Evolve or Become Extinct!

1. Evolve or Become Extinct! Logistics Park

2. Evolve or Become Extinct! • A model to deliver expanded shareholder value in Reverse Logistics • Your Reverse Logistics network is fragmented. Reverse supply chain players working alone can’t articulate value. See how technology is being leveraged & why operators are teaming up to create reverse solutions that increase revenue, reduce costs, & optimize capital. It's time to adapt & attack—or become extinct in reverse logistics.

3. In the beginning . . . . Parts Store End User In the beginning . . . . • The supply chain created numerous ways to get products into distribution, direct ship to retail locations, and even direct sales to end-user consumers. Business was good. Parts Factory Warehouse Distribution Store End User Parts Store End User

4. Then some of it started to come back.... Parts Store End User Reverse Logistics had to offer as many diverse channels for returns as the forward logistics supply chain solutions. Parts Factory Warehouse Distribution Store End User Parts Warehouse Store End User

5. Trains, Planes, and Automobiles Parts Store End User We looked for ways to reduce the cost of transportation with trains, trucks and a conglomeration of freight options. Adjustable fuel surcharges really caught our attention! Parts Factory Warehouse Distribution Store End User Parts Warehouse Store End User

6. Hot Potato Parts Store End User We tried creative approaches to stem the tide . . . • Incentives and credits for low returns • CAPS on return percentage levels • Policing and inspecting returns for defects But when it comes time to sell more product . . . . Parts Factory Warehouse Distribution Store End User Parts Warehouse Store End User

7. Building Returns Channel to Release Pressure Multiple Brands Store End User Parts New channels were created • Consolidation centers sort returns by brand • Refurbishing centers prepare product for resale • Parts are procured to support refurbishing, or mix and match from returns • Speed to return product to market became the key for resale value Consolidation & Sort Store End User Parts Factory Warehouse Parts Refurbish Refurbished Store End User

8. Consolidation Store End User Multiple Brands Consolidation and Sort Parts Store End User Then we started to consolidate other activities • Consolidate refurbishing activity with returns • Consolidate warranty depot repairs with refurbishing • Consolidate parts warehouse to reduce freight to refurbish and depot It is less expensive to move parts across an aisle than to ship a package! Parts Factory Warehouse Refurbish Refurbished Store End User Parts Warranty Depot Repair

9. Awareness of Place in the Total Solution Store End User Multiple Brands Consolidation and Sort Parts Store End User But what about the other support functions? • ASC, field service locations and ESP warranty need parts, too • Call centers identify early trends and ship URP (User Replaceable Parts) • Excess inventory can result in scrap (product and parts) Parts Factory Warehouse Refurbish Refurbished Store End User Parts Warranty Depot Repair Excess Scrap Field Service and ASC Call Center ESP Warranty

10. Environmental Regulations Store End User Multiple Brands Consolidation and Sort Parts Don’t forget RoHS, WEEE, lead and mercury regulations! • Regulations, compliance and controls on scrap vary by location • Environmental issues are not just good behavior—they’re the law Store End User Parts Factory Warehouse Refurbish Refurbished Store End User Parts Warranty Depot Repair RoHS Excess Scrap WEEE Field Service & ASC Call Center Lead Mercury ESP Warranty

11. Growing Complication – What’s Next? Store End User Multiple Brands Consolidation and Sort Parts What’s Next? Store End User Parts Factory Warehouse Refurbish Refurbished Store End User Parts Warranty Depot Repair RoHS Excess Scrap WEEE Field Service and ASC Call Center Lead Mercury ESP Warranty

12. Evolution Evolution Sophisticated Extinction Do the same thing with style Single Cell Extinction I do one thing really well – when it comes to me

13. The Intelligent Engine Intelligent Engine OCM Store Consolidation and Sort Product Use an Intelligent Engine to determine routing BEFORE you own the return product • Compare the bill of materials to the whole unit product value • Real-time decisions based on dynamic values of fixed activities ODM Store Bill of Materials / Parts OEM Warehouse Warranty Depot Repair Refurbish Refurbished Store WEEE Lead Field Service and ASC ESP Warranty Call Center Unit Exchange Mercury RoHS

14. Understanding Dynamic Variable Costs Fixed activities – Dynamic variable costs that need to be captured • Bill of materials – cost for components • Procurement demand for components and lead time • Current inventory level of components • Current inventory level of products • Resale value of refurbished products • Cost to refurbish products • Yield from mix and match parts to refurbish products • Scrap rate for component parts • RoHS, WEEE, mercury and lead routing freight fee • Cost to repair product • Cost to exchange product (alternative to repair) • Freight costs (product or parts shipments) • Labor costs (de-configure, pack, handling, etc.)

15. Partners Partners – You need partners To maximize flexibility and fully use “Best in Class,” it is necessary to integrate a real time data exchange with multiple partners. For example: VMI (Vendor Managed Inventory). Parts may come from multiple ODM or OCM partners who are also competitors. • It may be necessary to conduct data exchange on a unified platform to track inventory availability and demand overall, while simultaneously maintaining the confidentiality of separation between competing ODM or OCM vendors (this may also include failure rate fault analysis and demand generation data). • In some cases, the ODM or OCM vendor may also be a returns or warranty depot repair center and may need to acquire components from multiple other sources.

16. Integrating with Partners Partners – You need partners Integrated data exchange between partners allows real time intelligent routing to minimize freight, handling and overstock inventory. • Retail and distribution partners (potential return data) • Call center partners (customer complaint data) • Field service dispatch and ASC management partners (repair data) • Returns center and refurbishment partners (refurbish cost data) • Refurbishing sales (profit and resale value data) • Warranty depot repair (labor and materials cost data) • ODM or OCM Parts (lead time and availability data) • Salvage partners (cost for environmental disposal data) • Extended Service Plan Partners (ESP parts and product usage data)

17. Think Before You Own Return Product OCM ODM OEM Intelligent Engine Retail/Dealer Credit Discount/Use at Store (No Freight) • Use an Intelligent Engine to determine routing BEFORE you own the return product • Functions can be combined under one roof to reduce freight Bill of Materials Product Warranty Depot Repair Warranty Exchange Refurbish Refurbished Store Salvage Parts Warehouse WEEE Mix and Match Yield Lead Mercury RoHS Field Service and ASC ESP Warranty

18. Multiple Locations or Consolidation Intelligent Engine The process activity may occur under one roof or multiple locations based on partnerships or geography. The most important aspect is the asset management in a consolidated system. California Ohio Product Product Refurbished Store Refurbish Refurbished Store Refurbish Mix and Match Yield Mix and Match Yield Warranty Exchange Warranty Exchange Parts Warehouse Parts Warehouse Salvage Salvage Warranty Depot Repair Warranty Depot Repair Field Service and ASC ESP Warranty Field Service and ASC ESP Warranty

19. Consolidated Under One Operation One school of thought is to consolidate all activity under one roof to maximize labor and minimize transportation for materials. This works well: • For high velocity volume processing • If vendors (VMI) come under one location • If one partner manages the work streams Consolidated location * Typically 70-80% East Coast

20. Distributed Facilities for Geographic Solutions Another school of thought is to embed the returns, inspection, de-configuration, repair and scrap activity in small “pods” at geographic locations to reduce transportation. • This requires integrated freight analysis and material value controls. • Works well if there is one standard for data exchange between partner locations. Integrated Locations * Embedded activity by geography

21. Flexible Intelligent Solutions – Best of Both Worlds • Which method is the best solution? • The best option is often dictated by changes in competition, vendors, environment, customer demand, value of the product or value of the materials, freight and fuel charges, resale value, and a complex combination of these factors. • The best solution is to be flexible, adapt, and collaborate. Flexible Solutions Or

22. Case Study Case Study: Converting a Claims Process Into a Transactional Model • Third Party Administrator for Extended Service Plans accustomed to a CLAIMS process model “Flat Rate covers total process” • Intelligent Engine routing for a Transactional Model --“Pay for applicable transactions” -- Capture activity and yield

23. Flat Claims Model Case Study: Converting a Claims Process into a Transactional Model • Third Party Administrator • CLAIMS process model --“Flat Rate Claim covers total process” – no visibility to individual transactions, inventory controls, or contributing costs. --Previous experience resulted in excessive inventory, excessive scrap, and hidden costs.

24. Intelligent Engine routing for a Transactional Model “Pay for applicable transactions” Capture activity and yield Track usage, yield, and scrap Track inventory and replenish Track process time and cost Track result Report and alert Transactional Model Case Study: Converting a Claims Process into a Transactional Model

25. Sum of Selected Steps is Less than the Whole Internal Labor • Receive • Unpack • Inspect • Sort • Separate accessories * • Test * (or “As-Is”) • Cosmetic (paint / wipe) * • Repair * (if cost effective) • De-Configure (mix & match) * • Pack with accessories • Inventory • Prep • Ship Eliminate a step, eliminate the cost. The sum of selected steps is less than the sum of the whole process.

26. Sum of the Cost Elements is Greater Than the Whole The sum of costs may exceed the value of the return How will you know when the value of the materials and the cost of labor/freight exceeds the value of the product? • Measure price erosion • Measure demand • Measure time • Compare to plan Labor Freight Material Product Value

27. Manage the Business • Manage multiple activities • Manage multiple partners • Manage transaction • Manage processes • Manage costs • Manage the business • Fast decisions based on real-time dynamic data Integrated data exchange between partners reduces physical handling, transportation, and labor while maximizing material value.

28. Data Exchange We are in the business of identifying and delivering supply chain solutions at the lowest total cost to our customer by leveraging our engineering, systems, design and consulting expertise.

29. Thank You!