1. 1 © 2000 Expeditors Global Distribution Services Distribution Services A How to Discussion when Considering your Outsourced Options

2. 2 © 2002 Expeditors Agenda Discuss outsourcing objectives and considerations Highlight typical services outsourced Develop framework for understanding provider methodolgy for developing cost structures Understand the technical aspects an outsourced provider is offering Discuss terms of conditions vs. contracts

3. 3 © 2002 Expeditors What You Will Take Away From This Identify situations where outsourced activity is conceivable. Define the typical services outsourced providers may offer and the level of complexity for those services. Identify potential service offerings that concur with objectives Describe Development of the scope of services and rate structures for proposed services. Identify key system offerings and technical tools that correlate to strategic advantage and efficiencies

4. 4 © 2000 Expeditors Global Distribution Services Sourcing Objectives

5. 5 © 2002 Expeditors Why Outsource? Knowledgeable work force Outsourced services allow one to focus on core competencies Logistics solutions customized to fit specific needs and criteria Convert fixed costs to variable costs, capital re-investment –Note: see example Achieve technology gains and quicker return on investment Flexible space and labor Global presence and expansion Start-up Special projects

6. 6 © 2002 Expeditors Considerations when sourcing Distribution Services 3 S’s of sourcing –Service –Systems –Solutions Location(s) Flexibility Terms and conditions vs. contract Scope of work Price

7. 7 © 2002 Expeditors Considerations when sourcing Distribution Services – 3 S’s Service –What is your perception of providers ability to provide true service –Do you need high level of “customer service” –Will provider “do what it takes” –Longevity – relationship is costly to change Systems –WMS vs ERP –In-house vs. over the counter vs. customer system –Warehouse set-up, custimization –Peripherals –Technical support –Compatibility and EDI Solutions –Custimizable or standard

8. 8 © 2002 Expeditors Considerations when sourcing Distribution Services - Location Location(s) Local – “Mom and Pop” Regional Major domestic markets Global Wherever you need to be

9. 9 © 2002 Expeditors Considerations when sourcing Distribution Services - Flexibility Space –Fixed or variable models –Equipment –DC Set-up –In-house –Peaks and valleys Labor –Flex up or down –Hourly vs unit based –Management Solutions –System integration –Outside the box –Customized for you –Value add

10. 10 © 2002 Expeditors Considerations when sourcing Distribution Services – Terms and Conditions Standard Terms and Conditions Do they work for you Are they fair – for both sides Red flags Less complex, high turn rate Contract Terms of service obligation Lengthy negotiations Is provider flexible enough to consider risk of contracts Complex and specialized services High tech

11. 11 © 2002 Expeditors Considerations when sourcing Distribution Services – Scope of Work Develops framework for your agreement Are requirements for service outsourceable and are you comfortable Basis for pricing you will agree to Is it well defined or ambiguous –Note: providers responsibility to develop this Attainable? Measurement criteria and goal reaching Will you be micro-managing or weed pulling? Exceptions

12. 12 © 2002 Expeditors Considerations when sourcing Distribution Services – Pricing and Cost Structure 1 st and foremost: Is the scope of work well defined? Variable vs. fixed structure Avoid flat rates Accessorials – do they make sense? How are costs calculated – manual or systematic by transaction Will all parties involved be successful How will performance be validated against cost Can provider pass the “red-face” test? Profit center or cost center

13. 13 © 2000 Expeditors Global Distribution Services Distribution Services Solution Models

14. 14 © 2002 Expeditors Solutions Complexity Trans-load DC Bypass/Store Direct Cross-dock Merge in Transit Postponement/Localization Supplier Managed Inventory Compliance Inspection Expeditors Distribution Services © 2005 Property of Expeditors International of Washington, Inc. and its subsidiaries. All information contained herein is confidential and proprietary and may not be reproduced, used, manipulated, disclosed, copied or disseminated without Expeditors' prior written consent. Kitting Fulfillment/Pick and Pack Procurement function The supplierConsolidationTransportationCustoms Manufacturing or distribution function Manufacturing or distribution function The Supply chain Kitting Compliance Inspection Origin distribution Transload Cross dock Merge in transit Kitting VMI DC bypass Fulfillment

15. 15 © 2002 Expeditors Service Complexity Trans-load Change mode of carriage What is it? Benefits Import: International long-haul Export: Local source Import: Final transport leg Export: International transport Visibility throughout transit Cost savings from consolidation Quickly transfer between conveyances One to one simplified execution Dock From one conveyance to another In Out

16. 16 © 2002 Expeditors Service Complexity DC bypass DC Bypass (Store Direct) Product does not touch customer distribution center What is it? Benefits Time savings/Shorter transit Cost savings Reduced product touches Customer Distribution Center Store Normal Bypass Store

17. 17 © 2002 Expeditors Service Complexity Cross-dock Rapid movement (<72 hours) of inbound goods to many destinations What is it? Benefits Reduce handling and storage costs Increased throughput Faster inventory turn Cross-dock

18. 18 © 2002 Expeditors Service Complexity M.I.T. Merge in transit Merge customized product with standard product What is it? Benefits Lower transportation costs Optimal mode selection Warehouse

19. 19 © 2002 Expeditors Service Complexity Postpone Postponement/Localization Delay final SKU kitting until unit is sold Locally procured or country specific items are added prior to shipment What is it? Benefits Lower inventory levels of main components Delay point of differentiation Rapid delivery of wider product variety Potential to reduce duty for work in process vs. finished goods Warehouse Standard Items Local unique Items To country A To country B

20. 20 © 2002 Expeditors Service Complexity P&P Product Fulfillment/ Pick and Pack Orders are filled at less than master carton quantity What is it? Benefits Allow customers to order specific items Reduce fixed costs associated with DC operations Stock Order 1Order 2 To customer 1 To customer 2 Warehouse

21. 21 © 2002 Expeditors Kit #1 Service Complexity Kitting Combine Materials from multiple suppliers What is it? Benefits Fewer materials on the production floor “Just-in-time” deliveries to appropriate line reducing costs and increasing productivity Smaller buffer inventory Supplier 1 Supplier 2 Supplier 3 Warehouse Stock Kit #2Kit #3 Product 3 Product 2 Product 1 Production Manufacturing line Site Installations Retail

22. 22 © 2002 Expeditors Service Complexity VMI Supplier (Vendor) Managed Inventory Supplier manages the stock levels and availability for the customer based on forecasts What is it? Benefits Receive Just-In-Time (JIT) deliveries Local warehouse without infrastructure investment Real time visibility to inventory for all suppliers Shift to suppliers financial responsibility, and for managing and replenishing inventory Supplier 1 Supplier 2 Supplier 3 VMI Hub Stock (owned and inventory levels managed by supplier) Product 3 Product 2 Product 1 Manufacturing line Deliv Inventory owned by supplier Inventory owned by customer Pull Hub receives signal Pull Line issues signal

23. 23 © 2002 Expeditors Service Complexity Compliance Inspection Compliance Inspection Inspection of product at receipt or from stock to insure compliance with specification What is it? Benefits Validate supplier performance regarding product and documents Move inspection closer to supplier or source Supplier Warehouse Inspect parts for compliance to specification OK! ! At receipt From stock

24. 24 © 2000 Expeditors Global Distribution Services Develop the Opportunity

25. 25 © 2002 Expeditors Process for developing Scope of Business into Cost Structure and Solution Learn about a new opportunity Receive first shipment ?

26. 26 © 2002 Expeditors How do we develop an opportunity? Opportunity identified. Information gathered, analyzed, and compared –Questionaire, volume analysis Client – Provider meetings, conferences, and outings to discuss services required Remember: complexity=longevity Key: If a provider does not intend to fully understand your business they will not fully intend to offer you the best solution Solution and pricing established and agreed to

27. 27 © 2002 Expeditors Understanding your Business Scope of service defined (NOT SOP) –Requirements understood –Definition is important –Less defined means less opportunity for success Historical vs forecasted volumes understood and analyzed Performance measurements outlined Understand

28. 28 © 2002 Expeditors Pricing the Opportunity Three main components of distribution costs: Space Labor Supplies –Understand these components in combination with volumes Note: Pricing analysis Rates established –Volume, longevity = favorability –Variable not fixed unless requested –Accessorials Scope and Rates

29. 29 © 2002 Expeditors Present the Solution Does the scope of work agree with the requirements – collective Does the pricing correlate with this scope – also collective –Negotiate? Agree to Key Performance Indicators (KPI) Develop SOP(s) Flow out the process Marriage Process Development

30. 30 © 2002 Expeditors Process for developing Scope of Business into Cost Structure Learn about a new opportunity Receive first shipment Understand Scope and Rates Process Development

31. 31 © 2000 Expeditors Global Distribution Services Technical Offerings

32. 32 © 2002 Expeditors What to Look for Scalability –Warehouse Management System Solution Offering EDI – system integration MDC RF capability RFID – where is this going? Web based visibility and reporting capabilities Technological Awareness Proprietary vs. over-the-counter Supply Chain Integration

33. 33 © 2002 Expeditors Close Questions