Quantifying the Value of Authorized Distribution SHDA Annual Industry Advancement Summit Ft. Lauderdale, FL Robin

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9. 9 Value Categories Inventory Common to all but measured differently. Convenience Costs Customer Focused Sales Effort Supplier Focused Credit for Small Customers Supplier Focused

10. 10 Holding Costs Opportunity Cost of Capital WACC 9-13% estimated by participants and financial community 12.5% used in study Gross Margins 15 � 40 % Hurdle Rates 40 � 60%

11. 11 Holding Costs Storage Costs World Class Distribution (Low) � 15% Average � 20% High � 25% Obsolescence Costs 1 to 9% reported by participants Best in class participants Insurance and Taxes 1 to 4%

12. 12 Relationship Between Inventory and Capacity Planning Higher capacity utilization leaves the customer and supplier with less flexibility: The customer requires high fill rates since stockouts will risk shutdowns. Suppliers will have less ability to changeover lines making flexibility in delivery sizes more expensive. In recent years, suppliers have faced an over abundance of capacity leading to poor decisions on going direct. Stems from an inability to understand the cost of distribution services as compared with capacity economies of scale.

13. 13 Inventory Types The calculator decomposes inventory into: Regular Inventory � Inventory that moves � associated with order size. Demand During Lead Time Inventory Order Size Safety Stock � Inventory that does not move � associated with risk of stockout. Fill Rate Forecast Error Lead Time Variability

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16. 16 Distributors handle many small customers at higher risk levels. Higher DSO than distributors. Calculator brings to picture the additional cost of administration and the difference in opportunity costs and accounts receivables.

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47. 47 Supplier Categories

48. 48 Sales Effort Savings

49. 49 Inventory Savings - I

50. 50 Inventory Savings - II

51. 51 Extended Credit Savings

52. 52 Example Supplier Data

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75. 75 Case Study

76. 76 Case Study Introduction Channel Strategy NEDA Supplier/Customer Calculator Supplier Analysis Customer Impact Summary

77. 77 Direct vs. Distribution

78. 78 If we define our Business Cycle as Creating Demand, Capturing Demand and Fulfilling Demand. A Channel Strategy answers the Question of, Who Owns which piece of the Demand Creation, Capture and fulfillment Process at which tier of customers. Where does it makes sense to collaborate? The Strategic Question is, Who Owns which piece of the Demand Creation, Capture and fulfillment Process at which tier of customers. Where does it makes sense to collaborate? If we define our Business Cycle as Creating Demand, Capturing Demand and Fulfilling Demand. A Channel Strategy answers the Question of, Who Owns which piece of the Demand Creation, Capture and fulfillment Process at which tier of customers. Where does it makes sense to collaborate? The Strategic Question is, Who Owns which piece of the Demand Creation, Capture and fulfillment Process at which tier of customers. Where does it makes sense to collaborate?

79. 79 A Channel Strategy, e-enabled or not has Three elements: -Customer Tiers -Product Lifecycle -The Combination of the two First with regards to the Customer element, Taking our simplified Sales Process Overlaid with the Three Tier of Customers which is common in our Industry How much Bandwidth does a manufacturer have for which customers.. A Channel Strategy, e-enabled or not has Three elements: -Customer Tiers -Product Lifecycle -The Combination of the two First with regards to the Customer element, Taking our simplified Sales Process Overlaid with the Three Tier of Customers which is common in our Industry How much Bandwidth does a manufacturer have for which customers..

80. 80 Company (as well as our industry) product Offering consists of break thru products aimed at a few Industry leaders as well as older discrete diodes for the masses. This year we massively reorganized our sales resources towards the front of the product life cycle. We bet our resales that our Channel Strategy for the maturing products would provide for our continues success. Company (as well as our industry) product Offering consists of break thru products aimed at a few Industry leaders as well as older discrete diodes for the masses. This year we massively reorganized our sales resources towards the front of the product life cycle. We bet our resales that our Channel Strategy for the maturing products would provide for our continues success.

81. 81 Understanding which part of the matrix one is targeting the channel strategy is the first step in evolving your strategy to the evolving needs of the marketplace.Examples give.Understanding which part of the matrix one is targeting the channel strategy is the first step in evolving your strategy to the evolving needs of the marketplace.Examples give.

82. 82 Examples Such as a Co-Development on with a Major Handset Manufacturer vs LEDs bought for a College Project.Examples Such as a Co-Development on with a Major Handset Manufacturer vs LEDs bought for a College Project.

83. 83 Throughout the 90s manufacturers have been moving their most expensive demand creation and captures resources to the front of the product life cycle curve. We belatedly but aggressively are making this move. We plan to free up local people resources to apply to the Front of our Product Lifecycles with the leaders in the industry. Free up the Cash in our Supply chain to fund R-DThroughout the 90s manufacturers have been moving their most expensive demand creation and captures resources to the front of the product life cycle curve. We belatedly but aggressively are making this move. We plan to free up local people resources to apply to the Front of our Product Lifecycles with the leaders in the industry. Free up the Cash in our Supply chain to fund R-D

84. 84 Can we quantify change? Moving Roughly 500 Direct Customers and $4M to distribution Customers see no impact in price Can company quantify savings to financially rationalize the distributor margin?

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94. 94 Case #2 One $500K Customer with various safety stock logistic Needs:

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103. 103 Summary Results: Value of Distribution Varies widely based on Mix of Customers/P/Ns Hi Mix Low Volume vs Hi Volume Low Mix Supplier Value 5%-35% depending on scenarios Avoid Trap of exact information vs. OK approximation No one Accounting system have this much resolution Qualified Information is also valuable

104. 104 Summary Results: Identify Changes to realize savings Warehouse consolidations New Sales Initiatives with same Head Count Lower Inventory Improved A/Rs/Cash cycles

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