New Benchmarks and Performance Metrics for Progressive Asset Management

1. New Benchmarks and Performance Metrics for Progressive Asset Management Gray Williams, VP WW Supply Chain - Logitech Anne Patterson, VP Client Delivery - WCTbid

2. Agenda • The Problem Statement: Too Much Inventory • My Prescription for Inventory Health • Targeted Asset Management Processes • Keeping Score – Metrics • Tools & Technology Review • Conclusions & Recommendations

3. Logitech - Overview • Personal Interface Products • Off-shore contract manufacturers • Surface transport • Supply-demand synchronization is a constant challenge • Need for continuous process of proactively identifying and dispositioning at-risk inventory

4. The Problem Statement: Too Much Inventory • Returns • Often 10% of outbound or more • Slow processing throughput • Supply-Demand Synchronization • Cost pressure • Contract Manufacturing • Off-shore production • Surface transportation • At-Risk Inventory Categories: • Active Products • Obsolete Products (Factory New) • Returns (White Box) • D-Stock (Refurb) • Product Turnover • Focus is on NPI

5. Making Matters Worse: Price Erosion

6. Keeping Inventory Moving: Progressive Dispositioning Inactive Excess Pre-obsolete Excess (replacement developed but not released) Channel Excess Obsolete Target Margin Recovery Typical Margin Erosion with Manual Dispositioning Further erosion with returns, freight, and collections Still further erosion with negative PPV NPI EOL… 12+ months 6-12 months 4-6 months Time • Move to a systematic process: continuously identify and disposition excess as early in the cycle as possible Full Margin 150 125 Std. Cost 100 75 50 25 • Minimize the administrative and operational costs of dispositioning • Strictly adhere to competitive bidding for finished goods and component shortages and excess dispositioning • Disposition excess inventory wherever it is - factory, DC’s, and channel • Ensure a complete audit trail

7. 3 Steps to Inventory Health … • Tune up your Inventory Policy • Clear definition • Clearly communicated • Link Product Life Cycle to Inventory Policy • Set Goals • % of inventory by aging category • Monitorprogress

8. 3 Steps to Inventory Health … • Take Action: Progressively Disposition Excess Inventory

9. Channel Intranet Auction Site

10. Broker Extranet Auction Site

11. Site Management Dashboard

12. 3 Steps to Inventory Health … • Define Metrics and Measure Success Excess Index*: On the basis of current excess inventory of $40M, the excess index is calculated as follows: Excess Active = Period Costs + Price Erosion Factor * (Excess in DC + Excess in Channel) Whse Costs: $286k Std Rev Costs: $400k E&O Reserve: $ 400k Cost of Capital: $300k $1,386k 1% ($40M + $30M) + * = $1,386k + $700kIn other words, the cost of inaction this month is > $2M *sample data

13. Excess Index: A Composite of Metrics • Revenue / Recovery Component • ThePrice Erosion factor • Delta between sales price (@ Distributor Discount) and WCT Market Intelligence (current market price). Index consists of the above delta calculated for the top n SKU’s which make up 80% of the excess $ for the category • (link to “The Price Erosion Factor - Example” slide for returns cost components) • Cost / Cost Avoidance Component • Where is this excess? • Channel: cost of return • Memphis: storage • Indy: storage + 3p services • The cost of returning channel inventory is higher than cost of holding inventory at Memphis. Thus, the location of the inventory is a factor in the exposure calculation (link to “Excess Index – Cost Component” slide for returns cost components)

14. The Price Erosion Factor Distributor List Price(SKU1)-WCTbid Market Intelligence Price (SKU1) Distributor List Price(SKU1) =1 n n  Example: Let us say that of Active Inventory at the US Distribution Center, 12 SKU’s make up 80% of the inventory (at standard cost). Calculating the Price Erosion Factor using the above formula for those 12 items will give a reasonable indication of price erosion.

15. Excess Index – Cost Component Calculate total quarterly return cost per unit using the appropriate factors such as those listed below. Divide this cost by the number of units in the channel pending return for the quarter. This is the increasedliability of excess channel inventory and must be a part of the Excess Index. • Return Scrap Rate (%-age) * COGS • Returns Transaction Cost • Transportation Cost (1 Way) • Re-Work Cost • Total Cost of Returns (000,000)

16. The Progressive Dispositioning Cycle WCTbid Channel Intranet Auction WCTbid Liquidation Auction Scrap/ Recycle • Routine (monthly) identification • of at-risk inventory • Posted to intranet channel • auction site • Finance determines minimum • pricing • Sales force proxy bids on behalf • of retailers • Private Auction • Approved close-out • partners only • Competitive • bidding • Total operational • support from • WCTbid • Controlled • destruction • Recycling • Compliance • reporting

17. The Progressive Dispositioning Cycle WCTbid Channel Intranet Auction WCTbid Liquidation Auction Scrap/ Recycle • Progressive Dispositioning is an interlock process ensuring: • Inventory visibility: one real-time view for Sales, Finance, Supply Chain • Brand protection: only approved liquidators • Administrative Streamlining: overhead reduction • Controls: Sarbanes-Oxley transaction transparency, closed loop • inventory tracking, audit trail • Metrics to drive continuous improvement

18. Product Recovery Management Product Re-sale Product Recovery Management Treatment, Recycling, Destruction Compliance Reporting and Auditing • Collection: • Household • Commercial • Channel WEEE Expanding the Scope of the Service Supply Chain Manufacturing Distribution Customer Forward Supply Chain Forward Supply Chain Reverse Supply Chain Reverse Supply Chain Repair Refurbish CM’s, ODM’s OEM’s, 3PL’s, 4PL’s Commercial End-Users, Distributors, and Household End-Users

19. Conclusions & Recommendations • Go after at-risk inventory before it becomes E&O • Metrics matter • Outsource the process • Prepare for product recovery management – the same tools and processes can apply