Inventory in the real world

1. Inventory in the real world Todd Nowicki Director of Supply Chain SP Richards Co.

2. My background • Work experience -24 years inventory experience • Merchandising Mgr- Retail • Production Supervisor –Service Industry • Production Scheduling- Automotive tier one supplier • Materials Manager, Customer Service MGR and Director Supply Chain- Consumer products • Director of SC –Wholesale Industry • Education • BS in Operations MGMT from NIU • APICS CPIM certified • UT Executive education program for Integrated SC MGMT.

3. Automotive Parts Group GPC 2010 Sales = $11.2B Industrial Parts Group Office Products Group Electrical/Electronic Materials Group $5.6B $.5B $3.5B $1.6B AUTOMOTIVE – 50 PERCENTMOTION INDUSTRIES – 31 PERCENTS.P. RICHARDS – 15 PERCENTEIS – 4 PERCENT GPC Net Sales by Segment

4. S.P. Richards Company Timeline 1975Company acquiredby Genuine Parts CompanySPR annual revenue: $30,831,0000 1939Company acquiredby Rhodes family 1989$500 Million milestone is reached 1996$1 Billion Milestone is reached 2004$1.5 Billion Milestone is reached 1848S.P. Richards Co.founded by brothers S.P. and J.J. Richards 2008S.P. Richards acquires OHenry, PPI, and Action Wholesale 1998S.P. Richards acquires Norwestra 1976Major expansion across the U.S. begins 1995S.P. Richards acquires Horizon USA 1920Wholesale Paper Division Launched 1940Wholesale Office Products Division Launched

5. Furniture 12% Technology Products 32% CBS9% Office Supplies 47% Sales by Product Category SPR Product & Customer Mix PowerChannel 15% Independent Dealers 85% Sales by Customer Segment

6. Distribution Fast Facts • 41 Distribution centers in the US and Canada • Over 2.5 million cartons shipped monthly • Over 300,000 cartons of shipped UPS • 5.5 million square feet in Distribution footprint • Over 1,000,000 physical locations company wide

7. Delivery map UPS Nationwide Coverage 95% Next-day delivery Via UPS Guaranteed Ground service One Day Service Two Day Service Three Day Service

8. Inventory Fast Facts • Over 40,000 active items • Over 900,000 skus • Average inventory of $313M • Annual Inventory Write Off of $800k-$1.2M • Turns of 4.4 • Goal of 5 Turns by 2014 • Need to remove $23M of average inventory to achieve 5 Turns at current COGS growth rate

9. Top 10 Real World Obstacles to hitting your Turns goals

10. Number 10 Lack of reliable data

11. SPR Systems

12. Number 10 Continued Lack of reliable data -We use different and independent operating systems to run our business -Non integrated systems allow for gaps in data between departments -Possibility to have 4 people working off of 4 different sets of data END RESULT: Skus become over stocked, undersold and left active longer than they should be.

13. Real World ObstaclesNumber 9 Sku proliferation • Product Management never saw a sku they did not love • Line completions • Full tool box for salesman • Good, Better, Best • Private Label vs. Branded

14. Real World ObstaclesNumber 8 Inventory Management is not a priority for other departments Hall of fame quotes: • “I can’t sell a Turn” - Sales VP • “Stack it high and watch it fly”- General MGR • “We have to have enough inventory to look like we are in this business” –Merchandising VP

15. Real World Obstacle Number 7 Misguided best intentions Non Supply Chain Departments making SC decisions - Merchandising decisions to discontinue -MID decision to not discontinue -Global procurement packaging decisions

16. Real World Obstacle Number 6 Lack of Supply Chain Education Internally -”Island of misfit toys” -Educational enhancement not a strategic goal Inter-departmentally -Salesman question -VP of Brand request

17. Real World Obstacles Number 5 Buyer/Planner Fear -Service Trumps Working Capital Performance every time -Buyers stature vs. their field counterparts - Customers are like elephants -Long Import lead times equal large safety stock

18. Real World Obstacles Number 4 Inability to predict sales Quotes from the Salesmen HOF: -” I don’t have a crystal ball” -”Why would you ask me? How do I know what the customer will buy?” -”You are the one with the algorithms and the fancy forecasting system, you tell me” S&OP is still not being embraced

19. Real World Obstacle Number 3 Mismanaged or unmanaged Life Cycle policies -Poor performance of New items vs. projected sales -Dead and dying sales trend -Failure to create different stock strategies for Low volume High dollar items

20. Real World Obstacle Number 2 Departmental Silos -Sub optimal policies and procedures -Lack of empowered employees to fix what is broken -Pursuit of excellence vs. continuous improvement

21. Real World Obstacle Number 1 Conflicting Goals Sales and Profit vs. Inventory -Uneven weight of the “Triple Crown” -Pressure to buy to growth tiers -Low price vs. “Warehouse Club” quantities -Keep the factory absorbed -Buying ahead of Price Increases

22. Ways to Overcome Top 10 Obstacles 10. Lack of Reliable data -Prioritize data cleansing -Move to a single data warehouse 9. Sku Proliferation -Use GMROI to show return on carrying inventory 8. Inventory is not a priority for other depts. -Set inventory goals by Product Category, Brand or Customer

23. Ways to Overcome Top 10 Obstacles 7. Misguided best intentions -Document processes and correct behaviors 6. Lack of SC education - Join Professional societies -Certifications -Get on the agenda of other departments monthly meetings 5. Buyer/Planner fear -Empower employees -Coach, Correct and Reward risk

24. Ways to Overcome Top 10 Obstacles 4. Inability to predict sales -Establish S&OP -Work directly with key customers 3. Mismanaged Life Cycles -Manage the extremes and exceptions 2. Departmental Silos -Break down Barriers 1.Conflicting Goals -Team goals vs. individual -Educate other areas

25. Metro Atlanta Chamber – Economic DevelopmentTargeted Industry Clusters • Technology • Digital media and content • Internet and network security • Software development & engineering • Wireless applications & services • Financial transactions procession • Bioscience & Health IT • Medical device • Health IT • Vaccine R&D • Cardiovascular R&D • Regenerative medicine R&D, animal/plant biotech • Pharmaceuticals • Corporate Operations & Business Services • Corporate headquarters • Professional services, i.e., engineering & architectural design • Graphic design & marketing • Financial services and insurance • Global Commerce • Recruit U.S.-based operations for foreign companies for: • Supply Chain • Advanced Manufacturing • Technology • Bioscience • Health IT • Corporate Operations • Business Services • Assist Atlanta-based companies to a business abroad. • Supply Chain & Advanced Manufacturing • Supply Chain: • Supply chain management software, hardware and services • Air cargo carriers and routes • Distribution services • Transportation & logistics • Advanced Manufacturing: • Cleantech & Renewables • Food processing • Electronics • Automotive • Aerospace

26. Hal Sirkin of Boston Consulting Group predicts a “manufacturing renaissance” in America. • The economic of globalization are changing fasts. • “Sometime around 2015, manufacturers will be indifferent between locating in America or China to produce for consumption in America.” • Firms are also trying to reduce their inventory costs. Importing from China to the United States requires more pipeline inventory.

27. Questions? Happy Holidays