Terry A' Sabatka

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Terry A. Sabatka

• Director of Supply Chain Management
• Blount, Inc. Forestry Division

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Blount Strategy

• Lean Culture
• Low to Mid Volumes
• Currently
• 95 Domestic
• 5 Offshore
• Pursuing Opportunities to Expand Offshore
  Sourcing

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Obstacles

• Where Suppliers are Located
• Using pre-Designed Components
• Technical Limitations of Offshore Suppliers
• Dynamic Demand
• Low to Medium Volumes

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Considerations

• Volumes
• Lead Times
• Schedule
• Reaction Times
• Barriers
• Risks
• Total Costs

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Volumes

• Traditional Approach
• Requires High Volume
• Alternative Approach
• Use High Mix to Combine Shipments
• Increases Lead Time
• Partner With Broker

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Lead Time

• Minimum 3 Weeks Freight Alone
• Consolidated Shipments Even Longer
• Bottlenecks at U.S. Ports
• Expedited Freight Very Expensive

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Schedule

• Longer More Stable Schedules Required
• Inability to React to Dynamic Demand
• Placing Orders From Forecasts Rather Than Actual
  Demand
• Requires Accurate Forecasts

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Reaction Times

• Limited Communication Time Available During
  Workday
• Domestic - Maximum 1 Day Away
• Offshore - Minimum 2 Days Away
• Holidays do Not Coincide

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Barriers

• Time Zone Barriers
• Communication Barriers
• Culture Barriers
• Value Barriers
• Technology Barriers

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Risks

• Currency Fluctuation
• Political Instability - Shipping Country
• Trade Protection Receiving Country
• Connectivity in Handoffs With Differing Business
  Practices
• Your Supplier Becoming Your Competitor

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Typical Cost Comparison

• Current Cost of Part
• - Off Shore Cost of Part
• Cost of Slow Freight
• Savings
• Formula will equate to savings 90 of the time.

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Total Cost of Supply

• Savings
• Additional Inventory in Transit
• Additional Safety Stocks
• Expedited Freight
• Low Volume High Cost Spot Buys
• Savings

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Total Cost of Supply

• Savings
• Supplier Development Process
• Part Approval Process
• Reallocated Overhead Costs
• Savings

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Total Cost of Supply

• Savings
• Cost of Stocks Outs - Long Lead Times
• Cost of Excess/Obsolete Inventory Forecast
  Ordering
• Cost of Lost Sales Inflexibility
• Savings

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Remember

• Always Look at Total Cost of Supply
• Offshore Does Not Necessarily Mean Less Expensive
• Offshore Sourcing Requires Many Backups
• Domestic Sourcing Might be More Expensive But
  It Is Easier

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• Bobcat Company
• Paul Schubert
• Director Supplier Development
• Products
• Skid steer loaders, track loaders, excavators, MT
  series, utility vehicles, VersaHandlers
• Locations
• West Fargo, NDHeadquarters
• Gwinner, NDManufacturing
• Bismarck, NDManufacturing
• Dobris, Czech RepublicManufacturing
• Pont Chateau, FranceManufacturing
• Wuxi, China--Manufacturing

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Bobcat Manufacturing Locations
Pont Chateau, France
Bismarck, ND
Wuxi, China
Dobris Czech Republic
Gwinner, ND
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Global Sourcing

• Technology
• Manufacturing location
• Can be market driven
• Sourcing strategy
• Domestic and Regional
• Global
• LCC
• Supply chain
• Challenges

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• Technology
• Supplier owned technology
• Sourced controlled drawing
• Only a few suppliers can manufacture component
• Lead-time
• Quality in the pipeline
• Supplier management

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• Manufacturing location
• Localization
• Automotive (large percentage of parts sourced in
  region manufactured)
• Lead-time reduction
• Quality in the pipeline
• Supplier management
• ECN (slow moving and obsolete material)

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• Sourcing Strategy
• Domestic and regional
• Supplier improvement
• Lead-time
• Quality in the pipeline
• Supplier management
• Lean out supplier to complete
• Global
• Technology (engineered components, or sole
• sourced components)
• Capacity
• Cost

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• Sourcing Strategy (cont.)
• Low Cost Country (LCC)
• Cost of ownership
• Lead-time
• Quality in the pipeline
• Supplier management
• Political risk
• Specifications
• Material availability
• Imperial vs. Metric
• Drawings for internal specifications

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• Supply Chain
• Forecasting
• Lead time
• Inventory ownership and carrying costs
• Planning
• Dual sourcing
• High fuel costs
• Global material specifications
• High volume vs. Low volume production
• Source controlled parts

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• Roadblocks

• Common processes
• Supplier assessment
• Self assessment
• Onsite assessment
• Drawing review
• Sourcing
• Qualification
• Headcount
• Training
• Retention
• Logistics

• Cultural barrier
• Language barrier
• Geo Political risks
• Voice of customer (VOC)
• Common metrics
• Drawing and material specifications
• Dimensions
• Test specifications
• Components
• Engineered Components
• Sole Soured
• Capacity

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• Association of Equipment Manufacturers
• Supply Chain Purchasing Conference

June, 2007
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Contents
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Secure Global Supply Services Overview
We provide strategy and execution services aimed
at helping manufacturers accelerate the benefits
and mitigate the risk of emerging market sourcing.
Sourcing Strategy Development Services
Sourcing Execution Services
Capability Development Services
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Globalization has created significant opportunity
for manufacturing organizations to generate
shareholder value
Implication Identifying and working with
emerging market suppliers is critical to a
manufacturers ability to achieve growth and cost
objectives.
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But emerging market sourcing is not without
challenges
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Trends in LCCS What are the Target Markets?
While China is the most notable supply market, it
is not the only destination for organizations
pursuing low cost supply.
Top Target LCCS Markets

• Factor cost advantages
• Level of Industrialization
• Local Talent Pool
• Regulatory Policies
• Political environment

Target LCCS Markets Should Be Evaluated Along
Several Dimensions
A country that is low cost today may not be low
cost tomorrow.
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Mitigating the Risks of Sourcing from Emerging
Markets
Successful low cost country sourcing programs
include well-defined supplier validation and
launch support processes.
Robust Screening Process
Targeted Supplier Integration Support

Right Mix of Capabilities / Costs / Growth
Potential / Values ...
Right Amount of Oversight, Program Management
and Skill Supplementation
Accelerated Benefit Capture With Reduced Risk
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Account for all the costs, including supplier
management and development costs, in total cost
of ownership analysis

Many costs can be directly related to the
purchase and transport of a product. However,
much of the cost for LCCS trade is hidden in
overhead/indirect cost categories.
Supplier Development
TCO
Supply Chain Risk
Landed Cost
Domestic Freight
Import Processing
Intl Freight
Purchase Price
Import Duties
Supplier Mark up
Supplier cost
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Case Study Grand Rapids Control (GRC)
Background
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Case Study Grand Rapids Control (GRC)
Situation Prior to LCCS
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Case Study Grand Rapids Control (GRC)
LCCS Difficulties

• Limited LCCS procurement scope and vision
• Struggle to align LCC sources with NA standards
• Concern that Chinese sources would unilaterally
  deviate from approved bill of materials
• Many LCCS components require 100 inspection
• Lack of appropriate authorization nearly caused
  line stoppage situations
• Lack of global supply chain management know-how,
  experience and expertise

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Case Study Grand Rapids Control (GRC)
Challenges

• In LCCS, typically you are aware of 50 of the
  facts at the outset and the remaining 50 to be
  discovered is often negative
• Hiring skilled personnel in LCC operations,
  process development, legal matters, professional
  standards and quality systems
• Government relations
• Chinese culture promotes failure in others to
  bolster self-advancement
• Capable supply base development
• Universal yes response
• Taxation and foreign exchange matters are
  troublesome
• Proprietary items can be difficult to control

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Case Study Grand Rapids Control (GRC)
Current Status

• 50 of all procurement is on a LCCS basis with
  purchasing efforts focused on developing and
  utilizing world class sources
• Quality PPM 1, Delivery 99
• 300 Michigan employees / 100 Chinese employees
• USA manufacturing focused on final assembly,
  value add work
• Increased and improved global supply chain
  management core capabilities
• Final product price competitiveness achieved

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