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EGS Complexity Supply & Demand. Levers to Remove Complexity Examples. Demand Management. Supply Management. Product Management. - Legacy, low volume Part #’s (ABC/ABC) - Last Time buys - “C&D” Customers - Catalog reduction / Portfolio analysis. - Parts consolidation

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levers to remove complexity examples
Levers to Remove ComplexityExamples

Demand

Management

Supply

Management

Product

Management

- Legacy, low volume Part #’s (ABC/ABC)

- Last Time buys

- “C&D” Customers

- Catalog reduction / Portfolio analysis

- Parts consolidation

- Database cleansing

- “D” options

  • - Supplier Consolidation
  • Preferred, leverage suppliers
  • - MOQ’s

Eliminate

- Price

- Lead Times structured

- “Shaping”

- Restrict “promises”

- MOQ negotiations

- Process in-sourcing as appropriate

- Supplier Development

- Legacy, low volume Part #’s - replacements

- Last Time buys

- Component Engineering - discipline

Mitigate

- Sourcing strategies based on ABCD

- Process in-sourcing

- Supplier development

- S&OP / Forecast accuracy

- Isolate Complexity (C&D cells)

- Platform approach

- Later customization

- Parts consolidation

- DFM / DFA

Reduce Impact

egs global locations fy08 to fy13
EGS – Global Locations FY08 to FY13

Elmira, CA

So. Milwaukee, WI

New Carlisle, IN

Amiens, FR

Amiens, FR

FR

FR

Holland

E. Granby, CT

Cluj, Romania

Columbus, NE

Shoemakersville, PA

Paris, FR

Pittston, PA

Tulsa, OK

Dubai

Celina, TN

Fullerton, CA

Memphis, TN

Stephenville, TX

Houston, TX

Singapore

Rainsville, AL

Monterey, MX

Pune, India

Manila

Atizapan, MX

slide4

Supply ChainOrganizational Structure and Roles

Central Planning

Distribution

Logistics

Procurement

managing supply chain complexity procurement
Managing Supply Chain ComplexityProcurement
  • EGS Overview
  • Supply Chain Overview
  • Supplier Reduction – cutting the Supply Base by 50%
  • Managing Supplier Lead-times
  • Long Supply Chains
  • Regionalization of Supply – Mexico / Romania
raw material spend profile
Raw Material Spend Profile
  • Buy-Outs
  • HCS
  • SOLA
  • ECM
  • Plant Spend
  • Commodity
  • Spend
  • # Active SKU
  • # Suppliers
  • ITO
  • Supplier Lead-times
significant leveraging opportunity annual spend by supplier
Significant Leveraging OpportunityAnnual Spend by Supplier

Complexity

Leverage

92% of Spend already with Suppliers > $100K

8%

82%

  • EGS Spend never really pulled together coherently
    • Top 80% tensioned, Bottom 20% left unmanaged
  • Smaller, manageable Supply Base facilitates
    • eKanban, logistics/lean initiatives, scorecards, materials planning
supplier count vs part count 341 suppliers sell egs 1 part with median spend of 2k
Supplier Count vs Part Count341 Suppliers sell EGS 1 Part with median Spend of $2K

Median Spend per Supplier ($000)

# of Suppliers

8%

82%

cumulative supplier spend by commodity complexity impact varies by commodity
Cumulative Supplier Spend by CommodityComplexity Impact varies by Commodity

Stampings - Eliminate 80

Wire/Cable – Eliminate 20

Packaging – Eliminate 60

Electrical – Eliminate 55

Fasteners – Eliminate 60

supplier complexity reduction eliminate 500 suppliers in conjunction with job moves
Supplier Complexity ReductionEliminate 500 Suppliers in Conjunction with Job Moves
  • LASCO / CEESCO Organizations heavily engaged
  • EGS Preferred Supplier program (single Emerson + EGS list)
  • Close Cooperation with Operations on Job Moves
egs preferred suppliers
EGS Preferred Suppliers
  • Emerson Preferred + EGS Preferred
  • Criteria to become a “Preferred Supplier”
supplier scorecard
Supplier Scorecard
  • Scope of EGS Program
  • Example of EGS Supplier Scorecard
  • Examples of Objective Performance Data
    • Sourcing Decisions
    • Firing Suppliers
fy09 supplier elimination projects
FY09 Supplier Elimination Projects
  • Mexico Rubber Project
  • Electrical Distribution
  • Stamping Cleanup Project
  • Eliminate all Suppliers < 3 Parts & > 40 Days L/T
long supply chains when does a long supply chain make sense
Long Supply Chain Maybe Okay

Supply Base already gone

Fasteners, PCB, EMT Fittings

Low Variability in demand within lead-time (+/- 20%)

Supports MTS Business Model

Value Add - machining

High Volume (Relative Term)

Part Savings

Savings/Lbs > 3X Freight/Lbs

Not based on transient regional differences in material costs

Not dependent on VAT treatment

Offsets Currency Risk

EGS Shortening it’s Supply Chain

SSI / EPT Strapsfrom China to US, price parity – ITO 300% better

MMR / Areamaster Lightingtop 60% buy complete, late stage customization 40% in Mexico

GRE / TransformersEGS in-sources > 500KVA units at lower total cost

Long Supply ChainsWhen Does a Long Supply Chain Make Sense?
long supply chains 50m asian buyout spend responds slowly to demand
Long Supply Chains$50M Asian Buyout Spend Responds Slowly to Demand
  • Hampering EGS FY09 Inventory Performance
  • Supply Base long gone from N.America
  • Must take hard look at range of Product Offering
  • Potential solutions
    • FG Stocks in Asia
    • Rationalize Brand Overlap

Turns

PO’s Push Out

long supply chains sourcing decision tool changes strategy mmr jinan gre
Long Supply Chains“Sourcing Decision Tool” Changes Strategy – MMR, Jinan, GRE
  • Critical Inputs for a Total Landed Cost Picture
    • Planning = Inventory Impact and Long Lead Time and Demand Variability
    • Sourcing = Material Spend and Potential Pricing
    • Trade Compliance = Duty Issue and Customs Assists
    • Logistics = Freight Spend and Transit Time
    • Sales Dilemma = excess Inventory or Risk Missing Sales
long supply chains ito suffers in downturns fill rates suffer with growth
Long Supply ChainsITO Suffers in Downturns / Fill Rates Suffer with Growth

ECM

ECM Buyout Supplier Lead-time ($2.7M total COGS Miss within L/T)

SOLA

Sola Buyout Supplier Lead-time

($1.1M total COGS Miss within L/T)

mmr areamaster lighting fail to meet nafta content limit 335k duty
MMR / Areamaster LightingFail to Meet NAFTA Content Limit $335K Duty

$5.5M Sales

27,000 Units

128 FG SKU

Top 10 SKU 80%

Evaluated all Sourcing Options(1) Current Strategy – China Housing / Mexico Assembly(2) NAFTA Housing / Mexico Assembly(3) Hybrid Strategy – 60% China Complete / 40% Mexico

mmr areamaster lighting revisiting sourcing strategies on 5 5m lighting product
MMR Areamaster LightingRevisiting Sourcing Strategies on $5.5M Lighting Product

Hybrid Mfg Strategy - $0.9M Savings

supply chain ssi ept straps localizing where it makes sense
Supply ChainSSI EPT Straps – Localizing where it makes sense

EPT Straps (China)

  • Move $1M Spend to NA based supplier
    • Completion August 09
    • Current Inventory $310K / 12 Week Lead time
    • NA Supplier inventory $51K / 2 Week lead times
supply chain asia buyouts localizing where it makes sense
Supply Chain ASIA Buyouts – Localizing where it makes sense
  • GRE Transformers (China)
    • Heavy part / many configurations / expensive to air ship
      • $9 Cost, $12 Price, $12 Air Ship Cost
    • 12 wk lead times
    • NA options - Transformer NA manufacture review to

be completed – Mar ’09

    • Reviewing both 100% assembly & finishing assembly in NA
demand management
Demand Management
  • Planning Organizational Structure & Roles
  • FY09 Inventory Objectives
  • Forecasting Methodology
  • Finished Goods Replenishment
  • SOP Assessment & Actions
  • Make to Order Process – Lead Times & Sequencing Raw
  • Profit Review Inventory Objectives
egs business model overview 80 mts 20 mto eto
EGS Business Model Overview80% MTS – 20% MTO/ETO

Predominantly MTS

Responding to Demand Changes Inherently takes Time

mts change in order rate by product group y y change sep 07 jan 08 vs sep 08 jan 09
MTS Change in Order Rate by Product GroupY/Y Change: Sep 07-Jan 08 vs Sep 08-Jan 09

Demand plummets mid Nov within 30 days of Foundry/Operations recovery

Significant differences between Product Groups despite overall sharp decline

egs total inventory days
EGSTotal Inventory Days

Days On Hand

2007

2008

2009F

2009 Base Company; 2/12 POR

egs exhibit 245 february por submission driving down inventory by 21m
EGS Exhibit 245 – February POR SubmissionDriving Down Inventory by $21M

Reduced Inventory by $5.3M in February

slide37
Prioritizing Actions to Drive Inventory down $21MSlow Operational Response to Lower Forecast digs a Big Hole
  • Inventory YTD Autopsy:
  • FG replenishment by Forecast; not Pull
  • Monthly Production Plan did not reflect Inventory Reductions
  • Demand dropped mid-Nov, planning parameters revised mid-Dec
ecm finished good inventory targets 1 oct 2008 to 1 march 2009
ECM Finished Good Inventory Targets1 Oct. 2008 to 1 March 2009

$M

*Does not include ATX, ECM Canada, Singapore

domestic ecm finished goods overstock understock
Domestic ECM Finished GoodsOverstock & Understock

$M

*Does not include ATX, ECM Canada, Singapore

buyout inventory 5 1m reduction required for sola and ecm
Buyout Inventory$5.1M Reduction Required for Sola and ECM
  • Have pushed out or canceled $5.7Msince November
  • For Dedicated Suppliers, building FG stock to cut Lead-time to 45 Days
  • Working with Sola Suppliers to Stock Long Lead-time electronic components
  • Central planning is closely managing forecast for all buyouts
  • Safety Stocks and Lot sizes have been trimmed wherever possible

Turns

PO’s Push Out

2009 buyout inventory plan evolution ecm finally dropping sola hampered by specials npd
2009 Buyout Inventory Plan EvolutionECM finally Dropping / Sola hampered by Specials & NPD

ECM

ECM Buyout Supplier Lead-time ($2.7M total COGS Miss within L/T)

SOLA

Sola Buyout Supplier Lead-time

($1.1M total COGS Miss within L/T)

sola buyout rock inventory slow moving inventory impacts inventory allowance as cogs drops
Sola Buyout “Rock” InventorySlow Moving Inventory Impacts “Inventory Allowance” as COGS Drops
  • Sola Buyout inventory drops from $4.1M to $2.0M by Sept 09
  • Endpoint inventory Target driven by sharp decline in COGS
  • Achieving this Target will require either:
    • (a) Getting rid of these Rocks and managing NPD/Customer Specials, or
    • (b) Unacceptable 50% decline in Sola Buyout Fill Rates
slide45

Atizapan Remains Commited to Year End ReductionsAdditional Action Items Required to Cover Expected February Miss

central planning driving fg replenishment
Central Planning Driving FG Replenishment

Track Demand for S&OP

Forecast Demand by SKU

Firm Orders to Plants

ROP, ROQ

factory physics project
Factory Physics Project
  • Purpose: Software package used to calculate Reorder Points and Quantities based on variability of lead time and demand.
  • Allows optimization of Inventory Level for given Fill Rate Target
  • Installation: 8 weeks required to compile and scrub data, integrate with BPCS and establish tracking metrics.
  • Target Completion: 15 May
ecm inventory stratification
ECM Inventory Stratification

Bubble Size = Avg. FG Inventory

hcs inventory stratification
HCS Inventory Stratification

Bubble Size = Avg. FG Inventory

NEED UPDATE

sola inventory stratification
Sola Inventory Stratification

Bubble Size = Avg. FG Inventory

NEED UPDATE

s op process significant progress not there yet
S&OP ProcessSignificant Progress / Not There Yet

Actions

  • Sales Pre SOP – Central Planning to slice forecast and review with Sales & Marketing. Mar 09
  • Forecast Autopsy – Review planned vs actual by product segment. Mar 09
  • Production plan supports Inventory Plan – daily review of FG to DC vs ROP/ROQ signals

Effective

Needs Focus

Marginal

rationalizing egs product offering a major complexity reduction opportunity
Rationalizing EGS Product Offering a Major Complexity Reduction Opportunity

EGS has to make hard decisions regarding it’s Branding Strategy

complexity reduction most significant opportunity is brand rationalization
Complexity ReductionMost Significant Opportunity is Brand Rationalization
  • EGS Team Formed – getting started
  • Reviewed Appleton, O-Z/Gedney McGill and Neer products to identify identical or functionally equivalent products
  • Sorted products into three main groups;
    • Identical products with different packaging for each brand
    • Identical products with different brand markings
    • Functionally similar products with different designs
  • Over 6,000 SKU’s reviewed
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