June 19, 20091

TDK Lambda Reducing Logistics Costs

– Lessons LearnedINTERLOG 2009JUNE 17, 2009

June 19, 20092

Point of View is Worth 50 IQ Pts

A former Boss

June 19, 20093

I think there is a world market for maybe five computers."

-- Thomas Watson, chairman of IBM, 1943

There is no reason anyone would want a computer in their home."

-- Ken Olson, president, chairman and founder of Digital EquipmentCorp., 1977

“640K ought to be enough for anybody." -- Bill Gates, 1981

$100 million dollars is way too much to pay for Microsoft."

-- IBM, 1982

Famous Points of View

June 19, 20094

TDK-Lambda OverviewWhere we startedIterations in the process of cost reductionLessons learned Results and future directions

Agenda

June 19, 20095

TDK at a Glance

$8.1 billion annual revenue

60,000+ employees

Customers in 100+ countries

60+ year heritage of invention and innovation in Power

June 19, 20096

IlfracombeUK

Achern, GmbH

KarmielIsrael

San DiegoCA, USA

Neptune NJ, USA

NagaokaTsukubaTokyo, Japan

A global footprint to service the requirements of the worldwide market9 Mfg. Sites: 6 in Asia, 1 in Middle East, 1 in North America, 1 in Europe,9 R&D Centers: 4 in Asia, 1 in Middle East, 3 in North America, 1 in Europe,Sales & Service 9 in Asia (Outside Japan), 1 in Middle East, 2 in North America, 5 in Europe,

ManufacturingR&DSales / Service

TDK- Lambda Locations

HauppaugeNY, USA

Global TDK-Lambda Network

Paris, FRMilan, IT

Pathumthani, THKuantan, MYSenai, MYSingapore

Wuxi, CNShanghai, CN

RichardsonTX, USA

June 19, 20097

Baseline – Where we started

2500 SKU’s

35000 Kilos/month

Freight 7% of GOGS

Reactive All air no oceanShipment visibility after the fact 4 week frozen time fences at factory

Customers want shorter lead times more flexibility

Management wants lower cost

June 19, 20098

Original Logistics Environment

Asian Factories

Japan DC

TDK-Lambda USSan Diego

CustomersAmericas

June 19, 20099

Progressive Point of View

#1 First steps - “We need lower rates”This is someone else’s problem

We can negotiate this issue away

#2 Iteration - “Our Activity Drives our Cost”We are the enemy

We can control our fate

#3 Approaching best practice - “We need to manage our material flow”We have a great opportunity

Lower cost – better service

June 19, 200910

First steps

Select a partner/contract phaseAny of the top 10 suppliers could meet our needs

Financial StabilityCorrect assets in correct locationsMatch strengths and weaknesses

Met with all local repsGlobal service depends on local support

Meet with all providers – even excluded ones

Network with local logistics groups

Built relationships outside the local office

June 19, 200911

First Steps

Objectivity is criticalDid our own data analysis

1 year contract

Lanes – Consider your logistics modelWho is succeeding with similar customers?

Similar does not equal competitor

Can you “piggyback” on a larger customer’s lanes?

Explore scenarios using different lane strategies

Do a route analysis

June 19, 200912

What we missed

Insure cost model includes all fees and servicesSpend time on your SOPNegotiate 90 day “rate checkup” to insure performing as expected

Establish clear success criteria

June 19, 200913

First Iteration Logistics Flow

Asian Factories:JapanChinaSingaporeMalaysiaThailandVietnam

Deconsolidation:3PL Warehouse USA

CustomersAmericas

June 19, 200914

First Iteration

All logistics services consolidated in one providerDirect Ship from Factory

No Japan DC

Deconsolidation and Pick/Pack operation done in SD

Pro Lower rates – small improvement in lead time – reduced staff in TDK Warehouse - Improved visibility

ConMore shipments = Higher fees/lower weight

Multiple uncontrolled shipments from the factoriesMissed ocean opportunitiesMissed consolidation opportunities

June 19, 200915

Lessons Learned

Needed an Asian HubManage process before costs are incurred

We needed PO shipment data from factories in advanceWe needed to enforce a consolidation schedule from factoriesWe needed to schedule line by line each shipment to optimize cost and lead time

Factories ship early as often as lateMany shipments can be switched from Air to Ocean

June 19, 200916

Hong Kong Hub Operation

June 19, 200917

Third Party Hub Lessons

Invest in developing your SOPDevelop process locally before going overseas.

SOP & Internal processes must be adjusted for Time zones/language/culture

Refine measurements with real dataMore effective cost estimates

Understand your needs for reports and analytic toolsPrior to specing with partner

June 19, 200918

Current Logistics Flow

Asian Factories:JapanChinaSingaporeMalaysiaThailandVietnam

Pick & Pack / Consolidation:

Hong Kong

Deconsolidation:Torrance CA USA

CustomersAmericas

June 19, 200919

Final Result

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

Cos

t/Kilo

Aug

Sep OctNov

Dec Jan

Feb Mar AprMay

ServicesFuel SchgDutyFreight

New Contract

Start Hub Ops Start PO Mgmnt

“We need better rates”“Activity drives cost”

“Manage flow”

June 19, 200920

More Lessons Learned

Delivery at the origin is tough to controlWe cannot control customer schedules

Therefore…….Build new Supply/Demand Management tools

(MRP doesn’t work )

Use the real logistics cost to force behavior changeFactory consolidation

Package size discipline

Labeling and docs refinement

June 19, 200921

Still More Lessons Learned

Manage your logistics providerWatch for hidden costs

Conduct detailed billing review at least monthlyAsk your provider how to improve

Meet with other logistics providers It’s not disloyal, it is educationalAsk them how to improve

Make processes and tools portable

Cultivate relationships on the highest level possible

June 19, 200922

Future directions

Push operations upstreamChange pick and pack to cross dock

Supplier provided PO management pools Investigating real costs

Scale upInvolve other regional DC’sEurope – Asia

The journey continues…..

Company Confidential June 19, 200923

Thank you

Questions?