1. consulting & technology financial services | payments | government | transportation | healthcare Effective Supply Chain Network Management, Optimization and Design 4 th Annual Government Transportation Forum April 24, 2014 – Presented by Richard Langer, Quetica, LLC

2. quèt  ica Agenda Confidential 2  Introduction to Demand-Based Network Design and Optimization  Network Design and Optimization Example  Benefits for Federal Agencies  Questions & Answers

3. quèt  ica What is Demand-Based Network Design and Optimization? Confidential 3 Suppliers, plants, warehouses, and flows of products from origin to the final customer 80% of costs are locked in with the location of the facilities and the determination of product flows between them Transportation costs = ~5% to 6% of total sales, or 15% of costs of goods sold Supply Chain Network The discipline to determine the optimal location and size of facilities and the flow through the facility network Supply Chain Network Design Applies supply chain network design and optimization techniques to your supply chain network Focuses on end users’ demand for your products Identifies opportunities to optimize your supply chain network by optimizing the current network and conducting greenfield analysis for new facilities Demand-Based Network Optimization and Design

4. quèt  ica Opportunity for Agencies Confidential 4  Supply chain network optimization typically delivers 15%+ savings to your annual costs via  Optimized product distribution approach  Strategic locations for facilities such as distribution centers and cross-doc operations  Leveraging dedicated fleets for high volume lanes  Ideal modal selections based on availability, costs, and delivery time requirements, leveraging lower cost modes such as TL, Intermodal, and Rail

5. quèt  ica Network Optimization Approach Confidential 5 Analyze high priority demand and network capacity Analysis of Network Demand and Capacity Use quantitative and qualitative measurements Identify and prioritize current and forecasted network performance constraints Performance Measurement and Constraints Analysis Develop pragmatic short-term and long-term optimization strategies Focuses on optimization strategies with high ROI Creating and Prioritizing Optimization Strategies Conduct financial analysis and develop financial models Develop actionable recommendations with justifications Business Case Development

6. quèt  ica Approach Overview Confidential 6

7. quèt  ica Input Data Confidential 7  Product  Products that organizations deliver to their customers  Product dimension, weight, and other physical characteristics  Transportation Demand  Desire to ship products from origin to destination locations.  Includes quantity of the products to be shipped, the mode of transportation, the value of the products, and any lead time or distance requirements.  Transportation Network  Highway, rail, and water network and capacity data  Site Location  Includes geographic location information of origin and destination points  Includes facility capacity  Site Cost  Includes fixed and variable costs associated with operating the sites  Transportation Cost  Includes all cost components associated with shipping a specific product from origin to destination

8. quèt  ica Expected Results Confidential 8  Baseline Optimization  How do we best use the current supply chain network to deliver optimized results?  Identifies alternative routes, alternative modes, etc. in current network  Greenfield Scenario Analysis  What are the new infrastructure elements to develop and where should they be located to optimize the network?  Identifies new distribution centers, cross-dock facilities, consolidation points, etc.

9. quèt  ica Expected Results Confidential 9  Quantitative Analysis  Cost, lead time requirement, capacity, etc.  Qualitative Analysis  Strategic directions  Environmental impact (carbon footprint and road mile reduction)  Network redundancy  Tax incentive / funding availability  Public relations

10. quèt  ica Network Design and Optimization Example 10 Confidential

11. quèt  ica Current Network – Example 11  Current Network Definition:  The actual network of Agency A, which we will use as a first step to start our analysis, has the following characteristics:  Sites & products included as part of the baseline model, in addition to Demand Data and specific Sourcing and Transportation Policies. DescriptionQuantity Distribution Centers4 Plants11 Customer Sites2,391 Products (Brands)4 Confidential

12. quèt  ica Current Network – Example (cont’d) Confidential 12  Current Network Results:  After the first Baseline run, we have matched the current Agency A’s Network results in terms of: Transportation Costs Inbound Flows per Product Outbound Flows per Product Inbound Flows per Origin and Destination Outbound Flows per Origin and Destination

13. quèt  ica Current Network – Example (cont’d) Confidential 13  Current Demand Distribution:  Several clusters of customers and demand concentration that can be easily identified via Demand-Scaled customer distribution map:  Customers are mainly located to the eastern side of U.S.  However, there are some specific states with high demand concentration such as California, Texas (South) and New Jersey.

14. quèt  ica Current Network – Example (cont’d) 14  Relationship between Customer Sites and DCs:  Specific sourcing policies driving allocation of customers to DCs, depending on the product (brand) that flows through the network: Distribution Centers: Northridge (CA)  Product X Moreno Valley (CA)  All Products Sandy (UT)  Product Y Elkhart (IN)  Product Z Confidential

15. quèt  ica Current Network – Example (cont’d) 15  Current Product Flow: The highest demand of product comes from X. This is why most customer sites are fulfilled by Moreno Valley DC in California. This map includes the flows of all products (X, X1,X2 and X3) through the current network configuration. However, we can also analyze individual product flows. Confidential

16. quèt  ica Current Network – Example (cont’d) 16  Current Flows per Product: Product X – Moreno Valley, CAProduct Y – Moreno Valley, CA Confidential

17. quèt  ica Baseline Optimization – Example 17  Optimized Flows per Product : Product X – Sandy, UTProduct Y – Elkhart, IN Confidential

18. quèt  ica Greenfield Analysis - Example Confidential 18  We have run several scenarios, looking for the optimal network configuration.  1 DC: An optimal Network Configuration of a unique-central DC.  2 DCs: An optimal Network Configuration of 2 DCs.  4 DCs: An optimal Network Configuration of 4 DCs.  Actual Network + 1 DC: An optimal configuration of the actual network, adding one additional DC.  Inbound through Savannah: An optimal Network Configuration, considering that all the Non-US origin product is received through the port of Savannah.  All these scenarios consider the actual customer and demand distribution.  The obtained results were compared with the current network configuration.

19. quèt  ica Greenfield Analysis – 1 DC Confidential 19 ScenarioWeighted Avg. Actual Network1,654 1 DC1,278 Current DCs Proposed DCs Proposed DCs: Iola, KS

20. quèt  ica Greenfield Analysis – 2 DCs Confidential 20 ScenarioWeighted Avg. Actual Network1,654 2 DCs926 Current DCs Proposed DCs Proposed DCs: Los Angeles, CA Louisville, KY

21. quèt  ica Greenfield Analysis – 4 DCs 21 ScenarioWeighted Avg. Actual Network1,654 4 DCs805 Current DCs Proposed DCs Proposed DCs: Jersey City, NJ Los Angeles, CA Houston, TX Morton, IL Confidential

22. quèt  ica Greenfield Analysis – Actual + 1 DC 22 ScenarioWeighted Avg. Actual Network1,654 Additional DC825 Current DCs Proposed DCs Proposed DCs: Actual Network Houston, TX Confidential

23. quèt  ica Greenfield Analysis – Inbound via Savannah 23 ScenarioWeighted Avg. Actual Network1,652 Savannah754 Current DCs Proposed DCs Proposed DCs: Savannah, GA San Diego, CA Northampton, PA Eureka Spring, AR Confidential

24. quèt  ica 24 Confidential BENEFITS FOR FEDERAL AGENCIES

25. quèt  ica Benefits for Federal Agencies Confidential 25  Demand-based network design and optimization approach delivers:  Practical and proven approach in the private sector  Cost effective – focusing on real demand  Proactive needs identification  Reusable process – the analysis and design framework can be used for subsequent studies  Specific and actionable optimization strategies  Detailed ROI analysis for each strategy  Significant savings to your supply chain

26. consulting financial services | payments | government | transportation | healthcare 26 Questions & Answers Thank you for participating in today’s session. For more information, you can contact today’s speaker at: Richard Langer 651-964-4646 x800 richard.langer@quetica.com 26