1. consulting & technology financial services | payments | government | transportation | healthcare Effective Supply Chain Network Management, Optimization and Design 5 th Annual Government Transportation Forum March 26, 2015 – Presented by Richard Langer, Quetica, LLC

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

3. quèt  ica What is Network Optimization? Confidential 3  Supply Chain Network Design  The discipline to determine the optimal location, number, type and size of facilities; transportation modes; and the network flow  Computer models and linear integer programming algorithms are used to create the optimal design  Demand-Based Supply Chain Network Design and Optimization  Commonly used to design and optimize global supply chains to improve services and/or reduce costs  Focuses on meeting end users’ demand in design and optimization  Identifies opportunities to invest in supply chain network to increase speed, improve reliability, and lower total costs  Baseline optimization - how do we best use the current freight network to deliver optimized results?  Greenfield analysis – what are the network elements to develop and where should they be located?  Contingency-Based Network Optimization  Optimizes the network for resiliency  Designs a network to manage and mitigate risks in natural or man-made disasters

4. quèt  ica How should I react to an unplanned event? RAPID RESPONSE What if we try this? What if this happens? What if we try this? What if this happens? SCENARIO ANALYSIS What is my current supply chain profile? VISIBILITY Supply Chain Optimization Model Sourcing & Production Footprint – Product Flowpaths – Transportation Routes – Inventory Placement Supply Chain Optimization Model Sourcing & Production Footprint – Product Flowpaths – Transportation Routes – Inventory Placement CURRENT OPERATIONS Analysis of Existing Supply Chain FUTURE OPERATIONS Strategy for New Supply Chain Supply Chain Design System

5. quèt  ica Demand-Based vs. Contingency-Based Optimization Confidential 5  Demand-based optimization focuses on optimizing the supply chain costs and service levels to meet current and future demand  Analyze the costs and lead time requirements of the network to identify constraints/bottlenecks in the network  Optimize the network using current network structure  Identify opportunities to build new or consolidate existing facilities to achieve the best network design  Contingency-based optimization focuses on network resilience to manage risks from disruptions to supply chain networks  Identify and prioritize disruption risks  Analyze potential points of failures in supply chain networks  Optimize inventory policies, sourcing policies, and transportation policies in current network to improve network resilience  Determine optimized warehouse locations, inventory levels, transportation modes and routes to manage and mitigate disruption risks

6. quèt  ica Opportunity for Agencies Confidential 6  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  Test network against disaster scenarios

7. quèt  ica Network Optimization Approach Confidential 7 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

8. quèt  ica Approach Overview Confidential 8

9. quèt  ica Input Data Confidential 9  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

10. quèt  ica Expected Results Confidential 10  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.

11. quèt  ica Expected Results Confidential 11  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

12. quèt  ica Network Design and Optimization Example 12 Confidential

13. quèt  ica Current Network – Example 13  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

14. quèt  ica Current Network – Example (cont’d) Confidential 14  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

15. quèt  ica Current Network – Example (cont’d) Confidential 15  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.

16. quèt  ica Current Network – Example (cont’d) 16  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

17. quèt  ica Current Network – Example (cont’d) 17  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

18. quèt  ica Current Network – Example (cont’d) 18  Current Flows per Product: Product X – Moreno Valley, CAProduct Y – Moreno Valley, CA Confidential

19. quèt  ica Baseline Optimization – Example 19  Optimized Flows per Product : Product X – Sandy, UTProduct Y – Elkhart, IN Confidential

20. quèt  ica Greenfield Analysis - Example Confidential 20  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.

21. quèt  ica Greenfield Analysis – 1 DC Confidential 21 ScenarioWeighted Avg. Actual Network1,654 1 DC1,278 Current DCs Proposed DCs Proposed DCs: Iola, KS

22. quèt  ica Greenfield Analysis – 2 DCs Confidential 22 ScenarioWeighted Avg. Actual Network1,654 2 DCs926 Current DCs Proposed DCs Proposed DCs: Los Angeles, CA Louisville, KY

23. quèt  ica Greenfield Analysis – 4 DCs 23 ScenarioWeighted Avg. Actual Network1,654 4 DCs805 Current DCs Proposed DCs Proposed DCs: Jersey City, NJ Los Angeles, CA Houston, TX Morton, IL Confidential

24. quèt  ica Greenfield Analysis – Actual + 1 DC 24 ScenarioWeighted Avg. Actual Network1,654 Additional DC825 Current DCs Proposed DCs Proposed DCs: Actual Network Houston, TX Confidential

25. quèt  ica Greenfield Analysis – Inbound via Savannah 25 ScenarioWeighted Avg. Actual Network1,652 Savannah754 Current DCs Proposed DCs Proposed DCs: Savannah, GA San Diego, CA Northampton, PA Eureka Spring, AR Confidential

26. quèt  ica Crisis Management Planning 26  Crisis management planning has been actively deployed by government agencies for decades, e.g.  Military freight  Post-humanitarian relief  Commercial organizations have more recently recognized the importance of active crisis management plans and business continuity planning  Five main categories of disasters:  Natural (i.e., droughts, hurricanes, tornados, etc.)  Hydro Meteorological (i.e., floods, ice storms, blizzards, etc.)  Technical (i.e., industrial accidents, accidental release of hazardous materials)  Geological (e.g. earthquakes)  Human Related (e.g. epidemics, man-made, terrorist)  All categories of disasters can lead to disruptions in supply chains when timing is most critical

27. quèt  ica Optimization Example Business Continuity Planning 27 Confidential

28. quèt  ica Benefits for Federal Agencies 28 Confidential

29. quèt  ica Benefits for Federal Agencies Confidential 29  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

30. consulting financial services | payments | government | transportation | healthcare 30 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 30