The EATON Corporation Supply Chain Optimization

1. April 17, 2014 The EATON Corporation Supply Chain Optimization Team Gagan Presenter 1: Venkata Mujje Presenter 2: Sumit Gangwani, Presenter 3: Madhu Ramamurthy,, Presenter 4: Gagan Tripathi

2. Team Introduction Madhu Ramamurthy Venkata Mujje Sumit Gangwani GaganTripathi

3. Agenda for Today 1 2 3 4 5 6 7 • Current Situation • Recommendation • Analysis • Implementation • Risk and Mitigation Measures • Conclusion • Appendix

4. Current situation • Recommen-dation • Analysis • Implemen-tation • Risks • Conclusion • Appendix 1 Setting the Tone Venkat Company Highlights Warehouse Geographical distribution • Eaton is a leading power management global company with a sales of $22 B • Provides Energy-efficient solutions in Electrical, Aerospace, Vehicle and Hydraulics sectors • Offers comprehensive electrical solutions comprising Power distribution, generation and control Company Supply Chain • Customer Manufacturing Solution centers(CMSC) are built in 16 US cities for catering to the local market needs part of Power Distribution • Sites are geographically located all over US both West and East Coast • Each CMSC is either labeled SAT( Satellite center) or SVC(Service Center) Current Situation

5. Current situation • Recommen-dation • Analysis • Implemen-tation • Risks • Conclusion • Appendix 1 Problem Statement Venkat With Expanding Markets and growing Tech Companies along the west coast, Eton Corporation faces tough competition to meet the fluctuating demand. It struggles to keep its inventory and transportation costs low. Is building either new CMSC sites, or new Warehouses the best strategy to achieve. Can it be Sustainable for a long-term? Current Situation

6. Current situation Recommendation • Analysis • Implemen-tation • Risks • Conclusion • Appendix 2 Building a new Warehouse in Los Angeles is the Recommended Option Sumit A B C Options & Recommendation

7. Current situation • Recommen-dation Analysis • Implemen-tation • Risks • Conclusion • Appendix 3 Building Warehouse around LA region Sumit A Warehouse Utilization Regions Assumption & Rationale • W87 currently serves only ~7% of the demand • Replaced W87 with new warehouse-similar capacity with similar capacity dedicated to the CMSC • New warehouse would satisfy entire demand of the west coast CMSC sites • Reduces Air transportation cost by 64% It is recommended to build a warehouse around Los Angeles Analysis

8. Current situation • Recommen-dation Analysis • Implemen-tation • Risks • Conclusion • Appendix 3 Making 2 CMSCs is not feasible and would not lead towards the main problem of lead time Madhu B Air transportation cost Analysis Location Analysis • Requirement of CMSCs to be setup within 50 miles • San Jose • San Diego • Tucson, AZ • Region requires High turn around time rather than high capacity • High property cost in California Analysis Setting up CMSCs is not recommended

9. Current situation • Recommen-dation Analysis • Implemen-tation • Risks • Conclusion • Appendix 3 Building DBN’s not a sustainable solution!! Madhu C • 2 DNB sites one in Denver and one in LA • Capacity – ¼ of W87 Scenario Advantages • Meets demand from nearby west coast CMSC’s • Lowers investment cost • Reduces inventory levels in CMSC’s • Reduces the total transportation cost of the west coast CMSC’s • Reduces the lead time Disadvantages • Not sustainable in the long term • High risk of obsolescence • Not very responsive to fluctuations in demand • Issues in management of smaller DBN Building smaller DNB’s is not recommended keeping in mind the long term growth. Analysis

10. Current situation • Recommen-dation Analysis • Implemen-tation • Risks • Conclusion • Appendix 3 Additional Recommendation: Better Forecasting methodologies based on region and market Madhu Description • 35:65 Demand Ratio results in 49:51 Transportation Costs • On an average the COGS per month seen to be higher than average inventory • DOI for Western CMSCs around 36 days compared to 33 for Eastern CMSCs Better forecasting methods builds upon recommended Option 1 for overall Cost Reduction Analysis

11. Current situation • Recommen-dation • Analysis Implemen-tation • Risks • Conclusion • Appendix 4 Implementation Gagan Long Term Short Term Medium Term Sign MOUs with land and Air cargo companies Develop Forecasting models Data collection and strategizing of forecasting model Long Term partnership with customers Engineering and Redesign Construction of Warehouse in LA Milestone 4 Re-access the milestones Milestone 1 Work towards better Inventory prediction model Milestone 2 Work with the CMSCs to enhance the efficiency of the Supply chain processes Milestone 3 Set small milestones towards construction of the ware house in LA Implementation

12. Current situation • Recommen-dation • Analysis • Implemen-tation Risks • Conclusion • Appendix 5 Main risks are varying customer demand and improper inventory forecasting model Gagan Probability/Impact Risk Mitigation measure • Partnership programs with competitors • Increase reach through quality product and efficient supply chain management Competition from other companies operating in the same space Low/Medium • Long term partnerships with customers • Better inventory prediction model Varying Customer Demands High/Medium Improper Forecasting model • Setting up a rugged forecast model using proper Operation related theories High/Medium Fluctuations in Transportation cost due to varying fuel cost • MOU with the Land transportation and air cargo companies Low/Medium Low Utilization probability of new Warehouse due to fluctuating Customer Demand • Proper forecasting model usage to determine the capacity of the warehouse • Forward looking capacity handling to account for the expected increase in demand Medium/High Risk & Mitigation Measures

13. Current situation • Recommen-dation • Analysis • Implemen-tation • Risks Conclusion • Appendix 6 Keep and improve Paywall and implement an integrated multimedia platform to include partners Gagan A B C Conclusion

14. Thank you! Questions?

15. Current situation • Recommen-dation • Analysis • Implemen-tation • Risks • Conclusion Appendix Backup – Transportation costs - Air Backup

16. Back Backup – Transportation costs – Air Backup

17. Backup – Transportation costs – Air – Optimized

18. Back Backup – Transportation costs – Air – optimized Backup

19. Backup – Transportation costs – Air – optimized – Warehouse

20. Back Backup Transportation costs - Road Backup

21. Backup Transportation costs - Road

22. Backup Transportation costs – Road - Optimized

23. Backup Transportation costs – Road - Warehouse