CONFIDENTIAL Design-to-Cost in Plant Engineering Asia-Pacific OS&E Client Debrief This report is solely for the use of client personnel.No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion. Seoul, November 15 2002DISCUSSION POINTS 245DESIGN-TO-COST (DTC) IS A CROSS-FUNCTIONAL APPROACH AIMED AT REDUCING TOTAL PRODUCT COSTS Objective Redesign a standard HRSG product for ease of manufacturability and assembly Redesign product to avoid “over-engineering” by strictly adhering to minimum customer requirements Alter specification on both raw material and vendor items for lower material cost and source them cost-efficiently Market-driven strategies Market-driven strategies Market-driven strategies Strengthening of HRSG market position by reducing total COGS of at least 14% p.a.*PRODUCTS FOR WHICH A DTC EFFORT IS PLANNED Ongoing Ongoing January 2003 Spring 2003 TBD Desalination plant HRSG Boiler FGD (Environmental equipment) Turbine/Generator RMQC/RTGC (Crane) Summer 2003WHAT IS A HEAT RECOVERY STEAM GENERATOR (HRSG) Definition Key facts Cost of 1 HRSG unit: USD 5~10m Worldwide volume: ~250 units per year Lead time: ~8-12 months (excl site erection) Customers: GE, Siemens, Bechtel, etc. Company is currently no. 5 in the world Company perceived in market as low cost provider with good quality in manufacturing; not seen as a design innovator A specialized type of boiler used in combined cycle power plants Recovers heat from gas turbine exhausts and converts it into usable steam (driving a steam turbine) (for energy production) Increased thermodynamic efficiency as compared to single cycle (50% vs. 35%) Dimensions: ~40m height, 50~80m long, ~20m wide weight, ~3’000tons