Realizing the Value of anRealizing the Value of ane-Enabled Supply Chaine-Enabled Supply Chain

Robert PyzdrowskiRR DonnelleyOctober, 2003

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Generating Value And ROI From papiNet

papiNet offers the opportunity to improve the entire supply chain

papiNet is an enabler for collaboration, information sharing, process improvement and shared decision making

A critical mass of participants across the value chain is needed in order to generate significant value

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Merchandisers & Publishers Paper Suppliers Printers

Improved total cost of ownership Supports better decision making

through feedback & transparency Emulate JIT and best practices

used in merchandising supply chain

Easier to manage paper across multiple printers

Clear view of demand for better forecasting & planning

Consolidate shipments Less storage space Decreased inventory Enhanced data collection for

manufacturing & materials optimization

Consistent inputs Greater inventory turns and less

storage space Better equipment effectiveness Enhanced data collection for

manufacturing & materials optimization

Universal Benefits

Lower working capital requirements Increased consistency throughout the process Lower inventory Lower transaction costs Reduced staffing needs for order and process management Better customer service & reporting Global standards enhances ability to service global customers

Collaboration Across The Supply Chain Benefits All Parties

The Network Effect: the payoff and benefit of using a system increases exponentially as the number of users increases

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Too many supply chain managers

Poorly coordinated and non-standardized communications and work flows

Excessive inventory at printer and/or manufacturer

Mediocre returns on invested capital in paper and printing

Investor pessimism results in low stock prices and P/E ratio

Third party intervention: Paper brokers, dot-com’s

Customer distrust of mills and printers

Slow adoption of XML and e-business links

Declining pace of technological innovations compared to 1970’s and 1980’s

Growth rate at 1% and declining

Lack of collaboration and shared decision making

These problems will not be solved through further industry consolidation

The Merchandiser/Publishing, Paper & Print Supply Chain Is Not Optimized Today

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Product Attributes Planning

Request ForQuotation

Availability Purchase Order Order Confirmation Call-Off Order Status Inventory Status

ProductQuality

Usage Inventory

Change Product

Performance

Delivery Message Goods Receipt Invoice

Credit/Debit Note Business Acknowledgement Information Request Complaint Complaint Request

Plan Make Deliver Source Utility

papiNet Provides Standards For Communication Between Partners

Standards are fundamental to an efficient supply chain: Enable timely, efficient and effective communications Avoid costly non-value added translation activities Enable fast and widespread connectivity Avoid “one-off”custom connections

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Transactional Efficiency

Trim waste

Web breaks Process delays

Yield Excess freight

Late Deliveries

Transit damage

Multiple handling

End-to-end cycle-time

Warehouse fees

Data Critical to Making Improvements:

Press delays

Delays

Press damage

Inventory turns

Strip wasteDamage

Perceived Value

Intrinsic Value

The Supply Chain “Iceberg”

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E-Business Link Perspective Collaboration Perspective

Approach: “Efficient and cost effective transactions”

“An efficient and cost effective supply chain”

Scope: Transaction between trading partners

The entire supply chain

Objectives: Transactional efficiency Operational improvement

ROI: Break-even (at best) Positive

Impact: Enables reduced admin and systems cost

Enables reduced operating costs, improved quality, throughout and working capital

Potential $ Return:

Tens-hundreds of thousands/company

Tens-hundreds of millions/company

How viewed: An IT project A margin improvement project and strategic enabler for supply chain improvements

Different Perspectives Lead To Different Viewpoints Of The Value Of papiNet

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Data Collection:

• Merchandisers & publishers

• Printers• Paper

Companies

Data Collection:

• Merchandisers & publishers

• Printers• Paper

Companies

papiNet is the Foundation…

papiNet Is An Enabler For Collaboration And Creating Value

… for enabling collaboration that will generate value within the supply chain. Supply chain partners can

leverage data to drive improvement and eliminate waste

DataTransmission

(XML)

DataTransmission

(XML)

Specifications:

• PapiNet Messages

• Common Definitions

• Standards

Specifications:

• PapiNet Messages

• Common Definitions

• Standards

Implement improvement

projects

Implement improvement

projects

Identifyimprovement opportunities

and select improvement

projects

Identifyimprovement opportunities

and select improvement

projects

Data Review and AnalysisData Review and Analysis

DataAggregation

DataAggregation

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To achieve maximum ROI potential, data must be:

•Collected

•Analyzed

•Used to inform and identify improvement opportunities

Collaboration Is The Key To Value Creation

The opportunities must be acted upon to deliver value!

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Project Example: Increase Average Roll Diameter To Reduce Total Cost

Increased roll diameter reduces waste, number of SKU’s, and material handling

1. Establish papiNet links between printer & paper supplier

2. Co-develop scorecard and feedback metrics

3. Use data results to increase the average roll diameter and reduce total cost

1997

Jan-00

Apr-00

Jul-00

Oct-00

Jan-01

Apr-01

Jul-01

Oct-01

Jan-02

Apr-02

Jul-02

Ro

ll D

iam

eter

(In

ches

)

1111

Project Example: Lower Number Of Web Breaks To Reduce Waste

1. Use scorecard and feedback metrics to measure paper performance on press

2. Paper supplier used data to change how paper was produced

3. Resulting paper ran better on press, reducing waste, delays and web break penalty charges

Web breaks result in paper waste, delays and web break penalty charges

Mill "X" Offset Break Ratios by Month Printed: 2002-2003

Feb Apr Jun Aug Oct Dec Feb Apr Jun

Bre

ak

s/1

00

Ro

lls

Press

Unk-Press

Unk-Paper

Paper

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A 20% reduction in inventories would cover the annual dividend payout for a major paper company

Four large paper companies have a total of over $5 billion tied up in inventory

One large printer has approximately 15% of manufacturing floor space consumed by paper storage – the equivalent of 3 large plants

One large paper company reports recovering only a small portion of the millions of dollars of annual freight damage

Merchandisers and publishers can free-up cash flow to startup or acquire new properties

The Opportunities Are Significant For All Parties Within The Supply Chain

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Use E-Business as an opportunity to review your entire supply chain

Recognize that papiNet is an industry-wide opportunity to lower costs

Position papiNet as a partnership with your key trading partners to improve the supply chain– include suppliers, publishers, merchants, printers, component vendors

Develop a vision of a papiNet-enhanced future business model that includes your trading partners

Sell the project as essential to this future model of doing business

How Do I Get A papiNet Project Started?

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Next Steps:

Mobilize the “critical few” major players

The “critical few” establish timelines for implementation and expectations of their trading partners

Confirm message selection and priority with major trading partners

Focus on collaboration, not just implementing papiNet links

There Must Be A Critical Mass Of Users To Improve The Efficiency Of The Supply Chain

The IT cost of implementation will not be justified by the transactional

efficiency alone. Participants will only generate significant ROI through

collaboration to improve supply chain efficiency.

Enabling Supply Chain Collaboration

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Appendix

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“papiNet is the global initiative to develop, maintain and promote the implementation of standard electronic transaction standards to facilitate the flow of information and facilitate computer to computer communications among all parties engaged in the buying, selling, and distribution of forest, paper and wood products. The set of standards is referred to as the papiNet standard. The standards include common terminology and standard business documents (e.g. purchase orders, shipping notices, and invoices).

The goals are to improve the reach and richness of communication throughout the supply chain, increase efficiencies in transactions and marketplace activities, and to support interoperability among trading partners. The papiNet standards are open and freely available.”

Source: papiNet website

papiNet Mission & Goals

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Needs for and Benefits of Standards

"The Internet offers new opportunities for efficient and cost-effective execution of transactions. It is a truly global infrastructure available to all. It is also more cost-effective than the value-added networks (VANs) that EDI is built upon. “

"The papiNet standard is open, free, and easy to adopt, providing common benefits to supply chain participants. With the papiNet standard, companies will no longer need to negotiate and agree on data definitions and formats with each trading partner, a costly and arduous task. Instead, papiNet provides a common messaging interface to enable supply chain partners to have:

• a simplified process for dealing with multiple suppliers and customers through use of common business solutions.

• reduced manual work, resulting in fewer entry errors and improved supply chain management (e.g. replenishment, VMI).

• more "real-time" exchange of information and greater electronic information availability.

• the opportunity to participate in e-business transactions, irrespective of company size or technical expertise. "

Source: papiNet website

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“A company's demand management, direct material procurement, logistics, part management and order fulfillment processes are closely linked to supply chain partners. Value is created by close integration of these processes among the company’s suppliers, logistics & service providers and customers. Collaborative processes that provide visibility to forecasts, inventory levels, order execution, and shipments between trading partners achieve this. The collaborative process is hampered by lack of industry-wide processes and data standards that enable system-to-system automation of core processes…..”

“In today’s competitive world, well-oiled and responsive extended supply chains are increasingly becoming a foundation for competitive advantage. No longer can companies restrict their focus on increasing supply chain efficiencies within the four walls of the enterprise. The supply chain that extends beyond a company’s organizational boundaries increasingly determines its effectiveness. There is an increasing dependence on "collaboration" as key to bridging the boundaries – not only within the enterprise, but also between enterprises and across industry boundaries.”

“Adoption of RosettaNet standards could well be a critical factor in bringing the high technology dream of dynamic value chain management to fruition.”

Source: RosettaNet website, Implementing RosettaNet E- Business Standards for Greater Supply Chain Collaboration and Efficiency

The RosettaNet Value Proposition

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Mill Mill WarehouseWarehouse Train/Truck Train/Truck

Warehouse

Warehouse

Warehouse

Warehouse PressPress

Warehouse

Warehouse Printer DockPrinter Dock

Distribution Center

Distribution CenterTruckTruck

Warehouse

WarehouseBindBind

Customer/ConsumerCustomer/Consumer

W,Q I,W,C,H W,C,Q,H I,W,C,H

I,W,C,H W,C,Q

I,C,H

I,W,H W,H

C,Q I,C,H Q,H

C

Improvement Opportunities:

I: Inventory/Working Capital

W: Waste

C: Cycle-time

Q: Quality

H: Multiple handling

The Print Supply Chain – Improvement Opportunities

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The Need for Collaboration

"90% of enterprises that fail to provide visibility and supply chain automation by 2004 will lose their status as preferred suppliers."

Karen Peterson, Director, Gartner Inc., August 2002

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51

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0 10 20 30 40 50 60

Production

Short Term

Total papiNet Trading Partner Implementations: In Production & Short Term Plans

Status:

Implementation benchmark survey completed November 2002

80 trading partners engaged in implementation

2003 goal

– All 80 in production

– 50 more in testing

Quarterly surveys throughout 2003

Comments:Basic messages are used most

frequently including Delivery Message, Purchase Order, Invoice, Order Confirmation, Business Acknowledgement and Goods Receipt

There is still a long way to go on Basic messages before other messages will be implemented

Europe is moving faster than North America

Implementation Status

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Population and paper consumption per capita in 2001

Source: PPI Annual Review 2002

Western EuropeChina

Other Asian countries

Japan

Latin America

Africa

Oceania

Worldwide

North America

Paper consumption, kg per capita: 52

Other Europe

303

527

316

34031392

201

15

2456

127

242

148

30

35

1285

807

29

6

Populations, millions: 6,090

Market Size

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Getting a Project Started

Use E-Business as an opportunity to review your entire supply chain Recognize that papiNet is an industry-wide opportunity to lower costs Position papiNet as a partnership with key trading partners to improve the supply

chain Include suppliers, publishers, merchants, printers, component vendors Develop a vision of a papiNet-enhanced future business model that includes your

trading partners Sell the project as essential to this future model of doing business Partner with Solution Providers

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Other Industry Benefits From Standards

Electrical safety

Quality systems

Internet

Electronics Supply Chain

Paper Supply Chain

UL (Underwriters Labs)

ISO

HTML

RosettaNet

papiNet

Industry Standard

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Message Priorities

PublisherPaper

Supplier PrinterCommon to 2 or More

1 Availability Y2 Business Acknowledgement Y Y X X3 Call-off4 Complaint Y Y Y5 Complaint Response Y Y Y6 Credit/Debit Memo Y7 Delivery X X X X8 Goods Receipt X X X9 Information Request Y

10 Inventory Change X11 Inventory Status X X X12 Invoice X X X13 Order Confirmation X X X14 Order Status Y15 Planning X Y Y16 Product Attributes X17 Product Performance X18 Product Quality Y19 Purchase Order X X X20 RFQ Y21 RFQ Response22 Usage X

Top Priority

Next Priority