Analyst Roundtable –

Global Supply China: The Lenovo Transformation

Story

Gerry P. Smith
Senior Vice President, Global Supply Chain

December 3, 2008 – Hong Kong

© 2008 Lenovo
The Legend Behind Lenovo

1980s 1990s Today

• US$16+ billion in revenue

• 23,000+ employees in 60+ countries
• Customers in 160+ countries

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Since 2005, Lenovo has…

Closed the acquisition ahead of schedule

Become a global PC leader (US$16B in FY07/08; sales in 160 countries)

Made unprofitable business profitable

Reached record high share in China (#1 for 11 straight years)

Accelerated innovation across the product line

Increased customer satisfaction

Transformed the Global Supply Chain into a competitive weapon

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Worldsourcing Drives Innovation

Diverse global perspectives No headquarters

Input and ideas from everywhere Operate in the time zone called “now”

Distributed decision-making Serving markets anywhere

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 Exceptionally Engineered Products

The Perfect Laptop - X300!

ThinkPad
Silent Owl Blade

BatteryStretch Activated. The FIRST Lenovo ThinkStation

Battery life extended +1:04 minutes
Click here to view settings.

ThinkCentre M57/M57p ECO

Slim AC/DC Adapter
ThinkVantage – Battery Stretch

Green Initiatives ThinkVision - Best 4-Display Solution

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A True End-to-End Global Supply Chain Organization

SVP
Global
Supply Chain

WW Services
Global Global Global
Operations &
Procurement Manufacturing Logistics
Planning
GCR
Supply Chain

PMI / Strategy & Lean Six

Chief of Staff
Consumer Comms Sigma EMEA
Supply Chain

Chief Enterprise
Human AP
Financial Legal Counsel Products
Resources Supply Chain
Officer Supply Chain

AG
Supply Chain

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Lenovo’s Global Supply Chain Network

Tilburg, NL
Paisley,Scotland
Legnica SEZ, Poland Beijing, China
Toronto, Canada
Paris, France Yamato,
Bratislava, Slovakia
Greensboro, NC U.S.A Japan
Shanghai, China
Kunshan, China
Raleigh, NC U.S.A Baddi, India
Huiyang, China
Monterrey, Mexico Bangalore, India
Shenzhen, China
Pondicherry, India Singapore
Panama

Campinas, Brazil

Manufacturing
Fulfillment Operations
&/or Distribution Center
GSC Professional Center

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Our Mission

Become #1 Supply Chain in the PC Industry

• Exceed Our Customers’ Requirements
– Delivery
– End-to-End Cost
– Quality

• Enhance Lenovo’s Financial Position - CCC

• Build Strong Partnerships With Our Suppliers

• Create Flexible & Efficient Supply Chain

• Build Team & Talent

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..and Our Journey

Achieve best
Enable practices in the
Stabilize competitive PC industry
operation and advantage for
close Lenovo
performance
gaps

Phase 1 Phase 2 Phase 3

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Keys to Success

Talent
Strategy

KPIs

BMS

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 Building a World Class Supply Chain Organization
SVP
Global
Supply Chain

GCR EMEA AG AP
Global Supply Chain Supply Chain Supply Chain Supply Chain
Procurement
Chief
Global Logistics
• Building on a strong foundation
Financial
Officer • Infusing new diverse talent
Legal
Global • Across breadth and depth of the organization
Manufacturing
Council
WW Services
HR Operations & Planning

Enterprise Strategy &

Products Communications
Supply
Chain PMI / Consumer

Chief of Staff

Lean Six Sigma

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Lenovo’s Strategic Focus

Grow faster and more profitably than the industry by delivering

exceptionally engineered PCs and an unequaled ownership experience.

1 2 3 4 5
Pursue Embrace Win in Gain Build
Operational Customer Priority Scale Our
Excellence Intimacy Businesses Profitably Brand

Accelerate
Accelerate Trust-Based
Trust-Based &
& Performance-Driven
Performance-Driven Culture
Culture

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GSC Strategy

Grow faster and more profitably than the industry by delivering

exceptionally engineered PCs and an unequaled ownership experience.

1 World-Class Industry- Premier

Pursue Serviceability Leading Cash
Operational E2E Costs Conversion
Excellence Cycle

Best-in-Class Seamless Accelerate

Quality Execution on Lean Six Sigma
BT/IT Future Processes WW
Releases

Accelerate
Accelerate Trust-Based
Trust-Based &
& Performance-Driven
Performance-Driven Culture
Culture

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 WW Order-to-Delivery
Three-Year Trend

89% Improvement Keys to Success:

• Leading With Lean – Speed / Efficiency
• Improved Materials Management
• Re-engineered Logistics
• Manufacturing Cycle Time Improvement

Jan Jan Jan Oct

2006 2007 2008 2008

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GSC KPI Results Q2 FY06/07 – Q2 FY08/09

Two-Year
Improvement

End-to-End Cost = E2E Cost 32%

+ Manufacturing
Material Cost Achieved Target
+ Logistics
+ Excess & Obsolete 8 Straight Quarters
+ Overhead CCC (Days):
DPO 22%
E&O 286%
Serviceability
WW NB 77%
WW DT 102%
Quality
DOA +30 NB 54%
DOA +30 DT 37%

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Leading with Lean Six Sigma
• Key Success Factors
– Part of Corporate KPIs, Financial & Operational Metrics
• 30% Improvement (cost, speed, quality) of Core Business Process
– Aligned to strategy through Hoshin planning
– Across all Lenovo business functions
– Part of Lenovo Business Management System, CEO review 2x per quarter

• Key Successes

YTD • 81% reduction of custom image cycle time

Hard Savings • Latin America Kaizen drives +30pt serviceability uplift
• Logistics enables 4x increase in end-of-Q shipments
• Forecasting improves global process E2E
• Service parts savings opportunity

Completed projects deliver:

Financial, operational & quality improvements
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Our Journey Continues…

Achieve best practices

in the PC industry
Enable competitive
Stabilize operation advantage for
and close Lenovo
performance gaps
• Expand mfg / logistics footprint
• Use LEAN to drive efficiencies
• Hit material cost targets
• Maintain commitment to green
• Consistently achieve E2E costs
• Develop leaders with global mindset

Phase 1 Phase 2 Phase 3

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 Procurement Transformation: The Challenge Of Two

Lenovo Lenovo
International China

• Internationally Dispersed • China’s Golden Supply Chain

• Cost Challenged • Cost Advantaged
• Serviceability Challenged • Serviceability Excellence
• Unique Requirements • Unique Requirements
• Unique Relationships • Unique Relationships

Lenovo’s Supply Base

• Conflicting Messages
• Conflicting Priorities
• Unreliable Forecast
• Unclear Requirements

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Procurement Transformation: The Power Of One

• One Focus
• One Message
• One Team
• One Business Management System

Lenovo’s Supply Base

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Procurement: Material Cost Management System

Industry
Benchmark P&L Driven

Str SVP Office

etc Management Review w
hC vie
hal R e
len y
ge e ekl
W

Cost
Cost Target
Target

Deliverables:
• Over-achieve SVP cost targets across all commodities
• Over-achieve industry average
• Weekly deep dive across all commodities (SVP driven)
• PTI retention system shields savings from Sales Geo’s

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Procurement: Continuity of Supply

• Regional Based State-of-the-Art Manufacturing Facilities

• Focus on Parts Shortage Prevention Management

– Key Parts Stocked in Geo Supplier Hubs Worldwide
– DOI Compliance
– Lead-time Reduction
– 30% Upside Flexibility
– 13 weeks supply outlook
• Consolidated Purchasing Org. with COS Accountability
• Process Continuously Improved via Lean Six Sigma

GOAL: 95% Delivery in 8 Days in Mature Markets

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Procurement: Supplier Management Approach

Engagement
Agreement Management
• Commodity Strategy
• CTA & Tech. Agreement
• Supplier Selection
• Statement of Work
• RFQs and E-Bidding
• Long Term Agreement
• Share Allocation
SUPPLIER
MANAGEMENT
Execution Evaluation
• Best Price - DMO, Clean Sheet • Quarterly Exercise
• Supplier Collaboration • Score Metrics
9Daily Commit/ Hub Mgmt • Weigh Adjust by Commodity
• Quality Insurance - LRR, DOA+30

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Procurement: Excess & Obsolete – Parts Inventory

• Weekly Management System

– Enhanced Visibility and Accountability by Geo

– Interlock with all Geographies

• Focus on EOL-LTB & Shell LTS (Left To Sell)

• Improved Supply Demand Conditioning

• Align with Suppliers on E&O consumption

• GCMs have KPI for E & O

Parts Inventory E&O

8

0
06/07 Quarterly Rate 07/08 Quarterly Rate 08/09 1Q 0809 2Q

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 Manufacturing Transformation: Quality Management System

Lenovo Lenovo
International China

• Rigid & comprehensive new • Flexible & fast new product release
product release • Improving brand quality
• Premium brand quality • Best-in-class incident recovery
• Conservative incident recovery • Fluctuating DOA performance
• Consistent DOA performance • Localized process & decision-
• Multiple geographic complexity making

Integrated Lenovo Quality Management System

• Balanced time-to-market new product release process
• Common quality KPI, key processes and reporting tools
• Time & quality efficient incident recovery process
• Consistent & industry-leading DOA performance
• Common daily/weekly management review system
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Manufacturing Transformation: Cycle Time
Lenovo Desktop Pure Manufacturing Cycle Time
FY 06/07 FY 07/08 FY 08/09 (1H)
Actions: Actions: Actions: 39%
• Re-Layout project • Test process • New test deployment Reduction
• Balance mfg steps optimization • Idle time reduction
capacity • Reduce workmanship • Further line re-balancing
defects
• FPY improvement
• FPY improvement

27% YOY reduction 16% YOY reduction

Lenovo Notebook Pure Manufacturing Cycle Time

FY 06/07 FY 07/08 FY 08/09 (1H)
Actions: Actions: Actions: 28%
• LEAN mgmt set-up • Line balance • LSS method extending Reduction
• Process optimization • Idle time reduction • Quality optimization
• Line modification • Test time reduction • New test deployment
• Improve assembly
efficiency

16% YOY reduction 16% YOY reduction

Data: Lenovo International Production

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Manufacturing Transformation: Quality - DOA
Key DOA Improvement Initiatives
• Early manufacturing involvement
• Lessons Learned review & implementation
• Commodity quality improvements
• Smart Launch deployment
• Incident management system & DOA failure analysis process enhancement

Desktop DOA+30 Notebook DOA+30

29% 44%
Improvement Improvement

06/07 07/08 1Q08/09 2Q08/09 06/07 07/08 1Q08/09 2Q08/09

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Logistics Transformation: YOY Cost Reductions

Cost Per Box (Ex Fuel)

Keys to Success:
• Network and carrier optimization
Prior Year
Current Year • Shipment consolidation
• Shifts to lower cost MOT’s
• Tight accessorial management

Avg 15% YTY

Improvement

3Q07/08 4Q07/08 1Q08/09 2Q08/09

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Logistics Transformation: Delivery Performance Improvement
• Key Success Factors
– Redesigned networks
– LSS improvements on end-to-end processes
– Direct shipments & reduced deferrals

WW Global Logistics Performance

3-Year Trend
100%
% Delivery Performance to Target

90%

80%

70%

60%

50%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
FY06/07 FY07/08 FY08/09

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IR Contacts (Hong Kong) IR Contacts (Beijing)
Gary Ng – garyng@lenovo.com / +852 2516-4840 Sun Kai – sunkai@lenovo.com / +8610 5886-5679
Feon Lee – feonlee@lenovo.com / +852 2516-4843 Page 29 of 29