Customer Base Expectations  Collaborative Supply Chain Models  Proactive Solutions  Aggressive Pricing  Ease of Doing Biz  Favorable/Fair Terms and Conditions  Velocity of Materials  Accepting/Treating CEM as the Customer

Integrated Services Traditional EMS Today EMS Tomorrow EMS Complete EMS/ODM Module Design Sourcing New Product Introduction NPI) Purchasing & inbound logistics Global Manufacturing Distribution & outbound logistics After sales services

Collaborative SC Models Designed for Flexibility Supply Chain Model is designed to meet Customer Requirements. Proactive / Collaborative Demand Planning. Responsiveness to Change. SC Model is industry Focused. Structured by model and Partner. Automotive drivers are different to Networking drivers. One Size does NOT fit allOne Size does NOT fit all Med Volume Configurable Buffer Stock. Kanban Mtrls Mgmnt Med Turn Etc. High Volume Low Mix JIT Materials Management. Embedded Forecast Release EDI High Turns Etc.

Collaborative SC Models  Philips is currently in 11 mfg. sites, in 9 countries, on 3 continents.  Supply Chain is difficult enough without creating non-value complexities.  This is consumer business, fickle at times, yet fairly predictable from a macro perspective

Demand Projections & Stocking Requirements Customer Supply Chain Management Requirements Planning BOM Customer Manufacturing Russia (PCB Assembly, Final Assembly, Test and Ship) Customer Demand Ship Final Product to Customers Purchased Items customer Hub Russia Product Build Requirements High Performance Supply Chain Management Partnership Process Fully Integrated Worldwide Program Management Demand Flow Replenishment Direct Site Support KANBAN 2-3 Day Process Colnbrook Distribution Center Bonded Inventory Process, Pick, & Ship Order & Asset Management System Inventory Bonding Planning Information Acknowledgments Order Processing Program Items Schedule Share EC Release customer Pull-to-WIP Direct Site Support 24 Hour Process

Demand-Flow Supply Replenishment Visual System Driven / Electronic Commerce Supported Element 1 Establish a Prime Location 2- Bin Kanban (or single bin Min/Max) in the electronic assembly area to support the existing process lines. Element 2 Create and size 1 or 2 “Bin” Component Kanbans. Electronic Assembly Element 3 Kanban draws off bin until depleted Electronic Assembly Element 4 When a Kanban Bin is depleted (2-Bin) or depletes below Min-level (1-Bin), Gilat will replenish from the Sofia Hub. Inventory Hub Bonded Inventory Pick, Ship and Deliver

KANBAN STAGED COMPLETED BOARDS KANBAN STAGED AUTO-INSERTED BOARDS SEQUENCED REELS SEQUENCER AUTO- INSERTION WAVE SOLDER TOUCH-UP HAND INSERTION FINAL ASSEMBLY KANBAN PULL SIGNAL 4 Hours 2-Days SUPPLIER L.T. = 1-3 Days Material Flow Process “CAN-BE” 4 Hours Through-Put Time ACCEPTANCE TESTING Release MRP Based Schedule Share Planning Information PACKAGING & SHIPPING TO CUSTOMER MATERIAL MGT TRANSACTION WORK ORDER TRANSACTION INVENTORY POSITIONING

Defining the Inventory Carrying Cost Def: carrying cost - Cost of carrying inventory, usually defined as a percentage of the dollar value of inventory per unit of time (generally one year). Carrying cost depends mainly on the cost of capital invested as well as the costs of maintaining the inventory, such as taxes and insurance, obsolescence, spoilage, and space occupied. Such costs vary from 10% to 35 % annually, depending on type of industry. Ultimately, carrying cost is a policy variable reflecting the opportunity cost alternative uses for funds invested in inventory. (Source: APICS Dictionary 8th Edition ) Carrying Cost Element Cost of money (Opportunity) Obsolescence, Scrap, Shrink Costs Capital Equipment and Facilities Costs Taxes and Insurance Costs Totals General Industry Low Range 7.0% 1.0% 10.0% General Industry High Range 18.0% 7.0% 6.0% 4.0% 35.0% Electronics Industry Average 12.0% 4.5% 4.0% 2.0% 22.5%

PurchasesInventoryTurns 1,000,000 Inventory Reduction Cost of Carrying Inventory (annual) Savings (>6%) 333,000 83,000 ====== 250,000 x 25% ====== 62, Benefit of increase inventory turns

Activity Review MRP Create PO req. Select Supplier Create PO Review/Sign Transmit Mail PO File PO Acknowledge PO Print PO Ack. File PO Ack. Minutes Cost per PO TraditionalElectronic Benefit of reduced activities

Transaction Cost # MRP original Purchase Order Electronic PO release Total 55,000 5,000 ====== 50,000 Savings (5%) 1M purchases Transaction cost reduction benefit

Manu Floor T.A.C Delivery Problems Expediters Buyers Production Management Quality Problems Warehouse (3X) Purchasing (3X) Payables (3X) Engineering Quality Assurance Production Buffer Inventory Carrying Costs (% of Inv. Value) Capital Costs5.5% Handling5.0% Damage,Theft3.0% Obsolescence2.5% Insurance2.0% Storage1.0% 19.0% €1.00 Procurement Admin €1.35…? Total Acquisition Cost “TAC”

 Negotiate contracts with suppliers  Manage supplier/partner relationships  Serve on product development teams  Materials planning and management  Lead-time reduction  Focus on “A” items (80% of dollars) Procurement’s changing role

SUPPLIER STOCK ROOM CIRCUIT BOARD ASSEMBLY SUB ASSEMBLY FINAL ASSEMBLY INVENTORY MATERIAL FLOW Traditional material flow

SUPPLIER CIRCUIT BOARD ASSEMBLY SUB ASSEMBLY FINAL ASSEMBLY MATERIAL FLOW BIN 1 BIN 2 EC SIGNAL INVENTORY Difference One type of proven solution - Two bin kanban pull system

CUSTOMS INVOICE DIRECT SHIPMENT 24 HOURS WAREHOUSE LABLES & PACKINGNOTES PRODUCED ON-LINE GOODS TO BE COLLECTED AT 4 P.M., Day 0 Customer Russia CONSOLIDATED SHIPPING ALL PRICES ON-LINE IN LOCAL CURRENCY ALL PRICES IN CUSTOMER’S LOCAL CURRENCY ALL TEXT IN CUSTOMER’S LOCAL LANGUANGE CENTRAL COMPUTER TERMINAL ON-LINE ORDER ENTRY Day 0 CUSTOMER GOODS ARRIVE NO LATER THAN DAY 2 INVOICE

Customer’s production facility Bonded Warehouse USA/China Customs clearance by Customer/Disti Russian invoice to customer Payment in USD, GBP, Euro Delivery with customs clearance Bonded warehouse option