Half Plenary A

Mike Kotecki Senior Vice President

Dematic

5 Questions You Need to Ask Yourself Before

You Approach the Supply Chain Drawing Board

5 Questions You Need to Ask Yourself Before You Approach the Supply Chain Drawing Board

Mike Kotecki

GIVE WAY

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Mike Kotecki 3

Mike Kotecki 4

Detailed Sustainable Collaborative Lean 6 Sigma Supply Chain Continuous Improvement Process Through the eyes of the Integrator…

Invoice them. Build them something.

They gotta do Something.

CONSTRAINTS • Interface SAP

• Install by June

• 30 mo. payback

OBJECTIVES • 20% less FTEs

• 16% CAGR

• +400 SKUs/Yr

Mike Kotecki 5

SKU PROLIFERATION MARKET SHARE BOSS SAID SO

TALENT SHORTAGE CUSTOMER DEMANDS

REGULATION GROWTH

BOREDOM CHANNEL SHIFT FREIGHT COSTS

NETWORK CHANGES

PALLETIZERS SHUTTLE SYSTEM

VISIBILITY ERGONOMICS

RFID PRINT & APPLY

WMS AUTOMATED STORAGE

PICK-TO-VOICE HIGH SPEED SORTATION LABOR MANAGEMENT

OUTSOURCING E-COM STRATEGY

SPLIT-CASE PICKING AGVS WCS

MOBILITY

ROI FUN TO WATCH

COMPETITIVENESS ORDER ACCURACY

FLEXIBILITY PERFECT ORDER SPEED TO SHELF

Detailed Sustainable Collaborative Lean 6 Sigma Supply Chain Continuous Improvement Process Through the eyes of the Owner…

Get results. Do something. We gotta do Something.

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A More Career-Friendly Approach

Through the eyes of the Owner…

Mike Kotecki

We gotta do Something.

Get results. Get OPTIMUM

results. Do the BEST

thing.

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Mike Kotecki

The Pitfalls We Are Trying to Avoid

These things sink companies…

• Logistic infrastructure not on pace with strategy & marketing

….and instantly developing an irreparable reputation

• Guessing wrongly what is important to your customer tomorrow ….and losing them

• Investing in solutions that quickly become irrelevant ….and you never get your return

• Over-developing your infrastructure ….that doesn’t bring value to your customers

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#1:

What defines

a good use of money

in your organization?

Mike Kotecki 9

Supply Chain Economics

Liability Management

Competing Uses for Cash

Pressure for Required Return

On Investment

Balance Sheet Management

Budget Variances

The Return on Those Other Uses

What’s important to your company?

Debt Service

Capital Outlay

Cash Reserves

Liquidity

Cash Flow

Long Term

Reward 10

Take Inventory of Your Financial Personality

Persona – Tactics Considerations

Mike Kotecki

• Is Cash King? Lease vs. buy Residual values questionable Phase projects Remobilization cost

• Minimize Liability Small low-hanging fruit first May not have the best ROI of all

• Keep Assets off the Balance Sheet Outsourcing/Leasing Shared returns

• Stay Cash Flow Positive Finance Project Cost of money Harvest high ROI projects first to fund others Capital consumption

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Take Inventory of Your Financial Personality

Persona – Tactics Considerations

Mike Kotecki

• We Hate Budget Variances Contract “not to exceed” Integrator won’t round down

Shared contingency model There may be found money at the end

• Show Me the ROI/IRR Model both the solution and the ROI vs. do-nothing Requires an investment and time

• Are There Better Places to Spend? Take inventory of your “mission” …but not to the extreme Model the ROI on your Value Chain Think long-term competitiveness

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Take Inventory of Your Financial Personality

Persona – Tactics Considerations

Mike Kotecki

• Is Cash King? Lease vs. buy Residual values questionable Phase projects Remobilization cost

• Minimize Liability Small low-hanging fruit first May not have the best ROI of all

• Keep Assets off the Balance Sheet Outsourcing/Leasing Shared returns

• Stay Cash Flow Positive Finance Project Cost of money Harvest high ROI projects first to fund others Capital consumption

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• Is Cash King? Lease vs. buy Residual values questionable Phase projects Remobilization cost

• Minimize Liability Small low-hanging fruit first May not have the best ROI of all

• Keep Assets off the Balance Sheet Outsourcing/Leasing Shared returns

• Stay Cash Flow Positive Finance Project Cost of money Harvest high ROI projects first to fund others Capital consumption

Take Inventory of Your Financial Personality

Persona – Tactics Considerations

Mike Kotecki 14

• Is Cash King? Lease vs. buy Residual values questionable Phase projects Remobilization cost

• Minimize Liability Small low-hanging fruit first May not have the best ROI of all

• Keep Assets off the Balance Sheet Outsourcing/Leasing Shared returns

• Stay Cash Flow Positive Finance Project Cost of money Harvest high ROI projects first to fund others Capital consumption

Take Inventory of Your Financial Personality

Persona – Tactics Considerations TMS

WMS

SLOW MOVING INVENTORY

MODULE

PUT-WALL ORDER CONSOLIDATION

• We Hate Budget Variances Contract “not to exceed” Integrator won’t round down

Shared contingency model There may be found money at the end

• Minimize Liability Small low-hanging fruit first May not have the best ROI of all

• Show Me the ROI/IRR Model both the solution and the ROI vs. do-nothing Requires an investment and time

• Are There Better Places to Spend? Take inventory of your “mission” …but not to the extreme Model the ROI on your Value Chain Think long-term competitiveness

Take Inventory of Your Financial Personality

Persona – Tactics Considerations

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• We Hate Budget Variances Contract “not to exceed” Integrator won’t round down

Shared contingency model There may be found money at the end

• Minimize Liability Small low-hanging fruit first May not have the best ROI of all

• Show Me the ROI/IRR Model both the solution and the ROI vs. do-nothing Requires an investment and time

• Are There Better Places to Spend? Take inventory of your “mission” …but not to the extreme Model the ROI on your Value Chain Think long-term competitiveness

$(45,000,000)

$(40,000,000)

$(35,000,000)

$(30,000,000)

$(25,000,000)

$(20,000,000)

$(15,000,000)

$(10,000,000)

$(5,000,000)

$-1 2 3 4 5 6 7 8 9 10

YEAR

CUMULATIVE CASH FLOW COMPARISON PER YEAR - WITH INFLATION

Automation

Alternative

1 2 3 4

RETURN ON INVESTMENT

Payback - With Inflation

Cost of Automation Investment (6,460,400)$ (159,000)$ -$ -$

Cumulative Cost of Automation (6,460,400)$ (6,619,400)$ (6,619,400)$ (6,619,400)$

Annual Savings 3,821,000$ 3,129,605$ 1,842,694$ 1,962,684$

Annual Total Cashflow (2,639,400)$ 2,970,605$ 1,842,694$ 1,962,684$

Cumulative Cashflow (2,639,400)$ 331,205$ 2,173,900$ 4,136,584$

ROI to Date Per Year -40.9% 5.0% 32.8% 62.5%

Net Present Value Per Year (NPV) ($2,490,000.00) $153,828.10 $1,700,989.90 $3,255,619.67

Internal Rate of Return (IRR)* #NUM! 12.5% 57.0% 76.1%

Month Project Pays Back 23

Take Inventory of Your Financial Personality

Persona – Tactics Considerations

www.dematicplanet.com (resources)

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• We Hate Budget Variances Contract “not to exceed” Integrator won’t round down

Shared contingency model There may be found money at the end

• Minimize Liability Small low-hanging fruit first May not have the best ROI of all

• Show Me the ROI/IRR Model both the solution and the ROI vs. do-nothing Requires an investment and time

• Are There Better Places to Spend? Take inventory of your “mission” …but not to the extreme Model the ROI on your Value Chain Think long-term competitiveness

Take Inventory of Your Financial Personality

Persona – Tactics Considerations

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Mike Kotecki

Take Inventory of Your Mission Where do you make your money?

- Do you buy well? - Do you make things? - Distribute stuff others make? - All the above?

How do you do what pays the bills? - Machines that make product? - Stores that invite customers? - Service that brings value?

Mike Kotecki

Take Inventory of Your Mission

“NOW, WHAT ELSE CAN WE DO GREAT”?

“WE DON’T MAKE MONEY IN THE WAREHOUSE”

OPTIMIZED MISSION

Mike Kotecki

The Inflection Curve Don’t Overdue that “Mission” crap…

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Mike Kotecki

• We Hate Budget Variances Contract “not to exceed” Integrator won’t round down

Shared contingency model There may be found money at the end

• Minimize Liability Small low-hanging fruit first May not have the best ROI of all

• Show Me the ROI/IRR Model both the solution and the ROI vs. do-nothing Requires an investment and time

• Are There Better Places to Spend? Take inventory of your “mission” Model the ROI on your Value Chain

Take Inventory of Your Financial Personality

Personal – Tactics Considerations

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1 1

1 1

1 1

1 1

Supply Chain

Supply Chain

Supply Chain

BUY INVENTORY MAKE WAREHOUSE DISTRIBUTE

+ $ -

1 1 1 1

1 1

1 1

1 1

1 1

O P E R A T I N G

C O S T

Mike Kotecki

Model Your Complete Value Chain

…and test for alternate investment scenarios

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#2:

What existing Cultures, Practices and

Technologies are you about to mess with?

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Grade Your (Supply Chain) Profile …where you are today

LOCAL CLOUD

BOTTOM LINE INCLUSIVE

ROI EARTH FIRST

AUTONOMOUS CLUSTERS

CENTRALIZED DISTRIBUTED

FAST FOLLOWER EARLY ADOPT

UTILITARIAN STRATEGIC

INTERNAL PARTNER

DATA ACCESSIBILITY COMFORT

SOCIAL CONSCIOUSNESS

SUSTAINABILITY FOCUS

COLLABORATION

NETWORK STRATEGY

TECHNOLOGY ADOPTION

TECHNOLOGY VIEW

INFRASTRUCTURE PLAN

CHICKEN RECKLESS RISK TOLERANCE

….and where you want to be

Mike Kotecki 25

GAP

Must Haves…

1. Cloud capable 2. Reduce Carbon 3. Outsource 4. Manageable Risk 5. ….. 6. …..

Grade Your (Supply Chain) Profile a) Define the gaps and create a Prioritized Objectives List

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b) Honestly plot your current company CULTURE vs. your List… ….and identify misalignment

?

EX: NEW GENERATION SHUTTLE SYSTEM

We can adjust our CULTURE ….and here’s how

Lets adjust the TARGET to stretch, but not conflict our culture

Show stopper…. let’s rethink our TARGET

Grade Your (Supply Chain) Profile

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#3:

How do your customers define

a great experience?

Mike Kotecki 28

What is a “Customer”?

MANUFACTURING PRODUCER DISTRIBUTION HUB (INTERNAL DELIVERY) (B2B) (IN-NETWORK)

RETAIL DISTRIBUTION RETAIL CONSUMER ECOMMERCE (INTERNAL REPLEN) (STORE READY) (DIRECT TO CONSUMER)

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How We Think About the Supply Chain

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How Customers Think About the Supply Chain

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Mike Kotecki

Empathy “…the action of understanding the experience of another…” M. Webster

• Supply Chain design elements that your customers care about (ex: ecommerce) – How fast can I get my order?

– Will separately ordered line items be shipped together?

– How late can I change or cancel a submitted order?

– Is the experience the same on line, in store, in catalog, etc.?

– How easy to return something?...bought through another channel?...who pays?

– What is the lowest cost shipping option?

– Will the item and quantity be right?

– Any product damage?

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Mike Kotecki

Empathetic Solutions

– How fast can I get my order?

• High speed order fulfillment automation

• Smart interleaving of picking, replenishment & receiving

• Goods-to-Person solutions for maximum speed to door

GOODS-TO-PERSON EACH PICKING HIGH SPEED AUTOMATED STORAGE

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WCS “PULL” ORDER MANAGEMENT X-BELT SORTATION TO ORDER

Empathetic Solutions

– How late can I change or cancel a submitted order?

• Buffer and sequencing engines for last-minute driving of rapid shipping

• High speed sortation systems for direct-to-truck delivery

• WCS capable of Postponement algorithms for JIT shipping

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Empathetic Solutions

– Is the experience the same on line, in store, in catalog, via resellers, etc.?

• Multi-channel distribution centers with serial-parallel flow

• Network-wide visibility for a virtual-enterprise warehouse

• Centralized high-density replenishment storage/retrieval

Mike Kotecki

HIGH DENSITY PALLET ASRS MULTI-CHANNEL DISTRIBUTION DESIGN

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AGV MOVEMENT VOICE DIRECTED ZONE SELECTION AUTOMATED REPLENISHMENT

Empathetic Solutions

– Will the item and quantity be right? - Any product damage?

• Voice and Light-directed each & case picking

• Automated replenishment of dynamic pick faces

• Precision AGV delivery vs. fork truck

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#4:

What will change in your Product and Mix that could bite you later?

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All You Need Is…

Mike Kotecki 38

AVG PEAK 1 STD DEV AVG PEAK 1 STD DEV AVG PEAK 1 STD DEV

InboundVolumeRateSequenceSKU flow

InventorySpaceTurnsFIFO rulesVolume/SKU

OrdersTimingVolumeLinesFIFO rulesOrder SequenceOrder Units

PalletsLayersCaseEach

OutboundContainers

PalletsTotesCasesFloorload

SequenceConsolidationAdded Value ProcessingTransport

TruckLTLParcel

TODAY 5 YEARS OUT 10 YEARS OUT

Typical Data…

Mike Kotecki 39

AVG PEAK 1 STD DEV AVG PEAK 1 STD DEV AVG PEAK 1 STD DEV

LaborSkills RequiredMulti-generational workforceAvailablityBenefits/Overhead/HealthcareUnionizationProductivity levels/standards

EnergySustainability InitiativesOperating vs. Peak levelsEquipment EfficiencyAlternative energy availability

TransportationNetwork architectureDriver availabilityRail/intermodal"Free Shipping"Packaging efficiencies (air)

Reverse Logistics% Returns (ala ecom)Cost of restock/reworkOutsourcing

Regulations (Govt/Cust/Self)Product levelSafety (customer/DC)Track & TraceValue added processes

ChannelRetail vs. EcomAffiliates/ResellersLiquidators

Business ImpactAcquisitions/DivestituresConsolidationsCentralized/Decentralized

TODAY 5 YEARS OUT 10 YEARS OUT

Often Missed…

Mike Kotecki 40

Trends to watch when forecasting

Mike Kotecki

Tech

Solutions

Companies

Supply Chain

World

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Trends to watch when forecasting

Mike Kotecki

Tech

Solutions

Companies

Supply Chain

World

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Trends to watch when forecasting

Mike Kotecki

Tech

Solutions

Companies

Supply Chain

World

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Trends to watch when forecasting

Mike Kotecki

Tech

Solutions

Companies

Supply Chain

World

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Trends to watch when forecasting

Mike Kotecki

Tech

Solutions

Companies

Supply Chain

World

45

Trends to watch when forecasting

Mike Kotecki

Tech

Solutions

Companies

Supply Chain

World

simple. 46

#5:

Do you have guts?

Mike Kotecki 47

Ad

op

tio

n R

ate

Time

skepticism

Market Advantage

Val

ue

/Ris

k

Time

Game Changer

A Step Ahead Utilitarian

Ex:

Technology Adoption Cycle

Mike Kotecki 48

…The Guts To…

–Challenge your company culture? –Make a mistake? – Ignore everyone? –Propose you put capital in something outside the legacy “mission”? –Not re-hire people that you laid off, but invest in the productivity of

those remaining? –Put 2 technologies together that have not been put together before? –Be the first in your industry to apply a technology that works in

another industry? –Buy serial number 00001 of something? –Operate version 1.0.0 software? –Do something just because it is good for the planet? –Do something just because it is good for the disabled workforce? –Do something?

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Mike Kotecki

So, before you do "something"…

– Look back and forward and define how the company views money in their value stream. Utility? Strategy? Safety?

– Map the spoken and unspoken culture of your organization and see how it matches your target profile. Where there are gaps, get agreement that crossing the chasm is an act of growth…or skip it.

– Think through the eyes of your internal or external customer, understand what makes them giddy. Then, with them, figure out what will make them giddy next year.

GIVE WAY

GIVE WAY

GIVE WAY

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Mike Kotecki

So, before you do "something"…

– Gather not just operational data, but take a highlighter to a copy of The Economist and Popular Science and ask yourself how those trends are going to change your company in the next cycle.

– Get Sr. Management involved early to hold your plans up against their short-term and long-term strategy….and remind them… “If you do what you did, you get what you got.”

GIVE WAY

GIVE WAY

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mike.kotecki@dematic.com 0011 + 1 + 262.860.6769

Mike Kotecki 52