July 2007

1. July 2007 Logistics Proposal for Warehouse Introduction

2. Shenzhen Logistics Service

3. Why Choose Shenzhen • The terminals of Yantian, Shekou & Chiwan around Shenzhen Economic Zone have strategic location, which emerge as China’s most efficient and cost-effective transportation hub; • Near by both Asian regions (like Hong Kong, Singapore, etc) and mainland of Southern China, so that to act a significant role for International Trade to China (e.g. information exchange; import/export; taxation, etc); • Special Economy Zone (SEZ) set by China government and the increasing spending power of the consumers both creates mature and open trade environment to the logistics industry in Shenzhen; • This city enjoys convenient transport routes with good air, rail and road links to most major China cities. • Free Trade Zone also established at Shenzhen

4. Shenzhen Logistics Service Scope • Different type of warehouse • RDC function • Import/Export consolidation program • General storage • Repacking/Picking/Sorting/Labeling/Simply assembly/OC inspection/Bar code • Order Management/Warehouse Management/VMI • Project program • U-turn shipment to HK

5. Concept of Regional Distribution Center (RDC) Transfers cargo handling and storage from destination to origin, which provides our clients with an origin based distribution center: • Reduce destination re-handling costs and minimize the utilization of their destination warehouses • Destination DCs are over utilized and they need to relieve the overcapacity • Operational costs for maintaining destination DCs are higher than that are at origin. Take advantage of greater operational efficiency by performing the majority of cargo handling at origin, close to the manufacturing source, as well as at reduced costs.

6. Benefits of Regional Distribution Center (RDC) • 1. Reduce overall costs by minimizing costly warehouse and labor costs at destination, as well as minimizing demurrage due to destination DC overcapacity • 2. Reduce investment in destination DC network • Reduce overall cost of goods. • 4. Lower inventory levels at destination DCs as products are stored at origin and shipped as per clients’ request when products are needed • 6. Increased flexibility in the supply chain by storing cargoes at origin, thus delaying allocation and transport decisions until products are actually needed at destination • Increased options for additional solution development, such as direct to store, DC bypass, quality inspection, or other VAS. • 8. Faster time to market by eliminating steps in the supply chain, such as delays at destination, and providing more flexibility in reallocating and rerouting products • Decrease dependency on their existing distribution network at destination. • Increasing the opportunities for cross-dock, DC Bypass, Direct to Store programs

7. Sample of Operations • Shenzhen FTZ warehouse • Receiving • Quality Assurance • Pick & Pack • Import & Export • Consolidation • Other VAS China Manufacturer Customers Asia Manufacturer Asia (South East)

8. Logistics Management

9. Various Management Tools • Customer Service Management • Warehouse Management / VMI • Reporting Management • WMS

10. Customer Service Management Management Team : • Provide professional advise and tailor made package to customer. • Ensure high level of dedication and performance. Single Contact Window : • Simplify the complexity of customer contacting and necessary for logistics project. • Advantages: • Reduce the possibility of mis-communication • Reduce the complexity of communication channel • Improve efficiency • Staff with full knowledge on operations and customer’s requirement • Substantial saving on long distance phone calls • Fast reaction in ad-hoc requirement and increase flexibility

11. Customer Service Management Flow Ordering Issues 1 Receive PO summary Customer Cargo Readiness 1 Check with vendor for cargo readiness 2 Booking procedure Scanwell Mutual Communication Transportation 1 Provide shipping schedule 2 Select transportation mode Warehouse operations 1 Process of repacking 2 Provide lavatory level Problem solving 1 Respond to any abnormal circumstance Customs Issue 1 Co-ordinate with vendors on customs procedure 2 Provide professional advice to streamline the operations

12. Vendor Place booking in advanced Inland Transportation Arrangement (Followed by customs declaration) Verification Warehouse Management - Cargo In Warehouse Sample Four inspections (Quantity, Package, Variety & Quality) Storing Installations (Goods entering, Sorting, Labeling) A/C Settlement & Internal Management Respond relevant problems to customer (e.g. storage quantity, etc) Issuing data, Tracking & Trace reporting (Followed by File Saving)

13. Warehouse Management Objective – Effective distribution system should not be designed to hold inventory for an excessive length of time. The purpose of ware house management is ensure cargo entering, storage & existing from Scanwell warehouse accurately and timely to achieve both effective and efficient operation performance Three Critical Procedures - Cargo In Warehouse Cargo Out Warehouse Customs Declaration (Import/Export)

14. Physical and Information Flow of VMI What is Vendor Managed Inventory Vendor Managed Inventory(VMI) is a process by which supplier is responsible for retailer’s inventory level. Replenishment decisions are made by supplier based on retailer’s stock-on-hand and sales data. The VMI technique enables both parties to reduce its inventory level significantly and thereby lower operation cost. Manufacturer Replenishment Decision Retailer Sales & Inventory Data VMI System

15. Reporting Management • Objectives • Forecast • Review Operations • Cost Analysis • Service Evaluation List of reports includes but not limited to the followings :

16. KPI Report This report will cover below topics : 1 Transit time Measure the transit time for inbound and outbound movement separately with total lead time for whole operation, and compare with our pre-determine figures. 2 Booking lead time Reflect the duration of shipper to place booking to Scanwell and booking accuracy itself. 3 Accuracy on billing / document Measure the accuracy of our invoice and document which is essential for the operation. 4 Responsiveness Our reaction towards customer inquiry and the effectiveness on our solutions. 5 Operation Analysis Lead time of pick and pack operation, which include per manpower productivity, per hour productivity and time consumption on each PO based on different repacking requirement. 6 Improvement plan Advice solutions to customer, mainly focus on how to save cost, shorten the lead time and improve efficiency. Provide a hassle fee environment to customer. Sample of report :

17. Warehouse Management System • There are five function modules : • In Warehouse Query : Search any In Warehouse current or historic data • Out Warehouse Query : Search any Out Warehouse current or historic data • Inventory Query : Find your real time inventory • File Download & Upload : You can upload or download some necessary documents or other files • Change Password : Ensure security level • Above three functions have the same interface shown as below.

18. Query & Download & Upload files Query Download & Upload files In this module, you can upload or download some necessary files. When you upload files, you can control which company has the right to download it. Only the file owner or administrator is authorized to delete the file.

19. Ordering and Exporting Each time you change the ordering field, all the query results will be ordered automatically. If you click “Export Excel”, the query result will be exported to your computer with the default name: Scanwell-In_Warehouse.xls. Re-naming the file is also allowed

20. EDI - Information Technology Supporting Scanwell is committed to servicing the evolving IT based logistics requirements of our corporate clients. To optimize our technology component, we have taken the approach of providing "Best of Breed" information by implementing an effective EDI service with our clients.

21. Features of Free Trade Zone in Shenzhen

22. The Features of Shenzhen Futian Trade Zone Futian is one of three bonded areas in Shenzhen. • Features: • Practice bonded customs supervision and control system. • Foreign-invested trading companies can establish and conduct bonded warehousing and exhibition business. • Self-use equipment of the enterprises in these bonded areas is tax-free. • Futian Free Trade Zone Characteristic : • Bonded Area covers 1.35 square kilometers • Focuses on developing high-tech industries and logistics • Bonded Area has a special passage to Hong Kong • Neighbors Guangzhou-Shenzhen Expressway • Passageway No.1 is directly connected to Hong Kong via Lok Ma Chau Bridge

23. Distance Map of Shenzhen Free Trade Zone Warehouse Guangzhou Airport Shenzhen Airport Shenzhen Shekou Container Port Shenzhen Chiwan Container Port Shenzhen Futian FTZ warehouse Shenzhen Yantian FTZ warehouse Shenzhen Yantian Container Port Hong Kong International Airport Hong Kong Container Port

24. Comparison between FTZ and Non-FTZ Free trade zone Non - Free trade zone Taxation "The machinery, equipment, construction materials, office articles and supervision equipment transported from abroad to the free trade zone for self-use by the administrative organs, enterprises in the zone, and imported processing materials, raw materials, parts and components, fuels, packing materials, and transit goods stored in warehouse are exempted from customs duties, import linked value-added tax and consumption tax. Transaction within the zone and export are exempted from VAT." "Duties and import licenses are required for the imported construction materials, manufacturing equipment, components and office articles forself-use by the enterprises. All transactions must pay VAT." Export Processing Margin account scheme is not required for the imported processing materials for self-use by the enterprises in the zone. Enterprises in the zone can freely process the exported goods, except those restricted by the state's export quota. Meanwhile, enterprises within the zone may entrust factories outside the zone to process their exported products after approval. The machinery, equipments, construction materials, office articles and supervision equipments transported from abroad to the free trade zone for self-use by the enterprises in the zone,and imported processing materials, raw material, parts and components, fuels, packing materials are exempted from customs duties, import linked value-added tax and consumption tax(Automobile excluded) Manufacturing companies whose materials are imported may sell their products to domestic market after application approved and paying duties and VAT imposed. Except the bonded factories with customs supervision, the margin account scheme is required for the imported processing materials. Duties are required for the imported machinery, components and office articles for self-use by the enterprises, Only those foreign enterprises encouraged by the state can import self-use facilities, components in a certain amount without dutied imposed. Warehousing Except the bonded factories with customs supervision, the margin account scheme is required for the imported processing materials. Duties are required for the imported machinery, components and office articles for selr-use by the enterprises, Only those foreign enterprises encouraged by the state can import self-use facilities, components in a certain amount without dutied imposed. Ordinary trading goods and imported goods restricted by government are not allowed to store in the bonded warehouse. The maximum of storage period of goods in bonded warehouse is one year. Customs supervision fee is required. Exhibition Imported goods exhibited in the zone are regarded as bonded goods under supervision of the customs. A Convenient procedure is applied to the exhibition, which includes no deposit for import duties and no deadline for exhibition. Exhibited goods only need to be registered with customs. Bonded vehicles exhibition is permitted in Futian Free Trade Zone. Declaration forms are required for the exhibited goods. Enterprise shall handle import procedure with import license and hand in deposit Goods.shall be shipped abroad before the expiry date.

25. Introduction of Shenzhen Futian Free Trade Zone

26. Location of Warehouse at Shenzhen Futian FTZ

27. Location and facility Location Taohua Road, Futian Free Trade Zone, Shenzhen Multi-storey warehouses, steel structural flattop warehouses, air-conditioned warehouses and other various bonded and common warehouses, with total warehousing area at approximately 30,000 sq.m. • 4 Mitsubishi 3T cargo lifts • 21 Loading/unloading berth • Safety monitoring • Full-auto fire sprinkling/alarm system • 24-hr security guard • CCTV monitoring • Barcode identification • ISO9000-2000 quality assurance system

28. Material Handling Equipment Electric Walkie Rider Order Picker Barcode Printer Mobile data Processor Electric Forklift Truck

29. Case Study Pick & Pack Project at Futian FTZ

30. Case Studies - Futian FTZ Project Summary A : General Information for EDC (Export Distribution Center) : Year around cargo Number of SKU : 100 SKU Number of CBM per month in currency : 600 CBM Vendor : Over 30 vendors location in PRD Shipment final destination : USA / EUROPE / FAR EAST Operations requirements: Cargo store in China VMI – monitor inventory level / arrange pick up from vendors / up-date inventory to customer by WMS Warehousing service including labeling / sorting / loading / QA Delivery / ship the cargo as per customer instruction by ocean or air B : General Information for Assembling : Seasonal Jun - Oct Number of SKU : 200 SKU Number of CBM of the project : 10,000 CBM Number of containers of the project : 150 FEU Vendor : Over 30 vendors location in PRD Shipment final destination : USA / EUROPE Operations requirements: Cargo store and assembling in China VMI – monitor inventory level / arrange pick up from vendors / up-date inventory to customer by WMS Warehousing service including sorting / pick and pack / QA / labeling / wrapping / palletizing / loading Delivery / ship the cargo as per customer instruction by ocean

31. Case Studies - Photos of Operations Flow 1 1 2 3 Finished part of display box Place the gift container onto bottom Finished gift container 4 5 6 Place the gift onto display box Gift container finished for QC Cover with carton box

32. Case Studies - Photos of Operations Flow 2 7 8 9 Waiting for QC To strengthen the carton box 1 To strengthen the carton box 2 10 11 12 Labeling & Shrink wrapping Finished carton box Prepare label for each carton

33. Case Studies - Photos of Operations Flow 3 13 14 15 Waiting for Loading Loading in 45’ container Loading into the container 16 17 18 Delivery Loading QC Loading complete with rope protection

34. Thank You ! Zhong Hang – Scanwell International Freight Agent Co. Ltd Shenzhen Branch Room 388, 3/F, Block 301,Tairan Industry Zone Chegongmiao,Futian District, Shenzhen, 518048, PRC Tel : (86-755) 8236 1666 Fax : (86-755) 8236 1689