ISYE 6203 International Consolidation Project 11/12/2009

International Consolidation Project PROJECT TEAM  Hamilton Sundstrand Project Representative Dang Huynh – Global Logistics Manager Marc A. Bartos – Global Logistics Analyst  ISYE 6203 Project Group Team Estik  Guven Estik  Yee Ling Foo  Sebastian Lewis  Vibha Kumari  Melissa Restori

International Consolidation Project AGENDA Next Steps MethodologyCurrent vs. Recommended Project Description Company Profile

International Consolidation Project COMPANY PROFILE  Hamilton Sundstrand United Technologies Company Global corporation with various business units that designs and manufactures integrated and technologically advanced aerospace systems and industrial products for worldwide markets  Business Units: Flight Systems

International Consolidation Project COMPANY PROFILE  Global Perspective ~ 18,000 employees 34% of the workforce out of U.S. More than 50 major facilities worldwide 2008 Revenue: $6.2 B  Aircraft systems: 72%  Industrial: 22%  Energy, Space & Defence 6% Relies on a network of international suppliers to provide a wide array of aerospace parts

International Consolidation Project COMPANY PROFILE  Main HS facilities in US & Puerto Rico

International Consolidation Project COMPANY PROFILE  HS facilities in Europe

International Consolidation Project COMPANY PROFILE  HS facilities in Asia

International Consolidation Project COMPANY PROFILE  HS low cost suppliers Middle East China South Korea Europe Mexico Canada India

International Consolidation Project AGENDA Next Steps MethodologyCurrent vs. Recommended Company Profile Project Description

International Consolidation Project PROJECT DESCRIPTION  Project Objectives Reduction of custom fees and transportation costs Consolidation of international inbound shipments without violating tight lead times  Cost Structure Custom brokerage fees  $95 per shipment per supplier Merchandising fee (government tax)  More than $2000  0.21% of value of imported goods  Minimum fee: $25  Maximum fee: $485  Less than $2000  Fixed fee: $2 Transportation Cost  DHL air rates – function of weight  Concave cost!

International Consolidation Project PROJECT DESCRIPTION  Data 3 Files  Carrier 1 imports 3/1/09 – 8/31/09 (6,600 lines)  Carrier 2 imports 3/1/09 – 8/31/09 (5,200 lines)  HS Orders 20% of 12/15/08 - 9/8/09 (4,000 lines) Orders cannot be linked to import data (no key fields) Import files were used for average invoice values  Excluded 206 rows of zero values (shipped documents and/or bad data) All other data used from Orders file  Airline customers had to be identified and removed – repair data  Misspellings and wrong references in supplier names & cities and HS plant names, cities & state had to be corrected  Removal of subsidiaries’ shipments from the data  80% of the HS order data  36%  supplier  64%  HS supplier

International Consolidation Project AGENDA Next Steps MethodologyProject Description Company Profile Current vs. Recommended

International Consolidation Project CURRENT vs. RECOMMENDED  Shipment Strategy Direct shipment from supplier to plant Strict lead times  HS facilities shipments: 6 days  Other suppliers: 14 days According to sample data:  Shipment cost: 77%  Custom brokerage fee: 14%  Merchandising fee: 9%

International Consolidation Project CURRENT vs. RECOMMENDED  Cost Savings Total cost:  14% Reduction Custom Brokerage Fee:  53% Reduction Merchandising Fee:  39% Reduction Shipping cost:  5% Reduction

International Consolidation Project CURRENT vs. RECOMMENDED  Operational Benefits # of Shipments:  59% Reduction

International Consolidation Project AGENDA Next Steps Current & Recommended Project Description Company Profile Methodology

International Consolidation Project METHODOLOGY  Original Plan Determine a “port” of entry in the U.S. for international consolidation  Candidate Locations –UPS hub in Louisville –Fedex hub in Nashville –Chicago: Proximity to highest volume plants PROS Consolidated Shipments to US Fewer, heavier shipments (Concave cost) Savings in custom brokerage fee and merchandising fee Consolidated Shipments from “Port” of entry to HS plants Larger shipments to each plant CONS Capital investment Double handling at XDoc Transportation price structure by zone Cost (Origin  Destination) = Cost (Origin  Xdoc) Increase in Lead time

International Consolidation Project METHODOLOGY  Implemented Plan Shipment data analysis by lane  Lane: Shipment from each international city to a HS Plant 5 “busiest” lanes  ~ 50% of shipments  > 75% of total costs Shipment strategy development for consolidating lanes  Assumptions Lead time for transportation: 3 days  Consolidation up to 2 days of shipment –From international supplier through customs into domestic HS plant Transportation cost is estimated using DHL air rates

International Consolidation Project SINGAPORE ROCKFORD, IL CLARE, IRELAND MIRAMAR, FL HALEY, CANADA WOLVERHAMPTON, UK SAN DIEGO, CA WINDSOR LOCKS, CT  “Busiest” Lanes METHODOLOGY

International Consolidation Project METHODOLOGY  “Busiest” Lanes

International Consolidation Project METHODOLOGY  Consolidation Schedule Only one freight forwarded for each lane  Already in practice for the lanes observed Negotiate rates by lanes with freight forwarder Day of First Order Days Included In Consolidation Shipment Day SundaySu, M, TW MondayM, TW TuesdayT, W, ThF WednesdayW, ThF ThursdayTh, F, Sa, SuM FridayF, Sa, SuM SaturdaySa, Su, M, TW

International Consolidation Project METHODOLOGY  Effect of Consolidation Schedule Lane: Singapore to Rockford, IL  92% Reduction in shipments

International Consolidation Project METHODOLOGY  Strengths & Weaknesses PROS Easy and simple to implement Does not interfere with current operations No additional cost Easy for supplier to manage Biggest bang for the buck CONS Does not exploit some potential savings Consolidating shipments to multiple HS plants from the same suppliers Consoldating from multiple suppliers to a single HS plant Inventory increase in supplier side

International Consolidation Project AGENDA Methodology Current vs. Recommended Project Description Company Profile Next Steps

International Consolidation Project NEXT STEPS  Remaining Data Obtain and incorporate the remaining data into analysis tool  Canada Investigate whether certain shipments from Canadian plants can be transported by land modes or not.