Supply Chain Transformation

Supply Chain Management Summit Stanford, October 24, 2006

GSB-Stanford / IBM

Jean-Francois Baril
Senior Vice President Sourcing & Procurement Nokia Corporation
Company Confidential
1 2006 Nokia

Content
Introduction to Nokia Mastering supply chain complexity Moving from push to pull mode Working together with best suppliers Continuing to transform the industry Summary

Company Confidential
2 2006 Nokia

Nokia today

800 million people globally use a Nokia device daily.

Supplier to 58 WCDMA networks. Nokia for Business mobilizes enterprises globally.
10 phones manufactured each second.

Consumer devices and experiences Mobile network equipment, solutions and services Solutions for enterprise customers
Sources: Nokia estimates

Company Confidential
3 2006 Nokia

Nokia in the industry

Top 10 Brands

6th most valuable brand

A leading innovation company

The first Wi-Fi mobile device The first commercial mobile TV device The first dual-mode, tri-band WCDMA handset
Sources: Nokia, Businessweek Apr06, Interbrand Jul05

Company Confidential
4 2006 Nokia

Nokia continues to grow faster than market

In 2005 Nokias mobile device volumes were up 28% compared to 2004. Market volume for the same period was estimated at an increase of 24%.
100%

28%
24%

80%

Global mobile phone yearly market growth estimates 1998-2005

60%

Nokia volume growth %

40%

Market volume growth %

20%

0%

Source: Nokia
-20%

1998

1999

2000

2001

2002

2003

2004

2005

Company Confidential
5 2006 Nokia

Market change trends

User experience Simplicity, rich experience and products consumers can fall in love with. Sharing of experiences. Technologies Internet convergence and non-cellular wireless Business models Mega-and regional operators consolidating. Fixed-mobile convergence. Internet-based business models. Geographical and consumer diversity Geographical differences in consumer behavior and business landscape. Internet diversity. Growth opportunities Device market growing, traditional infra growing slightly. Growth potential in convergence services, enterprise mobility and infrastructure solutions & services.

Role of Asia China and India increasingly drive demand and design preferences.

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6 2006 Nokia

Customers remain our top priority

Customer Growth Productivity Brand

Nokia priorities
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7 2006 Nokia

The five businesses of Nokia

Customer engagement and fulfillment Brand & Design Create winning devices Embrace consumer Internet services Deliver enterprise solutions Build scale in networks Expand professional services Technology and architecture

Nokia business portfolio

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8 2006 Nokia

Nokia strategic assets

Nokia is organized for growth

Business Groups
Mobile Phones Multimedia Enterprise Solutions Networks

Horizontal Groups

Customer and Market Operations

Technology Platforms
Brand and design Developer support Research and venturing Business infrastructure

Corporate Functions Corporate Functions

Company Confidential
9 2006 Nokia

Nokia at a glance
2005 Net sales (EUR million) Operating profit (EUR million) Operating margin, % Earnings per share, diluted, EUR Research and development (EUR million) Personnel (year-end) 34 191 4 639 13.6 0.83 3 825 58 874 2004 29 371 4 326 14.7 0.69 3 776 55 505 +20 +1 +6 Change, % +16 +7

Head office in Finland, operations around the world Sales in more than 130 countries Nokia sold its one billionth phone in 2005
Company Confidential
10 2006 Nokia

Content
Introduction to Nokia Mastering supply chain complexity Moving from push to pull mode Working together with best suppliers Continuing to transform the industry Summary

Company Confidential
11 2006 Nokia

Nokias device businesses - differing needs

Mobile Phones Multimedia Enterprise Solutions

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12 2006 Nokia

Wide product range

170 handset variants 250 sales package variants

Case Nokia 6680

Company Confidential
13 2006 Nokia

Operations philosophy
Local presence with a globally managed operations network Late variation, products assembled to order Planning for flexibility, usage of contract manufacturing

Engine manuf

Final assembly & customization

Nokia Contract manufacturer

Company Confidential
14 2006 Nokia

Nokia supply chain in numbers

In 2005
we delivered 265 million mobile devices from 10 own factories + extensive EMS network we consumed over 100 billion components from 60 strategic suppliers (200 total) 4 full 747 cargo freighters per day

#2 Supply Chain in the World (AMR research, 2005)

Company Confidential
15 2006 Nokia

Content
Introduction to Nokia Mastering supply chain complexity Moving from push to pull mode Working together with best suppliers Continuing to transform the industry Summary

Company Confidential
16 2006 Nokia

The start of the turnaround story

160 120

COMPETITIVE ADVANTAGE

Inventory in
Days of Supply (DOS)
80

TOWARDS WORLD CLASS

Annual report 1995:

40

SHAPE-UP

Despite strong sales growth, Nokia Mobile Phones profitability was adversely affected by a number of factors during the year. The principal factor affecting profitability was the difficulty of meeting the challenges created by the business 0 group's rapid growth. . Profitability was also affected by interruptions in the supply of certain components, as well as logistical issues. Consequently, 1995 1996 1997 the business group experienced certain difficulties in bringing this production capacity and logistics associated therewith up to optimal levels.

1998

1999

2000

2001

2002

2003

Company Confidential
17 2006 Nokia

Extended enterprise Replacing inventory with information

End-to-end integration of Demand Supply Network End-to-end efficiency, speed and visibility Backbone

Process integration Web based process integration (Extranet portals) System-to-system integration (ROSETANET) Nokia

Suppliers

Factories iHubs & LSPs

Telecom Operators Banks

Channel Partners Sales Consumer

Contract Manufacturers
Rich information flow

Company Confidential
18 2006 Nokia

Lean material flow

Pull-driven supply chain

Extranet Portal

SYNCRO process

E2E Collaboration Planning tool

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19 2006 Nokia

Overview of iHUB business model

LRVP FC for capacity reservation DV for capacity booking and shipment planning Consumption
Selfbilling by consumption

Nokia GLOBAL DOS Call off Nokia Factory DSB Real time customer demand

Global/Regional/Local Suppliers

GIT, DOS

iHUB/LSP

iHUB replenishments

Line Replenishment

LRVP Long Range Volume Plan FC Midterm forecast DV Demand Visibility GIT Goods In Transit DOS - Days Of Supply DSB - Demand Supply Balancing
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20 2006 Nokia

Material flow

Information

Money flow

One standard for supplier integration

Collaborative Forecasting
4A1 for Rolling Forecast & 4A3 for Demand Visibility 4A5 for Response to RF unconstrained & DV constrained

Suppliers

A slab of basalt

Made 196 b.c.Discovered July 1799 by Pierre Francois Xavier Bouchard on the stone: Hieroglyphs, Demotic and Greek

4B2 Notify of shipment receipt 4C1 Distribute inventory report 3B2 Notify of advanced shipment HUB to production line 3C7 Self billing invoice 3C6 Notify of remittance advice

Inbound Hub

Production line call offs

Money flow

Company Confidential
21 2006 Nokia

Nokia

The Rosetta Stone

Inbound fulfillment
3B2 Notify of advanced shipment

eBusiness Tools for doing business with Nokia

EDI (300+ Partners)
Existing standard. Nokia recongises that EDI is needed by some partners, and will be supported accordingly

System to System
NGSW is Nokia's webmarketplace. Easy to set up and operate, but does not deliver a system to system connection.

Nokia Portal (NGSW)

Human to System
Rosettanet is a non-proprietary XML protocol allowing System to

System connections.

Company Confidential
NOKIA NMP Global Supplier Day 2001 / Jean-Francois Baril / Date / page 22
22 2006 Nokia

Big share of Nokia business RosettaNetenabled

RosettaNet in production with 74 suppliers
PIP4A1/4A3/4A4/4A5 forecast Factories PIP4B2 shipment receipt
Hubs & PIP4C1 inventory report Suppliers LSPs

RosettaNet in production with 12 customers

Telecom Operators Channel Partners & retail

PIP3A4/3A7/3A8 order PIP3C3 invoice

PIP3A4/3A7 order

Contract Banks PIP3B2 shipmentPOS notification Consumer Manufacturers

PIP3B2 shipment notification PIP3C6 remittance advice PIP3C7 self-billing

PIP4A4 demand plan PIP4C1 inventory report PIP4E1 sales report

Company Confidential
23 2006 Nokia

Realize the RFID Potential

Limited benefit from RFID technology as such RFID will explode the amount of real-time supply chain data available

Value of the data depends on speed of making it available for operative decisions within the supply chain

Proprietary RFID solutions will not work in big scale Standard communication between trading partners a prerequisite to realize full RFID potential
Company Confidential
24 2006 Nokia

Content
Introduction to Nokia Mastering supply chain complexity Moving from push to pull mode Working together with best suppliers Continuing to transform the industry Summary

Company Confidential
25 2006 Nokia

Foundation of Nokias leadership

CUSTOMER SATISFACTION

OPERATIONAL EXCELLENCE

GREAT PRODUCTS

Supplier Network

Company Confidential
26 2006 Nokia

Nokia supply chain fundamentals

Customer Delight
Performance Leadership Quality Leadership Flexible and Trusted Supply Cost Leadership

Technology Planning Fact Based Process Management People, Leadership & Value Based Partnership
Company Confidential
27 2006 Nokia

Company Confidential
28 2006 Nokia

Sourcing Family to create solution

Business Planning & Product Program Mgt Supplier Management & Development Materials Management

Operations Business Planning

Business Groups

Solution Creation
Sourcing and R&D Logistics

End to End Processes

Company Confidential
29 2006 Nokia

Strategic goal: Customer first

Collaboration
Supplier Base Process Integration Speed-up Product & Technology Introduction Drive Quality for Competitive Advantage Ensure Flexible and Trusted Supply Create Total Cost Leadership People and Competences

Key Sourcing Strategies

Company Confidential
30 2006 Nokia

Strategic Assets

Transforming supplier portfolio

% of Purchases Economy of scale
Rest 20% Top 1130 20% Top 10 Suppliers 60%

Competition

Deep Co-operation

Far less suppliers than competitors Long-term relationships

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31 2006 Nokia

#1 customer

Coherence and interaction of the four elements bring leadership

25% Brain 25% Hands

Passion and Trust

25% Heart
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32 2006 Nokia

25% Guts

Partnership Journey
Customer Delight
Creation of Positive Delta

Optimized Processes 120% Target Setting

Mutual PASSION and TRUST

Company Confidential
33 2006 Nokia

Content
Introduction to Nokia Mastering supply chain complexity Moving from push to pull mode Working together with best suppliers Continuing to transform the industry Summary

Company Confidential
34 2006 Nokia

Sourcing & Procurement strategic intent

The Most Efficient Supplier Network to Offer the Best Solutions to Meet Customer Expectations

Company Confidential
35 2006 Nokia

Working together beyond the obvious

Collaboration Inside Outside

Execution

Company Transformation

Company Confidential
36 2006 Nokia

Examples of supplier network

Mechanics Clusters Modules Nokia Standard Tooling Pseudo ODM Supplier Day
Company Confidential
37 2006 Nokia

Whats Next Sourcing Excellence

Sourcing Excellence as a key ingredient for Nokias business model transformation
Benefits:

Innovation Time to market Risk management OPEX/CAPEX efficiency Financial model flexibility Agility

Redefines core/context

Company Confidential
38 2006 Nokia

Excellence and Excitement

Leadership Culture

Vision Deeper Collaboration

Miracles Excellent
and

Very few do

Operational

Basic

Everyone does Directly or Indirectly

Company Confidential
39 2006 Nokia

Excellence in Sourcing

Known Best Benchmark

New

Performance

1. Close gap to benchmark 2. Identify new excellence domains 3. Help Nokia to transform beyond the obvious

Excellence Domains
Company Confidential
40 2006 Nokia

Content
Introduction to Nokia Mastering supply chain complexity Moving from push to pull mode Working together with best suppliers Continuing to transform the industry Summary

Company Confidential
41 2006 Nokia

Working Together
ORGANISATION

SUPPLIER PORTFOLIO
Rest 20 % Top 1130 2 0% Top 1 0 S up pliers 60%

PARTNERSHIP RELATIONSHIP
End Customer Delight
Creation of Positive Delta Optimized Processes 120% Target Setting

Mutual TRUST and PASSION

INTEGRATION INSIDE NOKIA

CUSTOMER SATISFACTION OPERATINOAL EXCELLENCE Supplier Network GREAT PRODUCTS

EXECUTION

Company Confidential
42 2006 Nokia

Summary
Managing Supply Chain complexity Moving from Push to Pull mode through supplier integration Extending the Lead with the Best Suppliers Passion for creating superior solutions to lead the market Make the impossible possible through collaboration

Transformation Continues

Company Confidential
43 2006 Nokia