Supplier Frequently Ask Questions BAE Systems, Air Sector

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1 General Awareness What is the new Enterprise Resource Planning (ERP) system and what is its scope? In simple terms an ERP system is a network of linked applications where we can collect, store, manage and interpret data from many business activities across Air Sector. At its core are 5 business functions, which operate our vital business processes: Order to Cash Receiving and processing customer orders & invoices (sales). Purchase to Pay Requesting (requisitioning), purchasing, receiving, and paying for goods and services. Project Lifecycle Setting up, delivering and controlling projects. Manage Assets Managing and recording the company s assets. Record to Report Providing strategic, financial and operational feedback to understand how our business is performing. Processes and business systems will change across all of the businesses within Air Sector (except Regional Aircraft). The current systems and processes have served Air Sector well, but by making improvements it will make the business more competitive and more agile in a changing market place. What are the benefits of change? Process: Air Sector will have standardised business processes System: Air Sector is replacing the current systems with a single source of truth whilst also consolidating the applications used. Suppliers & Business Partners: Working collaboratively we will have increased quality and reliability in our processes, automated tools, consistent information and further opportunities to develop joint capabilities. How will the ERP transformation be deployed? Currently it is planned to be rolled out in 3 deployments; D1: production orders D2: through life support including spares and repairs D3: Defence Information What are BaaN IV/BaaN V/ EMSPOM/ IFS, etc.? These are the purchasing systems in use at Air Sector today. The Supplier may only know orders have been created on different systems by the different PO number formats. The purpose of the ERP Transformation is to simplify all these things, ensuring consistency of output for all Programmes and Contracts and for Air Sector to work from a single ERP system Do you have any literature regarding the new system as it applies to suppliers? Suppliers will have been receiving appropriate communications from their regular Procurement PoC, but all information is accessible through the Air Transformation page on the BAE Systems internet site. Information already available includes; Supplier ERP Transformation Journey (video) Supplier Transformation Newsletters (PDF copies) Supplier Benefits Supplier Role Supplier Top Tips

2 e-business What is Exostar SCP? Does the Supplier have to sign up to Exostar? Are there any charges associated with using Exostar? Exostar provides an exchange portal for all different types of transactions. SCP (Supply Chain Platform) is the system of choice for Air Sector to conduct PO transactions with their suppliers. In order to use SCP suppliers must register for an account with Exostar and will receive training on how to respond to PO transactions. Exostar will be the Air Sector preferred method of transferring information to the Supplier when the new system is introduced. However, if there are good reasons why the Supplier prefers not to use Exostar e.g. low volumes, infrequent order placement, etc., then Air Sector can issue PO s manually. Suppliers will still need to provide an acknowledgement of receipt of the order to enable deliveries to be booked in. Charges are payable at the beginning of each year and are based on the previous year s usage. Therefore, depending on the number of transactions (each order amendment is treated as a separate transaction), there is a scale of payments. Suppliers will be advised of these as part of the sign-up process. Is Exostar purely being introduced to relay orders or will it also provide forecasts and scheduling? Will Air Sector be utilising either the ASN functions or transferring any technical data via Exostar? As part of the cutover from the current purchasing system to the new ERP system, will BAE Systems offer any financial benefits to Suppliers for the administration of moving to new Purchase Orders? It is our aim to issue all PO's via Exostar SCP. However when the first phase of the new ERP system goes live, this capability will not be available and we will need to issue our PO s via /pdf or in the post. We recognise for those suppliers who already use Exostar this will seem like a backward step, but it is only a temporary measure until all phases have been deployed. At that point we will resume Exostar transactions. Using Exostar SCP the Supplier will be able to update forecast delivery data only at the point of Acknowledgement (AWE). General forecast changes arising through expediting will need to be communicated by the Supplier to the Buyer as part of the Order Book Management process (manual process - not through Exostar). If the Contractual Date changes as a result of this, a PO amendment will be issued (amendment not required for a Forecast Date change). Vendor Schedules, where used, will also be issued via Exostar. The use of ASN's (Advance Shipping Notes) is not being made available on Deployment 1, but is being considered for future use. The only technical data transferred through Exostar will be that which is directly associated with the PO and contained either within the PO Header or PO Line text. A separate capability e.g. Exostar Forum Pass would be required to enable a Shared Working Environment; this is outside the current scope of activity. We anticipate administration of migrating from existing POs to a new PO will be minimal. We will provide detailed instructions and support including information to cross-reference old and new PO numbers. As a result Air Sector will not be offering any financial benefits to Suppliers for any activities involved in cutover to the new ERP system

3 Is there anything the Supplier should be doing to ensure all details on Exostar SCP are accurate? Will there be a resource/financial impact on the Supplier if they are unable to submit invoices via Exostar in the future? Process Will there be any change in the way repairs/returns are processed with regards to information on orders i.e. one line to return item, one line to receipt item, zero value, debit/credits? What are Purchase Contracts? Will there be any changes to the current terms and conditions if the Supplier moves to a Purchase Contract? As part of the PO Migration, the current practice is to deliver in line with the Vendor Schedule rather than respect the contract date on the order. Will the migrated PO (outstanding balance) put the Supplier in backlog by potentially If BAE Systems Air Sector is currently trading via SCP with the Supplier there should be nothing to do over and above the normal activities associated with a move to a new ERP system. If the Supplier is signed up for Exostar but not currently trading via SCP, then there is a phased introduction plan in place and the Supplier will receive more information in advance of deployment. All Suppliers should consider signing up to Exostar SCP if not already, but for those who have good business reasons for not doing so, you wil continue to receive PO s via /pdf or the post. Due to the complexities of different payment regimes in the existing purchasing systems, the receipt of supplier invoices via Exostar will not be possible for all cases, and with regret Air Sector therefore has to remove this electronic interface solution. Air Sector is currently looking to grow the use of the e-payables solution. Depending on which purchasing system generates the repair order today will depend on whether the supplier will see any significant change. In essence a 3 line PO will be generated for each repair/return: Line 0001 Negative PO to extract the goods from Stores and give back to supplier (nil value) Line 0002 Positive Line to deliver the goods back in against (nil value) If repair, Cost line to account for the cost of the repair (this is the invoice line) Purchase Contracts are essentially agreements to supply specified items at agreed prices and other terms and conditions. However, the financial commitment does not apply until such time as items are drawn down from the contract via a delivery schedule. The schedule is regularly updated (either weekly or monthly) and the supplier submits invoices for all deliveries within the specified period of that particular schedule issue. Using Purchase Contracts allows the supplier to have better visibility of future requirements and be able to plan production accordingly, thereby enabling cost savings and business efficiencies. Yes. Purchase Contracts, put simply, are potential shopping lists. The way the items are bought is by selecting the appropriate items and adding them to a Vendor Schedule. It is only at this point, the Purchaser and the Supplier have a contract. Therefore, the terms and conditions agreed between the Parties, needs to reflect this change of position. Where the plan is to adopt the use of Purchase Contracts (PC) within LN a Schedule derived from the LN planning engine demand will be issued to the Supplier. When the existing PO is migrated to the new ERP system, the associated contract dates will be read across to the new PO or PC

4 migrating a contract date in the past and, will this have an effect on the supplier s delivery performance to BAE Systems? In references to the Defence Logistics Centre, deliveries are described in terms of Project. However, when describing Deployment, references are made to Systems ; what is the difference? Cutover How long is the duration of the Cutover/ Freeze period and what are the constraints relating to deliveries and invoicing? Can the Supplier deliver ahead of the current contract date or Vendor Schedule requirement date prior to the Freeze period? Is BAE Systems planning to make provision for additional Free Issue items and materials to be called off ahead of the Freeze period? Could the Freeze period affect my cash flow/year-end financial position (if deliveries are not allowed for product already manufactured)? and used as the basis for supplier performance reporting. Therefore, it is important for the Supplier to work closely with their Procurement point of contact now to ensure all contract dates on the PO/PC are realistic and achievable. The Supplier is required to deliver against a Purchase Order which is linked to a Project (Typhoon, Hawk, Tornado, etc.) For the purpose of Deployment, we are introducing a new ERP system. The Supplier will see the output from the system which will continue to be a Purchase Order assigned to the appropriate Project. The Cutover Period has been estimated as 14 days duration. During this time Typhoon Spec Equipment deliveries will continue as normal but all other aircraft production deliveries will be held pending the new system switch on planned for Monday 28 th January Thereafter there will be a period of time during which any deliveries received during this period will be booked into the new system and the Defence Logistics Centre wil recommence accepting deliveries as usual from Monday 7 th February Where there is an opportunity / requirement to pull forward deliveries in order to ensure continuity of supply, this must be agreed between Procurement and the Supplier before the delivery is made. Any deliveries not so agreed will be rejected. During the Freeze period, there will be an offline process to manage proven AOG and critical product requirements only. Air Sector will endeavour to do whatever is required to keep the production lines flowing. If this includes Free Issue, we may need to call these items/materials forward. This will be by agreement between Procurement and the Supplier. Any pull forward / push back of deliveries will be by agreement between Procurement and the Supplier. Therefore, the Supplier will have the opportunity to assess the risk to his business before making the agreement. As a general plan it is anticipated to pay all invoices received prior to cutover. Any invoices received during the cutover period will be held over and processed from Day 1 of the new ERP system activation Export Controls Have Export Licences and End User Certificates been considered? Yes. Whilst we are aware that some Licence and End User Certificates do indeed quote BAE Systems Purchase Order Numbers, it is important to establish whether this is driven by Legal Requirements or via Supplier Custom and Practice. We are currently undertaking a review of different countries requirements and will work with individual Suppliers to address any concerns arising. Please contact you normal Procurement point of contact in the first instance to discuss further if you think you may be affected.

5 Defence Logistics Centre What is the Defence Logistics Centre (DLC)? Will the Bill to (invoice address) addresses remain the same for orders migrated from legacy systems into the new ERP system? This is a purpose built warehouse which is managed by our subcontractor, Wincanton, for all our UK North West deliveries. It is located in the Lancashire Enterprise Zone just outside the Samlesbury site, so Deliver To addresses on all our PO s have been amended to reflect this. The Bill To invoicing address has not changed on the new orders. However, in line with the move to the DLC as mentioned above, the Deliver To address has changed. Further Support & Information As we move towards going live with our new ERP System, we will be contacting you with a range of communications and training materials tailored to the different relationships we have with our Suppliers. For further support and information please contact your usual BAE Systems Procurement point of contact. You can also contact the central mailbox (Air.CentralProcurement@baesystems.com) BAE Systems (Operations) Limited 2018