"Network Optimization as next step at Spare Parts Cost and Service Optimization. How to create Value?" Paolo Galli European Logistics EMA-EMEA Ops, Electrolux and Carlo Peters, Supply Chain Strategy Consultant, Buck Consultants International presentation at Spare Partns Business Platform 2013. Fin out more http://www.sparepartseurope.com/

1. Network Optimization as next step in Spare Parts Cost and Service Optimization How to create Value?
Paolo Galli
European Logistics EMA-EMEA Ops
E: paolo.galli@electrolux.it
T: +39 0434 394408
Carlo Peters
Supply Chain Strategy Consultant
E: carlo.peters@bciglobal.com
T: +31 622 917 254
Stockholm, February 7, 2013

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Contents
1 The dynamics in spare parts / AMS services
2 The added value of Network Design
3The building blocks of an intelligent Supply Chain
4Introduction Electrolux
5Case Electrolux spare parts network design
6Key takeaway’s

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After Market Service (AMS) Creating value
After market service is the combined offering of parts, services and information that delivers maximum customer satisfaction and ongoing customer loyalty in terms of exceeding the customer’s expectations in the application of the purchased product

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1 The dynamics in spare parts / AMS services
FROM
Focus on forward supply chain of Finished Goods
Cost Center
High inventories
Western European Focus
Single sales channels
Own operations
Single supply chain for FG and Parts
TO
Focus on aftermarket, incl. spare parts, returns, asset recovery, etc.
Profit Center
Reducing inventories
New Geographies such as Russia, Turkey, Mexico, etc.
Multiple sales channels incl. internet
Outsourcing of aftermarket functions
Differentiated supply chains
Key Trends & Developments

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2 The added value of Supply Chain Network Design
Range of Optimal Values
Annual
Cost
Transfer
Freight
Fixed
Cost
Outbound
Freight
Number Of Facilities
Few
Many
Total
Cost
Inventory
Carrying Cost
A Supply Chain network has an optimum number of facilities depending the relevance of in- and outbound transport cost versus inventory and warehousing costs

6. The majority of a supply chain’s lifecycle costs are locked-in at the start…
Decisions
Solutions
Value
Advanced
Planning and
Scheduling
ERP / MRP
Execution
Strategic and Tactical Supply Chain Optimization
80%
20%
Operational Tactical Strategic
Source: AMR Research
Manufacturing/supplier network
Distribution network
Inventory Locations
Inventory Levels
Service policies
As the majority of the supply chain costs are locked in
the infrastructure, network design is critical in order to
realize step changes
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7. Operational Tactical Strategic
Supply chain configuration
Inventory deployment
Service level /Safety stock targets
Allocation
Capacitated scheduling
Available-to-promise
Purchase order management
Transaction management
Bill-of-materials management
Performance monitoring
Event/alert management
Connectivity
Network footprint design
Transport lanes
Facility numbers/locations
Strategic network design is directly linked to Inventory Policies; where to start?
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Network Design
Inventory Policy
Advanced Planning and Scheduling
MRP / ERP
Execution

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3The building blocks of an intelligent Supply Chain
Differentiated service offering
Differentiated Supply Chain set up
Pre-pack and warehousing locations
SC Visibility and transport management
Collaboration and outsourcing
Inventory optimization

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Europe in 4 hours
Advanced Network
●Centralized backup-inventory
●Localized emergency inventory in selected cities in each country
●Shared infrastructure
●Pick-to-order 24 x 7 x 365
●Individual transportation to customers and engineers
●Consolidated replenishment transportation
●Delivery within 4 hours of order
Europe in 24-48 hours
Centralized Solution
●Centralized inventory
●Shared infrastructure
●Scheduled batch-run picks
●Late cut-offs
●Consolidated transportation to customers and engineers
●Delivery on next business day
Europe in 2 Hours
High Density Network
●Centralized backup- inventory, eventually hosted in two locations
●Localized emergency inventory using a high density storage network to achieve shortest lead times
●Shared infrastructure
●Pick-to-order 24 x 7 x 365
●Individual transportation to customers and engineers
●Consolidated replenishment transportation
●Delivery within 2 hours of order
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Differentiated service offering
Can be accomplished through the network and
through transport modalities used

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Customers
Distributor
Dealer
Direct to retail
End customer
Customer site
Service technician
Dependent on the product, product characteristics and
product/market combinations a variety of supply chains
solutions can be developed
Source
Source
Hub
EDC
RDC / SDC
Hub
MSP
Activities
Milkruns
Production
Repair
Activities
Consoli- dation
Deconsoli- dation
Activities
VAL
Merge in transit
Cross-dock
Repair
Inventory
Postponed manufacturing
Prepack
Activities
VAL
Merge in transit
Cross-dock
Repair
Inventory
Prepack
Activities
Cross-dock
Consoli- dation
Deconsoli- dation
Activities
VAL
Repair
Inventory
Consignment stock
Critical parts
Prepack
PU
Activities
PuDo / Kiala locations
Lockers
Garage box / Van
Markets
Markets
Markets
Differentiated Supply Chain set up

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Pre-pack and warehouse locations
If labor and warehousing costs are the key drivers, low labor costs countries can be favorable for labor intensive pre-pack and warehouse operations
Low labor cost countries
Labor cost index Warehouse rent index
Source: IMD 2012

12. Inbound
Logistics
Suppliers
Receiving
Customer
Manufacturer
Customer
Channels
Outbound
Logistics
Return
Management
Multi Modal Control Tower
End-to-end transportation Management across the supply chain
KPI metrics and reporting, QBR reviews with vendors, freight invoicing and auditing
Sea Freight Air Freight
Warehousing &
Distribution
Last Mile /
Road & Rail Integrators
Compliance &
Documents
SC visibility and transport
management
Multi Modal Control Tower allowing for end to end visibility and
continuous optimization of cost, quality and service
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13. Several collaboration initiatives have emerged; some are outsourced, other are managed amongst brand owners
Collaboration and Outsourcing
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14. Inventory optimization
Excess inventory and added cost
Central inventory management visibility and stocking decisions are needed over to optimize over all echelons
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BCI methodology for strategic network design & optimization
Design and optimization of a complex service supply chain structure requires a proven and well-structured methodology in combination with powerful optimization tools
Start-up
Understand
&
Analyze
Design
Detail &
Validate
Document
& Plan
Implement
Project management
• Objectives
• Constraints
• Scope
• Team
• Level of detail
• Project plan
• Business CSFs
• Operations
• Level of detail
• Data collection
• Baseline model
•Scenarios
•Alt. Locations
•Alt. DC network
•Alt. service levels
•Sensitivities
• Populate
• Run
• Analyze/Debug
• Robustness test
• Rank / Select
Impact analysis
• Organization
• Systems
• HR
• Risk
• Service
Change Mngt.
A phased approach with clear deliverables per phase

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Electrolux 2011
Position
Sales SEK 102 billion
Op income SEK 3.2 billion
Sales in more than 150 markets
A world leader in appliances
Products
More than 40 million products per year
To meet the real needs of consumers and professionals
40
MILLION
150
MARKETS
People
58,000 in 60 countries
60
COUNTRIES

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Electrolux business
A global company
Cookers, Ovens & Hobs
Refrigerators & Freezers
Dishwashers
Laundry products
Vacuum cleaners &
Small appliances
Air Conditioners &
Dehumidifiers
Products for professional use
Share of net sales as of 2011

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From a country based, uncoordinated spare parts service set up, via a centrally coordinated, regional spare parts set up towards a customer centric driven set up balancing cost and service
Sales co
Sales co
Sales co
Sales co
Factory
Supplier
Factory
Factory
Country based business
Local management
20 Warehouses
No unified IT system
European business unit for spares
Integrated Spares Business
6 warehouses
European IT system
Market
Market
Market
Market
6 ware- houses
Factory
Supplier
Factory
Factory
Sales co’s
European functional Aftermarket organization
Spares entities aligned with the rest of EMA-E organization
Each unit to focus and specialize (KPI’s, visibility…)
Purchasing
Purchasing
SCM / Op’s
SCMSpares Op’s
Sales
After Sales
1990’s
2000’s
2010’s
5Case: Electrolux spare parts Network design

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Jönköping
Newcastle
Madrid
Maniago
Rothenburg
Zurich
6 regional distribution centers keeping (almost) all spare codes
Prepacking at each DC
Total headcount > 350FTE
35.000 customer order lines daily
>300.000 active spare codes
160.000 spare codes in stock
100 new spare parts introduced every day
Less than 4% of spare codes represent > 75% of sales volume
>80% of spare codes represent less than 4% of sales volume
The current supply chain set-up provides high customer service in terms of product availability (>97% on order line level) and short order lead times
DELIVERY

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The key cost drivers are labour and real estate related; warehousing and pre packing represent >50% of the total supply chain cost

21. Overall objective Balancing customer fulfillment requirements versus supply chain costs
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Customer fulfillment
Availability
Order lead-times
Complexity to manage
Supporting future strategies
Flexibility
Supply chain costs
Transportation costs
•In-, whs-whs, outbound
Warehousing costs
•Labour, building, other
Prepacking
Inventory carrying
Other

22. Scenario’s*)
AS IS
6 RDC
Reduced
# RDC
Single DC
CDC + satellites
Supplier Direct
(Variant to all scenario’s)
Location options
As is
HCC & LCC
HCC
LCC
HCC or LCC
Satellites in relevant markets
Key network scenario’s under consideration
*) In each scenario different pre pack locations have been assessed
Supplier
Supplier
Supplier
Supplier
Supplier
Regional markets
Regional markets
All markets
All markets
All
markets
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23. Different cost per supply chain element per scenario result in overall supply chain cost (index) comparison
AS IS
6 RDC
Reduced
# RDC
3 RDC
Single DC
1 CDC
CDC + satelites
3-6 Sat’s
Supplier Direct
Warehousing
Prepacking
Inventory costing
Transport
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Weighed scores of Customer- and Internal Facing aspects result in comparison of scenarios on quality / service elements
Qualitative aspect
Weight
As ls
Single DC
RDC set up (less RDC)
CDC + Sat
Order Lead Time
x%
Immediate availability
x%
Ease of inventory management
x%
Ease of transport management
x%
Ease of Pre-Pack operations and management
x%
TOTAL Quality score
100%
Depending the relevance (weight) of each aspect
Low score
High score
Customer
facing
Internal
facing

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Weighted quality scores
2.5
4.5
3
4
3.5
Theoretic optimum
AS IS
The project specific cost – quality matrix to support strategic decisions for balancing cost and service / quality
High quality
Low Cost
High Cost
Low quality
More DCs (10)
CDC+SAT’s
Central DC
3 RDCs
CDC East Europe
Cost Index
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30%

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Pitfalls and success factors
Strategy
Clearly communicate the company strategy
Have an idea what you want but keep an open mind
Once high level results are available focus on a limited amount of plausible scenarios
Involvement
Make sure to have all key stake holders represented in the working team
Company wide involvement (M&S, product management, operations, logistics and supply chain, finance, …)
Top down commitment
Bottom up involvement
Data / Information
Define the right level of details of data
Reliable: Take the time to review it!

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Final conclusion
Road map coming 3 years
Implement the plan
Harvest the benefits
Next steps

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5 Key takeaways
Strategic network design adds value
There are various building blocks to optimize
Priorities alongside the axles of cost or service drive the preferred network solution
A structured approach, involving company wide stakeholders, is key to success

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Questions?
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Buck Consultants International in a nutshell
Areas of activity
Development of European Business Strategies
Global Supply Chain Optimization
Real estate strategy / location advice
From Strategy to realization
Profile
Established in Nijmegen, the Netherlands in 1985
Employs 65 full-time professionals
Performed studies in more than 50 countries in 5 continents
Milan
Madrid
Frankfurt
Paris
London
Brussels
The Hague
Nijmegen HQ
Chicago, IL
Office locations
Partners in
US :
Far East :
Russia :
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Buck Consultants International supply chain services offering
Supply Chain strategy
development
Supply chain optimization (network analyses)
Distribution centre and manufacturing facility operations audit and design
Location selection for DC or
manufacturing site
Logistics outsourcing (3PL selection processes)
Transport & carrier
optimization
Inventory analysis and
optimization
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Manufacturing /
Aftermarket Other references
Sample BCI references
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