Value Added Documentation Mission Statement

Provide an understanding in the development, implementation and reporting of Graybar’s value added

program.

Value-Added DocumentationCourse Objectives and Benefits

• Understand the cost savings tools

• Utilize the tools to document our value add

• Differentiate Graybar from our competitors

• Enhance our position with our current clients

• Increase our success in closing new business

Value Added Documentation Course Outline

• What is Value Added?

• Identifying Value Added Services

• Determining Total Cost of Ownership

• Determining Impact to the Customer

• How to Report the Results

• Industry Samples and Case Studies

• Value Added Exercises

What is Value Added?

• Documenting improved profitability for the customer

• Customer joint activities with the manufacturer and the distributor

• Real value vs. the “lowest price.”

Identifying Value Added Services

• The Manufacturer’s role

• The Distributor’s role

• The Customer’s role

• Graybar’s Value Added Services

• Formal Cost Savings Program• Consistent Service Platform• Consistent Price Platform• Price Protection / Cost Avoidance• Leveraged Based Pricing• Formal Implementation Program• Product Standardization• Inventory Management• Customized Delivery Solutions• Electronic Business solutions• Training• 24/7 Emergency Service • Failure Analysis• Introduction of New Product

• Engineering Support

• Preventative Maintenance

• Kitting/Pre-Assembly

• Project Management

• Customized Reporting

• Technical Support

• Electricity / Power Usage Analysis

• Environmental Cost Reduction

• Safety Cost Reduction

• Reduced Insurance Costs

• Life-Cycle Cost Improvement

• Material Staging

• Process Analysis

Value Added Services

Total Cost of Ownership Categories

• Revenue Enhancement: The impact Graybar has on the customer’s revenue stream

• Asset Improvement: Graybar’s ability to reduce the customers’ possession costs.

• Process Improvement:Graybar’s ability to reduce the customers’ transactional costs.

• Expenditure Reduction: Reductions in customers’ expected annual purchase costs

• Special Services: The value of special technical expertise that Graybar provides

• Other Savings: Savings attributed to Graybar’s efforts that may not impact any of the above categories.

Cost Reduction Solutions

Special Services

Revenue Enhancement Asset

Improvement

ProcessImprovement

Expenditure Reduction Other

Services•Cost avoidance

•Leveraged purchasing

•Product standardization

•Elimination of duplicates and obsolete items

•Inventory management

•Surplus reduction

•Energy savings

•Faster part installation

•Efficiencies in output

•Inventory management

•E-Business solutions

•Reduced inspection costs•Life cycle costing

•Safety & environmental

•Power usage analysis

•Training

•Project management

•Technical support

Revenue Enhancement

• Faster part installation

• Energy Savings

• Failure Analysis

• Production Downtime Reduction

• Efficiencies in Output

• Introduction of New Product

• Reduced Turn-around Time

Asset Improvement

• Elimination of Duplicates & Obsolete items

• Consolidation of Critical items

• Carrying Cost– Insurance– Handling/Storage– Inventory taxes– Cost of Money

• Consignment• Elimination of Equipment

• Improved Equipment Efficiency

• Just-In-Time Delivery

• Product Standardization

• Reallocation of Building Space

• Reallocation of Land

• Surplus ReductionVendor-Managed Inventory

• Warehouse/Storeroom Management

Process Improvement

• Reduced Inspection Costs

• Improved Product Access

• Process Analysis

• Requisitioning

• Writing Purchase Orders

• Shrinkage/Obsolescence

• Check Processing

• Order Entry

• Material Receiving

• Electronic Business Solutions

• Internet Purchasing

• Inventory Management• Location Trailer• New Product Technology• Production Efficiencies• Reduced Maintenance/Repair• Savings from Bar Coding• Savings from Procurement Cards• Savings from Electronic Data

Interchange• Savings from Evaluated Receipt

Settlement• Savings from Electronic Funds Transfer• Summary Billing

Expenditure Reduction

• Product Standardization• Product Substitution • Alliances / Leveraged Purchasing• Freight Reduction • Integrated Purchasing • Reduced Lead-Time • Volume Based Pricing• Price Protection / Cost Avoidance• Tier Pricing

Special Services

• Training

• Engineering Support

• Kitting/Pre-Assembly

• Material Staging

• WHMS Management

• Predictive Maintenance

• On-Time Delivery

• Product Quality Evaluation

• Project Clean Up

• Project Management

• Reporting Information

• Supplier Coordination

• System Design

• Technical Support

• Warranty Work

• 24/7 Service

Other Savings

• Electricity / Power Usage Analysis

• Environmental Cost Reduction

• Legal Cost Reduction

• Life-Cycle Costing

• Like Product Exchange

• Safety Cost Reduction

• Cash Terms

Determining the Impact on the Customers Bottom Line

• Where does the data come from?– Internal Values– Industry Standards– Credible Estimates– Customers’ Numbers

Metrics Data Worksheet

Metrics Industry Estimates Customer Supplied

Hourly Down Time Cost customer determinedAverage Hour Labor Rate $45/hourPer Hour Kilowatt Charge 7.5 cents/hourAverage Carrying Cost 14%-33%Cost of Warehouse Space $3.50/sq ftCost of Production Space customer determinedCost of Manual Purchase Order $75-$100/orderCost of Electronic Purchase Order $5-$20/orderCost of Manual Invoice $25-$35/invoiceCost of Electronic Invoice $3-$5/invoiceCost of Manual Payment $10-$15/paymentCost of Electronic Payment $2-$3/paymentTraining Hour Cost $60/hourProject Surplus Percentage 25%Cost of Return 30%Average Recycling Costs 3%-6% of acquisition costSafety Cost Reduction Percentage customer determined

Carrying Cost

Equipment, Storage, Handling

Shrinkage, Spoilage, Obsolescence

Insurance

Property Tax

Cost Of Money

3-20%

3-6% 1% 3-6%

7-20%

Hard Cost

14-33%

How to Report The Results

• InfoSource/Corporate Accounts/Business Development/Cost Savings/

– Cost Savings Report

– Cost Savings Formulas

– Cost Savings Categories Definitions

– Metrics Data

Cost Savings Report- Expenditure Reduction Example

Customer Name:Contact Name/ TitleCustomer Site:Branch Location:Sales Rep:Date:

Expenditure Reduction Categories Savings Description Formula Used Total Savings Notes

Alliances / Leveraged PurchasingFreight ReductionIntegrated Purchasing Price Protection / Cost AvoidanceProduct Standardization

Product Substitution sustituted Allen Bradley

switch to SQD switch

(Cost of AB switch

$100 - Cost of SQD

switch $50 = $50) X

number of units

annually 30 =

$1500 $1,500

New SQD switch approved by plant engineer. Usage

information supplied by electrical superintendent.

Reduced Lead-time Tier PricingVolume Based PricingOtherTotal $ 1,500.00

Bette Seller

Expenditure ReductionABC Manufacturing

Ballwin, MOSt. Louis, MO

Cost Savings Report-Special Services Example

Customer Name:Contact Name/ TitleCustomer Site:Branch Location:Sales Rep:Date:

Special Services Categories Savings Description Formula Used Total Savings Notes

24/ 7 ServiceEngineering Support Kitting/ Pre-AssemblyMaterial StagingOn-Time DeliveryPreventive MaintenanceProduct Quality EvaluationProject Clean UpProject ManagementReports InformationSupplier CoordinationSystem DesignTechnical Support

TrainingCrouse Hinds speed seal

training

training hours 40 X

hourly rate $60 =

savings $2,400.00

20 plant employees attended a 2 hour session avg

training hour cost = $60.00 per training hour from

Metrics Cost Savings Table

Warranty WorkWarehouse Management SystemsOtherTotal $ 2,400.00

Sample Formulas/ Examples:

Bette Seller

Special ServicesABC Manufacturing

Ballwin, MOSt. Louis, MO

Cost Savings Report Example

Customer Name: ABC ManufacturingCustomer Site: Ballwin, MOContact Name/ TitleBranch Location: St. Louis, MOSales Rep: Bette SellerDate:

COST SAVINGS CATEGORY TOTALS

REVENUE ENHANCEMENT -$

ASSET IMPROVEMENT -$

PROCESS IMPROVEMENT -$

EXPENDITURE REDUCTION 1,500.00$

SPECIAL SERVICES 2,400.00$

OTHER CATAGORIES -$

TOTAL SAVINGS 3,900.00$

Total Savings

Case Studies and Industry Examples

Case StudyFortune 500 Company

Graybar Cost Savings for January thru June - 2006

COST SAVINGS CATEGORY Philadelphia St Louis Boise Chicago Atlanta Seattle Tucson TOTALS

REVENUE ENHANCEMENT

PROCESS IMPROVEMENT $10,800.00 $12,857.15 $23,657.15

EXPENDITURE REDUCTION $1,511.64 $25,233.14 $1,908.01 $25,622.49 $76,801.86 $4,808.70 $3,959.83 $139,845.67

ASSET IMPROVEMENT $20,746.00 $8,832.00 $12,710.00 $34,320.00 $76,608.00

SPECIAL SERVICES $700.00 $1,400.00 $1,400.00 $1,400.00 $4,900.00 $4,200.00 $14,000.00

OTHER SAVINGS $5,000.00 $5,000.00

TOTAL SAVINGS IMPACT $2,211.64 $58,179.14 $3,308.01 $40,854.49 $107,269.01 $43,328.70 $3,959.83 $259,110.82

$259,110.82 / $2,414,349.55= 10.7% SAVINGS FOR PERIOD

Cost Savings Score Cards

• Developed for those Cost Savings Areas most requested by our customers.

• Provides a “snapshot” view of potential savings for the customer.

• A training guide to assist the field in implementing customer cost savings.

• Provide them directly to the customer or as a way to collect savings quickly for future reporting.

• InfoSource/Corporate Accounts/Business Development/Cost Savings/Score Cards

Getting Started

It takes time to develop a cost savings program with a customer. To get started select 1 or 2 existing accounts with the following criteria:

• You have added value in recent past• You have a strong existing relationship• The customer wants to learn with you• Key Accounts with large dollar spend

Exercise

ABC Manufacturing has twelve different limit switches on their production line. Each limit switch needs to be replaced five times per year due to product failure. Joe Maintenance Manager asked Bette Seller, Graybar Sales Rep, for a solution. After further research Bette found a single universal limit switch that will replace all twelve individual limit switches and has a contact rating that will solve the failure problem.

 To document the value added savings use the following assumptions:

 1. The old OEM limit switches sell price = $160.00 each2. The new universal limit switch sell price = $25.00 each3. Replacement time for old switch = 1 hour4. Replacement time for new switch = 15 minutes5. Replacement labor rate per hour = ABC will accept industry standard6. Production down time due to switch failure = 6 production hours7. Production revenue lost per hour = $1000.008. Average inventory of old switch = 3 per old switch SKU (36)9. Average inventory of new universal switch = 310. Unless otherwise instructed all savings calculations are based on a twelve month

(annual) usage

Utilize the Cost Savings Reports, formulas, Cost Savings Metrics Table and the information above to document all possible categories for customer savings.

Exercise Action Items

• Complete the exercise within your group.• Use your imagination – there are no wrong

answers• Return the exercise to your Supervisor for

review.• A solution to the exercise will be provided

by Corporate Accounts upon request. (see contact information on the next slide)

Contacts

• Tom Fowler – Tom.Fowler@gbe.com phone 865-540-0844

• Gerry Kollar – Gerard.Kollar@gbe.com phone 314-573-5230

• Tom Rolland – Thomas.Rolland@gbe.com 314-573-5142