Customer Base Expectations

Collaborative Supply Chain ModelsProactive SolutionsAggressive PricingEase of Doing BizFavorable/Fair Terms and ConditionsVelocity of MaterialsAccepting/Treating CEM as the Customer

Integrated ServicesTraditional EMS

Today EMS

Tomorrow EMS

Complete EMS/ODM Module

Design Sourcing New ProductIntroduction

NPI)

Purchasing& inboundlogistics

GlobalManufacturing

Distribution &outbound

logisticsAfter salesservices

Collaborative SC Models

• Designed for Flexibility• Supply Chain Model is designed to meet Customer

Requirements.• Proactive / Collaborative Demand Planning.• Responsiveness to Change.

• SC Model is industry Focused.• Structured by model and Partner.• Automotive drivers are different to Networking drivers.

• One Size does NOT fit allOne Size does NOT fit allMed Volume

Configurable• Buffer Stock.• Kanban Mtrls

Mgmnt• Med Turn• Etc.

High Volume Low Mix• JIT Materials

Management.• Embedded Forecast

Release EDI• High Turns• Etc.

Collaborative SC Models

Philips is currently in 11 mfg. sites, in 9 countries, on 3 continents.

Supply Chain is difficult enough without creating non-value complexities.

This is consumer business, fickle at times, yet fairly predictable from a macro perspective

Demand Projections& StockingRequirements

Customer Supply Chain ManagementRequirements Planning

BOMBOM

BOM

Customer Manufacturing

Russia(PCB Assembly, Final

Assembly, Test and Ship)

CustomerDemand

Ship FinalProduct toCustomers

Purchased

Items

Inventory @customer Hub

Russia

ProductBuild

Requirements

High Performance Supply Chain Management Partnership Process

Fully Integrated Worldwide Program Management

Demand FlowReplenishment

DirectSite

Support

KANBAN

2-3 Day P

rocess

ColnbrookDistribution Center• Bonded Inventory• Process, Pick, & Ship

Order & AssetManagement System• Inventory Bonding• Planning Information• Acknowledgments• Order Processing

Program Items• Schedule Share• EC Release

customerPull-to-WIP

DirectSite

Support

24 Hour Process

Demand-Flow Supply ReplenishmentVisual System Driven / Electronic

Commerce SupportedElement 1Establish a Prime Location 2-Bin Kanban (or single bin Min/Max) in the electronic assembly area to support the existing process lines.

Element 2Create and size 1 or 2 “Bin” Component Kanbans.

Electronic Assembly

Electronic Assembly Electronic Assembly

Element 3Kanban draws off bin until depleted

Electronic Assembly

Element 4When a Kanban Bin is depleted (2-Bin) or depletes below Min-level (1-Bin), Gilat will replenish from the Sofia Hub.

Inventory Hub Bonded Inventory

Pick, Ship and Deliver

KA

NB

AN

STA

GED

CO

MPL

ETED

BO

AR

DS

KA

NB

AN

STA

GED

AU

TO-IN

SER

TED

BO

AR

DS

SEQ

UEN

CED

REE

LS

SEQUENCER

AU

TO-

INSE

RTI

ON

WA

VE S

OLD

ERTO

UC

H-U

P

HA

ND

INSE

RTI

ON

FIN

AL

ASS

EMB

LY

FIN

AL

ASS

EMB

LY

KANBAN

PULL SIGNAL

4 Hours 4 Hours 2-Days

SUPPLIERL.T. = 1-3 Days

Material Flow Process“CAN-BE”

4 HoursThrough-Put Time

AC

CEP

TAN

CE

TEST

ING

Release

MRP BasedSchedule SharePlanning Information

PAC

KA

GIN

G &

SH

IPPI

NG

TO C

UST

OM

ER

MATERIAL MGTTRANSACTION

WORK ORDERTRANSACTION

INVENTORY POSITIONING

Defining the Inventory Carrying Cost

Def: carrying cost - Cost of carrying inventory, usually defined as a percentage of the dollar value of inventory per unit of time )generally one year). Carrying cost depends mainly on the cost of capital invested as well as the costs of maintaining the inventory, such as taxes and insurance, obsolescence, spoilage, and space occupied. Such costs vary from 10% to 35 % annually, depending on type of industry. Ultimately, carrying cost is a policy variable reflecting the opportunity cost alternative uses for funds invested in inventory. )Source: APICS Dictionary 8th Edition )

Carrying Cost Element

Cost of money )Opportunity)

Obsolescence, Scrap, Shrink Costs

Capital Equipment and Facilities Costs

Taxes and Insurance Costs

Totals

General Industry

Low Range

7.0%

1.0%

1.0%

1.0%

10.0%

General Industry

High Range

18.0%

7.0%

6.0%

4.0%

35.0%

Electronics Industry Average

12.0%4.5%4.0%2.0%

22.5%

Purchases Inventory Turns

1,000,0001,000,000

InventoryReduction

Cost of CarryingInventory (annual)

Savings (>6%)

333,000 83,000======250,000

x 25%======

62,500

312

Benefit of increase inventory turns

ActivityReview MRPCreate PO req.Select SupplierCreate POReview/SignTransmitMail POFile POAcknowledge POPrint PO Ack.File PO Ack.MinutesCost per PO

Traditional Electronic

5 2 5 1 3 3 3 5

33055

1

1

1

35

Benefit of reduced activities

TransactionTransaction CostCost##

MRP originalPurchase Order

ElectronicPO release

1000

1000

55

5

TotalTotal

55,000

5,000

======

50,000 Savings (5%) 1M purchases

Transaction cost reduction benefit

ManuFloorT.A.CDelivery

Problems Expediters Buyers Production Management

Quality Problems

Warehouse (3X) Purchasing (3X) Payables (3X) Engineering Quality Assurance Production

Buffer InventoryCarrying Costs (%

of Inv. Value) Capital Costs

5.5% Handling

5.0% Damage,Theft

3.0% Obsolescence

2.5% Insurance

2.0% Storage

1.0%

19.0%

€1.00Procurement

Admin.

++

+ 1.35…?�

Total Acquisition Cost “TAC”

Negotiate contracts with suppliersManage supplier/partner relationshipsServe on product development teamsMaterials planning and managementLead-time reductionFocus on “A” items )80% of dollars)

Procurement’s changing role

SUPPLIERSTOCKROOM

CIRCUIT BOARDASSEMBLY

SUBASSEMBLY

FINALASSEMBLY

INVENTORY

MATERIAL FLOWMATERIAL FLOW

Traditional material flow

SUPPLIER CIRCUIT BOARDASSEMBLY

SUBASSEMBLY

FINALASSEMBLY

MATERIAL FLOWMATERIAL FLOW

BIN 1

BIN 2

EC SIGNALEC SIGNAL

INVENTORY

Difference

One type of proven solution -

Two bin kanban pull system

CUSTOMS

INVOICE

DIRECT SHIPMENT24 HOURS

WAREHOUSE

LABLES & PACKINGNOTESPRODUCED ON-LINEGOODS TO BE COLLECTED AT 4 P.M., Day 0

Customer Russia

CONSOLIDATEDSHIPPING

ALL PRICES ON-LINE IN LOCAL CURRENCY

•ALL PRICES IN CUSTOMER’S LOCAL CURRENCY•ALL TEXT IN CUSTOMER’S LOCAL LANGUANGE

CENTRAL COMPUTER

TERMINALON-LINE ORDER ENTRY Day 0

CUSTOMER

GOODS ARRIVE NO LATER THAN DAY 2

INVOICE

Customer’s production

facility

Bonded Warehouse

USA/China

Customs clearance by Customer/Disti

Russian invoice to customer

Payment in USD, GBP, Euro

Delivery with customs clearanceBonded warehouse option