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Procurement

Procurement. Steven Call Director of Strategic Sourcing December 5th, 2008. Strategic Sourcing Key Messages. Current Net Inflation – $ 0.6 m vs. $12.1 m at Fin Rev Drastic swings over the past two months Supply chain re-alignment underway Past Moves – Atizapan & Cluj

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Procurement

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  1. Procurement Steven Call Director of Strategic Sourcing December 5th, 2008

  2. Strategic Sourcing Key Messages • Current Net Inflation – $ 0.6 m vs. $12.1 m at Fin Rev • Drastic swings over the past two months • Supply chain re-alignment underway • Past Moves – Atizapan & Cluj • Future Moves – East Granby, Columbus, Birch Hill • Fixing the supply chain – realign based on Total Cost • Key Performance Indicators • General Inflation Overview • Key Projects updates • DPO

  3. Material Inflation - Update

  4. 2009 Materials Usage Chart

  5. FY09 Metal HedgesNon Ferrous $4.5M Favorable YOY Hedging Copper/HCS only in the future

  6. Metals – Price recovery planWhat’s EGS doing to go after 2 Years of Metal Inflation?

  7. Supplier Risk – Top 400 analyzed MAGNETEK HIGH Reviewed top 400 Suppliers Held risk reviews with Plants alerting them to warning signs Implemented contingency plans for top 5 suppliers Worked with Legal to develop a “tooling ownership” document Working on Tagging Method for hard tooling STRATINOR DC MEX BARTEC CASTWELL BOHEMIUM GLASS US STEEL SIGMA SUPPLY RISK SHANTOU Cust. Alloy LOW LOW HIGH FINANCIAL RISK

  8. Supplier Risk Financial Distress spreading, could become Unmanageable

  9. Supply Chain Regionalization Regionalization Strategy Plant Move Timeline

  10. Future supply base Current supply base Supply Chain LocalizationATX Lighting → Cluj $500.00 $500.00 $30,000.00 $30,000.00 $900,000.00 $900,000.00 $21M USD in Total Spend 195 Suppliers 2499 SKU’s $8 M.. In process of Moving in FY09 $1 M Completed through December Key Successes - European Leadership - Supplier Cost Management - Key Supplier Review LeGrand / SAFT / Bartec Challenges - Stratinor - Bankruptcy - IBV – Transfer Qualifications

  11. Supply Chain LocalizationATX → Cluj Plastic Parts/Castings the current focus

  12. Supply Chain LocalizationEast Granby→Stephenville $6,398 in Spend 36% of Spend to move with Plant Rationalization Freight – No Impact

  13. Supply Chain LocalizationEast Granby → Stephenville Strategy Historically HCS has not been managed by Rosemont To complete Supplier review in EG in 2Q

  14. Supply Chain LocalizationCO Lighting → Mexico II $9,335 K in Spend 40% of Spend to move with Rationalization Inbound Freight impact should be minimal once supply base is realigned

  15. Supply Chain LocalizationCO Lighting → Mexico II Strategy Die Casting the Pacing Commodity

  16. Supply Chain LocalizationColumbus Powertite/Plugs & Receptacles → Atizapan $2,340 K in Spend 48% to be localized

  17. Supply Chain LocalizationColumbus Powertite/Plugs & Rec. → Atizapan Strategy Fairly Easy Localization

  18. Supply Chain LocalizationBirch Hill Assembly → Mexico II $2,640 K in Spend $683 K – Foundry Metals $203 K – Moved FY08 83% to complete moves

  19. Supply Chain LocalizationBirch Hill Assembly → Mexico II Strategy Extremely High Mix / Low Volume – Difficult Move!

  20. Supply Chain LocalizationTulsa → Houston $1,321 K in Spend $479 K in Installation $527 K Enclosure Assembly 43% to be Moved

  21. Supply Chain LocalizationTulsa → Houston Tulsa “mfg” a logical fit with Houston

  22. Supply Chain Optimization – Areamaster Asian Assembly / Columbus & Atizapan minor assembly Potential Savings $860K 27,000 / year Current Costs Duty - $335K Logistics - $238K Ballast - $756K Housing - $1,458K 124 part numbers combinations Only two base housings 10 P/N 80% Alternative Sourcing Strategies:(1) Current Strategy(2) NAFTA Manufacture(3) Hybrid – Base off shore / customize in Memphis

  23. MMR Areamaster LightingRevisiting Sourcing Strategies on $5.5M Lighting Product $0.9M Potential – eSourcing 12/08

  24. Supply Chain ASIA Buyouts – Supply Chain Lead Time Reduction • Dual Source China and India – Inventory Reduction • EMT Fittings lead time – 110 day to 45 days – Mar‘09 • Dual sourcing approved – to handle spikes • Dual Source LCC & US – Inventory Reduction • Buyout Stamped parts • Quoting – Either source in NA or flex supply in NA - Apr ‘09 • Sola – Sourcing Review • Component / part Lead Time Analysis by part – Feb ’09 • Identify and fix long lead time through BOM review • Kanban “A” items in Chinfa – Jan’09 • NA options - Transformer NA manufacture review to be completed – Feb ’09 • $9 Cost, $12 Price, $12 Air Ship Cost

  25. Supply Chain Key Supply Chain Initiatives

  26. Supply Chain Key Supplier Issues

  27. Supply Chain – Tooling Projects Fixing the tooling issues!

  28. DPO Improvement Plan

  29. Summary • Have assembled High Caliber Team • Supplier Bankruptcies could cripple EGS • Taking maximum advantage of Plummeting Commodities • Working with Operations on all Line moves • Balancing Strategic with Tactical appropriately • Will eliminate 300 Suppliers • Plan drives sharp reduction in Supply Chain complexity

  30. Central Planning Dan Goodman Director, Planning December 5, 2008

  31. Objectives Customer Service Make to Order Make to Stock Inventory Management Align stock levels with demand Priorities Analysis Upgrading the Organization BCC Training and expansion Tools Pull System – Kanban Budgeting Inventory SKU level Planning – Factory Physics Software Ownership Fill Rate Plant Level 245s Regular Tracking and Follow-up Discipline No over-running B, C, K Re-Alignment of long-lead orders Central Planning at EGS Customer Distribution Center Central Planning Columbus Atizipan Others S. Milwaukee

  32. Central Planning - Moving Forward Move to SKU level planning policy Improve Forecasting on long lead time items Re-Align ABC policies with customer demand Scrub & Leverage Lead Time and Demand data Strategic Tactical Switch to a Pull system driven by Central Planning Balance Fill Rates and Inventory Levels by product line Robust management of actions supporting Ex 245 Additional S&OP Focus on Demand Patterns

  33. Planning Group Responsibilities Dan Goodman S&OP Management Ron Hulsey (new) Master Scheduling MTS FG Ordering, Kanban Tom Schmitzer (new) ITO Management Factory Physics, Oracle Complexity Mgmt Mod Center Ordering Tom Murray Distribution Center Mgmt. Customer Service Liaison Joe Berri S&OP Process Ad Hoc Reporting Impromptu Programming Cyndi Knackstedt Buyout Planning Rosie Enriquez Project Coordination MTO Leadtime Mgmt GMDC - Marvin F. Delivery Analysis GMDC - Merlita T Daily/Weekly Reporting GMDC-Sherwin E Sola Buyer/Planner GMDC-Arvin Columbus Buyer/Planner Open – GMDC Planning Data Integrity GMDC-Delio Javier ECM Buyout Buyer/Planner GMDC-Joel P. Columbus Buyer/Planner Open – GMDC Planning Data Integrity GMDC-Christine M ECM Buyout Buyer/Planner Ultriva Analyst

  34. ECM Fill Rate History

  35. ECM Product Groups Data Not Available

  36. Sola and HCS Fill Rates Data Not Available

  37. Backorder Reduction

  38. Backorders 30+ Days Overdue

  39. Inventory Bridge – Financial Review Expected to October Actual October Actual: $74.6M Sales Degradation is the largest challenge in controlling inventory

  40. EGS Exhibit 245 – November POR

  41. ECM Exhibit 245 – November POR

  42. Sola Exhibit 245 – November POR

  43. HCS Exhibit 245 – November POR

  44. Pro-Forma POR with Revised COGS To maintain 4.8 Turns, $10M incremental inventory must be eliminated

  45. October 2008 Inventory Levels

  46. ECM Inventory by ABC Code *Reserve for Obsolescence = $3,122k

  47. Inventory Analysis

  48. Inventory Actions Completed • Change in order policy – Reducing Safety Stock and lot sizes for cast parts • Reducing Safety Stock on Buyouts with reliable supply chain – $1.07M • Canceling and rescheduling purchases of long-lead time buyouts product $2.8M • Production ramp down at Atizapan - $400k • Daily ordering in Columbus on parts with short lead times • Forecast proactively changed to reflect 20% downturn

  49. Cast Product Inventory Alignment Goal of Program is to Avoid excess inventory. Will require additional support of Kanban and Lead Time Reduction programs

  50. Safety Stock Alignment – ECM Buyouts • Fill rates historically have been above 90% with 10 day safety stock and 5 day Lot Sizes on A – Items • Larger lot sizes and safety stock policies were implemented in reaction to a spike in demand • Suppliers preferred smaller lot sizes because it provided quicker visibility of our demand pattern. • Parameters have changed to pre-July levels, avoiding over $1M in inventory. Safety Stock increased To Help Fill Rate

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