Revisiting Outsourcing: Lessons Learned and Future Strategies

1. What Have We Learned? OUTSOURCING REVISITED

2. OBJECTIVE The intent of this presentation will be to provide a: Brief review of what was done initially A look at what has been happening and why What is next? 2 Total Business Consulting Group, Inc.

3. What is Outsourcing 3 Total Business Consulting Group, Inc.

4. Goals and Objectives Price Achieved via collaboration not negotiation Develop alternate payment methods Monthly Immediately Electronically Quality Specifications are determined jointly Measurement is based on TQM concept Cost of quality Use value analysis Strive for 300 PPM 99.97% conformance 4 Total Business Consulting Group, Inc.

5. Goals & Objectives (cont.) Availability Reduce forecast & schedule variance Lead time is reduced Eliminate incoming inspection Delivery is to point of use Employ e-commerce Inventory/Service Reduce on hand inventory & days of supply Increase inventory turns Supplier emergency response Supplier usage analysis 5 Total Business Consulting Group, Inc.

6. What�s Happened? Total Business Consulting Group, Inc. 6 Global Ignorance �The Economist� December, 2009 survey 62% of executives responded � noted the following: Unpredictability of demand as a major problem 33% are working on improving forecasting 12% are working on lead times No mention of �Improving Collaboration with Suppliers� 60% of executives believe that they are most knowledgeable in their company to manage global supply chain By negotiating lower prices from suppliers � a primary activity

7. Global Ignorance (continued) Total Business Consulting Group, Inc. 7 Don�t recognize situations in countries Brazilian Port � periodically is hit by major hurricanes Shuts the port down for 2 to 3 months Reasons for low labor costs Unstable governments Erratic economies Oppressed people Quality assurance Minimal infrastructure support Institutions or government

8. Best Companies Have a clear purpose Provide superior value to customer, to maximize long term value for the shareholders and provide security and value to the employees, suppliers and the community Finding �cheap� sources to justify �shareholder value enhancement� this month versus a long term approach WHICH ONE HAS LEAD THE THRUST? What has it cost us? Confusion & frustration 8 Total Business Consulting Group, Inc.

9. NCR -ATM Steiff � Teddy Bears Decision to return to USA from Brazil Why? Engineers jetting around Sort out production glitches and design changes Led to delays Needed to reduce development time & more customer interaction German Toymaker pulling out of China Why? Quality & logistical difficulties Sewing sloppily & positioning of the �eyes� Shipping & labor costs increased What�s happening ? Total Business Consulting Group, Inc. 9

10. Outsourcing Damage Lost Capabilities � Including suppliers Collective capabilities are called �Industrial Commons� Definition: Centuries ago � grazing grounds for community animals Relative to today: industrial commons are geographically rooted Northern Italy is home to design commons Fed by design intensive companies � autos, furniture, apparel Being geographically close to commons is source of competitive advantage Total Business Consulting Group, Inc. 10

11. What Can Be Done? Employ Total Cost of Ownership (TCO) What is it? Capture all the costs associated with the entire lifecycle of the product It includes All total landed cost (TLC) + R&D + supplier assessment Manufacturing, distribution, warranty, reverse logistics, field service and disposal costs Total Business Consulting Group, Inc. 11

12. What Can Be Done? (continued) Use of Risk Mitigation for �Critical Suppliers� Diversify the supply base � alternate suppliers Assess suppliers Invest in suppliers Get control of tools & drawings Consider bringing fabrication back Total Business Consulting Group, Inc. 12

13. Q & A Conclusion Total Business Consulting Group, Inc. 13