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Customer Base Expectations

Customer Base Expectations. Collaborative Supply Chain Models Proactive Solutions Aggressive Pricing Ease of Doing Biz Favorable/Fair Terms and Conditions Velocity of Materials Accepting/Treating CEM as the Customer. Integrated Services. Traditional EMS. Distribution & outbound

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Customer Base Expectations

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  1. Customer Base Expectations • Collaborative Supply Chain Models • Proactive Solutions • Aggressive Pricing • Ease of Doing Biz • Favorable/Fair Terms and Conditions • Velocity of Materials • Accepting/Treating CEM as the Customer

  2. Integrated Services Traditional EMS Distribution & outbound logistics New Product Introduction NPI) Purchasing & inbound logistics After sales services Global Manufacturing Sourcing Design Today EMS Tomorrow EMS Complete EMS/ODM Module

  3. Med Volume Configurable • Buffer Stock. • Kanban Mtrls Mgmnt • Med Turn • Etc. High Volume Low Mix • JIT Materials Management. • Embedded Forecast Release EDI • High Turns • Etc. Collaborative SC Models • Designed for Flexibility • Supply Chain Model is designed to meet Customer Requirements. • Proactive / Collaborative Demand Planning. • Responsiveness to Change. • SC Model is industry Focused. • Structured by model and Partner. • Automotive drivers are different to Networking drivers. • One Size does NOT fit all

  4. Collaborative SC Models • Philips is currently in 11 mfg. sites, in 9 countries, on 3 continents. • Supply Chain is difficult enough without creating non-value complexities. • This is consumer business, fickle at times, yet fairly predictable from a macro perspective

  5. High Performance Supply Chain Management Partnership Process Fully Integrated Worldwide Program Management Customer Supply Chain Management Customer Demand Requirements Planning • Order & Asset • Management System • Inventory Bonding • Planning Information • Acknowledgments • Order Processing Purchased Items • Program Items • Schedule Share • EC Release BOM Demand Projections & Stocking Requirements BOM BOM Direct Site Support Direct Site Support Product Build Requirements Ship Final Product to Customers 2-3 Day Process Customer Manufacturing Russia (PCB Assembly, Final Assembly, Test and Ship) Inventory @ customer Hub Russia • Colnbrook • Distribution Center • Bonded Inventory • Process, Pick, & Ship customer Pull-to-WIP KANBAN Demand Flow Replenishment 24 Hour Process

  6. Demand-Flow Supply ReplenishmentVisual System Driven / Electronic Commerce Supported Element 1 Establish a Prime Location 2-Bin Kanban (or single bin Min/Max) in the electronic assembly area to support the existing process lines. Inventory Hub Bonded Inventory Pick, Ship and Deliver Element 4 When a Kanban Bin is depleted (2-Bin) or depletes below Min-level (1-Bin), Gilat will replenish from the Sofia Hub. Electronic Assembly Electronic Assembly Electronic Assembly Element 2 Create and size 1 or 2 “Bin” Component Kanbans. Electronic Assembly Element 3 Kanban draws off bin until depleted

  7. WORK ORDER TRANSACTION MRP Based Schedule Share Planning Information MATERIAL MGT TRANSACTION INVENTORY POSITIONING PULL SIGNAL Release WAVE SOLDER SEQUENCER HAND INSERTION FINAL ASSEMBLY FINAL ASSEMBLY AUTO- INSERTION TOUCH-UP Material Flow Process“CAN-BE” SUPPLIER L.T. = 1-3 Days KANBAN PACKAGING & SHIPPING TO CUSTOMER ACCEPTANCE TESTING KANBAN STAGED COMPLETED BOARDS KANBAN STAGED AUTO-INSERTED BOARDS SEQUENCED REELS Through-Put Time 4 Hours 4 Hours 4 Hours 2-Days

  8. Carrying Cost Element Cost of money (Opportunity) Obsolescence, Scrap, Shrink Costs Capital Equipment and Facilities Costs Taxes and Insurance Costs Totals General Industry Low Range 7.0% 1.0% 1.0% 1.0% 10.0% Electronics Industry Average 12.0% 4.5% 4.0% 2.0% 22.5% General Industry High Range 18.0% 7.0% 6.0% 4.0% 35.0% Defining the Inventory Carrying Cost Def: carrying cost - Cost of carrying inventory, usually defined as a percentage of the dollar value of inventory per unit of time (generally one year). Carrying cost depends mainly on the cost of capital invested as well as the costs of maintaining the inventory, such as taxes and insurance, obsolescence, spoilage, and space occupied. Such costs vary from 10% to 35 % annually, depending on type of industry. Ultimately, carrying cost is a policy variable reflecting the opportunity cost alternative uses for funds invested in inventory. (Source: APICS Dictionary 8th Edition )

  9. Benefit of increase inventory turns Purchases Inventory Turns 1,000,000 1,000,000 Inventory Reduction Cost of Carrying Inventory (annual) Savings (>6%) 333,000 83,000 ====== 250,000 x 25% ====== 62,500 3 12

  10. Benefit of reduced activities Activity Traditional Electronic Review MRP Create PO req. Select Supplier Create PO Review/Sign Transmit Mail PO File PO Acknowledge PO Print PO Ack. File PO Ack. Minutes Cost per PO 1 1 1 3 5 5 2 5 1 3 3 3 5 3 30 55

  11. Transaction cost reduction benefit Cost Total Transaction # MRP original Purchase Order 1000 1000 55 5 55,000 5,000 ====== 50,000 Electronic PO release Savings (5%) 1M purchases

  12. Buffer Inventory Carrying Costs (% of Inv. Value) Total Acquisition Cost “TAC” + Quality Problems • Capital Costs 5.5% • Handling 5.0% • Damage,Theft 3.0% • Obsolescence 2.5% • Insurance 2.0% • Storage 1.0% 19.0% + • Warehouse (3X) • Purchasing (3X) • Payables (3X) • Engineering • Quality Assurance • Production Manu Floor T.A.C Delivery Problems • Expediters • Buyers • Production • Management €1.35…? + Procurement Admin. €1.00

  13. Procurement’s changing role • Negotiate contracts with suppliers • Manage supplier/partner relationships • Serve on product development teams • Materials planning and management • Lead-time reduction • Focus on “A” items (80% of dollars)

  14. MATERIAL FLOW Traditional material flow CIRCUIT BOARD ASSEMBLY STOCK ROOM SUB ASSEMBLY FINAL ASSEMBLY SUPPLIER INVENTORY

  15. MATERIAL FLOW One type of proven solution -Two bin kanban pull system EC SIGNAL CIRCUIT BOARD ASSEMBLY BIN 2 BIN 1 SUB ASSEMBLY FINAL ASSEMBLY SUPPLIER INVENTORY Difference

  16. INVOICE Customer Russia TERMINAL ON-LINE ORDER ENTRY Day 0 CENTRAL COMPUTER CUSTOMS ALL PRICES ON-LINE IN LOCAL CURRENCY CONSOLIDATED SHIPPING INVOICE WAREHOUSE LABLES & PACKINGNOTES PRODUCED ON-LINE GOODS TO BE COLLECTED AT 4 P.M., Day 0 DIRECT SHIPMENT 24 HOURS CUSTOMER GOODS ARRIVE NO LATER THAN DAY 2 • ALL PRICES IN CUSTOMER’S LOCAL CURRENCY • ALL TEXT IN CUSTOMER’S LOCAL LANGUANGE

  17. Delivery with customs clearanceBonded warehouse option Customs clearance by Customer/Disti USA/China Bonded Warehouse Customer’s production facility Payment in USD, GBP, Euro Russianinvoice to customer

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