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EGS Supply Chain. Bill EstesVP Supply Chain Traci GreverDirector, Transportation & Compliance Steve CallDirector Strategic Sourcing. Key Messages. Significant cost pressure – China & Fuel Costs Organization – leadership change / BCC maturing Cluj – Supply Chain the critical path item

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Egs supply chain

EGS Supply Chain

Bill EstesVP Supply Chain

Traci GreverDirector, Transportation & Compliance

Steve CallDirector Strategic Sourcing


Key messages

Key Messages

  • Significant cost pressure – China & Fuel Costs

  • Organization – leadership change / BCC maturing

  • Cluj – Supply Chain the critical path item

  • Project execution improving but still weak

  • China mechanical Buyout strategy challenged

  • S.Milwaukee casting outsourcing starting to help

  • Data Integrity – huge strides, data is driving decisions

  • Supplier Quality – Supply Chain team needs help


Egs supply chain

EGS Procurement Organization22 Different Rosemont Commodity Managers Since 2000

Today

Keep Commodity Managers longer

Speed up shift of Supply Chain work to BCC


Egs electrical group gmdc current organizational chart

EGS Electrical Group / GMDCCurrent Organizational Chart

EGS Electrical Group

GMDC

Division Counterparts

Cristine Cortes

Industrial Automation

Bill Estes

Supply Chain

Adrian Terania

Team Lead

Lienette Ilarde

Procurement Analyst

Natja Guzman

Commodity

Charity Villapando

E-Sourcing Analyst

Isabel Olarte

Logistics Analyst

Traci Grever

Logistics

OPEN

Logistics Database Analyst

Sherwin Discaya

Buyer/Planner

Jim Dimitri

Materials & Planning

Delio Javier

Buyer/Planner

Cyndi Knackstedt

Finish Goods

Ailyn Ramilo

Buyer/Planner


Egs electrical group gmdc staff utilization work content

EGS Electrical Group / GMDCStaff Utilization & Work Content

  • 85% Team Utilization

  • Buyer/Planner from 50% to 80%

  • Logistics the highest workload

Increased focus on Effective Utilization delivering Results


Egs supply chain

ATX OverviewEGS European Operations

Electrical Equipments for Hazardous area:

Locations:

ATX France

Amiens

EGS Romania

Cluj-Napoca

  • Key Highlights:

  • Fy’07 Sales: 31 M€ (Fy’08 37 M€)

  • 200 employees: 182 Amiens / 18 Cluj

  • 6,000 M2 / 800 M2 in Cluj

  • 20 - 25 % Sales Growth

  • ATX covers IEC product offering

ATX is the growth engine for EGS


Cluj plant production hall 1

Cluj plant - Production Hall #1

Shop-floor Area: 5,800 m2 Office Area:1,650 m2

Auxiliary Area: 280 m2Parking Lot:16 places

Loading Dock: 120 m2


Cluj production start up overview

Cluj Production Start up - Overview

  • A.T.X Cluj

  • fast start-up in November 2007

  • 760 M2 space in Fisher Regs building

  • First Production 4 foot light Luminaire

  • Productivity: 900 pieces / week

  • Single shift

  • 18 employees: 12 direct / 6 indirect

  • Lean manufacturing (2 conveyor lines)

From 0 to 900 in 2 months!


Egs supply chain

EGS Cluj Manufacturing Strategy


Base case supply chain 4 foot light 56 000 units 30 sales growth

Base Case Supply Chain4 Foot Light / 56,000 Units / 30% Sales Growth

Competition Selling at ATX Cost !


Future supply chain 4 foot light move to cluj without regionalization

Future Supply Chain – 4 Foot LightMove to Cluj without Regionalization

80% of Labor Savings consumed by incremental Freight Costs!


Future supply chain 4 foot light move to cluj and regionalize sourcing

Future Supply Chain – 4 Foot LightMove to Cluj and Regionalize Sourcing

Move Sourcing with Manufacturing


Aligning sourcing with manufacturing will allow atx to remain globally competitive

Aligning Sourcing with Manufacturing will Allow ATX to Remain Globally Competitive

Total Costs

Inventory


Regionalization overview supply chain roadmap 4 foot light cluj

Regionalization OverviewSupply Chain Roadmap 4 Foot Light Cluj

Fast Regionalization & Cost Reduction !


Achievements lessons learned

Achievements & Lessons Learned

Next steps & Open Issues

Overview / Achievements

  • Additional projects – 2.2M Euro / 364K Euro savings

  • Campus Sourcing vs Divisional Sourcing

  • MRP & Material Planning in Cluj

  • Supplier Quality Engineer

  • Logistics

    • optimize inbound Mfg freight

    • Asian sourcing into Emerson Ocean program

    • ship direct to Customers from Cluj

  • European Procurement Leadership

  • Delivered 404K Euro in savings in Six Months

  • 3.0M Euro in eSourcing

  • Quickly developing capable CEE Supply Base

Lessons learned

  • Prioritize based on Total Landed Cost

  • Know what Manufacturing Line Moves are planned

  • eSourcing is a Powerful Tool but you still need a Strategy

  • Check all the information before communicating with Suppliers

  • Allow enough time for preparation

  • Project Management skills – keep things moving, be pragmatic, use Emerson Tools

  • Cross functional Teams Work – identify and involve relevant people

  • Join Forces with CEESCO

  • Communicate Weekly Global Conference calls


Transportation distribution

Transportation / Distribution

Traci Grever

Director, Transportation & Compliance


Managing freight very important for egs

Managing Freight very important for EGS

$Ms


Egs freight trend through feb 08

EGS Freight Trend through Feb’08

Comparison Between FY07, FY08 Actual and Plan


Egs freight spend analysis through feb 08 north american plants sga mfg

EGS Freight Spend Analysis through Feb’08North American Plants – SGA & MFG


Egs freight spend through feb 08 distribution centers

EGS Freight Spend through Feb’08Distribution Centers


Quantifying fuel impact 1 4m vs fy07 1 0m vs financial review

Quantifying Fuel Impact$1.4M vs FY07, $1.0M vs Financial Review

Fuel Costs have increased by $0.95/gal

  • TL Avg Cost has increased by $0.15/mile

  • LTL Avg Cost has increase by almost $0.0074/mile


Egs calculates fuel impact at 1 0m over plan

EGS calculates Fuel Impact at $1.0M over Plan


Cluj logistics projected fy08 freight costs and mitigation plan

Cluj Logistics Projected FY08 Freight Costs and Mitigation Plan

  • Current

  • Two trucks per week between Amiens and Cluj

    • Components shipped Mon & Wed

    • Finished Goods shipped back Wed & Fri

    • Cost per week €8000 ($12,000)

    • Benchmarked rate - €8000 is market price

  • Fin Rev stated €100K, Expected € 273K

  • Action Plan to Reduce

  • Run eSource event – Apr 4, 2008, 5% -10%

  • Investigate milk run potential with Fisher Reg vendors

  • Regionalization of Sourcing

  • When lighting base and cover are made in Hungary, Amiens eastbound volume will drop by 40%

  • Amiens may be able to switch to LTL freight to Cluj and Cluj can ship full truckload to France

ATX France

Amiens

Fisher Reg

Gallardon

IBV Hungary

Kiskunfelegyhaz

EGS Romania

Cluj-Napoca

The shorter length of haul with the sourcing shift to Hungary will reduce transportation costs


Fy09 fy10 european logistics strategy

FY09 – FY10 European Logistics Strategy

  • ATX/Cluj Inbound Freight

  • ATX oversea purchases on FCA Port basis

    • Setup Asia to EU Ocean Consolidation Program

    • Savings Potential of €90K

  • Cluj vendors in Western Europe

    • Emerson 3PL Warehouse

    • Daily shipments to Cluj via Emerson milk-run

  • ATX/Cluj Outbound Freight

  • Direct shipments to Customers

  • Direct shipments to Dubai Mod Center

  • Shipments between EGS US and ATX

  • Common process to enable speedier customs clearance

  • Utilize best contract rates

ATX France

Amiens

EGS Romania

Cluj-Napoca

Simplify the supply chain with direct shipping and utilize EMR programs


Nasco impact on process service providers 420k in transportation savings

NASCO Impact on Process & Service Providers$420K in Transportation Savings

BORDER CROSSING (SOUTHBOUND)

BORDER CROSSING (NORTHBOUND)

Currently used by EGS


Egs supply chain

NASCO Project StatusProgress on Track for Go Live Date June 1

EGS GO LIVE!

NASCO Focus Shifts to McAllen

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

√Project

Team

Formed

Review of

ETH Specs

√ Switch to Protrans for LTL Savings ($89K)

√Switch to ETD for TL Savings ($58K)

Switch to EMR approved broker for Brokerage Savings ($79K)

√On-Site

On boarding

with EMR

and Penske

Switch to EMR approved Mexican Carrier for TL Savings ($80K)

Switch of Bonded Warehouses ($27K)

√Solicitation of

NASCO Vendor Info (60% Response Rate)

Set up of Penske TM System

Routing Guide Compliance ($73K)

Penske

MFU

Reduction of Premium Freight ($14K)

Reduction of Outbound Transit Time and MT inventory ($310K)

Penske

Training of

Vendors

Penske

Training of

Carriers/Planners


Egs supply chain

India Sourced Buy-Outs Shipped direct to Middle East CustomersTargeting $60K in Savings and 75 Days Lead-Time Reduction

ME Freight Forwarder, NY

Export (for customer account)

Dubai Mod Center to Service AKTE & Other ME Customers

US Trucking paid by EGS

Memphis DC

Sigma WarehouseGarner, NC

Import (Included in Sigma part price)

Sigma

Drop Shipment

Proposed Process

  • EGS ships around $2M of Sigma parts annually to Middle East Customers

  • Direct shipments will reduce transportation costs, transit time, and inventory

  • International Sales to investigate changing freight terms for customers


Egs plan for west coast shutdown

EGS’ Plan for West Coast Shutdown

  • WEST COAST STOPPAGE PLAN

  • South China FCL – Ship thru Canada (EMR)

    • No cost impact and 2 day transit reduction

    • In March, 100% will route thru Canada

  • Mexico LCL shipments - EGS will consolidate LCL shipments in China for direct shipment into Manzanillo port

  • LCL to Memphis – Ship thru East Coast (EMR)

    • $15K in freight and increase inventory for 15+ day transit

  • North China FCL - EGS will build up inventory and continue thru West Coast with less containers

EGS successfully pilotedChina – Canada – Memphis Lane for EMR

Prince Rupert, Canada

Appleton Mexico pilot consolidated container - May

Long Beach

Memphis

Savannah

Manzanillo

Atizapan

Thru Panama


Major lanes transit time metrics flow of china buy out finished goods to memphis

Major Lanes Transit Time MetricsFlow of China Buy-Out Finished Goods to Memphis

Average 30.44 Days

  • Pilot rerouting through Canada was faster than through West Coast

  • If consistently faster, transit time may be reduced by 2 days


Egs supply chain

Major Lanes Transit Time MetricsFlow of Finished Goods from Major Plants to Memphis

Columbus

Average 1.1 Days

Atizapan

Average 5.6 Days

Stephenville

Average 1.8 Days


Egs global locations

EGS Global Locations


Egs us sales by location

EGS US Sales by Location

Pittston

Fullerton

Memphis

Houston

Less than $80K

$34M - $400k

$400k - $80K


Rdc operations overview

RDC Operations Overview


Rdc order backlog memphis orders dropped vs shipped

RDC Order BacklogMemphis Orders Dropped vs Shipped

NEEDS UPDATING


Egs supply chain

EGS Distribution CentersTotal Lines Processed per Hour


Procurement

Procurement

Steven Call

Director, Strategic Sourcing

4 April 2008


Egs fy07 direct materials purchases 173 4m 66 raw metal or metal related

EGS FY07 Direct Materials Purchases $173.4M 66% Raw Metal or Metal Related

  • S.Milwaukee outsourcing 1200 tons

  • Steel exposure mitigated in FY08

    • Flat rolled fixed through 9/08

  • Price pressure on China Buy-Outs

  • Esourcing Projects ongoing

    • ATX Luminaire

    • Alu Die Casting

    • CU wire move to Mexico

    • Global Enclosures

  • Sola strategy shift ODM to CEM

  • Evaluate insourcing /outsourcing options to change status quo

  • NPD Involvement ramping

Asia Buyouts $42M (25%)


South milwaukee outsourcing project plan

South Milwaukee – Outsourcing Project Plan

  • Targeting 1,200 Tons/Year, 709 Tons/Year moved

  • Supplier Capability - DISA Capacity available, Malleable hard to source

  • Columbus & Atizapan working direct with Outsource Foundries

  • Buying Ground Castings

  • Variance vs Standard Cost ranges from flat to 15%


Fy 08 net material inflation current expected

FY’08 Net Material InflationCurrent Expected

Significant changes since FPC due to Compounding effects of Steel, Currency, VAT and Labor


Esourcing update

eSourcing Update


Sourcing strategy buyouts

Sourcing StrategyBuyouts

Sola Hevi Duty

  • UPS, power conditioners, voltage regulators, shielded transformers, surge suppression devices and power supplies

ECM

  • Conduit and cable fittings, cable glands, steel fittings, conduit bodies and industrial lighting

HCS

  • Thermostats

Asia Buyouts $42M


Usd cross currency exchange rate trends

USD Cross Currency Exchange Rate Trends

2 Year China RMB vs USD

2 Year India Rhupee vs USD

China Spend

$23M

India Spend

$19M


Global steel market all regions continue substantial increases

Global Steel MarketALL REGIONS CONTINUE SUBSTANTIAL INCREASES

Global Regions - Cold Roll

Price History & EMR Forecast

Chinese - Cold Roll

Daily Spot Price History

$/MT

$/MT

EMR

Forecast

  • China Prices Continues Strong Increases into August

    • Power Shortage due to Sever Weather Conditions  Supply is Tight

    • Demand driven by Auto / Shipbuilding / Appliance

    • New Energy Sear Rating Expected to Increase Demand October 2008

    • Iron Ore Contracts Settled at +65%; Scrap +35%

    • Domestic Inflation & Currency Driving Prices Higher

  • Global Prices Continue to Rise Into June

    • Raw Material Initiated  Iron Ore / Scrap / Coke

    • Developing Regions  Continued Peak Demand

    • Consolidation  One Price Driven Globally

    • Currency  Impacting Global Export Arbitrage

  • December 2007 to May 2008 Price Increases:

  • NA: +47%

  • Asia: +45%

  • EU: +28% (lagging market to date)

Data: Emerson Steel Forecast, CRU & MySteel China


China buy out suppliers facing a perfect storm currency materials vat labor

China Buy-Out SuppliersFacing a “Perfect Storm” – Currency, Materials, VAT, Labor

Reduced Supplier margins due to Currency, VAT, Labor and Materials reaching Breaking Point


Supplier price increases commodity prices currency opportunistic demands

Supplier Price IncreasesCommodity Prices, Currency & Opportunistic Demands

EGS Choices are Limited


Fy09 materials inflation projection based on current market conditions a 7 4m impact

FY09 Materials Inflation ProjectionBased on current Market Conditions a $7.4M Impact


Sourcing strategy mechanical electronic buyouts

Sourcing StrategyMechanical & Electronic Buyouts

3rd Qtr FY07

Future State

Mechanical

  • Buy-Outs 30% of spend

  • Low value, labor intensive, energy intensive

  • China to India shift

  • Beam Clamps to N.America

  • Fact based negotiation

  • Going to China 4/14

Total Spend $41.0M

Electronics

  • Low volume, high mix

  • ODM to CEM shift

  • Power One increase

  • Design Review concerns

  • Astec to Benchmark move under review

Total Spend $13.2 M


Power one impact timing success of astec 20 amp power supply critical

Power One ImpactTiming & Success of ASTEC 20 Amp Power Supply Critical

Timing of ASTEC Production critical in responding to Power One Increase


Egs supply chain1

EGS Supply Chain

  • Market Conditions continue to be challenging

  • Fighting increases from all directions

  • Establishing local Cluj Suppliers a Top Priority

  • EGS leveraging Emerson resources effectively

  • GMDC an integral part of Supply Chain Team

  • Starting to see positive NASCO Impact

  • Supply Chain Team with a strong Operations focus

  • Organizational Changes have allowed us to Trade Up


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