1. Lucent Technologies
Leveraging a Strategic Supply Chain
Michael Massetti, Senior Director – Supplier Management
Strategic Sourcing and Supplier Relationship Management
Summit – Rutgers University
October 5, 2005

2. 2
Agenda
 Transformation of Lucent’s Supply Chain
 Supplier Management & Supplier Relationship
Program
 Scorecard Metrics
 Globalization
 Results

3. 3
“Hitting the Wall” and the Road to
Recovery that Followed

4. 4
Lucent Supply Chain – 2001/2002
 Inventory: $8.0 billion / 1.3 turns
 Factories: 29 factories / 10M square feet
 Manufacturing Budget: $1.9 billion
 Manufacturing: 90% in high-cost regions
 Lucent Repair Centers: 16
 Managed Warehouses: 500+
 Supply Base: 40% spend / >1000 suppliers
 Gross Margin: 13%
 Delivery Performance: 80% (systems) / 50% (materials)
 Customer Satisfaction: 6.78

5. 5
Switching
and Wireline
Supply Chain
Engineering &
Environmental
Technologies
Global
Purchasing
Organization
Optical
Supply
Chain
Wireless
Supply Chain
Chief Mfg
Officer
Before:
Redundant, uncoordinated
supply chain activities in
multiple organizations.
After:
Integrated Lucent supply
chain implementing a
OneLucent virtual supply
chain model.
Creating a Single Lucent Supply Chain

6. 6 ’
Supply Chain Networks
The Engine to Lucent’s Operations
Engineering & Planning
EMEA AP/ChinaCALANAR
Supplier
Management
Integrated
Operations
Wireless &
Wireline
Product
Units
Corporate
Centers
(CFO/HR)
Global Sales & Services
Strategy
Supply Chain Networks

7. 7
Supply Chain Networks
 Supplier Management Group
 Integrated Operations
 Anticipation & Solutions & Product Team Leads
 Supply Chain Strategy
 Regional Supply Chain
– Asia Pacific & China
– CALA
– EMEA

8. 9
Supplier Management owns all procurement activities:
Strategic Source Selection
Supplier Performance Management
Deal-Making
Supplier Management Group
 Global Supplier Relationship Management
 Global Commodity Sourcing Strategy Development
& Supplier Selection
 Global Procurement Compliance
 Savings Leadership & Gross Margin Improvement
 Regional Supplier Development
 Diversity Spend & Regional Program Leadership

9. 10
Supply Base Hierarchy
• On-going supplier-customer
relationship
• Steady supplier management &
sales relationship
• Some executive relationships
• “Preferred” supplier
• Regular business reviews
• Transactional buy-sell relationship
• “Select” supplier
• Long term relationship & business
commitment
• Value-based interdependency
• Strong executive-level engagement
• Cooperative strategic planning
• “Strategic” supplier
• Detailed business reviews
Preferred
Supplier
Vendor
Strategic
Partner
Spend,breadthofuse,depthofrelationship

10. 11
World Class Supplier-Customer Alignment
Source: “Intellectual Capital” by Thomas A. Stewart
Seller Buyer
Procurement
Logistics
…
Logistics
…
Bow-tie Model
Sales
Seller Buyer
Logistics
Sales
Procurement
…
…
Diamond Model
Logistics

11. 12
An Intimate Relationship for Success
What LU Needs Supplier Investment Lucent Investment
Access
To technology & knowledge
 Focused relationship(s) with
senior management team in
SCN & business unit(s)
 Periodic business reviews
 Early access to product
development
 Greater access to decision
makers & executives
 Win-loss reporting & analysis
Quality
Commitment to world class
quality & execution
 Rigorous implementation of
quality management standards
 TL9000 qualification
 “Preferred” rating for products
Speed & Agility
If we don’t deliver – we
know someone else will!
 Leading Edge Procurement
(LEP): buffering, Supplier
Managed Inventory (SMI), Just-
in-time delivery (JIT), effective
LT reduction
 Prioritization on NPI & new
technology introduction
 Early engagement in design
process
 Collaborative planning and
forecasting
Cost
Marketplace pressures are
intense – help drive it down
 Driving cost roadmaps
aggressively
 Understand our customer’s
cost needs
 Greater spend
 Participation in cost reduction
planning roadmap sessions &
partnership workshops
Resources
Technical support for design
 Technology & operational
roadmap alignment
 Availability of experts to review
architectural requirements
 Committed FAE resources at
design locations
 Design requirements
communication & engagement
 Design team availability

12. 13
Lucent’s Supplier Relationship Program
 The Supplier Relationship Program (SRP) is a process
for developing & managing collaborative relationships
with strategic suppliers to achieve extraordinary results.
– Determining the appropriate relationship level that will
drive the extent and scope of supplier engagement
– An annual process of planning, measurement, and
feedback
– Additional relationship-building tools and activities
 Aligns cross-enterprise supplier management activity to
present one face to suppliers.
The SRP is the vehicle for creating and improving supplier relationships that
promote Lucent’s supply chain vision, mission, and strategy.

13. 14
SRP Program Overview
 The SRP provides guidelines for assigning a Relationship
Category to a supplier:
 Strategic  Key Preferred  Preferred  Select
 The SRP provides an “End-to-End Management” view of
suppliers
 Suppliers are engaged in an annual process:
– Planning
– Executive Sponsorship & Engagement
– Quarterly Reviews and Feedback
 Execution:
– Scorecards: Metrics & Evaluation
– Supplier Development Plan
– Supplier Improvement Plan
– Rewards & Recognition

14. 15
SRP Attribute Assessment
Character of Relationship
Seamless & Strategically
Aligned
Extremely Close
Trusting & Sufficient for Business
Needs
LU Requirements
Exceeds expectations - goes
above & beyond
Exceeds expectations Meets expectations
Risk Assessment
No major risks (assessment
raises no flags to exclude
from strategy)
No major risks (assessment
raises no flags to exclude
from strategy)
No major risks (assessment
raises no flags to exclude from
strategy)
Relationship History Long & successful Long & successful Acceptable
LU Product Impact
Allow s LU to differentiate its
key products/ services/
systems in marketplace
Allow s LU to differentiate its
key products/ services/
systems in marketplace
May or may not allow LU to
differentiate its key products/
services/ systems in marketplace
Responsiveness Highly responsive & flexible Highly responsive & flexible Responsive & flexible
Supplier Criticality
Loss of supplier w ill
significantly impact LU’s ability
to deliver one or more key
product offerings or to carry
out critical operations - major
financial impact
Loss of supplier w ill
significantly impact LU’s ability
to deliver one or more key
product offerings or to carry
out critical operations - major
financial impact
Loss of supplier may or may not
impact LU’s ability to deliver one
or more key product offerings or
to carry out critical operations
Supplier Performance High High Acceptable
Characteristic Strategic Key Preferred Preferred

15. 16
SRP Attribute Assessment
Product/Service Offerings
(Price, Quality, Delivery,
Service, etc)
Best in class Market leader Top Tier
Product/Service Differentiation Highly differentiated Moderately differentiated Easily substitutable
Continuous Improvement Aggressively pursues in all areas Aggressively pursues in all areas Is proactive in all areas
Technology Market driver Market leader Market Parity
Capture & Sharing of Data Very High High Medium
Understanding of LU Business
Model
Very High High Medium
Level of Direct Supplier
Involvement w/ LU
Extremely high & committed -
Executive level commitment
High & committed On par
Future Opportunities
Potential source for future
products/services
Potential source for future
products/services
Potential source for future
products/services
SRP Involvement All SRPactivities
All SRPactivities except Alliance
Agreement
Optional - as deemed necessary by
LU
Characteristic Strategic Key Preferred Preferred

16. 17
Lucent – Supplier
Communication Hierarchy
DAILY INTERACTIONS
SUPPLY CHAIN PORTAL
ONE SUPPLIER NEWSLETTER
EXEC. BRIEFINGS & QBR
MONTHLY FORECASTS
ANNUAL SUPPLIER
SUMMITS
GSRM
GAMS

17. 18 ’
Metric Weight Baseline Goal Actual AIM
Act. as %
of Goal
Weighted
Score
Comments
Delivery 40.0% 39.4%
Delivery Performance to Commit Date (%) 30.0% 87.0% 95.0% 93.0%  97.9% 29.4%
Escalation Count (#) 10.0% 1 3 1  100.0% 10.0%
Financial 40.0% 25.0%
YTD Cost Reduction (COGS) (%) 30.0% 26.0% 8.0% 4.0%  50.0% 15.0%
Contribution to Cash ($) 10.0% $286,600 $100,000 $198,860  100.0% 10.0%
Quality 20.0% 20.0%
Number Of New Quality Issues (SCAR)
Opened (#)
10.0% 3 3 1  100.0% 10.0%
Quality Issue (SCAR) Responsiveness (%) 10.0% 100.0% 100.0% 100.0%  100.0% 10.0%
Performance Total 100.0% 84.4%
Relationship 50.0% 47.9%
Relationship Survey Score - Supplier
Respondents (#)
30.0% 85.0% 90.0% 87.0%  96.7% 29.0%
Relationship Survey Score - Lucent
Respondents (#)
20.0% 83 91 86  94.5% 18.9%
Collaboration 30.0% 27.9%
Supplier Collaboration Survey Score (#) 30.0% 78.0% 85.0% 79.0%  92.9% 27.9%
Technology & Innovation 20.0% 20.0%
Technology/Innovation Survey Score (#) 20.0% 84.0% 88.0% 88.0%  100.0% 20.0%
Collaboration Total 100.0% 95.8%
Due to rounding, weighted scores sums may not exactly match the displayed totals.
COLLABORATION
Supplier Scorecard Automation Tool
ABC Company
PERFORMANCE
2005 Quarter-I
Interconnect
Last Update
Time Period
Scorecard Group
Supplier Manager
Supplier Account Manager
Supplier
Improvement
Plan
Required

18. 19
Globalization

19. 20
Our Global Customers

20. 21
China & APAC Epicenter
(China)
North America Epicenter
(Mexico)
CALA Epicenter
(Brazil)
EMEA Epicenter
(Eastern Europe)
• Lucent and EMS production facilities are clustered around low cost epicenters
• 5 Integration Centers, 2 EMS providers with 10 locations make up the total footprint
A Low Cost, Global Production Footprint

21. 22
Globalization
Supplier Management & Supply Base
 Drivers:
– Customers  local supply chain performance
– Regional development  regional market requirements
– Regional development  low cost engineering
 Supply base:
– Global
– Global with local manufacturing
– Local / regional
 Supplier management:
– Global leadership
– Global teams
– Regional execution

22. 23
Globalization
Sourcing & Supplier Management
Procurement resource distribution:
–2002: US / EMEA: 90%; APAC: 10%
–2005: US / EMEA: 60%; APAC: 40%
Spend distribution:
–2002: US / EMEA: 75%; APAC: 25%
–2005: US / EMEA; 45%; APAC: 55%

23. 24
EMS/
Logistics
Components
& Subsystems
Technology
Strategy
Systems
Software
Services
Operations
&
Government
APAC
CALA
EMEA
NAR
Global
Lead
Inter
connect
Global
Lead
Global
Lead
Global
Lead
Global
Lead
Global
Lead
Global
Lead
Global sourcing cell leadership
Regional deployment & execution
Global
Lead
Embedded Technology, Sourcing & Strategy
Indirect
Strategic
Sourcing
Diversity
Sourcing
Global
Lead
Supplier Management Organization
Global Supply Management Structure
GSRM GSRM
GSRM
GSRM
GSRM
GSRM
GSRM
GSRMGSRM
GSRM GSRM
GSRM
GSRM GSRM
GSRM
GSRM
GSRM

24. 25
Supply Chain Transformation Results

25. 26
 Benefits from the Integrated SCN Model
– Stronger, more strategic supplier relationships
– Changing fixed costs to variable costs, esp.
outsourced manufacturing
– Improved visibility and demand planning
– Significant reduction in inventory
– Better optimization of capital and cash flow
– Reduced component costs
– Increased customer satisfaction and loyalty
Supply Chain Visibility and Process Results

26. 27
Lucent Supply Chain – 2005
 Inventory: $892 million / 6.1 turns
 Factories: 3 system integration centers
 Manufacturing Budget: $150 million
 Manufacturing: 85% in low-cost regions
 Lucent Repair Centers: 4
 Managed Warehouses: 0 (50+ logistics providers)
 Supply Base: 85% spend / <100 key suppliers
 Gross Margin: 43%
 Delivery Performance: >90% systems & materials
 Customer Satisfaction: 8.1 (3Q05)

27. 28
Questions and Answers
Thank You!