A Competitive Supply Chain Strategy for Mexico

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A Competitive Supply Chain Strategy for Mexico
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Contents

• Who is SalesLink?
• How Industry Trends Drive A Competitive Strategy
  for Mexico
• Comparative Business Models
• China Build to Stock
• Mexico Configure to Order
• Supply Chain Concepts for Reducing Total Cost and
  Improving Cash Flow
• High Tech Industry Comparisons
• Conclusion

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Who Are We?
SalesLink is a 434 million company (2003
sales) with a work force of 1800 employees
worldwide. SalesLink has been a division of
CMGI for 15 years. The company has been in
business for 28 years. Headquartered in
Boston. Network of 14 facilities in North
America, Europe, and Asia.
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History and Growth Track
1998
1999
2000
1996
1997
2001
2002
2003
2004E
2005B
1976
1989
Founded Literature Distribution
Acquiredby CMGI
Acquired iLogistix
Acquired PacificLink, enter SCM business
Opened Guadalajara
Acquired InSolutions
Acquired On-Demand Solutions, e-fulfillment
Acquired Modus Media
Opened Hungary, NYC and Hillsboro
Memphis Distribution Center
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A Commitment to SCM

• 237 million cash and stock acquisition of Modus
  Media (August 2004)
• 42 million cash acquisition of iLogistix (July,
  2002) immediately accretive
• 40 million in supply chain acquisitions 1997 -
  1999
• 25M capex on IT

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World-Class Global Footprint
Cumbernauld, Scotland
Apeldoorn, The Netherlands
Tilburg, The Netherlands
Kildare, Ireland
Orléans, France
Limerick, Ireland
Angers, France
Charlestown, MA
Dublin, Ireland
Waltham, MA HQ
Budapest, Hungary
Dublin, Ireland
Chicago, IL
Miscolc, Hungary
Chicago, IL
Seoul, Korea
Raleigh, NC
Memphis, TN
Tokyo, Japan
Nashville, TN
Shanghai, China
Millington, TN
Suzhou, China
Newark, CA
KunShan, China
Santa Clara, CA
SongJiang, China
San Diego, CA
Salt Lake City, UT
Taipei, Taiwan
Lindon, UT
Taipei, Taiwan
Fountain, CO
Shenzhen, China
Indianapolis, IN
Futian, China
Austin, TX
Singapore
Miami, FL
Monterrey, Mexico
Singapore
Penang, Malaysia
Guadalajara, Mexico
Guadalajara, Mexico
Penang, Malaysia
(As of August 2004)
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Why SalesLink is Different from the Rest

• Sustained growth right through the recession
• Very solid financials
• Legitimate world class IT tools on a common
  platform as a strategic differentiator
• Mobile flexibility allows us keep pace with our
  customers
• Not tied to long term brick and mortar
• Problem solving approach creates business models
  designed to meet tomorrows challenges
• Best performance in our industry backed by our
  customer ratings

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Service Offering
An Optimized Bridge Between Manufacturing
Customer
gt Sourcing Procurement
gt Manufacturing Support Services
gt Closest-to-Customer Configuration
gt Order Management
gt Optimized IT Visibility
gt Optimized Cash Velocity
gt Optimized Final Assembly
gt Full-Cycle Logistics
gt Optimization Consulting
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What Value does SalesLink provide to its
Customers?

• Increased revenue due to improved product
  availability
• Reduced total cost of ownership
• Increased asset utilization
• Accelerated time to market
• Increased cash velocity shortened cash
  conversion cycle (CCC)

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Industry Trends and Drivers
Supply Chain Drivers
Demand
Supply
Time-to-Market
Shortened life cycles demanding morenow
Frequent New Product Introductions
Flexibility/Agility
Desire for highly customized products and services
Product Proliferation
Total Cost and Cash Management
Price is largely market-driven
Low Cost of Global Manufacturing
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A Competitive Strategy for Mexico
Supply Chain Drivers
Mexico Advantages
Time-to-Market

• Geographic Position
• Skilled, lower cost of labor than U.S. market
• Competitive logistics cost
• Reliable infrastructure

Supply Chain Strategy Postponement
Flexibility/Agility
Total Cost and Cash Management
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Postponement Capabilities and Benefits
Supply Chain Strategy Postponement
Capability/Benefit
Supply Chain Drivers
Mexico Advantages

• Configure-Closest to-Customer

Time-to-Market

• Geographic Position
• Skilled, lower cost of labor than U.S. market
• Competitive logistics cost
• Reliable infrastructure

• Configure-to-Order
• Customization

Flexibility/Agility

• Lower Total Cost
• Improved Cash Conversion

Total Cost and Cash Management
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Supply Chain Models Comparing China to Mexico
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Total Cost Management

• Sourcing/procurement
• Transportation (Inbound/Outbound)
• Manufacturing
• Configuration
• Rework/Reconfigure
• Storage
• Returns
• Product support
• Inventory investment
• Discount/loss of value with excess obsolescence
• Cost of capital/opportunity cost

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Cash Conversion Cycle
(DSO)
(DSI)
(DPO)

-
Days Sales Outstanding (Receivables Turnover)
(Receivables )/ (Annualized Revenue ) 365
Days Payables Outstanding (Payables Turnover)
(Payables )/ (Annualized Matl Cost ) 365
Days of Supply Inventory (Inventory Turnover)
(Inventory )/ (Annualized COGS ) 365
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Build to Stock in China
Core Hardware Supplier
Manufacture Platform Component Configuration
Customer
DC
Component Supplier
Reconfigure
Core Hardware Supplier
Manufacture Platform Component Configuration
Collect and Ship to Asia
Customer
DC
Component Supplier
China
China
U.S.
U.S.
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Customer Choice Drives SKU Proliferation
Example
Component 2 8 SKUs
Core 9 SKUs
Component 1 6 SKUs
A-1
D-1
Product A
A-2
D-2
E-1
A-3
E-2
D-3
Sub-Group 1
E-3
B-1
E-4
Product B
B-2
D-4
B-3
E-5
D-5
E-6
Sub-Group 2
E-7
C-1
Product C
E-8
C-2
D-6
C-3
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Higher Inbound Freight Cost
Monthly Inbound Shipments
Total Units
Shipments 8 14 10 15 7 13 14 12 4 12 10 8 Max 3,7
12 1,934 2,718 2,060 9,354 6,782 3,846 14,733 3,55
0 12,273 5,352 2,353 Min 118 216 470 135 422 62 18
5 275 760 275 68 157 Average 1,290 682 1,052 1,027
2,422 1,629 1,103 2,220 1,852 2,453 1,509 910
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Missed Sourcing Savings
Price Variance
Volume by Supplier
(20)
(55)
(90)
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Supply-Demand Mismatch
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Excessive Finished Goods Inventory Levels
Avg. Inv.
Avg. Demand
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Adding Value in Mexico (CTO)
Component Configuration to-Order
Core Hardware Supplier
Manufacture Platform
Customer
Component Supplier
Diagnose and Repair, Ship to Asia as needed
Core Hardware Supplier
Manufacture Platform
Repair/Returns Center
Customer
Component Supplier
China
China
Mexico
U.S.
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Managing Freight to an Advantage
Cost Comparison


Bulk Shipment
In-Transit Time
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Leveraging Commodity Spend
Cost Savings
Single Source for Multiple Suppliers
(20)
Commodity Management
(55)
Component C1
Component B1
Component C2
(90)
Component C3
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Delayed Ownership Improves Cash Position
OEM control
Customer control
Supply Chain Integrator control
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Reducing Inventory Without Compromising Service
Levels
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Commonality Lowers Safety Stock

gt

10 - 50 Reduction
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The Benefits of Postponement Measurable Savings
and Increased Service Levels
15.6 M
12.5 M
Scenario 1 Build-to-Stock
Scenario 2 Configure-to-Order
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Cash Conversion Cycle
(DSO)
(DSI)
(DPO)

-
Days Payables Outstanding (Payables Turnover)
(Payables )/ (Annualized Matl Cost ) 365
Days Sales Outstanding (Receivables Turnover)
(Receivables )/ (Annualized Revenue ) 365
Days of Supply Inventory (Inventory Turnover)
(Inventory )/ (Annualized COGS ) 365
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Cash Requirements for China BTS
Core Hardware Supplier
Manufacture Platform Component Configuration
DC
Customer
Component Supplier
Reconfigure
Receivables (DSO) 30 Days
Inventory (DSI) 55 Days
CCC 55 Days
Payables (DPO) 30 Days
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Cash Requirements for Mexico CTO
Supplier Owned
Company Owned Inventory
Core Hardware Supplier
Manufacture Platform Component Configuration
DC
Customer
Component Supplier
Reconfigure
Receivables (DSO) 30 Days
CCC 15 Days
Inventory (DSI) 15 Days
Payables (DPO) 30 Days
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Time savings translates into a cash injection
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High Tech Industry Examples
Source Benchmark Brief prepared by SCE Ltd. The
SCOR Users Resource Center, 2003/2004
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Conclusion/Summary

• As China supply chains begin to mature we believe
  there is opportunity for Mexico to recapture some
  of the business lost during the past few years
  using a postponement business model strategy