10

years

10

yearsRedefining the Supply Chain

Jeff Tiefermann

Agenda

My background/Why Consulting?

What Customers Want

Why supplyFORCE is the answer

Implementation success

My BackgroundEducation• BS, Montana State University 1983• MBA, Miami University 1987• Completed Six Sigma Training, Green Belt Certified, General Electric • CEO SIX SIGMA AWARD, General Electric.• Three time Nobel Prize Winner • SCORE Trained and Certified through Chrysler

1988-1996 CHRYSLER CORPORATION Auburn Hills, MI

1996-2001 GENERAL ELECTRIC CORP Various

2001-2004 HARRIS CORPORATION Cincinnati, OH

2004 – 2007 LOUISIANA PACIFIC Nashville, TN

2007- 2008 BIOMET Warsaw, IN

2008 – Present ABERCROMBIE & FITCH Columbus, OH

Why Consulting?

Why Consulting?

•Minimal product differentiation•Significant capital requirements•Economies of scale can create an impact•Alliances being formed to compete with mega-distributors

Entry Barriers Medium

•Large competitive supply market•Regional / Local fragmentation•Consolidation and merger activity•Low product differentiation•Value added services and product breadth are differentiating factors

Intensity Of Rivalry High

•Standard product requirements•Low switching costs•Potential high volume of supplier’s sales •High leverage potential•Good product information

Buyer Power High

•Low costs to switch to substitutes•Minimal product improvements•Some brand loyalty issues•Increasing usage of “generics”•Influx of “global” products

Substitutes Medium

•Commodity like products•Cost-sensitive industry•Low switching costs•Competitive supply base•Sunoco is an important customer

Supplier Power Low – Medium

From a customer perspective, the MRO supply market remains highly competitive where

companies can exercise considerable leverage…

Demand Management

Buying Power Leverage

Product/Service Specification Rationalization

Business Processes/Labor Efficiency

Total Cost Levers

Transactions/Systems

Compliance/Shrinkage

Material/Service

Cost

Inventory Carrying Cost

Labor Cost

Indirect/MRO Overhead –

10 to 15 Percent

Total Cost

Process and Systems Costs

Total Cost

Purchases of Material/ Service85 to 90 Percent

Total CostRedeployment of Inventory

Inventory Visibility Through IT

Increased Use of Manufacturing Warranties

• Identify means to reduce demand through rationalization and/or substitution

• Consolidate number of suppliers• Pool volume across units and combine volume from

different commodity categories• Redistribute volume among suppliers

• Conduct product value analysis and engineering• Substitute materials• Pursue system buying alternatives • Optimise life cycle costs

• Reengineer joint processes• Share productivity gains• Integrate logistics• Support supplier operations improvement

• Establish/develop key suppliers• Develop integrated supply chain• Supercharge process with consistent technology platform

• Monitor compliance through IT• Reduce costs further by controlling usage

• Dispose of long-turn inventory to suppliers• Reduce downtime

• Manage inventory across plants• Share inventory across sites• Reduce downtime caused by lack of parts

• Implement process to improve warranty use • Reduce downtime through improved service

… however to achieve optimal savings, companies need to consider the total

cost of the MRO spend

What customers want

Immediate results. Yesterday!

Do more with less / more resources!

Faster processes/Less work

What are we buying exactly? Clarity of buy.

No political impact

Consolidation Among Suppliers Through Acquisition And Alliances

Customer Focus On Total Cost Instead Of Price Customers Reducing Vendor Base

Number Of MRO Suppliers

Increasing Geographic Scope Number Of Products Offered

Expanding Product Lines

• Procurement• Inventory costs• Service/availability • Price

ProductAvailability

DifferentiationAmong

Suppliers BasedOn Service And

TechnicalCapabilities

EDI/ElectronicCatalogs

TechnicalSupport

InventoryManagement

In response to these market conditions, the MRO strategies of both suppliers and customers are

evolving & becoming more sophisticated

$100 or less 952 8.04% $48,432 0.01%Between $100 and $500 2360 27.99% $666,333 0.11%Between $500 and $5000 4501 66.02% $9,029,460 1.45%Between $5000 and $100k 3371 94.51% $80,699,738 13.43%Between $100k and $500k 480 98.56% $102,986,142 28.73%

Over $500k 170 1.44% $479,903,234 71.27%

11834 Suppliers $673,333,339 Total Spend

Number of vendors Spend per category

98% of suppliers = 28% of spend

Where is the buyer’s time spent?

Suppliers & Distribution of Work

Requisitions and FTEs

$0 to 1000 per requisition

Warsaw/Parsippany are cutting too many orders!

Transactions

10 Mins per transaction

# of Buyers

Site Six Months Annualized Per week % of a week # FTEs per location

ONTARIO 3,711 7,422 143 59% 1 4

REDDING 805 1,610 31 13% 1 1

CORPORATE 87,920 175,840 3,382 1409% 14 29

FAIRLAWN 2,372 4,744 91 38% 1 1

PARSIPPANY 31,147 62,294 1,198 499% 5 5

PUERTO RICO 293 586 11 5% 1 5

Spend Per FTE / An Efficiency Snapshot

$31 million industry average

XXXXXX: $11 million per FTE

40%

35%

30%

25%

20%

15%

10%

5%

0

Yr1 Yr2 Yr3 Yr4

MolsonCoors

SP Solutions

AMR ResearchA T Kearney

Sup/Dem Mgt

Cost Savings Return Over Time

• Welding / Supplies• Plastic &Rubber products• Cleaning utensils• Tape• Adhesives / Seals• Janitorial• Brushes• Packaging supplies• Spray equipment• Absorbents• Paint•Hand Tools•Pneumatic Tools•Power Tools

• Circuit Boards• Controllers• Transformers• Lamps• Adaptors• Wire / Conduit• Fuses• Circuit Breakers• Switches• Junction Boxes• Relays• Lighting Fixtures • Cables

• Batteries

• Tires

• Spark Plugs

• Motor Oil

• Fork Lift repair parts

• Hoses

IndustrialSupplies

Chemicals & Lubes

HVACFiltrationFluid Power

• Fans

• Valves

• Compressors

• Heat Exchangers

Mobile Equipment

BuildingSupplies

PowerTransmission

• Hydraulics

• Pneumatics

• Clamps

• Hoses

• Fittings

• Lube Equip

• Gages

• Valves

• Tubing

• Air Filters

• Water Filters

• Oil Filters

• Media Paper

• Telltales

• Process Filters

• Product filters

• Process filters

• Baghouse filters

Hardware

•Sand

•Gravel

•Lumber

•Paints

•Structural Mat.

•Structural Steel

•Landscaping

supplies

• Safety products

• Safety equipment

• Fire equipment

• Respirators

• Ear protection

• Gloves

• First-aid supplies

• Safety clothes

• Detection devices/alarms

• Hard hats

• Safety Glasses

MROSupplies

• Bearing - general

• Bearing - special

• Air bearings

• Belts (non-conveyor)

• Gearboxes

• Reducers

• Couplings/Pulleys

• Rings

• Gear Motors• Electric Motors• Belt Drive Motors• Brake Motors• Seals/Bushings

• Valves

• Fittings — pipe

• Pipe — steel

• Pipe — composite

• Pipe — plastic

• Pipe — nonferrous

• Plumbing

• Strainers

Conveyorbelting

• Oils

• Greases

• Lubricants

• Chemicals

• Coolants

• Glycol

•Electronics

•Instrumentation

•Process Controls

• Nuts

• Bolts

• Screws

• Pins

• Grommets

• Conveyor Parts

• Belts

Electrical OEMSpare Parts

SafetySupplies

Pipes,Valves& Fittings

Electronics &Instrumentation Pumps

• Electric Pumps• Centrifugal

Pumps• Pneumatic

Pumps• Pump Kits

Lab Supplies

A Cash “Black hole”

What supplyFORCE brings

$18 billion revenue

Fast savings

FTE flexibility

Information clarity

Breadth of Expertise and flexibility (The important extras)

Always nearby…. (potentially small political impact)

Your biggest strengths:

DescrSum

QuantityOriginal Price

(Program Price) Sum AmountProgram Unit

Price Sum Amount % savings30 watt R20 Incandescent Lamp, 90 $1.73 $155.70 $2.26 $203.40 -31%

PAR20 Metal Halide Lamp, H 62 $46.50 $2,883.00 $41.00 $2,542.00 12%32 watt T8 SP35 Fluorescent La 1448 $1.46 $2,114.08 $1.39 $2,012.72 5%

100W Incandescent A19 Light Bu 3 $0.35 $1.05 $0.23 $0.69 34%34 1/4" LONG surface fluoresce 112 $190.30 $21,313.60 $55.00 $6,160.00 71%

GEL40ACL24PK lamps 17 $0.51 $8.67 $0.23 $3.91 55%GEL50PAR30HIRSP9 lamps 86 $6.03 $518.58 $3.64 $313.04 40%

GEL40G25CRVL PQ1/6 reveal lamp 18 $2.40 $43.20 $2.05 $36.90 15%3foot T5 MIRROR FLUORESCENT 199 $52.50 $10,447.50 $50.00 $9,950.00 5%

GE 81282 35MR16/Q/6/TAL 4265 $4.70 $20,045.50 $3.84 $16,377.60 18%LAMPS FOR A&F D FIXTURE 741 $15.93 $11,804.13 $11.95 $8,854.95 25%

GFI RECEPTACLE 123 $17.85 $2,195.55 $14.50 $1,783.50 19%Type EM: Sure-Lites Recessed 235 $92.38 $21,709.30 $83.95 $19,728.25 9%

Type VM: GE F28WT5830ECO. 467 12 $4.59 $55.08 $4.00 $48.00 13%$437.23 $93,294.94 $274.04 $68,014.96

Proposal Comparison (s/F bulb comparison)

$25,279.98Total weighted 27%

$163.19Piece Price % 37%

• Enablers (Maximizing organizational responsibilities with fewer people)– P Card deployment– Full launch of supplyFORCE

• Infrastructure (“Let the system do the work instead of buyers”)– Item Master– Using MAPICS and Oracle to their fullest– Fully utilizing the requisition system– Smooth out the entire domestic P2P process– Establish blanket orders and catalogs– Using warehouse transfers instead of purchase orders to control intra-

company shipments• Readiness Preparation (Ensuring the right people are in the right places)

– Buyer models, Self assessments, Force Rankings– Common classifications & Pay grades

• Metrics– Ensure results are maintained– Control re-deployments– Measure against world class performance

• Control– Shut off purchasing access

Project Phoenix Components

Potential Resource Redeployment

How many people do you want? Where do you need them?

NOTE: Reductions are a result of P2P improvements and supplyFORCE improvements

Overstaffed by…

Number of MAPICS buyers 30

Number of annual Purchase orders 24176

Number of Pos a clerk can handle 2500

How many clerks should we have 10

Buyer Current s/F Impact

Barb Miller 2803 1400

Lorie Metheny 3169 3169

Marie Cuba 2507 1250

Mary Titus/Dorothy Casa 1459 700

Scott Follmer 2266 2266

  12204 8785

Impact to overstaffed numbers

Original # of Pos 24176

s/F Impact 8785

New annual amount 15391

Number of Pos a clerk can handle 2500

How many clerks should we have 6

Number of freed-up resources: 24 FTEs

64 FTEs$664 million spend$10,400,000 per FTE

30 FTEs (Late 2009)$664 million spend$22,000,000 per FTE

Purchasing Organization Phase II

Purchasing Organization “As Is”

Twelve additional people “added”!

• Random selection of 50 “behind the wall” parts

• Suppliers targeted:• supplyFORCE, Grainger, Graybar

• Requested quotation turn-around time: 24 hours

The Quote Process - Example

• 19 out of 50 (38%) of the items had specification issues• Categories included:

• Packaging issues (pack vs. 1 bulb)• Unclear Spec Sheet• Unrecorded Substitutions • Manufacturer does not make this spec• “Had to price with can” (i.e. does not match

specification sheet)• “Unclear spec – quote with dimmer”

The Quote Process-Specification Findings

Piece price savings: 18%

Weighted volume savings: 12%

Estimated annual dollar volume: $10-11,000,000

The Quote Process - Financial Results

• Manufacturers• Pros

• Design knowledge/specialization• Commercial expertise

• Cons• Narrow product-line scope• Increased supply base

• Distributors• Pro’s

• Load Consolidation • Take offs

• Con’s• Regional coverage

• (ISS) Integrated Supplier Solution (supplyFORCE)• Pro’s

• Breadth of supply• Commercial expertise/Ability to engage manufacturers• Load consolidation/Take offs

• Con’s• International footprint

Sourcing Options Comparison

Keys to Success

Steering committee (high level)

High Level Commitment

Tracking metrics

Finance tie-in to verify results

Dedicated resources

Align internal departments

Laying down roots

Become the Customers IT department (forecasting, data reporting)

Become the keeper of the Customer’s data

Keep everything easy for the customer

Provide the sell (show the progress)

Constantly differentiate

Never underestimate politics

10

years

10

years