negotiating into formal contract agreements with more favorable terms—resulting in savings per category of 10-to-30%. Keep Savings: Maintain and manage formal contracts . Establish and Build formal strategic supplier relationships for long term win win benefits

8. Strategies for Spend Management Internal Strategies : Establish and develop effective spend analyses reporting Organisation for procurement accountability Streamline Source to Pay processes Standardization of purchases Brands / Models thru’ purchasing catalogs Volume Purchase agreements (VPAs ) / Master Service Agreements (MSAs) External Strategies: Utilise e-Procurement tools : Online reverse auctions Leverage Industry volume or consolidated buys through “consortium purchases” Outsource non critical purchases Other Innovative Strategies : Pay per use models / utilisation models On-demand models Vendor managed models Asset ownership vs Leasing Business Process Outsourcing (BPO) and Offshoring

9. Challenges of “Services” Spend Management Lack of understanding of spending. High cost of spend management integrating software . Lack of proper formulation of corporate agreements Lack of skilled professional procurement resources Existence of “preferred” supply base Lack of available base Supplier enablement for standardization

10. Presentation Part I : “Services” Spend Management What is “Services” Spend Mgt ? Types of “services” Spend Management Strategy Challenges of “Service” Spend Management Part II : Agilent Experience Introduction : Agilent the company Indirect Spend Reduction Program at Agilent Best Practices Comparisons Conclusion Critical Success Factors Q&A Session

11. Agilent’s Focus Communications Electronics Life Sciences & Chemical Analysis Agilent’s Purpose Strengthen our position as the #1 Test & Measurement company in the world, while leveraging our technology and expertise to provide components, software and services to attractive new markets To provide critical enabling technologies to advance the state of the art and help our customers achieve their business results Agilent’s Strategy

12. Agilent Around the World Customers in more than 110 countries More than half of revenue generated outside U.S. Global manufacturing and R&D Agilent Facts $ 6.1 billion Net revenue (FY03) Employees 28,000 employees Headquarters Palo Alto, California

13. The Agilent Journey … Winning through Innovation … Breakeven Phase 2: FY01-03 Survival Phase 3: FY04-05 Restore Core Businesses Phase 4: Invest In Growth WE ARE HERE Phase 1: FY99-00 Company Launch Growth Company Value Company Growth Company

14. Agilent Businesses A diversified company with synergy Global Infrastructural Organization Global functional support teams Sourcing, Finance, Information Technology, Human Resources, Workplace Services, Legal, Trade and Tax etc Semiconductor Products Life Sciences and Chemical Analysis Test and Measurement Automated Test Shared Infrastructure (Global Infrastructure Organization, GIO) Agilent Laboratories Technology Synergy

15. Agilent’s Experience … Indirect Spend Reduction (ISR) Program to Manage “Services” Spend

16. Step1 : Find Savings … Spend Analysis and Compliance reports Step 1 : Find Savings … Indexed spend reports

17. Step 1 : Find Savings thru’ Spend Analysis Step 1 : Find Savings … Spend Targets by Categories PSA 1. Rationalize / Restructure PSA Contracts (PSA 1) 2. Establish PSA Control Gate Process (PSA 2) 3. Reduce ETW Usage (PSA 3) Initiatives FY03 Savings Target Agilent Total = $188 - 221MM Technology Services $ 15-20 MM $15-20MM 1. Infrastructure (Company X / Y) (TS 3) 2. Rationalize Managed Service Contracts (TS 2) $ 25-30 MM 3. Rationalize Software / Hardware Spend (TS 1) 4. Reduce Telecom Spending (TS 4) $10-15MM 4. Audit Billing of ETW Invoices (PSA 4) $10MM $35MM $14MM $1 MM Other 1. Drive compliance with Preferred Travel Vendors (OT 1) 2. Negotiate New Travel Agreements (OT 2) 3. Track and Monitor Marketing Spend (OT 3) $2-6MM $2-5MM $46-51MM 4. Track and Control Office-related spend (Equipment, Furniture, Express Mail) (OT 4) 5. Transition Facilities Maintenance to a Single Global Provider (OT 5) $11-13MM $0.5MM 6. Rapid Source Chemicals & Gases (OT 6) $1MM Tech Svcs FY 02 Managed Services Telecom Infrastructure (X, Y) HW / SW Rationalization

18. Find Savings thru’ Spend Analysis

19. Step 2 : “Get Savings” Phase Strategic Sourcing Consolidated Volume purchases Sourcing from Low Cost countries BPO and Offshoring E-Solutions e-Bidding / Close Reverse auction e-Catalog Purchases e-Invoicing Supply Base rationalisation Supply Base Cleanup P-Card for small one-offs purchases Contract Negotiation and management Lease instead of BUY Step 2 : Get Savings … Spend Management Strategies

20. Step 3 : Keep savings Reduce “Everyone is a Buyer” Appoint “Authroised” purchasing ownership Implement Discretionary Spend Management Spend Guidelines Compliance to use Preferred Suppliers Supplier Relationship Management (SRM) Step 3 : Keep Savings … Discretionary Spend Management

21. Results : Achieved Improvement trends: Indirect spend and SGA as a %tage of Revenue Overall improvements approx 10-15 % as compared to 2001 .

22. Cost reduction and cost avoidance savings far exceed median and 1 st quartile Comparisons (source : recent Hackett benchmarking study @Agilent) Cost reduction and cost avoidance savings as a % of total spend

23. Process best practice comparisons Formalized and documented global sourcing strategy developed for each major spend category Existence and utilization of a standard enterprise-wide spend classification methodology Utilization of a company-wide supplier master file Enterprise-wide standard process to add and remove suppliers from supplier master file Degree transactions are processed in an automated fashion Best practices Agilent World Class Process Median No Moderate Moderate No Yes Moderate Yes Extensive No Moderate Extensive Yes Moderate Extensive Extensive

24. Global procurement operations best practice comparisons Existence of Global Procurement operations Indirect Cross divisional, cross-functional team (procurement, finance, IT, WPS, marketing) utilized to develop to support strategic sourcing and supplier relationship management Utilization of global enterprise spend teams Utilization of global strategic supplier teams Utilization of global process improvement teams Formalization and documentation of Global Procurement operating model principles (currently under development) Best practices Organization Agilent World Class Yes Yes Extensive Extensive Moderate Moderate Median Yes Moderate Extensive Extensive Moderate Moderate Limited Moderate Moderate Extensive Moderate Extensive

25. Presentation Part I : “Services” Spend Management What is “Services” Spend Mgt ? Types of “services” Spend Management Strategy Challenges of “Service” Spend Management Part II : Agilent Experience Introduction : Agilent the company Indirect Spend Reduction Program at Agilent Best Practices Comparisons Conclusion Critical Success Factors Q&A Session

26. Critical Success Factors Executive leadership, support, ownership, and accountability Goal and objective alignment (within procurement and across business partners) Clear accountability measurements application Understanding Spend Analysis and Trends Ownership of these Spend Management Strategically focused Enterprise Commodity Management roles and responsibilities (within procurement and across business partners) Strategic Supplier partnership program Improved supplier communications Supplier Relationship Management training

27. Q&A Session Peter Woon Asia Pacific Procurement Director, Global Sourcing Agilent Technologies [email_address]