Philips Lighting ( ticker: LIGHT) - a global leader in lighting products, systems and services - delivers innovations that unlock business value; providing rich user experiences that help improve lives. Serving professional and consumer markets alike, leads the lighting industry in leveraging the Internet of Things (IoT) to transform homes, buildings and urban spaces. With 2015 sales of EUR 7.5 billion, Philips has approximately 36,000 employees in over 70 countries. Through the application of multiple tools and techniques within the Project Management (IPECC, PDCA), Lean, and Six Sigma methodologies within its ‘End-to-End Outdoor Made-to-Order’ (Outdoor MTO) project initiative, Philips Lighting achieved the following advances over 18 months:

 Consistent delivery reliability exceeding 96% (up from 75%)  Committed 4-week customer lead-times increased from 1% to 42% of Outdoor portfolio  Agent NPS scores improved from -56 to +4  Improvements replicated across over 50% of the Outdoor North America portfolio, impacting a projected $125m+ of annual revenue coverage Strategic Objectives and Scope Starting in 2013, Philips Lighting experienced a decline in market share year-over-year with a cumulative 15% revenue decline in the North America Outdoor Professional Channel, amidst an 11% growth trend in the market at large. In addition, external sales agent Net Promoter Scores (NPS) were extremely poor, indicating three deficiencies in the eyes of the customer: uncompetitive product lead-times, unreliable service, and poor communication.

To reverse the negative trend, Philips Lighting launched the first Site phase of the End-to-End (“E2E”) Outdoor Made-to- Order (“Outdoor MTO”) transformation. With executive sponsorship aligned, a Project Management Office (“PMO”) was formed. The PMO consisted of a Six Sigma Master Black Belt, two Six Sigma Black Belts, a Six Sigma Green Belt (Black Belt in-training), and a certified Project Manager, contributing advanced Lean techniques to boot. All team members had thorough grounding in process design and continuous improvement, and each contributed varying degrees of expertise in stakeholder management, organizational dynamics, and relevant functional areas such as Sales & Marketing, Supply Chain, Operations, and Procurement. The PMO designed a project plan and project team that designated workstream leads in the relevant cross-functional business areas and partnered them with members of the Business Transformation organization, with the purpose of applying Lean techniques to address root causes plaguing poor customer service experience and a focus on establishing market-competitive lead times. The rationale for the program was that a stronger service foundation will enable Philips Lighting to win back the trust of its customer base, drive higher sales and ultimately regain market share. At the same time, employing business functions in lead roles of the program created a much higher likelihood of sustainable change management, as the business owners were highly engaged and contributing toward the very improvements that would become the future state way of working. The PMO quickly engaged and developed an overall strategy and project plan based on the Voice of the Customer (“VoC”), which came from direct customer feedback aggregated through external sales agent, distributor, and end user surveys and interviews, as well as direct sales team and other internal stakeholder feedback, to define the overarching goals of the program. The goals of the project were tracked against 4 primary KPIs. Two leading indicators of delivery reliability and lead-time improvement combined with two lagging indicators of Net Promoter Score and Financial results. Project Implementation and timeline For project implementation, a plan to resource eight workstreams with a three phase (Site phase) approach was launched. The high-level deliverables of each workstream against the timeline of Site Phase 1 of the program are shown below. Once the transformation achieved critical milestones in the first Site Phase, the program scaled and replicated the improvement efforts to the other key strategic areas of the Outdoor portfolio.

The PMO approached each workstream utilizing different Lean, Six Sigma, Project Management, and Analytical tools depending on the specific goals of the workstream. Some of the select highlights are mentioned below.

 Value stream and swim-lane process mapping was used to map the flow of how to handle the tracking, communication, and execution of sales opportunities and component risk-buys in the Sales and Operations Planning (“S&OP”) workstream. This visual method helped optimize the future process.

 Supply Optimization (Procurement) Workstream followed PDCA or “Plan – Do – Check – Act” methodology for structured problem solving and determination of how to best optimize the flow of Outdoor lighting components from external suppliers.

 The “3C” or “Concern – Cause – Countermeasure” approach was used throughout the project in order to deep- dive any performance misses on primary or secondary KPI metrics. The program governance structure contained four groups: Steering Committee (“SteerCo”), Guiding Team, PMO, and Functional workstreams. The PMO served as the coordinating body between the key stakeholders - meeting daily with the workstream leads, receiving guidance and management bi-weekly from the Guiding team, and receiving direction and support on project risks monthly from the executive SteerCo. Size of the project challenge Philips Lighting in North America has four (4) Outdoor factories and over 300 product families that generate over $150M in annual revenue, and ultimately, required analysis and optimization for lead-times and serviceability. While there is some overlap, each factory produces essentially unique products for varying applications that prevented a true one-size- fits-all solution. Combined, the factory site, field teams, and Lighting headquarters’ core and extended project members represented over 200 stakeholders, including a cross-continental executive leadership situated in North America and Europe. Accordingly, the sites were thus split into phases and underlying product family ‘waves,’ allowing the PMO to prove success and then scale up and leverage best practices accordingly. The families were broken down into multiple waves based on a Pareto approach in order to make the implementation of the improved Customer Service Offering practical. The goal of the first three waves in a given factory site was to target products accounting for up to approximately 80% of 2014/2015 top-line sales, and then transition toward a self-sustained way of working, amongst the business functional owners, for subsequent improvements thereafter. The top 80% of sales was driven by approximately 20% of the Outdoor product families, thus enabling the PMO to focus project scope on a more manageable, yet highly impactful, portion of the portfolio.

The business results of the E2E Outdoor Made-to-Order transformation As Philips’ Professional North America organization aspires toward taking the leap toward new heights in the lighting industry and connected/IoT space, it acknowledged at the outset of the Outdoor program, that having stable business processes would be critical in realizing its ambition. Executing on all the business fundamentals (service, delivery, and communication), would instill confidence in its customer network, from which sustained business growth could be built. Below are some of the key highlights/results from this program: Lead time: A very prominent shift in the CSO distribution resulted via the program’s efforts. Through an integration of sheer improvements, validation, and data cleansing, there was a tremendous increase in the more-competitive ‘4-week’ lead-time bucket: up from 1% in the beginning of the program, to over 42% of the covered product families being committed to 4-week lead-times. Service Reliability: All 4 Outdoor North America factories (San Marcos, Boisbriand, Camargo, and Littlestown) embraced improvement efforts and realized outsize performance results in service for the program’s targeted product families scaled up over the 18 month timeline. Consistent delivery reliability was proven: 96%+ service offer reliability & execution reliability across all product families launched in the program. Net Promoter Score: Agent NPS scores for the core areas that Outdoor MTO efforts impacted, improved drastically over the time period, from an average of -56 in January 2015, to +4 in June 2016. Financial Results: Positive impact on over 50% of the Outdoor portfolio (by revenue) - a projected $125m+ of revenue by year-end 2016, and average sales growth of 20% on covered product families.

The final capstone of the project was to author and communicate a playbook containing problem description, methodology, techniques, KPIs, governance, and lessons learned based upon the activities and results of the transformation. This comprehensive, proven-concept document was published within the Philips community to replicate to other categories of the Professional North America organization, as well as inspire similar efforts globally. The playbook has since become the foundation for a comparable Indoor Retail portfolio project that kicked-off Q3-2016, with plans to scale to the remaining Indoor Office/Industry portion in 2017.