Cavalier Homes, Inc. Nuts and Bolts: Redefining the Organization for Measurable Results

1. Cavalier Homes, Inc.Nuts and Bolts: Redefining the Organization for Measurable Results Jay Wilson CIO Cavalier Homes, Inc.

2. Your Presentation Framework: • A little company history • Manufactured Housing Industry mechanics. • Our implementation of R3 v. 4.0.B • The challenges Cavalier has met • Achievements to date using Nuts and Bolts R3. • Suggested Learning Materials

3. Cavalier Homes, Inc. History • Founded in 1984 as a manufactured home producer • Became publicly owned in 1986 with $30 million in total revenue and a single home production facility. NYSE Stock Symbol = CAV • Financial Services division founded in 1992 by yours truly • Industry home shipments peak in 1998 at over 372,843 homes

4. History (continued) • Formed IT division in December of 1998 • Cavalier Ships 22,377 homes in 1999 • Industry ships less than 193,229 homes in 2001 • Cavalier Ships 12,669 homes for fiscal year 2001 and returns to profitability in Q4. • ** one of only 4 companies to do so ** • Currently operate 12 home building production facilities, 2 housing supply companies, Mortgage banking subsidiary and retail Insurance Agency

5. Mechanics of Manufacture Housing Factory produces and sells to Sales Center Bank Finances purchase from factory to Sales Center Sales Center sells home to customer Retail Finance or Mortgage company finances purchase of the home

6. Cavalier and SAP: Project STAR • Drivers for the Implementation • Variant configuration of sales orders • Raw material inventory reductions • Enterprise level availability of information • Standardize and scale disparate business practices • Improve operational efficiency • Enhance ROA • Scale to the Internet

7. Cavalier and SAP: ProjectSTAR The Nuts and Bolts: “Core R3” SAP R3 version 40B Currently implemented 60% of our production capacity, 100% of financial services and our corporate office. • Functional Modules • FI – Financial Accounting • CO – Cost Center • MM – Materials Management • PP – Production Planning • SD – Sales and Distribution • SM – Service Management • * We are utilizing Business area and profit center functionality 100% Compaq PC Servers, Microsoft NT 4.0 OS, Microsoft SQL 7.0 database, Microsoft Visual Studio 6.0 Web environment

8. Cavalier and SAP: Project STAR The Nuts and Bolts: Core R3 Metrics achieved to date (It keeps going and going and going…..) • Reduction in raw material SKU’s from 15,000 to 1,300 • Reduction in raw material inventory of 50% and decreased days of inventory from 30 to 14 • Raw Material inventory turns increased on average of 300% compared to non-SAP facilities • Cost of homes sold are on average $1,600 lower than those in non-SAP facilities • Hand written to automated Sales order creation resulting in reduced cycle times from 20 minutes to 5 • Sales order error rates reduced by a minimum of 25% • Sales order to Production order cycle times reduced from an average of 2 days to two hours • Administrative staffing reductions on average of 25% per manufacturing facility with an increase in homes produced

9. Cavalier and SAP: Project STAR The Nuts and Bolts: Core R3 Metrics achieved to date (It keeps going and going and going…..) • Costing a home from SAP Bill of Materials (BOM’s) reduced from average of 2 days to less than 5 minutes • Visibility of materials requirements for scheduled orders and plan purchasing (MRP) • Plant to plant comparable of BOM’s allowing visible and measurable differences in production practices • Enterprise wide frequency reporting capability for option and color popularity allowing reduction in SKU’s • Consolidation of home repair service activities from 4 locations to one • Increased service technician productivity by a minimum of 25% • Reduction in raw materials usage for repair by 70% in first two months of operation • Complete elimination of service truck route crossings • Service notification to truck scheduling cycle time reductions of over 25% • Material errors on truck load lists by a minimum of 10% • Enterprise service trend analysis capability

10. Cavalier and SAP: Project STAR The Nuts and Bolts: Internet stuff Metrics achieved to date (It keeps going and going and going…..) • Internet to sales organization e-mail routing control (“Contact us” e-form work flow) • Hand written to Internet enabled Service notification creation • Internet enabled Service notification status visibility • Internet enabled credit application work flow processing • Internet enabled insurance quote work flow processing

11. Learning Materials Uleashing the Killer App: Digital Strategies for Market Dominance by Larry Downes, et al Approaching $ZERO$ transaction costs. Business @ the Speed of Thought: Succeeding in the Digital Economy by Bill Gates, Collins Hemingway (Contributor) How to create a digital nervous system.