KONE sourcingTomi Kommeri, Head of Indirect Sourcing26 September 2016, Aalto – Management of external resourcestomi.kommeri@kone.com

Lucas Oil Stadium

– Indianapolis,

Indiana, USA“Well before the first kick-off in 2008,

our KONE service team began

developing its partnership to secure a

smooth equipment transition from

installation to game day operations,”

comments Ryan Schenk, Account

Manager.

Sourcing as a job

2 23.9.2016

Sourcing is not about cheating and beating the suppliers

Sourcing as a jobA NICE COMBINATION OF VARIOUS CHALLENGES

Working closely with management

Working closely with all internal teams

Working closely with suppliers

3 23.9.2016

Analysis

Strategic thinking, target setting and roadmap planning

Change management

People engagement and leadership

Operational fire fighting

Interested?Summer trainee program, follow kone.com

5 23.9.2016

KONE in brief

Sourcing transformation

KONE category management

Case 2: Car fleet

Case 3: Travel

KONE SourcingCONTENTS

Case 1: Direct materials

Case 4: Solely price driven category

Learnings

KONE in brief

KONE is a global leader in the

elevator and escalator industry.

Our job is to make the best of the

world’s cities, buildings and public

spaces.

– KONE provides elevators,

escalators, automatic doors,

turnstiles, monitoring and access

control systems

– services covering the entire lifetime

of a building, from the design

phase to maintenance, repairs and

modernization solutions

Family-owned company, founded

in Finland

in 1910

400,000 customers

Net sales EUR 8.6 billion in 2015

Listed on the NASDAQ Helsinki

since 1967

The global populationis increasingEstimates state the world’s population will reach 8.5 billion in 2030, 9.7 billion in 2050 and 11.2 billion by 2100

The world’s citiesare growing200,000 people move into cities each day – the same as 140 people every minute

Development of megacities CITIES WITH INHABITANTS OVER 10 MILLION PEOPLE

Source: U.N. World Urbanization Prospects 2009

23 September 20169 © KONE Corporation

Needs for sustainable and smart urban living

Affordable,

accessible

vertical

housing

Safe,

reliable,

efficient

infrastructure

Improving

living

standards and

convenience

Eco-

efficiency and

sustainability

Growing

building

intelligence

Well being

and

happiness

23 September 2016

1

0

WE ADDRESS THESE NEEDS TO CREATE MORE VALUE

At KONE, ourmission is toimprove the flowof urban lifeWe understand People Flow in and between buildings, making people’s journeys safe, convenient and reliable.

We make cities better places to live.

OUR MISSION

KONE deliversthe best People Flow®

experience We provide Ease, Effectiveness and Experiences to users and customers,over the full life cycle of buildings.

OUR VISION

23 September 201613

UNITS PER REGION

Global elevator and escalator markets (2015)

New elevator and escalator

market 840,000 units

Note: (2014: 850,000 units, adjusted)

3%

4%

8%

2%

63%

20%

EMEA

China

Japan and

South-Korea

Rest of

Asia Pacific

South America

North America

KONE’s global scale

23 September 201614

Coal Valley

Hyvinkää

Essen

Kunshan

Allen

Chennai

Torreón

Helsinki

Cadrezzate

Pero

Ùsti nad Labem

Nanxun (GiantKONE)

Global R&D site

Production site

Head office

KONE collaborates with

distributors in close to 80 countries

KONE is present

A typical working day for KONE

450 units

delivered

every day1.1 million

units in service

400-500

orders booked

70,000

maintenance

visits400,000

customers

served

Operations

in 60 countries

10,000

packages through

our distribution

centres

16 23.9.2016

Sourcing challenges

Production, employees and customers in all

continents

– 45 000 stakeholders

– Various backgrounds and cultures

Low volume, high diversity

– Two key businesses:

New Elevators and Escalators = centralized,

standardized

Maintenance and Modernization = decentralized, less

standardized

– 1M units in service. Not all of them KONE brands

People Flow Innovations and quality

Strong focus on China market

17 23.9.2016

KONE in brief

Sourcing transformation

KONE category management

Case 2: Car fleet

Case 3: Travel

KONE SourcingCONTENTS

Case 1: Direct materials

Case 4: Solely price driven category

Learnings

Corporate social responsibility report 2013WHY SOURCING IS RELEVANT?

19 23.9.2016

Actively developing supplier excellence

Corporate social responsibility report 2013WHY SOURCING IS RELEVANT?

Confidential | © KONE Corporation2

0

Commodity TrendsWHY SOURCING IS RELEVANT?

Brent Oil

0

10

20

30

40

50

60

70

80

90

Jan-0

8

Feb-0

8

Mar-

08

Apr-

08

May-0

8

Jun-0

8

Jul-08

Aug-0

8

Sep-0

8

Oct-

08

Nov-0

8

Dec-0

8

Jan-0

9

Feb-0

9

Mar-

09

Apr-

09

May-0

9

Jun-0

9

Jul-09

Aug-0

9

Sep-0

9

Oct-

09

Nov-0

9

Dec-0

9

Jan-1

0

Feb-1

0

Mar-

10

Apr-

10

May-1

0

Jun-1

0

Jul-10

Aug-1

0

Sep-1

0

Oct-

10

Nov-1

0

Dec-1

0

Jan-1

1

Feb-1

1

Mar-

11

Apr-

11

May-1

1

Jun-1

1

Jul-11

Aug-1

1

Sep-1

1

Oct-

11

Nov-1

1

Dec-1

1

€ P

rice p

er

barr

el

Brent Oil

Europe

1,500

2,500

3,500

4,500

5,500

6,500

7,500

Jan-0

8F

eb-0

8M

ar-

08

Apr-

08

May-0

8Jun-0

8Jul-08

Aug-0

8S

ep-0

8O

ct-

08

Nov-0

8D

ec-0

8Jan-0

9F

eb-0

9M

ar-

09

Apr-

09

May-0

9Jun-0

9Jul-09

Aug-0

9S

ep-0

9O

ct-

09

Nov-0

9D

ec-0

9Jan-1

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eb-1

0M

ar-

10

Apr-

10

May-1

0Jun-1

0Jul-10

Aug-1

0S

ep-1

0O

ct-

10

Nov-1

0D

ec-1

0Jan-1

1F

eb-1

1M

ar-

11

Apr-

11

May-1

1Jun-1

1Jul-11

Aug-1

1S

ep-1

1O

ct-

11

Nov-1

1D

ec-1

1

Co

pp

er

& S

t. S

tee

l [E

UR

/t]

200

300

400

500

600

700

800

900

1,000

Ho

t-ro

lled

Ste

el [

EU

R/t

]

Copper Stainless Steel HR Steel

China

14,000

24,000

34,000

44,000

54,000

64,000

Jan-0

8F

eb-0

8M

ar-

08

Apr-

08

May-0

8Jun-0

8Jul-08

Aug-0

8S

ep-0

8O

ct-

08

Nov-0

8D

ec-0

8Jan-0

9F

eb-0

9M

ar-

09

Apr-

09

May-0

9Jun-0

9Jul-09

Aug-0

9S

ep-0

9O

ct-

09

Nov-0

9D

ec-0

9Jan-1

0F

eb-1

0M

ar-

10

Apr-

10

May-1

0Jun-1

0Jul-10

Aug-1

0S

ep-1

0O

ct-

10

Nov-1

0D

ec-1

0Jan-1

1F

eb-1

1M

ar-

11

Apr-

11

May-1

1Jun-1

1Jul-11

Aug-1

1S

ep-1

1O

ct-

11

Nov-1

1D

ec-1

1

Co

pp

er

& S

t. S

tee

l [R

MB

/t]

1,400

2,400

3,400

4,400

5,400

6,400

Ho

t-ro

lled

Ste

el [

RM

B/t

]

Copper Stainless Steel HR Steel

United States

2,000

4,000

6,000

8,000

10,000

Jan-0

8F

eb-0

8M

ar-

08

Apr-

08

May-0

8Jun-0

8Jul-08

Aug-0

8S

ep-0

8O

ct-

08

Nov-0

8D

ec-0

8Jan-0

9F

eb-0

9M

ar-

09

Apr-

09

May-0

9Jun-0

9Jul-09

Aug-0

9S

ep-0

9O

ct-

09

Nov-0

9D

ec-0

9Jan-1

0F

eb-1

0M

ar-

10

Apr-

10

May-1

0Jun-1

0Jul-10

Aug-1

0S

ep-1

0O

ct-

10

Nov-1

0D

ec-1

0Jan-1

1F

eb-1

1M

ar-

11

Apr-

11

May-1

1Jun-1

1Jul-11

Aug-1

1S

ep-1

1O

ct-

11

Nov-1

1D

ec-1

1

Co

pp

er

& S

t. S

tee

l [U

SD

/t]

250

500

750

1,000

1,250

Ho

t-ro

lled

Ste

el [

US

D/t

]

Copper Stainless Steel HR Steel

23 September 2016 Confidential | © KONE Corporation21

Our strategy leads us toward our vision

Global Sourcing was one of the strategic must-win battles in 2005-2008

CUSTOMER FOCUS1We deepen our understanding of our most important customer groups and

segments and improve our sales approach

PRODUCT/SERVICE PORTFOLIO2Our cost competitive and

innovative solutions enable us

to grow in mature and growing

markets.

OPERATIONAL EXCELLENCE3We streamline our processes to

become more productive and faster

GLOBAL SOURCING4We use our joint purchasing power and

collaborate with suppliers to improve cost

competitiveness.

ESCALATOR & DOOR BUSINESS5We improve profitability in the escalator business with a new product portfolio and low cost

production, and in the door business by collaborating better

within SEB

23 23.9.2016

FROM TO

Price driven Cost driven

Unit Focus Enterprise Focus

Fragmented processes Harmonized processes

Maverick Buying Contracts Compliance / Mgmt

Reactive Proactive

Multiple Supplier Interfaces ONE face to supplier

Functional Cross-functional

Changing role of Sourcing

24 23.9.2016

KONE in brief

Sourcing challenges

KONE category management

Case 2: Car fleet

Case 3: Travel

KONE SourcingCONTENTS

Case 1: Direct materials

Case 4: Solely price driven category

Learnings

Category management concept is

key success factor for cross-

functional collaboration.

Category teams consist of

Sourcing, R&D, factories and

Quality - represent the cross-unit

interests of all business’ through

the conclusion of Global ‘Frame’

agreements.

Category teams can be driven by

sourcing or other functions.

Our motto is:

“Global Reach – Local Presence"

KONE category management framework

Majo

r pro

jects

Ele

vato

rs

Escala

tors

Modern

ization

HQ

County

units

Door

busin

ess

Spa

res S

up

ply

(MPB, TRB, KDB, Spares,...)

Facilities

ICT

Travel

Car Fleet

Installation Subcontracting and Equipment

Signalisation

Electrification

Cars & Doors

Logistics

Escalators

Mechanics

Machines

Businesses

Ca

teg

orie

s

KONE Supplier Quality Mgmt (SQM) = drivers of Supplier Development together with Sourcing

Dedicated global team

Supplier Development process

Segmentation based supplier

management

– Audits

– Quality Steering Meetings

– Performance follow-up, scorecards

– Certificates

27 23.9.2016

KONE in brief

Sourcing challenges

KONE category management

Case 2: Car fleet

Case 3: Travel

KONE SourcingCONTENTS

Case 1: Direct materials

Case 4: Solely price driven category

Learnings

28 23.9.2016

Direct MaterialsTOTAL COST OF OWNERSHIP – KEY DRIVERS

Impacting factors:

1. Specifications

– Material requirements

– Standard vs KONE design

– How suppliers/KONE can manufacture effectively?

– Easy to install

– Low maintenance costs

– Reliability, risk of quality issues

2. Make or buy

– Low cost countries

– Supplier’s capability provide high quality and adequate capacity to meet remarkable load changes

3. Price negotiations

4. Logistics

5. Demand

– Volume

Sourcing can address just a minimal share of TCO

with traditional opportunistic sourcing approach

Preferred customer status

Vs

Lock-in / sole-supplier situation

29 23.9.2016

KONE in brief

Sourcing challenges

KONE category management

Case 2: Car fleet

Case 3: Travel

KONE SourcingCONTENTS

Case 1: Direct materials

Case 4: Solely price driven category

Learnings

30 23.9.2016

Car fleetTOTAL COST OF OWNERSHIP

1. Demand management

– Optimize the nr of vehicles

– Minimize the fuel consumption = eco initiative

– Reduce accidents = safety

2. Brand & HR management

– Image, green fleet

– Safety

3. Price

– Vehicles, leasing, maintenance, racking

– Fuel?

4. Logistics, process

– Tapes, racking

– Fleet management workload

Car fleet TCO optimization is primarily about demand

management

Thesis work done this year

by Aalto ERM studend

31 23.9.2016

KONE in brief

Sourcing challenges

KONE category management

Case 2: Car fleet

Case 3: Travel

KONE SourcingCONTENTS

Case 1: Direct materials

Case 4: solely price driven category

Learnings

2007 2008 2009 2010 2011 2012

KONE travel spend

KONE turnover

32 23.9.2016

TravelSpend development 2007-2012

Travel ban

communicated

by Exec Board

33 23.9.2016

TravelTOTAL COST OF OWNERSHIP

1. Demand management

– Budget is the driver of TCO

– How to avoid travelling?

2. Compliance

– Minimize the use of tickets with unrestricted change option

– Book early in advance

– Use the online tools to minimize travel agency fees

3. Price

– Travel agency, hotels, airlines

Travel TCO optimization is 90% about demand management

34 23.9.2016

KONE in brief

Sourcing challenges

KONE category management

Case 2: Car fleet

Case 3: Travel

KONE SourcingCONTENTS

Case 1: Direct materials

Case 4: Solely price driven category

Learnings

35 23.9.2016

Solely price driven category

Right price is always one key element of TCO

...however we could not identify any purely price driven categories in KONE

?

36 23.9.2016

KONE in brief

Sourcing challenges

KONE category management

Case 2: Car fleet

Case 3: Travel

KONE SourcingCONTENTS

Case 1: Direct materials

Case 4: Solely price driven category

Digitalization

Digitalization and

increasing speed of

technological change2 3Changing growth

dynamics in our

markets1Increasing

competition and

continued price

pressure

A growth industry – which brings challenges and

new opportunities

Data storage

and integration

Everything becomes mobile

and connected

Customers have full real-time

transparency

Users demand increased

convenience, efficiency and

enjoyment in People Flow

New ”ecosystems” emerging

around smart buildings and

cities

Cloud

Connectivity

Sensors

Mobility

Analytics

Digitalization is

accelerating in the

elevator and

escalator industry

Field operations

productivity

Sales management

efficiencyNew business models

New services

and solutions

Customer experience and user engagement

Digital way of working & culture

Systems and platforms – Technology enablers

Productivity Growth

KONE drives improved efficiency and new growth

enabled by digitalization

Bringing new challenges for sourcing

Speed: slow fast moving

Develop in uncertainty

– Bimodal and agile project models

– Learn and develop through implmentation

– No clear specs

Manage partners and ecosystems

– We cannot do and control everythingourselves - Rely on others

– Revenue share

We need new approaches and contractual models to managepartnerships

We need to develop new competencesn sourcing. Cross functional alignment

Still limited amount of resources

41 23.9.2016

KONE in brief

Sourcing challenges

KONE category management

Case 2: Car fleet

Case 3: Travel

KONE SourcingCONTENTS

Case 1: Direct materials

Case 4: Solely price driven category

Learnings

42 23.9.2016

KONE Learnings

Cross unit category management

Cross functional category management

Total cost of ownership

– Price vs Demand management

– Quality and safety

Sourcing in the agenda of top management

Digitalization setting us new requirements

23 September 2016 Confidential | © KONE Corporation43

Tomi.kommeri@kone.com

+358 40 5414423

Makkah Clock Royal

Tower

Hotel – Makkah,

Saudi ArabiaIt was critical that up to 75,000 people

could exit all seven buildings in an

organized and timely manner five

times a day for prayer.

KONE’s specially recruited design and

project teams delivered a solution that

met these extreme people flow

challenges.