The Benefits of Technology to Large Scale Wholesale Distribution

1. The Benefits of Technology to Large Scale Wholesale Distribution ERP Benefits at Graybar Electric Company Updated from 2006 10K filing

2. “It is managerial ingenuity that creates stockholder wealth through the invention and exploitation of new products, the development and more efficient provision of services, and sound financial management.” Leo E. Strine, Jr.,Vice Chancellor of the Delaware Court of Chancery

3. Agenda Graybar – Profile Project Background and Objectives Project Risks – The Challenge of Transformation Graybar Business Case Outcomes and Benefits Link to the Distribution Value Map Conclusion

4. I. Graybar Company Profile • Founded in 1869. • Spun off from Western Electric and sold to employees in 1929. • 250 locations in North America. • 8,000 employees. • 6,000 shareholders. • Based in St. Louis.

5. I. Graybar Company Profile • Graybar Business Volumes • $5 billion in revenue • $1.5 billion in assets • 250,000 customers • 4,500 suppliers Primary Markets Served • Contractor • Industrial • Utility • Government • Graybar as an Industry Leader • One of the largest electrical wholesaling companies in the U.S. • One of the largest private companies in the U.S. • A Fortune 500 ranked company. • Recognized technology leader by InformationWeek, InfoWorld, and BusinessWeek.

6. II. Graybar Project Background The Tipping Point: • Our current system was running out of capacity – Home built/Mainframe based. • Our business and industry were becoming more complex – Regulations/Rebates. • Our customers needed us to be more responsive – One off requests/electronic interaction.

7. II. Project Objective To use Technology as a catalyst for business process change. To Standardize, Simplify, and Automate our business process using ERP as a global best practice source. To create value by improving our asset management and generating positive cash flows using the most up-to-date tools available. To improve profitability by increasing employee productivity by focusing on activities the customer is willing to pay for.

8. Project Risk Phase III. The Challenges of Transformation Business Disruption Risk Phase Design Investment Risk Phase Build Test Deploy Stabilization A/R Inventory Employee Self Service Gross Margin Improvement 2003 2004 2005 2006 2007

9. III. The Challenges of Transformation Project Risk Phase – Design issues – Scope issues – Technical issues • 12 to 24 months duration • Focus – Expenditure control Business Disruption Risk Phase – Training issues – Productivity issues – Morale issues • 12 to 18 months duration • Focus – Customer & Employee retention InvestmentRisk Phase – Priority issues – Impact issues – Speed issues • 60 to 120 months duration • Focus – ROI

10. IV. The Graybar Business Case • To improve cash flow by better Accounts Receivable management.(10% reduction in days sales outstanding) • To improve cash flow by better Inventory management and deployment.(10% reduction in days inventory) • To improve profitability by increasing employee productivity.(10% increase in sales per employee)

11. V. Outcomes & Benefits 10% 10% 10% A/R Inventory Productivity

12. 10% V. Outcomes & Benefits 10% 10% Accounts Receivables 5% Improvement in days $67 million in positive cash flow 55 53 Days Updated from 2006 10K filing $765 Million 50 Days 50 $698 Million 45 2006 2000 Days

13. 10% V. Outcomes & Benefits 10% 10% 52 Days Inventory 46% Improvement in days $363 million in positive cash flow 55 $748 Million Updated from 2006 10K filing 40 28 Days $385 M 25 2006 2000 Days

14. 10% V. Outcomes & Benefits 10% 10% Sales Per Employee 20% Improvement $100 thousand per employee improvement in productivity Updated from 2006 10K filing $650 $596 K $550 $469 K $450 2006 Thousands 2000

15. 10% V. Outcomes & Benefits 10% 10% Near Miss Hit Hit 100% 100% 100% A/R Inventory Productivity • 46% reduction in • Inventory days • $363 million • Positive cash flow • 20% increase • Sales per employee • $100 thousand more per employee • 5% reduction in DSO • $67 million • Positive cash flow Updated from 2006 10K filing

16. V. Outcomes & Benefits Unanticipated ERP/SAP Benefits • Significantly increased the tempo of our business. • Provides much richer data about our business. • Provides greater control of our business. • Taught us to be better project managers. • Taught us the value of change management.

17. V. Outcomes & Benefits Updated from 2006 10K filing $ Millions Net Debt (adjusted) 69% Improvement $443 million reduction 650 $641 M $505 M 400 $386 M $373 M $326 M $312 M $198 M 150 2000 2001 2002 2003 2004 2005 2006

18. V. Outcomes & Benefits 242% 88% Revenue Updated from 2006 10K filing Gross Margin SG&A Operating Margin 30% Net Profit 25% Net Working Cap. Headcount (U.S.) 20% 19% 15% 17% 10% 14% 5% 8% 4% 0% -5% YTD - 12 Months 2005 vs. 2006 Balanced Scorecard

19. VI. Links to Deloitte’s Distribution Value Map

20. Enterprise Value Driven by ERP Accounts Receivable DSO is down 5.5% at Graybar

21. Enterprise Value Driven by ERP Inventory Inventory is down 46% at Graybar

22. Enterprise Value Driven by ERP Productivity Sales per employee up 33%

23. Enterprise Value Driven by ERP Increase the “Tempo” of the business Decision making at the speed of light at Graybar

24. Enterprise Value Driven by ERP Provide much richer data about the business Real time data about business performance Daily KPI’s on every Managers desktop

25. Enterprise Value Driven by ERP Provide greater control of the business Meet regulatory and governance requirements

26. VII. Conclusion • Using technology to transform a large distribution company has risks and rewards. • Process re-design and technology helped to generate significant value at Graybar through asset management improvements and gains in productivity. ERP/SAP is part of the secret sauce to our success.

27. Questions?