Hitachi Smart Transformation Project
Hitachi IR Day 2013

June 13, 2013

Tatsuro Ishizuka
Senior Vice President and Executive Officer
Hitachi Group Chief Transformation Officer
Hitachi, Ltd.
© Hitachi, Ltd. 2013. All rights reserved.

Hitachi Smart Transformation ProjectContents
１. Project Outline
２. Project Activities
３. Achieving the Targets of 2015 Mid-term Management Plan

© Hitachi, Ltd. 2013. All rights reserved.

1-1. Project Background
Reform the cost structure across the entire Hitachi Group2015 Mid-term Management Plan - Achieving Growth and Hitachi’s Transformation -Innovation

GlobalTransformation

Strengthen service
businesses that maximize
the utilization of IT andbring about innovation

Deliver innovation tocustomers and society
globally

Transform Hitachi:
To deliver innovation bystandardized and speedy
operation

Promote reforms as One Hitachi
Transform the business structure for strengthening the solutions
businesses
Transform the cost structure to compete with global companies© Hitachi, Ltd. 2013. All rights reserved.

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for Addressing Cost Structure Issues
1-2. Initiatives
and Reforms

Reforms not bound by precedents
accumulated over the past 100 years at Hitachi
Cost structure issues

Reform measures

 Inefficiencies and redundanciesof resources due to optimization
at the individual level of multiple
businesses
 High cost structure dependenton domestic resources Excessive focus on doing things
internally Streamline business processes Strip out non-core indirect
operations
 Reform organization and roles© Hitachi, Ltd. 2013. All rights reserved.

41-3. Activity Policy
Speed up cost structure reforms through activities acrossthe entire Hitachi Group and cross-functional activities① Centralize all cost structure reform activities
in the Smart Transformation Project② Utilize economies of scale created by 964
Hitachi Group companies*③ Actively promote leading and best practices
within the Hitachi Group*As of March 31, 2013
© Hitachi, Ltd. 2013. All rights reserved.

51-4. Scope of Project
Hitachi Group common measures
All costs

All organizations

Japan

Production costs
6 business groups

Three
cost
areas

All areas

China
Asia

Direct materials costs

Approx. 30
business entities

India
Americas964 companies*
Indirect costs

EuropeOthers■Group-wide structural reforms■IT strategy■Human capital strategy*As of March 31, 2013
© Hitachi, Ltd. 2013. All rights reserved.

61-5. Target Areas and Main Activities
Promote activities in three cost areas—production, direct materials,
and indirect costs—targeting total Hitachi Group costs of 8.6 trillion yen Globally optimize the total value chain

Production
 Realize production costs satisfying
costs
customer needs

Production
costs
Total costsof 8.6
Indirect trillion yen* Direct

costs

materials
costs

DirectMaterials
costs Strengthen global procurement
capabilities
 Strengthen engineered sourcing
capabilities

Indirectcosts Reduce the Group’s common operating
expenses
 Improve the efficiency of andstandardize administrative operations
 Promote shared services globally*FY2012© Hitachi, Ltd. 2013. All rights reserved.

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Hitachi Smart Transformation ProjectContents
１. Project Outline
２. Project Activities
３. Achieving the Targets of 2015 Mid-term Management Plan

© Hitachi, Ltd. 2013. All rights reserved.

2-1. Cost Reduction Benefit Results and Targets
Transform cost structure to generate an EBIT* ratio of more than 7% in FY2015(Billion yen)

400

Cumulative

400
90（FY2015）

310
300
100
（FY2014）

210
200
100

110
100

(FY2013)75

35(FY2012)FY2011FY2012FY2013
Forecast

FY2014
Forecast

FY2015
Target*EBIT: Earnings before Interest and Taxes© Hitachi, Ltd. 2013. All rights reserved.

9and Roles of Corporate, In-House Companies,
2-2. Functionsand Hitachi Group Companies

Rigorously standardize common operations andmutually utilize knowledge inside the Hitachi Group① Corporate initiatives

Hitachi Group
Corporate

１

Corporate initiatives
In-housecompanies

HitachiGroupcompanies

HitachiGroupcompanies

１ Centralize and use knowledge
２

Reformwithin eachcompany

Reformwithin eachcompany

Reformwithin eachcompany Standardize and centralize
・ Promote global usage of shared services
・ Centralize common operating expenses
by expense (logistics, facilities, etc.)
・ Create unified IT platform Extend leading reform practices at eachcompany within the Hitachi Group② Business entity initiatives
 Promote initiatives unique to eachcompany according to the businessenvironment
・ Optimize the value chain globally・ Rigorously strengthen cost planning© Hitachi, Ltd. 2013. All rights reserved.

102-3. Activities by Cost Scope
Implement measures for global standardization
Main Activities
SCM reforms
Production
costs

Activity Overview
 Centralize manufacturing bases
 Utilize a unified IT platform to visualize information on a global basis

Promotion of modular design  Revamp the value chain from design through manufacturing

DirectMaterials
costs

Indirectcosts

Strengthening of
global procurement capabilities

 Increase global corporate procurement bases (Increased from 15 to 25)
 Established Hitachi China Materials Technology Innovation Center

Strengthening ofengineered sourcing capabilities

 Promote measures to address much higher raw materials prices(develop rare earth-free products)

Promote reduction of
costs by type of expenses

 Visualize and reduce costs

Promote shared services

 Use outsourcing for financial, indirect materials procurement andother operations

Group structural reforms

 Simplify the Group structure by eliminating redundant functions© Hitachi, Ltd. 2013. All rights reserved.

112-4. Production Costs (1): Centralize Production Bases
Centralize production bases for maximizing production efficiency
Pre-centralization: 28 bases (FY2012)

Centralize printed
circuit board production bases
 Centralize production to reduce costs
 Contribute to shortening development andprototype lead times

Bases maintained byeach company<Leading examples>
Started centralization in 3 companies

Post-centralization: 5 bases (FY2014)
Gifu region
Fukushima region

Ibaraki region(2 bases)
Kanagawa region

Toward Improved Efficiency
 Build production lines with high capacity
utilization rates
 Reduce costs by integrating productcertification processes, standardizing
components, and centralizing purchasing Create cooperative structure, including
BCM

BCM：Business Continuity Management© Hitachi, Ltd. 2013. All rights reserved.

122-4. Production Costs (2): Global SCM Reform
Realize global SCM based on the use of cloud services
Pre-centralization warehouses: 18 bases

Global SCM Reform<Examples of Reform at Company A in Europe> Unified inventory management, adjusted
supply-demand Shortened supply lead time
(4 months to 3 months)
 Increased shipment frequencies(once a month to several times a month) Centralized logistics bases(18 bases to 6 bases)

Post-centralization: 6 bases
Extend Application to
Other Products and Groups Initiated trials at 17 Group companies(from FY2012) Build a cloud-based common Groupinventory management system© Hitachi, Ltd. 2013. All rights reserved.

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2-4. Production Costs (3): Promote Modular Design
Strengthen ability to propose solutions to customers and respond to market changes

Apply modular design concept to design-production value chain
 Improve design efficiency
 Reduce number ofmanufacturing jigs and tools

3S
Save
Standardization
Speed

Oil-free screw compressors
Modularization

 Reduce types of components
making up products

Main motor

 Quickly respond to customer
needs(Shorten delivery time)

Variation

Compressor
Control panel
Heat
exchanger Improve ability to respond to
customer specifications

Expand application to equipment for
automobiles, construction, and power generation, etc.
© Hitachi, Ltd. 2013. All rights reserved.

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Materials Costs (1):2-4. DirectStrengthen Global Procurement Capabilities

Expand and increase corporate procurement sites
for supporting expanded global procurement
 Strengthen ability to respond to projects, especially in emerging regions
 Bolster procurement network within China and Asia
 Promote locally led operations
EuropeAmericas
San Francisco

Dusseldorf

New York

Moscow
Warsaw
China
Bucharest
Istanbul
YangonManilaMexico City

Asia
Jakarta
Sao Paulo

Johannesburg

Completed establishing corporate procurement sites in 25 cities (March 2013)© Hitachi, Ltd. 2013. All rights reserved.

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Materials Costs (2):2-4. DirectStrengthen Global Procurement Capabilities

Shift procurement functions overseas
to realize product quality assurance and high-efficiency procurement

Enhance functions of overseas procurement bases
 Assign procurement engineers overseas
 Assign inspectors and localize inspection operations
 Establish delivery and quality assurance divisions for eliminatingprocurement delivery delays
 Coordinate with Hitachi China Materials Technology Innovation
Center (established April 2013)

Promote localization of purchasing, engineering,delivery and quality assurance, and R&D functions© Hitachi, Ltd. 2013. All rights reserved.

16

Materials Costs (3):2-4. Direct
Reform the Procurement Platform

Reform procurement organizations throughout the Hitachi Group
Standardize and share for reaping maximum benefits from centralization① Maximize Group economies of scale Centralized purchasing ratio: over 40% (FY2015)

1

2

Corporate

CPO
CPO

Business
entities② Pursue and execute optimal procurement within
the Hitachi Group Reform costs from the standpoint of the value chain ineach business
CPO

Japan

Cross functional activities

Overseas
Design・・・
3 Procurement platform

Manufacturing

Technology

Procurement

Construction③ Raise operational efficiency and strengthen costplanning capabilities
 Strengthen engineering sourcing capabilities (create
300-person structure) Unify procurement-related information
 Extend and enhance program for developing global
human resources

CPO：Chief Procurement Officer© Hitachi, Ltd. 2013. All rights reserved.

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2-4. Indirect Costs (1): Global Shared Services
Rigorously standardize indirect operations and make full use of outsourcing

Target operations
Finance

Human capital

Procurement

OthersEstablished dedicated organization“Global Shared Service Promotion Office”(June 2013)
Accelerate

Target regions
China

Asia

India

EuropeAmericas

Japan(April 2013)

・ Implement continuous businessreforms・ Standardize and systemize workP
processes
・ Actively utilize BPO

A

C

[BPO]
Launched procurement BPO center (Dalian)③ Launched new shared service for finance in Japan(April 2013)

Asia

D

India

EuropeProvideservices

Group companies① Launched global financial BPO in India (October 2012)② Launched procurement BPOs in Japan and Asia

Expand business reforms andglobal shared services

BPO：Business Process Outsourcing© Hitachi, Ltd. 2013. All rights reserved.

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2-4. Indirect Costs (2): Centralize Offices, etc.
Minimize expenses globallyby reducing common operating expenses
Centralize offices, etc. in Japan and overseas: approx. 10% cost reduction*
Centralization in Japan
 Reduced the number of basesin the Yokohama region from 8 bases(12 companies) to 1 base (June 2012) Targeting 200 bases in 7 regions

Centralization in Delhi and Taipei

Pursue greater efficiency
across the Hitachi Group Share IT infrastructure Promote use of shared services
 Promote cooperation among
Group companies

 Delhi: targeting 5 companies
 Taipei: targeting 7 companies

Develop globally Push ahead with centralizationin 25 candidate cities worldwide(Seoul, Bangalore, etc.)*Cumulative target through FY2015, compared with FY2010© Hitachi, Ltd. 2013. All rights reserved.

192-4. Indirect Costs (3): Global Logistics Reforms
Share logistics platform on a Group and global basis:
approx. 10% cost reduction*1
Begin operating “Milk run”*2 method in North America

Asia, Western U.S.

Europe: Key areas: Existing
distribution bases

Chicago: Product vendors

Indianapolis: Milk run: Transport
between bases: Plant delivery

DaytonExtend to other regions
Extend to China

 Use know-how in
Chinese market
 Share logistics
platform on a Groupbasis
 Leverage IT to
improve efficiency
further

UtilizeIT

LaredoNAFTA pipeline

Extend to Europe, etc.

Monterrey

Reduce SCM costs by utilizing the Hitachi Group’s information technologies*1 Cumulative target through FY2015, compared with FY2010*2 Milk run: a transport method for collecting freight from multiple bases using one vehicle© Hitachi, Ltd. 2013. All rights reserved.

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Hitachi Smart Transformation ProjectContents
１. Project Outline
２. Project Activities
３. Achieving the Targets of 2015 Mid-term Management Plan

© Hitachi, Ltd. 2013. All rights reserved.

3-1. Future Developments
Accelerate cost structure reforms to achievetargets of 2015 Mid-term Management Plan
Serving the World
with Our Social
Innovation
Business・ Conduct Group structural reforms
in earnest(Billion yen)

400
・ Began promoting shared services globally

Production costs

300

・ Began conducting SCM reforms globallyin earnest
・ Began promoting modular design

Direct materials costs

200

・ Started proposing and promoting measures
to reduce costs by type of expense

Indirect costs

100・ Conducted benchmarking against global competitors
・ Launched project
FY2011FY2012FY2013

FY2014FY2015© Hitachi, Ltd. 2013. All rights reserved.

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3-2. Aims of Group Structural Reforms
Realize reforms aimed
at further improving the Group structure
Clarify functions and roles, realize speedy management
Review role ofeach organization

Strategy coordination function

Business promotion function

Reduce overlapping
functions
Centralize
strategy andmanagement
functionsExecute certain businesses

Provide products and services atrequired quality level and prices

Specialist functions
Raise management efficiency

Formulate and executebusiness strategies(approx. 30 business entities)

Ensure strategy consistency

Strengthen compliance[Existing cost reduction areas] ＋
Production costs

Direct materials costs

Indirect costs© Hitachi, Ltd. 2013. All rights reserved.

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3-3. Promote Group Structural Reforms
Create leading examples and extend across the Hitachi Group
Main Group Structural Reforms① Strengthen competitiveness throughcompany integrations

Power Systems Company

・ Integrated four Power Systems Company
subsidiaries (April 2013)

Hitachi Setsubi
Engineering

Hitachi Kyowa
Engineering

Strategy
sharing
Integration

 Share strategy with parent company,
strengthen competitiveness of domestic
businesses

Hitachi Engineeringand Services

HitachiPower
Solutions

Hitachi Electric Systems② Transfer and centralize functions to make stronger Accelerate globalization, strengthen solutions proposal capabilities
・ Transfer and integrate sales, business planning, and R&D functions of Hitachi
Chemical subsidiaries in Hitachi Chemical
・ Transferred Hitachi Cable’s logistics business to Hitachi Transport System(March 2013)© Hitachi, Ltd. 2013. All rights reserved.

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3-4. FY2015 Targets
Contribution to achievement of EBIT ratio of more than
7% through cost structure reforms that yield benefits of 400 billion yen
Project Benefits

Indirectcosts

200
billionyen

Company-wide Targets
Operatingincome4.7%

Over 7%

SG&A
expenses*
20.7%

DirectMaterials
costs

Cost of
sales
74.6%

FY2012

 Contribute to reductionof SG&A expenses
through operational
centralization, utilizationof BPO, etc.
 Contribute to increased
gross margin throughglobalization,
strengthening ofprocurement
capabilities, etc.

Production
costs

200
billionyen

Contribution toCompany-wide Targets

FY2015*SG&A expenses include R&D expenditures© Hitachi, Ltd. 2013. All rights reserved.

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Transform to a globally competitive cost structure

そのやり方、

Why should you change

変えてみたらどう？

the way of doing business ?

「今までこうだった」 は、通用しない。

A time to leave the past behind us

今、私たちは、仕事のやり方をグローバル経営の観点で見直し、さまざまな構造改革（スマートトランスフォーメーションプロジェクト）を推進しています。

The way it was - is not how it will be
Today, we are re-evaluating our current business practices from the global management point of view.
Our new strategy is called “Hitachi Smart Transformation Project” and is promoting various structuralreformations.

このプロジェクトを進めるためには、何よりもみなさんの意識変革が必要です。

The key to success is each individual’s awareness of this goal and changing their mindset.

他部門や他企業との連携を今まで以上に促進するなど、We need to re-think our current practices and try something new. How about collaboration with another

仕事のやり方を一人ひとりが見直してみてください。

division or even with another company ?

日立を変えるのは、あなたです。

You will change Hitachi.

世界をリードする日立をグループ全員の力で創り上げていきましょう。
Let’s rebuild Hitachi to be a world leader together.

© Hitachi, Ltd. 2013. All rights reserved.

26

Cautionary Statement
Certain statements found in this document may constitute “forward-looking statements” as defined in the U.S. Private Securities Litigation Reform Act of 1995. Such “forward-looking statements”
reflect management’s current views with respect to certain future events and financial performance and include any statement that does not directly relate to any historical or current fact. Words
such as “anticipate,” “believe,” “expect,” “estimate,” “forecast,” “intend,” “plan,” “project” and similar expressions which indicate future events and trends may identify “forward-looking
statements.” Such statements are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from thoseprojected or implied in the “forward-looking statements” and from historical trends. Certain “forward-looking statements” are based upon current assumptions of future events which may notprove to be accurate. Undue reliance should not be placed on “forward-looking statements,” as such statements speak only as of the date of this document.
Factors that could cause actual results to differ materially from those projected or implied in any “forward-looking statement” and from historical trends include, but are not limited to: economic conditions, including consumer spending and plant and equipment investment in Hitachi’s major markets, particularly Japan, Asia, the United States and Europe, as well as levels of
demand in the major industrial sectors Hitachi serves, including, without limitation, the information, electronics, automotive, construction and financial sectors;
 exchange rate fluctuations of the yen against other currencies in which Hitachi makes significant sales or in which Hitachi’s assets and liabilities are denominated, particularly against the U.S.
dollar and the euro; uncertainty as to Hitachi’s ability to access, or access on favorable terms, liquidity or long-term financing; uncertainty as to general market price levels for equity securities, declines in which may require Hitachi to write down equity securities that it holds;
 the potential for significant losses on Hitachi’s investments in equity method affiliates;
 increased commoditization of information technology products and digital media-related products and intensifying price competition for such products, particularly in the Digital Media &Consumer Products segments;
 uncertainty as to Hitachi’s ability to continue to develop and market products that incorporate new technologies on a timely and cost-effective basis and to achieve market acceptance for suchproducts;
 rapid technological innovation;
 the possibility of cost fluctuations during the lifetime of, or cancellation of, long-term contracts for which Hitachi uses the percentage-of-completion method to recognize revenue from sales; fluctuations in the price of raw materials including, without limitation, petroleum and other materials, such as copper, steel, aluminum, synthetic resins, rare metals and rare-earth minerals, orshortages of materials, parts and components;
 fluctuations in product demand and industry capacity; uncertainty as to Hitachi’s ability to implement measures to reduce the potential negative impact of fluctuations in product demand, exchange rates and/or price of raw materials or shortagesof materials, parts and components;
 uncertainty as to Hitachi’s ability to achieve the anticipated benefits of its strategy to strengthen its Social Innovation Business;
 uncertainty as to the success of restructuring efforts to improve management efficiency by divesting or otherwise exiting underperforming businesses and to strengthen competitiveness;
 uncertainty as to the success of cost reduction measures;
 general socioeconomic and political conditions and the regulatory and trade environment of countries where Hitachi conducts business, particularly Japan, Asia, the United States and Europe,
including, without limitation, direct or indirect restrictions by other nations on imports and differences in commercial and business customs including, without limitation, contract terms andconditions and labor relations; uncertainty as to the success of alliances upon which Hitachi depends, some of which Hitachi may not control, with other corporations in the design and development of certain key products;
 uncertainty as to Hitachi’s access to, or ability to protect, certain intellectual property rights, particularly those related to electronics and data processing technologies;
 uncertainty as to the outcome of litigation, regulatory investigations and other legal proceedings of which the Company, its subsidiaries or its equity method affiliates have become or may
become parties;
 the possibility of incurring expenses resulting from any defects in products or services of Hitachi;
 the possibility of disruption of Hitachi’s operations by earthquakes, tsunamis or other natural disasters;
 uncertainty as to Hitachi’s ability to maintain the integrity of its information systems, as well as Hitachi’s ability to protect its confidential information or that of its customers;
 uncertainty as to the accuracy of key assumptions Hitachi uses to evaluate its significant employee benefit-related costs; and uncertainty as to Hitachi’s ability to attract and retain skilled personnel.
The factors listed above are not all-inclusive and are in addition to other factors contained in other materials published by Hitachi.

© Hitachi, Ltd. 2013. All rights reserved.

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