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SSCS

Prepared by :. Supply Chain Consultation For ACME Inc. SSCS. EXECUTIVE SUMMARY.

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SSCS

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  1. Prepared by: Supply Chain Consultation For ACME Inc. SSCS

  2. EXECUTIVE SUMMARY ACME will see a significant reduction in inventory cost with newly implemented information technology systems. ACME will warehouse merchandise more efficiently through a variety of methods such as structuring regional distribution centers to handle both home electronics and apparel. ACME will have more control and visibility of their logistics processes. SSCS’s findings herein conclude that ACME needs to “adapt or die” to compete in today’s lean and agile distribution industry. ACME will need to implement modern information technology to manage inventory replenishment/distribution, efficiently utilize distribution centers, and manage all transportation processes.

  3. Implement Lean Six Sigma DMAIC -Define Opportunities -Measure performance -Analyze the opportunity -Improve performance -Control performance

  4. Benefits of Lean Six Sigma Push • Basic Principles of • Six Sigma are commonsense: • Lowersupplychaincosts • Reducinginventory/waste • Betterqualityservice, highercustomersatisfaction and continuousimprovement (SIPOC) Push VS. Pull (COPIS) Logistics System COPIS (Customer, Outputs, Process, Input, Supplier) Pull

  5. ACME Adopts 4PL Mindset

  6. ManufacturerRequirements • Partner Factories must have: • Propermanufacturing and logisticsinfrastructures • Participationin respectiveFTA’sNational Security programs • RequisiteLicenses/CertificationsforImport/Exportparticipation • WillingnesstointegratewithACME’s WMS CartonLogicbarcoderecognitionsystem.

  7. Republic of Korea-United States Free Trade Agreement (KORUS FTA) Garments duties fall from16% in other Asian nations to… 0% in South Korea!!! Apparel: Why Korea? - NAFTA does not include garment importation - Korea has developed a reputation as top-quality manufacturing nation - Faster transit time to Long Beach than from China or SE Asia • Stable labor and wages • US Ally

  8. BCO Advantage ACME's past Ocean FCL Rates: Ex Busan to LAX/LGB USD 2500/20', USD 3150/40', USD 3480/40'HQ ACME's BCO Ocean FCL All-In Rates: Ex Busan to LAX/LGB USD 1455/20', USD 1820/40', USD 1847/40'HQ • Developrelationshipswithmultiplecarriers • MinimumQuantityCommitment= 50 TEUs per carrier • Benefits: • 1.Reduced All-In Rates • 2.Waived PSS Surcharges • 3.No General RateIncreases

  9. Apparel: Why Ship FCL? • CURRENT (LCL): • ACME currently ships 10,637 cartons per year • Total LCL Ocean Freight costs = $127,657 • Freight cost per carton = $12.00 • PROPOSED (FCL): • 20’ container rate for Busan to Los Angeles is $1455 All-In • Capacity for 430 apparel cartons per 20’ container = 25 containers/yr • Total FCL ocean freight costs = $36,375 • Freight cost per carton = $3.30 • Total Annual Savings = $91,282 • Three Year Savings = $273,846

  10. - NAFTA: Home Electronics are DUTY FREE compared to current 9.3% duties ALSO… Languages with similar script and linguistic roots Lower carbon foot print through near shoring Factory visits much easier Home Electronics: Why Mexico? • Faster transit times enable a Just-In-Time distribution system • Avoid union labor issues in ports • No Harbor Maintenance Fee • Shared time zones

  11. CURRENT: Ocean transit times from China to Long Beach (16-18 days) 40’ FCL rates = $2065-3190 Home Electronics International Transportation Process • Electronics manufacturers conveniently located along California- Baja California border • Electronics purchased FOB and trucked to USA when DC inventory levels necessitate a purchase order equivalent to the volume of a 53’ FTL • Trucked FTL from Baja to Novell in Rancho Dominguez, CA • LA market DC serviced directly from Baja California • Crossdocked at Novell with other ACME imports, trucked FAK in 53’ FTLs to regional DCs • Total transit times from manufacturer to market is 2 to 7 days (1 day to LA market)

  12. APPAREL Current: LCL to Store Door = $127,657 per year vs. Proposed: Busan to Novell =$36,375 per year Novell to Door =$9348 per year Savings: $91,282.00/yr Annual Transportation Cost Comparison • HOME ELECTRONICS • Current: • FCL to Novell or Baltimore • = $ 13,146,259 per year • vs. • Proposed: Tijuana to Novell • 1272 53' trailers at $535+FSC = $680,520 per year • Novell toDoor • =$2,835,519 per year • Savings: $9,630,220/yr

  13. Yearly Transportation KPI Comparison • Apparel • CURRENT: Origin to Store • T/T: 16-25 days • Vs. • PROPOSED • Busan to Novell • T/T: 8-9 days • Novell to Door • T/T: 3-7 days • Time Savings: +16 days • Home Electronics • CURRENT: Novell/Baltimore • T/T: 34-46.5 days • Vs. • PROPOSED • Tijuana to Novell • T/T: 1-2 Days • Novell to Door • T/T: 3-7 Days • Time Savings: +20 days

  14. HTS Classification Issues With incorrect classification, ACME has paid $25,704,690 extra in duty for 42” LCD HDTV With incorrect classification, ACME has paid $1,644,310 extra in duty for women’s blouses.

  15. Customs Classifications Actions • SSCSwill file post-entry amendment for entries that have not been liquidated, and protests for entries that have been liquidated up to 180 days from the date of liquidation. • SSCS can help ACME to recuperate $6,213,989 from the post entry amendment entries and protests for 42” LCD HDTV • $119,782 can be reclaimed by ACME from the post entry amendment entries and protests for women’s blouses • Due to the incompetency of ACME current Customs broker, SSCS has found a new customs brokerage house. • WHL Customs Broker Services, INC. will lower the entry fee to $50 per entry thanks to a three (3) year contract for apparel commodities from Busan • Athree year contract will be signed with Agencia Aduanal Pérez Ortíz (with option for fourth year extension). They will be our Customs House for Home Electronics out of Mexico • http://www.perezortiz.com.mx/

  16. CURRENT ENTRY FEES WITH PROJECTED 10% INCREASE in business(Apparel) NEW ENTRY FEES WITH PROJECTED 10% INCREASE in business With the new customs brokerage, ACME will save a total of $11,675in entries fees by the end of the 3 year plan

  17. CURRENT ENTRY FEES WITH PROJECTED 10% INCREASE in business(Home Electronics) RECOMMENDATIONS PERTAINING TO CUSTOMS • Enroll in the Customs-Trade Partnership Against Terrorism program (C-TPAT). • Use Automated Clearinghouse (ACH).

  18. C-TPAT importers are 4 to 6 times less likely to incur a security or compliance examination

  19. C-TPAT • C-TPAT certification breaks down to three different levels: • Tier 1: Validation on paper • Tier 2: Certification through site audits of ACME supply chains • Tier 3: “Best Practices” mark on the security protocols. • * The higher the tier, the less chance for examination.

  20. Estimated fees associate with exams

  21. C-TPAT cost • Break down Initial Cost for C-TPAT: • Coordination with Suppliers: $ 2400 • Personnel Training: $ 1200 • Physical Systems: $ 2400 • IT: $ 520 • Total: $ 6520 • Annual Cost to be estimated at around $1700 thereafter. • 3 years total cost: $ 9900

  22. SAVIOR’s CT-PAT Development Strategy for ACME Conduct comprehensive on-site Supply Chain Security Risk Assessments of ACME’s operations in all DCs Provide C-TPAT Security and Threat Awareness Training during the on-site Supply Chain Security Risk Assessment. Develop the Supply Chain Security Risk Assessment Report following the completion of the Supply Chain Security Risk Assessment. Develop the Supply Chain Security Profile Develop requisite policies, procedures and forms (C-TPAT policies & Procedures Manual). File all required reports and documents with U.S Customs. Facilitate certification of Clients as a U.S. Customs Broker. Prepare Client for the C-TPAT Validation (official U.S. Customs on-site audit). Participate in the C-TPAT Validation Manage post C-TPAT Validation work that needs to be completed following the C-TPAT Validation.

  23. Automated Clearing House • ACH is an electronic payment method that customs uses to accept duties, taxes, and other fees. • Benefits: • Quick process for payments and refunds • Accuracy, less paperwork • 15 extra days to pay duty: • Less tied up capital in clearance process • More cash on hand

  24. Customs Summary • Reclaim: $ 6,333,771 from Post Entry Amendment and protests. • Save: $ 11,675for Broker Fees at the end of year 3 for Apparel. • Save: $ 31,119,480in duty for Home Electronics. • Save: $ 627,888in Merchandise Processing Fee and Harbor Maintenance Fee for Home Electronic commodities. • Save: $11,556 in Exam fees (3 years) • TOTAL SAVING: $ 38,104,370 • Number of exams a year • Saving of exam fees • Saving in Brokerage fees • Saving in duty fees • Saving in interest from ACH payment • Become C-TPAT tier 3 certified by the end of year 1 KPI

  25. Warehouse Management System (WMS)

  26. What is CartonLogic? • CartonLogic is Wolin Design Group's premier web browser based, on-demand warehouse and inventory management software • It offers over-the-web access anytime, anywhere and at a low monthly price • WDG offers 24/7/365 phone and email support, as well as option system administration and EDI management. • Web-server based method for a 3PL's clients to access inventory and order information at the warehouse • Web Exchange Portal: The Exchange Portal software provides a secure way for Vendors to view their inventory, enter shipping orders and (with some configuration) enter pre-receiver orders.

  27. What will CartonLogic do for ACME? • CL gives management, the logistics department, and DC personnel global access to ACME’s inventory data and levels • Ensures Inventory is Balanced and Optimized • Enables ACME to make ordering decisions based on real time inventory figures • Generates inventory and distribution reports and allows for integrated billing • “Shopping Cart” Integration (For ACME’s future plan E-commerce aspirations)

  28. New WMS Features

  29. CartonLogic On-Demand WMS Estimated Cost • ACME’s Current WMS Estimated Cost

  30. System Features • Extensive mobile computing and RF wireless barcode scanning • Complex Billing Configuration • System Available in multiple languages. • Supports Multiple UOMs • Supports full EDI • Complex Pick ‘n Pack • Configurable Triggers for Replenishment • Accessorial Billing • Web Portal • Wave Picking • QuickBooks Integration • Custom Reports

  31. CartonLogic Industry Breakdown

  32. IT System Partnerships • Microsoft Dynamics GP • Motorola Mobile Computers • Intuit Quickbooks • PeachTree, MAS90/200 • SMC AS/2 EDI • Loftware Labeling • SAP • Oracle, PeopleSoft, JDE • LXE Mobile Computers • Intermec Mobile Computers • Zebra Printers • NiceWare Labeling

  33. Distribution Center Strategy SSCS believes that ACME’s system of 40 DCs is (A)unnecessarily large and (B) not flexible enough to implement lean principles. These two problems represent loss in productivity and wasteful spending. In response, SSCS will seek to: (1) Reduce the total number DCs (2) Regionalize ACME’s distribution system (3) Introduce efficiency to warehouse operations

  34. DC Reduction Current DC Network Proposed DC System Apparel from Asia

  35. DC Reduction: YearOne • ACME will introduce racking to • 11 selected regional DCs • Racking will be installed • during the low inventory months of January, February, and March to minimize distribution ops. disruptions.

  36. Racking System • A 5-stack racking system will double DC holding capacity, allowing ACME to warehouse more than 32,000 full pallets of inventory per 282,000 sq. ft. DC and 28,750 pallets per 250,000 sq. ft. DC. • Reduced lead times from manufacturer to market coupled with CartonLogic IT purchasing, receiving, and order fulfillment integration capabilities will reduce need to store large inventories • Because boxes and cartons will be bar-coded and scanned into the inventory system in country of origin, DC personnel will know contents of FAK in-bound FTLs. Upon delivery to DCs personnel will be ready to crossdock cargo and send outgoing FAK FTLs to retail stores. • Year One (2013): ACME needs to invest $6,600,000 for steel racking systems for 11 regional DCs and $1,200,000 for 60 forklifts. Total investment of $7,800,000.

  37. Racking’s Relation to DC Reduction • By introducing a warehouse racking system, ACME will be able to utilize its DC footprint in a more logical and efficient manner. • 282,000 sq. ft. DCs will utilize 257,000 sq. ft. DCs or warehousing space. Remaining square footage set aside for staging, loading, break rooms, offices, fire clearance, etc. • 250,000 sq. ft. DCs will utilize 230,000 sq. ft. for warehousing space. • 250,000 sq.ft. DCs that service small markets (>80 stores) will be maintained to allow for future regional expansion (NW-Spokane, Rocky Mountains-Denver, Florida-Clearwater) and emergency warehousing space in the event of unforeseen disasters.

  38. Year One DC Phase-Out Plan (2013) • In January 2013, one year’s advance notice of termination of lease will be given for the following DCs: • -5 DCs @ 282,000 sq. ft: Detroit, Charleston, Little Rock, Edison, Springfield • -10 DCs @ 250,000 sq. ft: Miami, San Francisco, Savannah, Kansas City, Raleigh, Phoenix, Baton Rouge, Rockford, Albany, Montgomery • Starting April 1, distribution activities at the phased-out DCs will begin to move to regional DCs. This gradual phasing- out will occur in equal increments over the course of 9 months. Complete closure of these 15 DCs will be complete by January 1, 2014.

  39. Year Two DC Phase-Out Plan (2014) • 14 remaining non-essential DCs will be phased out in Year Two. Termination of lease will have been given at the end of June 2013. • Thanks to existing racking infrastructure in regional DCs, movement of operations from this second group will begin during the slow months (January to March). • Closure of these 14 DCs will be completed before peak summer inventory season starts in July

  40. Distribution Center Reduction and Lease Savings • ACME operates 10 DCs that contain 282,000 square feet of floor space and 30 DCs that contain 250,000 square feet of floor space. At cited market rates of $4.41 per square foot per year, ACME is spending $45,511,200 per year to lease 40 DCs. • By reducing the total number of DCs to11 (5 at 282,000 square feet and 6 at 250,000 square feet) ACME will only spend $12,833,100 per year to lease its DC space. • -2012 leasing costs = $45,511,200 • -2013 total leasing costs = $45,511,200 • -2014 total leasing costs = $20,550,600 • -2014 vs. 2012 = $24,960,600 in savings • -2015 total leasing costs = $12,833,100 • -2015 vs. 2012 = $32,678,100 in savings • Total 3 year lease savings = $57,638,700

  41. Savings on DC Operating Costs (Separate of Leasing Costs) 2013: $224,488,800 (40 DCs)- $3,426,260 (Current IT)+ $65,720 (Carton Logic) 2013: Operating Costs = $220,820,820 2013 vs. 2012 = $3,360,560 in savings 2014: $99,302,200- $2,181,500 + $65,720= $97,186,420 operating costs 2014 vs. 2012 = $127,302,380 in savings 2015: $29,686,250– $942,227 + $65,720 = $28,809,743 operating costs 2015 vs. 2012 = $195,679,057<---Per year savings from here on Total 3 year savings = $326,341,997

  42. KEY PERFORMANCE INDICATORS • We have four types of indicators: • Quality • Time • Cost / Financial • Productivity • This guide is organized by supply chain/logistics functions and our strategies in: • Sourcing • Warehousing/Storage • Inventory Management/ Logistics Management Information System/Customer Response • Distribution / Transport

  43. SOURCING

  44. WAREHOUSING STORAGE

  45. INVENTORY MGMT.

  46. DISTRIBUTION TRANSPORT

  47. KPI SOURCING - TIME • On- Time Delivery • Definition • This indicator measures the percentage of all orders delivered by the requested delivery date, as indicated in the PO/contract during a defined period of time. • Formula • number of orders delivered by requested date X 100 • total number of orders delivered • Purpose and Issues • Logistics managers can use this indicator to monitor supplier response time on shipments over a specified period of time. • Data Sources • Procurement records • Receipt records • Customs records. • Data Requirements • Delivery dates as indicated in POs/contracts • Number of orders delivered by requested date. • Total number of orders delivered during specified time period.

  48. Final Figures Logistics Budget$ 42,525,880 $322,447,403 Annual Savings by 2015 (Year 3) $241,776,430 Savings in 2014 (Year 2) $175,685,553 Savings in 2013 (Year 1) $ 27,970,218 After 3 years $445,432,201 in savings + $6,333,771 for Customs refunds TOTAL BENEFIT TO ACME =$451,765,972

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