write a business analytics report addressing the following questions. 1. What key factors should Summers consider when deciding about optimizing EVT's network of DCs? [10%] 2. What is the total annual inventory holding cost if: a. DCs remain decentralized? [20%] b. DCs are consolidated into a single centralized DC? [20%] 3. How many pallets are shipped as a truckload shipment (TL) or as a less-thantruckload shipment (LTL) if: a. DCs remain decentralized? [15%] b. DCs are consolidated into a single centralized DC? [15%] 4. What are the risks and merits of these strategies? [10%] 5. What are your recommendations? [10%] Report Format and Structure In the preface of the report, please write down the title and student id. The main body of the report must be no more than 3000 words in length and NO more than 10 pages (excluding the preface). The data and some tables can be put in the appendix. But you should keep the whole report as short as possible while providing rich insight. While addressing the questions, the report should contain managerial discussions, data analysis and modelling, and business insights. You should use single line spacing and a font size no less than 11. As this is such a short report you do not need to start different sections on separate pages and you do not need to include a table of contents or an executive summary. In all other respects the choice of format is yours. Submission Your report should be submitted to the course site as a single Word document. You can also upload your excel spreadsheet on which you conduct data analysis. A Case Study on Transportation and Consolidation Chris Summers knew he had an important set of recommendations to make regarding his company's strategic operations. Summers had been with Elevalt Ltd. (EVT)a leading oil field services (OFS) company based in Austin, Texasfor nearly five years. As VP of supply chain management, he often made decisions that had a material impact on the way the company conducted operations. But this was the first time EVT had ever considered consolidating its distribution centers (DCs) in Europe or Africa, which represented a new challenge and a new set of risks. The possibility of a new, centralized distribution center was a hot topic due to EVT's goal of reducing costs while still maintaining a high level of customer service. Summers's main concern was presenting a clear, well-reasoned analysis of what he saw as the best options going forward as well as his assessment of each of the possible solutions. It was important that Summers's recommendation to senior leadership was comprehensive because this issue had become a key priority for EVT, and the outcome would reflect heavily on Summers's capability as a manager. Oil Field Services EVT was a newer entrant in the mega-tier of global, integrated OFS providers; it had been in operation only 25 years, as opposed to the four to six decades that many larger players had been in business. Halliburton, Schlumberger, Weatherford, Technip, and Baker Hughes were among EVT's peers in terms of size, global reach, and expertise. As such, EVT had been aggressive in identifying and exploiting cost advantages early on, while still maintaining the high level of customer service demanded by the industry. Supporting larger OFS \"super major\" clients such as British Petroleum (BP), Chevron, ConocoPhillips, and ExxonMobil required a global network, top-quality products and services, and a comprehensive service offeringEVT's involvement spanned all the way from initial evaluation of the land and permitting process to well design, implementation, and production. OFS equipment was expensive, and EVT charged a proportionally high daily rate from its customers. It followed that there was a low tolerance for inoperable or unsafe equipment. EVT had worked hard to earn its place in the top tier and had done so by keeping a tight rein on expenses and quality control with a \"do whatever it takes\" attitude about meeting customers' many needs. EVT was truly a broad-spectrum integrated services company that offered five major categories of products and services: 1. Consulting: EVT provided impartial, third-party consulting support to assist customers in accurately estimating the potential value of oil and gas deposits and making sound business decisions. EVT also supported exploration efforts with top-quality technology. 2. Drilling: EVT provided engineers and operators to configure and operate OFS drilling using EVT's high quality, reliable drill bits, motors, and drilling fluids. 3. Integrated operations: EVT's engineers and OFS technicians worked with customers in a team throughout the life cycle of the well and product value stream, ensuring maximum return on investment and the highest possible quality. 4. Completion: Wellbores (oil or gas wells) were constructed using EVT's parts and equipment. 5. Production: EVT both designed and manufactured each component in its proprietary system for lifting oil and gas from the earth. EVT also supplied cutting-edge fluid additives. Oil and gas extraction The oil and gas extraction process began when one of EVT's customers obtained a permit from the relevant government agency to drill for oil or gas. Once the permit was obtained, EVT's OFS product and service offerings began with exploration. This involved conducting geological surveys using seismic (sound) waves, which were sent into the earth's crust to assess rock formations, water, oil, and natural gas beneath the surface. EVT provided impartial, third-party consulting services that supported its customers in conducting these geological assessments. If the customer concluded that oil or gas of high enough quality existed in sufficient quantities in a location that made extraction economically viable, then the project might move to the next step: drilling. Drilling involved setting up and using the drill bits. Drills bored holes into the ground at various angles in order to best accommodate underground formations, thus maximizing the production potential of the well. Holes were drilled at angles, depths, and circumferences specific to each location and situation, using data gathered during the exploration phase as guidance. After drilling, completion was the next step in creating a productive well. Completion consisted of casing the well (i.e., lining its sides with a rigid material such as concrete) and then building out the infrastructure required to bring oil or gas safely out of the ground. It also included setting up distribution systems (e.g., pipelines or tankers) to transfer the product to refineries. EVT provided significant support during the drilling and completion phases by ensuring that all of the necessary equipment was on-site and operational. EVT supplied consultants, operators, and engineers to run the equipment and supervise the project, all while striving to provide superior customer service. The last phase, production, involved actually extracting the oil or gas from the ground and transporting it to a refinery. The oil company refined the oil and gas into various petroleum- or natural-gas-based products and sold them either to other businesses or in a direct retail application (e.g., a gas station). EVT's Global Reach EVT was organized into seven operating regions: North America, South and Central America, Russia, Asia Pacific, Europe, Africa, and the Middle East. Europe, Africa, and the Middle Eastreferred to collectively as the EAME regionwere EVT's strongest in terms of having a critical mass of pipelines, markets, and customers sufficient to manage the risk. EVT started its operations in the United States in 1988; however, its global expansion happened fairly quickly following an aggressive globalization strategy. Because of the relatively advanced transportation infrastructure and pipeline network in the United States, once permitting had been completed, it was far easier to service oil fields there than in many other areas of the world. The Middle East and Africa, in particular, had rich oil deposits but were currently experiencing high levels of political instability, wars, and terrorism; they also did not have the roads, pipeline infrastructure, or work force that were more commonly available in the United States. Within the United States, smaller second- and third-tier OFS companies offered services that supported a single part of the life cycle of a well, such as exploration, which enabled EVT's customers to work \" la carte\" with a number of different OFS providers. In more remote regions, such as the Middle East and Africa, however, major customers depended on a single-source provider for integrated solutions throughout the life cycle of the well. Therefore, EVT determined fairly early on that it would do well to develop a competitive advantage in more difficult locations, competing on cost-effective, high-quality products and impeccable service. Thus, while EVT did provide OFS in the United States, its more lucrative business was scattered throughout the EAME region. By 2013, EVT had 57,000 employees and operations in 68 countries. EVT conducted a thorough analysis prior to entering a country as an integrated OFS provider. EVT engineers and analysts worked with international organizations to assess the potential quantity and quality of oil or gas in the country. This provided the basis of the risk assessmentthe size of the potential rewardthat was then discounted based on factors such as whether the country was near a trading center, what the tariffs might be, what tax incentives existed, how close the country was to EVT's other markets, and the quality and availability of the labor force. Summers knew from experience that while any of these considerations could make or break the profitability of a country, overestimating the quality of the labor force had historically been the primary reason why a foray into a new country might fail. Summers knew that inexpensive labor lost its cost-effectiveness if the task took four times as long to complete and required additional management oversight. Summers knew that in a business such as theirs, where customer service was such a critical factor, overestimating an operator, a technician, or an engineer's capability had significant implications. When the service to the customer was inadequate, the customer relationship suffered, and this ultimately resulted in a negative impact on the profitability of the business. A Dynamic Industry In the United States, the federal government had oversight over offshore permitting and federal land, and the states had jurisdiction over all nonfederal land. The speed at which permits were granted, the number of permits issued, and the amount of oversight required for the permitting process all had an effect on the profit potential of any given region. While policies and parameters regarding the permitting process tended to vary based on preferences of different presidential administrations, some industry observers touted the stability of the industry in the United States given that no single U.S. president had been able to substantively alter the industry within his term. This stood in stark contrast to other regions of the world where the effect of politics, policy, and the stability of a region in general posed significantly greater risks and could not be underestimated. In addition to the political landscape, EVT was also keenly aware of the changing social and environmental pressures placed on the oil and gas industry. Many oil companies were returning to onshore U.S. drilling as a preferred sourcing approach. Some cited the multitude of negative effects resulting from the BP oil spill in 2010 as well as the significantly greater risk and expense of drilling offshore as contributing factors to this trend. The renewed interest in onshore U.S. production was having a unique effect: environmentally conscious super-majors were demanding that all OFS suppliers meet new, strict safety and environmental criteria. EVT's Supply Chain The supply chain management (SCM) group at EVT was responsible for all procurement and materials management activities. Led by Summers, the group primarily maintained offices at the company headquarters in Austin but traveled often to interact directly with the DCs and the customer sites. The SCM team was also responsible for negotiating and maintaining contacts with third-party logistics (3PL) providers who supplied a wide array of transportation services to EVT such as delivering EVT's equipment to drilling sites and providing shipments from one of the EVT DCs to its customer's site. Coordinating the complex web of supply chain partners across so many countries was difficult, particularly since so much of EVT's territory covered remote locations with poor infrastructure and relatively unskilled labor. With supplier lead times for the parts and supplies that EVT sold ranging anywhere from a few days to several months, Summers's SCM group was constantly under scrutiny to manage the inventory held at their DCs, to control transportation costs, and, above all, to maintain high levels of customer service. In recent months, inventory holding costs and transportation costs associated with the DCs had been increasing, while at the same time making customers unhappy because their service levels were decreasing from the target of 98% that EVT had always held itself to. Summers was not sure of the root cause of these seemingly incompatible problems; after all, if inventory was going up, wouldn't customer service levels rise as well? After further examination, he and his team realized that the inventory within their network of DCs in the EAME region was more than sufficient. The problem was that they had too much of one item at one DC and not enough of it at another one; the DC with too little would request a transshipment from the one with too much in order to fulfill a customer order. This practice led to increasing transportation costs and decreasing customer service levels because the transshipment often meant EVT would miss the promised delivery date. When Summers and his team investigated the ordering process at each of the DCs, they found that there was no set system in place, except that every DC placed orders with suppliers on a periodic basis of every four weeks. Beyond that, however, the quantity that any one DC ordered for a given part appeared to be more dependent on who called the supplier than on how much inventory was on hand. Furthermore, since the DCs used transshipments as a regular means to adjust for the ad-hoc ordering policy, a DC that had sufficient inventory to satisfy forecasted demand could quickly lose that inventory as a result of a transshipment. Summers's team had surmised that the EAME region was the dominant contributor to the disparity between inventory, total supply chain cost, and customer service levels. (Exhibit 1 shows the DCs in the EAME region.) Summers's team had run a number of scenarios that focused on reconfiguring the EAME supply chain to increase customer service levels and decrease supply chain costs. The team decided to evaluate one part that was most representative of EVT's overall supply of partsspecifically, a diamond drillbased on the data that had been collected (Exhibits 2 and 3). The team could then extrapolate its analysis of this one part to estimate the impact on EVT's overall inventory. Once cost estimates for each of the scenarios were completed, the team would meet to discuss the risks and merits of each and offer recommendations for Summers to present to EVT's senior leadership team. Consolidating EVT's Distribution Centers Baseline: Current state Currently, there were six DCs operating in the EAME region (Exhibit 2). The current state captured all costs resulting from the lack of a systematic ordering policy and the high number of transshipments. The team was also able to determine that the diamond drill could reasonably be assumed to represent 2.6% of the EAME region's costs and would serve as a baseline for comparing the inventory, transportation, and labor cost savings of each of the subsequent options. Scenario 1: Optimized current state Inventory: Under this scenario, inventory costs were based on a periodic review system to achieve their target 98% customer service level. The team assumed that putting a systematic ordering process in place would ensure that each DC had sufficient inventory on hand and eliminate the need for transshipments. Inbound transportation: The inbound transportation cost would be linked to the periodic review inventory policy that would be put in place, which established a four-week interval between orders. The lead time between the suppliers and EVT was three weeks. In order to determine the transportation costs, the team needed to know the different costs of various types of carriers. Only one diamond drill could be shipped per pallet, and a full truckload (TL) consisted of 32 pallets. Following this logic, the team assumed that a TL carrier would be used for every 32 pallets ordered. Whenever the order contained fewer than 32 pallets, diamond drills would be transported via a less-than-a-truckload (LTL) carrier at far greater cost. To illustrate, if EVT placed an order for a quantity of 34 diamond drills, one TL carrier (carrying 32 pallets) and one LTL carrier (carrying 2 pallets) would be required. Similarly, if 22 pallets were ordered, a LTL carrier (carrying all 22 pallets) would be required. Outbound transportation: Once the proper inventory system was in place, the team assumed that the need for transshipments would be eliminated. With transshipments eliminated, the cost of outbound shipping could easily be based on 2011 demand and shipping by pulling out all transshipment costs. The team obtained this information, which is shown in Exhibit 4. Labor: The elimination of transshipments, along with the implementation of a systematic and streamlined inventory ordering policy, allowed for substantial overtime and temporary labor costs to be eliminated. This was reflected in the labor calculations shown in Exhibit 5. Scenario 2: Consolidate distribution to a centralized DC (in Germany or Sudan) Inventory: This scenario was built on the periodic review policy implemented in Scenario 1 but further consolidated the inventory into a single DC located in Germany or Sudan. Inbound transportation: Centralizing all items in a single location allowed the inbound transportation to be consolidated as well. The team hoped this would allow for a greater proportion of TL, as opposed to LTL, carriers on inbound shipments; however, in each of the potential locations, the average distance the carrier would travel would increase as shown in Exhibit 3. The team was hopeful that the increased distance would be offset by the increased utilization of TL carriers. Outbound transportation: Despite the consolidation of DCs, shipments to customers would still have to travel to their distinct regions because it was not possible to consolidate a customer shipment from Azerbaijan and Edinburgh into a single truckload. In fact, once the DCs were consolidated, many of the outbound shipments would now be more costly as a result of a longer average distance from the consolidated DC to the respective region. The percentage increase in transportation cost for outbound shipments to each region are shown in Exhibit 4. Labor: Under a centralized DC, EVT could expect to realize substantial savings on labor due to the consolidated operations. The extent of these savings was dependent on the labor rate of the respective location. Summers's team performed the analysis on the labor savings, which is shown in Exhibit 5. Exhibit 1 TRANSPORTATION AND CONSOLIDATION AT ELEVALT LTD. DCs in the EAME Region Exhibit 2 TRANSPORTATION AND CONSOLIDATION AT ELEVALT LTD. 2011 Weekly Demand for Diamond Drills Week Ending May 11, 2011 May 18, 2011 May 25, 2011 June 1, 2011 June 8, 2011 June 15, 2011 June 22, 2011 June 29, 2011 July 6, 2011 July 13, 2011 July 20, 2011 July 27, 2011 Augus t 3, 2011 Augus t 10, 2011 Augus t 17, 2011 Augus t 24, 2011 Augus t 31, 2011 September 7, 2011 September 14, 2011 September 21, 2011 September 28, 2011 October 5, 2011 October 12, 2011 October 19, 2011 October 26, 2011 November 2, 2011 November 9, 2011 November 16, 2011 November 23, 2011 November 30, 2011 December 7, 2011 December 14, 2011 December 21, 2011 December 28, 2011 January 4, 2012 January 11, 2012 January 18, 2012 January 25, 2012 February 1, 2012 February 8, 2012 February 15, 2012 February 22, 2012 February 29, 2012 March 7, 2012 March 14, 2012 March 21, 2012 March 28, 2012 April 4, 2012 April 11, 2012 April 18, 2012 April 25, 2012 May 2, 2012 Bremen (Germany) 56 132 143 169 110 196 173 137 87 40 195 168 233 105 130 85 143 177 149 132 212 63 82 143 131 99 134 99 169 184 110 141 118 109 139 81 105 199 160 198 218 120 248 71 70 207 182 210 131 125 31 191 Baku Dar Es Salaam Edinburgh (Azerbaijan) (Tanzania) (UK) 15 9 9 12 12 14 17 18 13 18 11 3 11 8 16 13 16 4 5 23 4 17 10 12 13 11 3 5 14 10 16 10 10 19 17 12 10 5 10 14 4 27 12 21 16 15 15 4 3 15 13 9 9 3 26 12 14 8 13 6 6 6 8 21 13 16 17 9 15 15 14 10 9 18 15 10 11 9 11 13 4 15 14 6 6 16 19 11 21 21 16 17 14 9 15 16 9 15 13 14 16 17 8 12 18 9 17 2 6 10 5 14 17 18 12 16 2 15 13 12 20 16 16 23 14 10 5 12 12 17 19 0 14 0 17 2 13 4 13 15 20 6 8 13 14 17 19 0 2 15 6 6 5 20 16 8 10 Data source for all exhibits, unless otherwise noted, is company documents. Os lo (Norway) 4 23 9 7 2 18 16 15 9 12 18 10 2 13 20 23 2 3 19 2 1 18 7 11 11 14 14 10 10 12 12 4 8 6 5 10 24 5 10 1 5 12 14 13 8 1 3 1 82 14 1 2 10 17 Port Sudan (Sudan) 14 11 15 17 6 9 14 1 27 14 22 23 16 10 20 9 3 16 9 19 10 17 14 9 15 12 15 12 6 9 4 6 12 6 0 17 10 19 16 20 20 1 20 7 7 11 16 13 19 13 9 3 Centralized (Cons olidate all DCs ) 107 204 215 225 153 256 235 192 150 95 271 249 276 173 219 151 179 217 229 180 243 148 144 202 199 155 191 156 226 258 173 191 175 168 182 136 160 272 216 259 295 180 311 127 116 250 258 258 214 191 81 245 Exhibit 3 TRANSPORTATION AND CONSOLIDATION AT ELEVALT LTD. Relevant Data for Estimating Inventory and Transportation Cost Savings Des cription % of Elevalt bus ines s repres ented by this diamond drill Elevalt holding cos t Target s ervice rate Unit cos t Lead time from s upplier to Elevalt Ordering cycle Items per pallet Pallets per truckload (TL) Diamond Drill 2.60% 18.00% 98.00% $16,000 3 weeks monthly (4 weeks ) 1 32 Current Network of DCs $20.00 $62.00 Inbound per-pallet cos t (s hipped as TL) Inbound per-pallet cos t (s hipped as LTL) Centralized in Germany $20.20 $62.70 Centralized in Sudan $20.60 $63.90 Exhibit 4 TRANSPORTATION AND CONSOLIDATION AT ELEVALT LTD. Relevant Data for Estimating Transportation Costs DC Bremen (Germany) % change in outbound trans portation cos ts if originating DC is Germany % change in outbound trans portation cos ts if originating DC is Sudan Baku (Azerbaijan) Dar Es Salaam (Tanzania) Edinburgh (UK) Os lo (Norway) Port Sudan (Sudan) 0.00% 4.50% 6.00% 0.75% 1.50% 3.00% 9.00% 3.00% 3.00% 9.00% 9.00% 0.00% Labor Cost Optimized current state assumes savings from a reduction in overtime and temporary labor required to handle the transshipments that characterized the current state. Cost savings in Germany relied upon the consolidation of redundant staffing once the consolidation was complete. Cost savings in Sudan assumed equivalent staffing levels as under the consolidation scenario in Germany. Please write a business analytics report addressing the following questions. 1. What key factors should Summers consider when deciding about optimizing EVT's network of DCs? [10%] 2. What is the total annual inventory holding cost if: a. DCs remain decentralized? [20%] b. DCs are consolidated into a single centralized DC? [20%] 3. How many pallets are shipped as a truckload shipment (TL) or as a less-thantruckload shipment (LTL) if: a. DCs remain decentralized? [15%] b. DCs are consolidated into a single centralized DC? [15%] 4. What are the risks and merits of these strategies? [10%] 5. What are your recommendations? [10%] Report Format and Structure In the preface of the report, please write down the title and student id. The main body of the report must be no more than 3000 words in length and NO more than 10 pages (excluding the preface). The data and some tables can be put in the appendix. But you should keep the whole report as short as possible while providing rich insight. While addressing the questions, the report should contain managerial discussions, data analysis and modelling, and business insights. You should use single line spacing and a font size no less than 11. As this is such a short report you do not need to start different sections on separate pages and you do not need to include a table of contents or an executive summary. In all other respects the choice of format is yours. Submission Your report should be submitted to the course site as a single Word document. You can also upload your excel spreadsheet on which you conduct data analysis. Instructions: - Using the the information from "Relevant Data for Inventory and Transportation Calculations" and the 2011 data (rows 3 through 75) fill in the orangeshaded cells in rows 77-88. - Once values have been entered into the orange shaded cells pertaining to the inventory data (rows 77-88), the subsequent table (rows 93-146) will then be populated with data according to your inventory values. - Next you will need to determine what orders will be placed. Do this by filling in the orange-shaded cells in rows 148-201. - Once the order quantity has been entered the number of truckload and less than truckload shipments will automatically be calculated. - Lastly, you will need to fill in the relevant cost information (rows 342-44, 357-59, and 362-64.) Relevant Data for Inventory and Transportation Calculations Description % of Elevalt business represented by this diamond drill Elevalt holding cost Target service rate Unit cost Lead time from supplier to Elevalt Ordering cycle Items per pallet Pallets per truckload (TL) Current Network of DCs $20.00 $62.00 Inbound per-pallet cost (shipped as TL) Inbound per-pallet cost (shipped as LTL) Week Ending May 11, 2011 May 18, 2011 May 25, 2011 June 1, 2011 June 8, 2011 June 15, 2011 June 22, 2011 June 29, 2011 July 6, 2011 July 13, 2011 July 20, 2011 July 27, 2011 August 3, 2011 August 10, 2011 August 17, 2011 August 24, 2011 August 31, 2011 September 7, 2011 September 14, 2011 September 21, 2011 September 28, 2011 October 5, 2011 October 12, 2011 October 19, 2011 October 26, 2011 November 2, 2011 November 9, 2011 November 16, 2011 November 23, 2011 November 30, 2011 December 7, 2011 December 14, 2011 December 21, 2011 December 28, 2011 January 4, 2012 January 11, 2012 January 18, 2012 January 25, 2012 February 1, 2012 February 8, 2012 February 15, 2012 February 22, 2012 February 29, 2012 March 7, 2012 March 14, 2012 March 21, 2012 March 28, 2012 April 4, 2012 April 11, 2012 April 18, 2012 April 25, 2012 May 2, 2012 Bremen (Germany) # ### ### ### ### ### ### ### # # ### ### ### ### ### # ### ### ### ### ### # # ### ### # ### # ### ### ### ### ### ### ### # ### ### ### ### ### ### ### # # ### ### ### ### ### # ### Target Inventory Level Average Demand Std Dev of Demand Diamond Drill 2.60% 18.00% 98.00% $16,000 3 weeks Monthly (4 weeks) 1 32 Centralized in Germany Centralized in Sudan $20.20 $20.60 $62.70 $63.90 Baku (Azerbaijan) 15 12 17 18 11 13 5 17 13 5 16 19 10 14 12 15 3 9 26 8 6 21 17 15 9 10 11 15 6 11 16 9 9 14 8 9 6 14 12 15 20 23 5 17 14 2 13 6 14 0 6 16 Dar Es Salaam (Tanzania) Edinburgh (UK) 9 12 18 11 8 16 23 10 11 14 10 17 5 4 21 15 15 9 12 13 6 13 9 14 18 11 13 14 16 21 17 15 15 16 12 17 10 17 16 13 16 14 12 19 0 13 15 8 17 26 5 8 9 14 13 3 16 4 4 12 3 10 10 12 10 27 16 4 13 3 14 6 8 16 15 10 15 9 4 6 19 21 14 16 13 17 18 2 5 18 2 12 16 10 12 0 17 4 20 13 19 15 20 10 Oslo (Norway) 4 23 9 7 2 18 16 15 9 12 18 10 2 13 20 23 2 3 19 2 1 18 7 11 11 14 14 10 10 12 12 4 8 6 5 10 24 5 10 1 5 12 14 13 8 13 12 8 14 12 10 17 Port Sudan (Sudan) 14 11 15 17 6 9 14 1 27 14 22 23 16 10 20 9 3 16 9 19 10 17 14 9 15 12 15 12 6 9 4 6 12 6 0 17 10 19 16 20 20 1 20 7 7 11 16 13 19 13 9 3 Centralized (Consolidate all DCs) 107 204 215 225 153 256 235 192 150 95 271 249 276 173 219 151 179 217 229 180 243 148 144 202 199 155 191 156 226 258 173 191 175 168 182 136 160 272 216 259 295 180 311 127 116 250 258 258 214 191 81 245 Q-avg Cycle Stock Cost Std Dev (P+L) Safety Stock Safety Stock Cost Total Holding Cost (for this item) Total Overall Holding Cost (scaled for all items) Action Place order Receive order Place order Receive order Place order Receive order Place order Receive order Place order Receive order Place order Receive order Place order Receive order Place order Receive order Place order Receive order Place order Receive order Place order Receive order Place order Receive order Place order Receive order Week Ending May 4, 2011 May 11, 2011 May 18, 2011 May 25, 2011 June 1, 2011 June 8, 2011 June 15, 2011 June 22, 2011 June 29, 2011 July 6, 2011 July 13, 2011 July 20, 2011 July 27, 2011 August 3, 2011 August 10, 2011 August 17, 2011 August 24, 2011 August 31, 2011 September 7, 2011 September 14, 2011 September 21, 2011 September 28, 2011 October 5, 2011 October 12, 2011 October 19, 2011 October 26, 2011 November 2, 2011 November 9, 2011 November 16, 2011 November 23, 2011 November 30, 2011 December 7, 2011 December 14, 2011 December 21, 2011 December 28, 2011 January 4, 2012 January 11, 2012 January 18, 2012 January 25, 2012 February 1, 2012 February 8, 2012 February 15, 2012 February 22, 2012 February 29, 2012 March 7, 2012 March 14, 2012 March 21, 2012 March 28, 2012 April 4, 2012 April 11, 2012 April 18, 2012 April 25, 2012 May 2, 2012 Week Ending May 4, 2011 May 11, 2011 May 18, 2011 May 25, 2011 June 1, 2011 June 8, 2011 June 15, 2011 June 22, 2011 June 29, 2011 July 6, 2011 July 13, 2011 July 20, 2011 July 27, 2011 August 3, 2011 August 10, 2011 August 17, 2011 August 24, 2011 August 31, 2011 September 7, 2011 September 14, 2011 September 21, 2011 Decentralized Centralized $0 $0 On-Hand Inventory ### ### ### ### 99 ### ## ## ## ## ## ## # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # Order Qty Placed On-Hand Inventory 74 62 45 27 16 3 -2 ### ### ### ### ### ### ### ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## ## On-Hand On-Hand On-Hand On-Hand Inventory Inventory Inventory Inventory 89 87 92 88 92 78 ## ## 78 66 ## ## 67 48 ## ## 52 37 ## ## 35 29 ## ## 29 13 ## ## 20 -10 ## ### 6 -20 ## ## 5 -31 ## # -22 -45 ### # -36 -55 ### # -58 -72 ## # -81 -77 ## # -97 -81 ## # ### -102 ## # ### -117 ## # ### -132 ## # ### -141 ## # ### -153 # ### ### -166 # ### ### -172 # ### ### -185 # ### ### -194 # ### ### -208 # ### ### -226 # ### ### -237 # ### ### -250 # ### ### -264 # ### ### -280 # ### ### -301 # ### ### -318 # ### ### -333 # ### ### -348 # ### ### -364 # ### ### -376 # ### ### -393 # ### ### -403 # ### ### -420 # ### ### -436 # ### ### -449 # ### ### -465 # ### ### -479 # ### ### -491 # ### ### -510 # ### ### -510 # ### ### -523 # ### ### -538 # ### ### -546 # ### ### -563 # ### ### -589 # ### ### -594 # ### ### -602 # ### ### Order Qty Placed Order Qty Placed Order Qty Placed Order Qty Placed Order Qty Placed On-Hand Inventory 902 795 591 376 150 -3 -259 -494 -687 -837 -932 -1203 -1452 -1728 -1901 -2120 -2270 -2450 -2667 -2896 -3077 -3319 -3468 -3612 -3814 -4013 -4168 -4359 -4514 -4740 -4998 -5171 -5361 -5536 -5704 -5886 -6023 -6183 -6455 -6671 -6930 -7225 -7405 -7716 -7843 -7959 -8210 -8468 -8726 -8940 -9130 -9212 -9457 Order Qty Placed September 28, 2011 October 5, 2011 October 12, 2011 October 19, 2011 October 26, 2011 November 2, 2011 November 9, 2011 November 16, 2011 November 23, 2011 November 30, 2011 December 7, 2011 December 14, 2011 December 21, 2011 December 28, 2011 January 4, 2012 January 11, 2012 January 18, 2012 January 25, 2012 February 1, 2012 February 8, 2012 February 15, 2012 February 22, 2012 February 29, 2012 March 7, 2012 March 14, 2012 March 21, 2012 March 28, 2012 April 4, 2012 April 11, 2012 April 18, 2012 April 25, 2012 May 2, 2012 Week Ending May 4, 2011 May 11, 2011 May 18, 2011 May 25, 2011 June 1, 2011 June 8, 2011 June 15, 2011 June 22, 2011 June 29, 2011 July 6, 2011 July 13, 2011 July 20, 2011 July 27, 2011 August 3, 2011 August 10, 2011 August 17, 2011 August 24, 2011 August 31, 2011 September 7, 2011 September 14, 2011 September 21, 2011 September 28, 2011 October 5, 2011 October 12, 2011 October 19, 2011 October 26, 2011 November 2, 2011 November 9, 2011 November 16, 2011 November 23, 2011 November 30, 2011 December 7, 2011 December 14, 2011 December 21, 2011 December 28, 2011 January 4, 2012 January 11, 2012 January 18, 2012 January 25, 2012 February 1, 2012 February 8, 2012 February 15, 2012 February 22, 2012 February 29, 2012 March 7, 2012 March 14, 2012 March 21, 2012 March 28, 2012 April 4, 2012 April 11, 2012 April 18, 2012 April 25, 2012 May 2, 2012 Annual # pallets carried inbound via TL carrier per DC Inbound Transportation Costs via # Pallets by # PalletsCarrier Full Truckload (TL) by # Pallets by TL # Pallets by TL # Pallets by TL TL TL # Pallets by TL # Pallets by TL 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 TL per DC TL for single item Annual # pallets carried inbound via TL carrier all DCs Annual cost of inbound TL carriers for all DCs Annual # pallets carried inbound via TL carrier if centralized of inbound Annual cost TL if centralized (Germany) Annual cost of inbound TL if centralized (Sudan) Annual cost of inbound TL carriers forinbound Annual cost of all DCs TL overall (scaled for TL if centralized all items) (Germany) of inbound Annual cost TL if centralized (Sudan) Week Ending May 4, 2011 May 11, 2011 May 18, 2011 May 25, 2011 June 1, 2011 June 8, 2011 June 15, 2011 June 22, 2011 June 29, 2011 July 6, 2011 July 13, 2011 July 20, 2011 July 27, 2011 August 3, 2011 August 10, 2011 August 17, 2011 August 24, 2011 August 31, 2011 September 7, 2011 September 14, 2011 September 21, 2011 September 28, 2011 October 5, 2011 October 12, 2011 October 19, 2011 October 26, 2011 November 2, 2011 November 9, 2011 November 16, 2011 November 23, 2011 November 30, 2011 December 7, 2011 December 14, 2011 December 21, 2011 December 28, 2011 January 4, 2012 January 11, 2012 January 18, 2012 January 25, 2012 February 1, 2012 February 8, 2012 February 15, 2012 February 22, 2012 February 29, 2012 March 7, 2012 March 14, 2012 March 21, 2012 March 28, 2012 April 4, 2012 April 11, 2012 April 18, 2012 April 25, 2012 May 2, 2012 $0 $0 $0 $0 $0 $0 0 $0 0 $0 $0 $0 $0 $0 # Pallets by Inbound Transportation Costs via Less than Truckload (LTL) Carrier # Pallets by # Pallets by # Pallets by LTL LTL # Pallets by LTL LTL LTL # Pallets by LTL # Pallets by LTL 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Annual # pallets carried inbound via LTL carrier per DC 0 0 0 0 0 0 Annual cost for inbound LTL per DC LTL for single item 0 $0 $0 $0 $0 $0 $0 Annual # pallets carried inbound via LTL carrier all DCs Annual cost of inbound LTL carriers for all DCs Annual # pallets carried inbound via LTL carrier if centralizedof inbound Annual cost LTL if centralized (Germany) of inbound Annual cost LTL if centralized (Sudan) 0 $0 0 $0 $0 Annual cost of inbound LTL carriersof inbound Annual cost for all DCs LTL overall (scaled for LTL if centralized all items) (Germany) of inbound Annual cost LTL if centralized (Sudan) Annual cost of inbound for all DCs of inbound Annual cost Inbound transportation if centralized (TL+LTL) scaled for all (Germany) items Annual cost of inbound if centralized (Sudan) $0 $0 $0 DC Bremen (Germany) Baku (Azerbaijan) Dar Es Salaam (Tanzania) Edinburgh (UK) Oslo (Norway) Port Sudan (Sudan) $13,103,437 $1,842,806 $2,006,025 $1,783,388 $1,700,862 $1,811,563 % change in outbound transportation costs if originating DC is Germany 0.00% 4.50% 6.00% 0.75% 1.50% 3.00% % change in outbound transportation costs if originating DC is Sudan 9.00% 3.00% 3.00% 9.00% 9.00% 0.00% $13,103,437 $1,925,732 $2,126,386 $1,796,763 $1,726,375 $1,865,910 $14,282,746 $1,898,090 $2,066,205 $1,943,893 $1,853,940 $1,811,563 Annual cost of outbound transportation with optimized current network of DCs (removing all transshipment costs) Outbound transportation costs from Germany Outbound transportation costs from Sudan Annual cost of outbound for all DCs Annual cost of Outbound outbound if centralized transportation (Germany) (TL+LTL) scaled for all Annual cost of outbound if centralized items (Sudan) Annual cost for all DCs Transportation overall Annual cost if centralized (Germany) Annual cost of if centralized (Sudan) Data source: Company documents. Scenario Name Current State Scenario 1 - Optimized Current State Scenario 2a - Germany Scenario 2b - Sudan Data source: Company documents. Holding Cost Reduction NA 100% 100% 100% Holding Cost $100,000,000 $0 $0 $0 Total Transportation Inventory Cost Transportation Transportation Cost Savings Cost Cost Reduction Savings NA ### NA NA $100,000,000 $0 100% $40,000,000 $100,000,000 $0 100% $40,000,000 $100,000,000 $0 100% $40,000,000 Labor Cost Labor Cost Labor Cost Reduction Savings $30,000,000 NA NA $29,100,000 ### $900,000 $27,000,000 ## $3,000,000 $22,500,000 ## $7,500,000 Total Savings NA $140,900,000 $143,000,000 $147,500,000