MOTOROLA INTEGRATED SUPPLY CHAIN (ISC)

Submission to Supply Chain Council (SCC) Award for Excellence

13 December 2006

Section 1
GENERAL INFORMATION AND PROJECT COMPLEXITY (20 points total)

1. Indicate the award category of submission: Operations

2. Provide the name of the submitting organization:

Stu Reed, Executive Vice President
Integrated Supply Chain (ISC)
Motorola, Inc.
1475 W. Shure Drive
Arlington Heights, Illinois 60004

Point of contact:
Pattie Schiele, Director, Communications
Integrated Supply Chain (ISC)
Motorola, Inc.
Integrated Supply Chain (ISC)
1475 W. Shure Drive, 2-H1
Arlington Heights, Illinois 60004
Phone: 847-632-7327
E-mail: pattie.schiele@motorola.com

3. Identify the name of the organizational unit:

Motorola Integrated Supply Chain (ISC)

4. Provide a brief mission statement of the organization.

Motorola ISC Vision
"We will be the #1 supply chain and an enabler and driving force behind
Motorola's growth and profitability."

Motorola ISC Mission

"Delivering ‘seamless mobility solutions’ to our customers by focusing on our
Top 6 Priorities and 4 Key Behaviors."

5. Scope: Provide a brief description of the supply chain and the

processes the submission spans.
In 2005, Motorola saw an opportunity to significantly improve its growth and
profitability by centralizing its supply chain function. The company
transformed from multiple, decentralized business unit-specific supply chains
to a single, integrated organization that would seamlessly support all business

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 units. The following diagram was used to explain, in basic terms, what the
new organization would do.

Today, the new organization includes the company’s global manufacturing

facilities, customer fulfillment centers and strategic sourcing operations, and
serves Motorola as one entity for maximum cost effectiveness, as the
business continues to grow. Motorola is realizing a significant competitive
advantage from the new, high-performing Integrated Supply Chain (ISC)
organization. In this submission, we share the transformation the company
made to establish a One Motorola supply chain organization and the progress
that has been realized to date.

6. External: Provide the names and number of people involved from each
supply chain partner organization in the project.
The project is the development of a supply chain organization internally at
Motorola. While the new organization’s increased efficiency and effectiveness
is impacting our strategic external supplier partners, they did not play a role in
the development of the new organization.

7. Internal: Provide the names and the number of people involved from
each functional organization and category of each organization.
The effort to build the new ISC organization took the commitment of
thousands of Motorolans. The project was led from the top of the organization
by Chairman and CEO Ed Zander and Executive Vice President Stu Reed,

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 with support from the rest of the company’s senior leadership team and the
collaboration of all business unit leaders and employees.

Following is a sampling of the key architects of the new ISC.

From Motorola’s senior leadership team:

• Pat Canavan, senior vice president, global governance
• David Devonshire, chief financial officer
• Mike Fenger, chief quality officer
• Rich Nottenburg, chief strategy officer
• Stu Reed, executive vice president, ISC
• Ed Zander, Chairman and CEO

From the ISC senior leadership team:

• Michael Annes, corporate vice president, law
• Judy Baranowski, corporate vice president, quality & supplier performance
management
• Lonnie Bernardoni, corporate vice president, new product introduction
• Jim Brennan, vice president, Connected Home Solutions
• Tim Cawley, senior vice president, global logistics
• Greg Fern, vice president, Mobile Devices
• Mike Fleming, vice president, Networks & Enterprise
• Shail Godambe, senior vice president, strategy
• Cathie Kozik, corporate vice president, information technology
• Rita Lane, chief procurement officer
• Henry Lewinsohn, corporate vice president, strategy and business
transformation
• Arlis McLean, corporate vice president, human resources
• Bob Perez, senior vice president, global manufacturing
• Stu Reed, executive vice president, Integrated Supply Chain
• Pattie Schiele, director, communications
• Carl Thielk, corporate vice president, electronic manufacturing services
(currently reporting to Bob Perez)
• Rich Valin, corporate vice president, finance

8. Provide a point of contact for each supply chain partner.

As stated in Question 6 above, our supply chain partners have benefited from
our new organization, but were not involved in developing it. However, here
are names and contact information for a small sampling of our supply chain
partners that are able to share the positive impact our new organization has
had on their business.

Industry Expert:
• Kevin O’Marah, senior vice president, strategy & market development,
AMR Research, Inc., 125 Summer Street, Boston, MA 02110; office: 617-
542-6600

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 Motorola Suppliers:
• Rich Templeton, president and chief executive officer, Texas Instruments,
Dallas, Texas, +1-214-567-7447
• Yasutaka Murata, president, Murata Manufacturing Co., Ltd., 10-1,
Higashikotari 1-chome, Nagaokakyo-shi, Kyoto, Japan; +81-75-955-6786

Section 2
IMPLEMENTATION (70 points total)

1. Describe the reason that the supply chain project was undertaken and
how it was selected.
Motorola is a Fortune 100 global communications leader that provides
seamless mobility products and solutions across broadband, embedded
systems and wireless networks. Seamless mobility means you can reach the
people, things and information you need in your auto, home, workplace and
all spaces in between, enabling smarter, faster, cost-effective and flexible
communication. Motorola is comprised of three businesses that power
seamless mobility: Connected Home Solutions, Mobile Devices and Networks
& Enterprise.

When new Chairman and CEO Ed Zander joined Motorola, he saw an

opportunity to improve Motorola’s growth and profitability through its supply
chain function. In fact, a key goal for the company is to achieve supply chain
efficiency across all businesses to most effectively deliver seamless mobility
solutions to customers. In April 2005, Motorola recruited 20-year IBM veteran
and executive Stu Reed to develop and lead a transformation of the
company’s supply chain function and turn it into a competitive advantage. A
dedicated team led by Stu formed a new ISC organization to reach across all
company businesses, functions and regions to help achieve efficiency and
cost effectiveness. Ed Zander said, “The success of our seamless mobility
vision depends on our ability to build a Motorola that is seamless inside. More
than any other change in recent years, transforming our supply chain into a
single, integrated function will help us operate as a unified, global technology
leader.”

In November 2005, Motorola was named #15 on AMR Research’s ranking

of Top 25 Supply Chains. Motorola was previously not ranked on this
industry-wide supply chain list of leaders. We are going for #1 on AMR’s
2006-2007 ranking! (Note: AMR is implementing a change in timing for the
release of its rankings; and therefore, rankings will not be released in
2006. Instead, AMR will release new rankings in spring 2007 in
conjunction with the AMR Executive Supply Chain Conference.)

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2. Indicate the duration of the project. Note if the project was a pilot that
was being rolled out. Note if the project is ongoing/still in process.
After Stu Reed joined the company in April 2005, he and the ISC's 20,000+
dedicated employees and some 15,000+ contractors -- representing one-third
of the entire corporation -- fine tuned and began executing the strategy of the
new organization. As of December 2006, the new organization continues to
improve its efficiency and effectiveness and is proving to be a competitive
advantage for Motorola. Institutionalizing the new ISC is an ongoing effort and
the organization continues to improve its performance to further accelerate
Motorola's growth and profitability.

3. Describe, in detail, the process used to complete the project.

Prior to the formation of the ISC, each of Motorola’s business units was
running its own separate supply chain and was not fully leveraging cross-
company strengths to enable better cost benefits. We knew there was a
better way to serve our customers and collaborate with suppliers around the
world through our supply chain. We undertook a strategic analysis of our
supply chain functions and identified six key priorities on which we needed to
work to successfully optimize our supply chain.

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 Organization Execution
Efficiency Excellence

Common, Deep
Leveraged IT Supplier
Solutions Partnerships

Manufacturing
Quality
and Logistics
Renewal
Optimization

1) Execution Excellence: Our goal was to become a One Motorola

Integrated Supply Chain organization, driving efficiencies in everything
we do as a company. We developed a management system to
transform the supply chain in the midst of an aggressive, competitive,
ever-changing business environment. We supported Motorola's growth
and financial performance while improving the value chain, resulting in
increased labor productivity.

• Established new One Motorola ISC organization

• 51% increase in quarterly revenue per Supply Chain head
• 75% increase in quarterly units shipped per Supply Chain head

2) Deep Supplier Relationships: The first step to drive deep supplier

relationships was to align ourselves closely with all of the Motorola
businesses to create One Motorola. Next, we wanted to position our
suppliers as business partners, bringing the right suppliers into the mix.
We accomplished this through rationalization and by taking a logical
approach to our sourcing needs and the strategic consolidation of our
suppliers through fact-based negotiations. Results include:

• Achieved savings targets

• Rationalized supply base significantly (e.g., in one category the
number of suppliers was decreased from 170 to less than 10; in

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 three additional categories, the number of suppliers was reduced
from 42 to 10, from 14 to 5 and from 38 to 8, respectively)
• Increased percentage spend (~ 91%) with Top 150 suppliers
• Raised quality expectations for suppliers: “Perfect Quality”
• Institutionalized supplier performance management
• 2nd Annual DELIVERMOTO Supplier Conference in Singapore

3) Manufacturing and Logistics Optimization: We strategically

optimized our manufacturing footprint and product flows to further
improve productivity, while growing the business. Simultaneously, we
launched Lean manufacturing processes and best-practice sharing
activities across all sites through our Teaming for Manufacturing
Excellence (TME) initiative and eliminating non-value-added activities.
An added resulting benefit is the creation of a consistent One Motorola
look and feel across our global manufacturing facilities. Specific
results include:

• 40% reduction in footprint by year-end 2006 (from year-end 2005)

• 22% improvement in inventory turns
• Realization of ongoing benefits of restructuring activities

4) Quality Renewal: To ensure product quality for our seamless mobility-

inspired products, we had to instill a “back-to-basics” approach. To
date, we have cut customer-impacting quality spills by 30%.
Additionally, and more importantly, at the base we have seen a 2X
reduction in defects from our suppliers.

• 30% fewer total spills to customers

• Sizeable cost of poor quality (COPQ) reduction
• 2X-defects reduction in supplier parts per million
• 20% reduction in factory-defective parts per million units

5) Common, Leveraged IT Solutions: For IT, we focused on process

first, bringing our businesses together and then leveraging our IT
spend across One Motorola. Also, we have done a better job at
bringing our partners (i.e., customers, suppliers, etc.) onto our
systems. We've brought on three times as many partners as before
and in half the time.

• Greater than 80% of project spend on leveraged systems

• On-boarding capability for partners increased by 3X
• More comprehensive visibility tools for all businesses
• Leveraging leading-edge, competitively focused technology

We knew we were on the right path when InformationWeek magazine

ranked Motorola #12 among the top 500 IT innovators in 2006 and #1

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 in the manufacturing industry segment. This ranking represents a
significant jump from our #46 ranking in 2005 and marks the second
consecutive year that Motorola has been ranked in the IT top 50.

Motorola achieved a #1 ranking in the manufacturing segment by

delivering new business value to the ISC through the use of innovative
technology. One example of this value-add is the integration with
Motorola’s manufacturing partners. Powered by our improved
integration between businesses that allows us to operate in a “plug-
and-play” model, the ISC has been able to manage supplier
relationships more effectively, hold suppliers more accountable,
achieve higher quality and reduce costs. This work also aligns to an IT
strategy called "business velocity," which focuses on delivering simpler
business processes. Another tangible, value-add example is the
increased visibility to data. For instance, Motorola executives can
access a “live” business-results dashboard (i.e., product-shipment
data) which is available on an Internet portal as well as through their
Motorola Q devices, providing them with visibility to a virtual supply
chain in a seamless manner … anywhere, any time.

6) Organization Efficiency: We optimized a support structure for the

transformation of Motorola to create a pervasive culture and metrics
that would help foster this transformation.

• Created culture of “doers” not “talkers”

• Encouraged brute-force commonality
• Improved indirect labor productivity – a reduction of ~15%
• Achieved greater variability

By executing on these six key priorities, Motorola today is a much

more operationally efficient and effective business and the Supply
Chain serves as a distinct competitive advantage for the company.
This has resulted in a dramatic improvement in our bottom line and has
given us the cost advantage to win.

While we have made great progress as a One Motorola Supply Chain,

we know there is more to do in our quest to become #1, especially as
our competitors and the marketplace continue to change. That said, we
also know that we are well positioned to win. The following shows a
visual depiction of the organization of the supply chain function before
and after the transformation.

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4. Identify significant challenges encountered, the process for
resolution and the solutions. Identify best practices.

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 4. Identify significant challenges encountered, the process for resolution
and the solutions. Identify best practices.
Below are three examples of significant challenges for the ISC organization.
Challenge Process
Quickly integrating Move at record-pace to create
four separate Motorola a more efficient and effective
supply chain organization in order to delight
organizations (and its customers (represented
employees and pictorially in the graphics
contractors -- directly above this table) while
representing 1/3 of the rapidly growing the business.
company -- into One
Motorola Integrated
Supply Chain
organization
Managing the The Rapid Sourcing Initiative
expansive global (RSI) is the new way of life in
supply base Motorola's Integrated Supply
Chain (ISC). RSI is a
disciplined, fact-based
approach to category
management that drives
significant bottom-line impact
for Motorola while ensuring
product quality, access to latest
technology and supply
assurance. The RSI process
requires category teams to
develop a deep understanding
of the key cost drivers and a
robust long-term sourcing
strategy. RSI is an enabler to
building trusted relationships
with key suppliers.
Measuring supply Analyzed successes and
chain performance opportunities. Building the #1
across business supply chain program based on
processes best-in-class focus on ISC Top
6 Priorities
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Solution
Quickly established a One
Motorola supply chain operation
that created leveraged
organizations supporting multiple
businesses, common processes
and a standard supplier quality
program. The new ISC framework
replaced the former structure
consisting of four separate supply
chains focused on the “vertical”
businesses which used dedicated
resources and business-specific
processes and systems, as well as
supported customers by four
separate businesses.
Achieved savings target. More
than 90% of our total spend is with
our top 150 suppliers. One
example of increased efficiency
and leveraging spend is in one
category, for instance, where we
went from 170 suppliers to 10
suppliers.
Identified six key priorities for
improvement in ISC
transformation. Executing on
strategies with significant results
achieved to date, as evidenced by
#15 AMR ranking.
Motorola survey Developed internal
results indicated that communication strategy to
the ISC needed to establish processes, guidelines
enhance and metrics across the ISC,
communication including an award-winning
effectiveness and Employee Engagement Leader
clarify roles and Toolkit; regular “Straight Talk
responsibilities to with Stu” email messages; an
more clearly align with award-winning ISC Intranet; the
the organization’s development, launch and
objectives institutionalization of a quarterly
global town hall process; and
an internal campaign promoting
the ISC’s 4 Key Behaviors and
Motorola’s five values, one of
which is One Motorola, of
which the ISC is a great
example.
The graphics below have been used extensively to reinforce our 4 Key Behaviors.
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A year later, Motorola’s follow-up
survey showed that 63% of
employees felt they were well
informed about the progress their
business unit or function is making
against its goals; 71% of
employees agreed that within their
department, they work well
together as a team; 70% of
employees see a clear link
between their work and ISC’s
objectives and strategy, while 77%
of employees believe their
performance is critical to the
success of their business unit/
function within the ISC. In
addition, 71% of ISC employees
know and understand Motorola’s
five values, and 63% of employees
believe that their senior leadership
team supports them.
5. Indicate the metrics used to measure (a) progress and (b) success.
In 2005, we told financial analysts that from 2004 to 2005, they would see a
10% improvement in each of the major metrics outlined below, and that from
2004 to the end of 2006, they would see a 40% improvement. To date, the
ISC is on-track with respect to meeting the major performance metrics
outlined below. (Also, please see additional results outlined in Section 2,
Question 3.)

• Inventory Turns
• Material Savings
• Conversion Costs
• Cost of Poor Quality
• Supply Chain Overhead

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 On an earnings conference call, Motorola Chairman and
CEO Ed Zander told financial analysts, shareholders
and the business community that the supply chain had
done a “Herculean job." He called Supply Chain
employees “the heroes,” and said that “without the
supply-chain improvements, we would have been really
challenged to efficiently and effectively fulfill our
customer demand for the” many new products we
launched that quarter.

In Motorola’s Q2’06 earnings press release dated 19

July 2006, Ed Zander said, “Motorola continues to
deliver excellent quarterly sales and earnings growth.
With our solid financial performance and unrelenting
focus on innovation and customer satisfaction, Motorola
is among the fastest growing large-cap technology
companies in the world. In the second quarter, all of our
businesses improved sales and grew profits sequentially
versus the first quarter. Motorola is well-positioned to
continue creating value for its shareholders.”

6. Document and quantify cost and performance improvement benefits.

• In every second of every hour of every day in Q2’06, we produced and
shipped 6.6 handsets
• Growth of handset shipments from Q2’05 to Q2’06 was equivalent to
the total population of Mexico City
• On track for a 40% reduction in footprint by year-end 2006 (from year-
end 2005)
• 22% improvement in inventory turns
• 30% fewer total spills
• Sizeable cost of poor quality (COPQ) reduction
• 2X-defect reduction in supplier parts per million
• 20% reduction in factory-defective parts per million units
• For more details, please also see the response to Section 2, Question
3.

7. Outline how the success of this effort supports organizational

objectives described in Section 1, Item 4.
By building a world-class supply chain with significantly increased handset
shipments -- all while growing the business -- and inventory and quality
improvements as proof points, Motorola ISC is achieving its objective of
enabling the delivery of “seamless mobility solutions” to customers.

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 These same efficiencies are enabling Motorola’s best-in-class ISC
organization to be a distinct competitive advantage. For example, one
year ago, our #3, 4 and 5 competitors shipped 50% more handsets than
Motorola. Today, Motorola is ahead of the same three competitors
combined. The increase in growth of handset shipments has been
accompanied by record company growth and profitability.

The overall performance of our ISC accomplishments contributed to the

following company financial results announced from the third quarter of
2006.

• Record quarterly sales of $10.6 billion, up 17 percent versus the year-

ago quarter
• GAAP earnings of $0.39 per share, including income of $0.10 per
share from discontinued operations and charges of $0.05 per share
from items highlighted below
• Record handset shipments of 53.7 million units, up 39 percent versus
the year-ago quarter
• Global handset market share estimated at 22.4 percent, up 3.8
percentage points versus the year-ago quarter
• Positive operating cash flow of $1.6 billion

The ISC team contributed to the company’s solid quarter in big ways, including
record-breaking achievements across the organization. For instance, as
referenced above, we shipped 53.7 million Mobile Devices units, up 39 percent
versus a year ago and up 3.6 percent compared to 51.9 million handsets shipped
during the second quarter of 2006. In addition, we set a new quarterly record in
Connected Home Solutions, shipping nearly 2.5 million digital entertainment
devices. In short, the ISC set manufacturing, packing, programming, ramping,
shipping and sourcing records in just about every ISC facility and operation in
Q3’06.

Section 3
KNOWLEDGE TRASFER (10 points)

1. Describe the efforts to share lessons from this effort with other
internal organizations.
The ISC organization regularly communicates with the larger Motorola
population, which includes approximately 35,000 employees and
contractors in more than nine countries around the world. Some of the
ways we share our supply chain strategy and successes are highlighted
below.

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 “The ISC organization launched Lean manufacturing processes and
Teaming for Manufacturing Excellence, or ‘TME.’ The objective of
TME is to leverage best practices to drive commonality throughout
our operations to achieve cost savings and quality improvements. We
participate in best-practice sharing activities across all sites through
our TME initiative and eliminating non-value-added activities.”

Stu Reed, executive vice president,

Integrated Supply Chain, Motorola, Inc.

• Executive visits to Motorola facilities to share our best practices.

Stu Reed, executive vice president, ISC, visited employees at more
than 15 facilities in 2005 and 2006 to share the company’s supply
chain strategy, explain their roles in helping to achieve success and
discuss best practices.

In addition to Stu’s efforts, other members of the ISC senior leadership

team were visible around the globe to share best practices among the
employee base.

• To name a few, in 2005-2006, Tim Cawley, senior vice president,

global logistics; Shail Godambe, senior vice president, strategy; and
Bob Perez, senior vice president, global manufacturing, traveled to all
12 of the ISC worldwide facilities, where they held operations reviews,
toured the facility/operations area, hosted Town Halls with local
employees/contractors and recognized top performers.
• Stu Reed holds an annual “Destination One” Leadership Summit
where he brings together the top 150 ISC leaders to acknowledge their
good work for the previous year, sets the strategy and cadence for the
year to come, and ensures all leaders are committed and held
accountable for executing on the agreed upon strategy.
• Ongoing visibility in Motorola’s major communication vehicles,
including the company’s radio/ TV networks and employee portal, to
share our best practices.
• The ISC organization publishes about 300 articles annually related to
our strategy, performance and best practices for internal
communication vehicles, including our award-winning ISC intranet (the
ISC intranet received three industry awards from the International
Association of Business Communicators in 2006), which is accessible
by nearly 10,000 employees, and the Motorola employee portal, which
is accessible by about 75% of Motorola's 63,000 employees worldwide.

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 • Approximately 50 leaders participate each quarter in the ISC quarterly
global town hall process, leading town halls around the world, using
consistent messaging and customizing with local content.
• Stu Reed was featured on Ed Zander's TALKMOTO radio show
(podcast), heard by about 15,000 employees worldwide, and selected
messages have been featured on Motorola TV, which is viewed by
thousands of employees at 10 of Motorola's largest facilities in various
countries around the world.
• The company’s weekly e-news service for all Motorola employees,
called Motorola Headlines News, featured 22 stories about the
Integrated Supply Chain in 2006.
• Motorola Chairman and CEO Ed Zander includes updates on the
performance and best practices of the ISC throughout the year in his
communications to all Motorola employees.
• Stu Reed updates ISC employees with a personal "Straight Talk with
Stu" email 1-2 times a month, reporting on new developments,
challenges and strategic focus areas. He also hosts a semi-annual
"Straight Talk Live" broadcast that is viewed by groups of employees in
conference rooms and/or by individuals through desktop computers.

2. Indicate how these results can be transferred to other organizations,

and specify the likely candidates for transference.
While we’re proud of our progress, we realize we have more work to do in our
quest to become a #1 supply chain and to continue enabling Motorola’s
growth and profitability through a high-performing, best-in-class ISC. We
anticipate sharing our “transformation” story with external audiences in 2007
and 2008 at various industry conferences, where we plan to secure keynote
speaker engagements. The potential audience would be any company
looking to improve its supply chain operations through a demand-driven
supply network and achieve efficiencies, while contributing their company’s
bottom line. We believe this is an important way to transfer our best practices
to other organizations that may benefit from our challenges and key learnings,
while highlighting Motorola as a thought leader. Likely candidates include
some of the organizations that were ranked lower than Motorola on AMR
Research's 2005 Top 25 Supply Chain list. We say this because we, too,
have engaged in benchmarking activities with several companies ranked
higher than Motorola (i.e., Dell, Johnson & Johnson, etc.). In addition, we
envision Motorola’s ISC transformation to be featured as a case study in
targeted trade publications, as well as feature stories in key business
publications (e.g., Business Week, The Economist, etc.). We will also
continue to communicate directly with our suppliers through our usual
communication channels as well as during the 3rd Annual Supplier
Conference slated for fall 2007.

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What the Financial Analysts are saying …

What the Industry Analysts are saying …

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The Bottom Line
The bottom line is that by executing on our top 6 priorities, the Integrated Supply
Chain organization is much more operationally efficient and effective, further
enabling Motorola’s continued growth and profitability. The Integrated Supply
Chain serves as a distinct competitive advantage for Motorola, resulting in
improved bottom line results, while giving us the cost advantage to win! And in
the spirit of continuous improvement, we are committed to further increasing the
rate and pace at which we operate in our quest to become a #1 supply chain!

-- # # # --

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