EATON CORPORATION Askar AubakirovJialu HuangKenny ChongPranav Gupta

AGENDA Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans 4/17/14GSCMI 2014 CASE COMPETITION 2 Appendix Pranav Problem Statement Recommendations Alternatives Kenny & Askar Analysis Jialu Implementation Risk Evaluation Future Plans

PROBLEM STATEMENT Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans 4/17/14GSCMI 2014 CASE COMPETITION 3 Appendix How should Eaton Electrical Section choose to improve its supply chain network in the short- run?  Reduce premium freight frequency  Lower inventory level  Level the east and west coasts’ performance How can it ensure a sustainable growth in the long-run?  Promote Power Distribution Systems  Improve management efficiency Pranav

KEY CHALLENGES Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans 4/17/14GSCMI 2014 CASE COMPETITION 4 Appendix Frequent stockouts at W87 in recent years Orders from CMSC don’t necessarily get high priority One employee manages both CDC & DBN The current KB levels were determined six years ago Three-day rotation systems need to be updated The western site: a. higher inventory levels & transportation costs; b. rely more on premium freight Difficulty in meeting delivery demand from growing high- tech companies Difficulty in demand forecast for the new customers in the west coast sites Problems Long Lead Times Lack of Market Understan ding Ineffective Managerial process Inefficient Order Process Frequent stockouts at W87 ✔✔ Orders from CMSC don’t necessarily get high priority ✔✔✔ The western sites rely more on premium freight and have higher inventory levels ✔✔✔ Difficulty in meeting delivery demand from growing high-tech companies ✔✔✔ Outdated KB Systems ✔✔ CDC & DBN are undermanned ✔ Pranav

RECOMMENDATIONS 4/17/14GSCMI 2014 CASE COMPETITION 5 Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans Appendix Short-run Revise Kanban system Revise three-day rotation Build new major warehouse Understand customer needs Impact Reduce inventory level Improve logistic efficiency Multiple benefits Better demand forecast 1. Pareto your inventory 2. Reduce replenishment lead times 3. Revise order cycles/quantities 4. Improve your forecasting 5. Eliminate obsolete stock 6. Centralize your inventory 7. Lower your service level 8. Reduce SKU counts 9. Reduce variability of demand and supply 10. Align your metrics Long-run Increase management size at DBNs Training on Sales team Long-term contract with growing high-tech companies Impact Better management Promote Power Distribution Systems Improve demand forecast Central Distribution Center in Los Angeles, CA New Major Warehouse in Albuquerque, NM Update three-day rotation plan & KB Systems Pranav

ALTERNATIVES 4/17/14GSCMI 2014 CASE COMPETITION 6 Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans Appendix Pranav Plant Extension (New DBNs) Site-specific Not effective in reducing lead times Major New Plant High cost Not effective immediately CSMC Increase premium freight freq. Increase inventory level

CDC IN LOS ANGELES, CA 4/17/14GSCMI 2014 CASE COMPETITION 7 Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans Appendix Reasoning: W87 has only supplied $5.7mil worth of orders. W87 in Los Angeles experiences frequent stockouts. CDC in North Carolina supplied similar amount of orders as W87. Doubling inventory capacity in Los Angeles will decrease lead time, inventory level and premium frequency in CSMCs at the west Challenges: Urgent orders might not be fulfilled Askar

CDC SITE 4/17/14GSCMI 2014 CASE COMPETITION 8 Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans Appendix LA, CA Askar

NEW WAREHOUSE 4/17/14GSCMI 2014 CASE COMPETITION 9 Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans Appendix High orders and high inventory levels in Los Angeles, Dallas, Houston and Denver Currently 65% of all orders are from North and South Carolina regions Denver and Houston order 66% and 78% from North Carolina San Francisco orders 24% by premium shipping Challenges: Estimating an optimal location High cost of establishing new major warehouse Askar

NEW WAREHOUSE & THREE-DAY ROTATION 4/17/14GSCMI 2014 CASE COMPETITION 10 Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans Appendix W60 Albuquerque, New Mexico Kenny

NEW WAREHOUSE ALBUQUERQUE  Central location determined based on premium shipping cost and weight.  Located along major highway networks. (I-25 and I-40)  Annual savings of $5mil in terms of premium frequency reduced.  Investment of a $10mil warehouse would breakeven in 3.5 years.  Provides flexibility with order delivery. Three Day Rotation Plan - Three routes : A (Denver – Seattle - Portland), B (Phoenix - Los Angeles - San Francisco), C (Dallas – Houston) - Average travel time : ~ 19 hours - Urgent request to Portland and Seattle could be fulfilled by W87. 4/17/14GSCMI 2014 CASE COMPETITION 11 Kenny

ASSUMPTIONS  Warehouse saves 2/3 premium costs  Tax rate is at 10%  Standard shipping rate is 1/3 of premium shipping rate  Central coordinates of cities 4/17/14GSCMI 2014 CASE COMPETITION 12 Kenny

IMPLEMENTATION 4/17/14GSCMI 2014 CASE COMPETITION 13 Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans Appendix Short- run Mid- run Long- run Reduce Inventory Levels Revise KB systems Revise the three-day rotation New major plant in the west coast Lower Premium Freight Frequency Build new major warehouse …and upgrade managerial decisions New CMSC sites New CDC Jialu

4/17/14GSCMI 2014 CASE COMPETITION 14 RISK EVALUATION Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans Appendix Growing gas price High cost in insurance Natural disasters (earthquakes) Increase in base wage and taxes Changing in government regulations/policies Jialu

4/17/14GSCMI 2014 CASE COMPETITION 15 FUTURE PLANS Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans Appendix Jialu Improve managerial efficiency Improve market forecasting New major plant in the west coast More CMSC sites in middle to large cities (San Jose, San Diego, Austin)

4/17/14GSCMI 2014 CASE COMPETITION 16 EXECUTIVE SUMMARY Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans Appendix Eaton Electrical Sector Reduce lead times Review period Manufacturing time KB Systems Transportation time Three-day rotation Centralize inventory & Less premiumship frequency New major warehouse Improve forecasting Better Market analysis Extensive analysis Revise order cycles/quantiti es New CDC Jialu

THANK YOU! QUESTIONS? 4/17/14GSCMI 2014 CASE COMPETITION 17

APPENDIX 4/17/14GSCMI 2014 CASE COMPETITION 18 Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans Appendix

INVENTORY LEVEL 4/17/14GSCMI 2014 CASE COMPETITION 19 Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans Appendix

ORDER PROPORTION 4/17/14GSCMI 2014 CASE COMPETITION 20 Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans Appendix

WAREHOUSE LOCATION (WEIGHT) 4/17/14GSCMI 2014 CASE COMPETITION 21 Analysis Alternatives Problem Statement Problem Statement Reccom. Implementati on Implementati on Risks Future Plans Appendix X (N)Y (W)Site WeightX*WY*W DallasSAT DallasSVC DenverSAT DenverSVC HoustonSAT HoustonSVC Los AngelesSAT Los AngelesSVC PhoenixSAT PortlandSVC San FranciscoSAT SeattleSAT X Y

WAREHOUSE LOCATION (P.SHIPPING) 4/17/14GSCMI 2014 CASE COMPETITION 22 CMSC site Type TotalNWN*WW*W Dallas-SAT SAT 259, Dallas-SVC SVC 1,580, Denver-SAT SAT 562, Denver-SVC SVC 253, Houston-SAT SAT 370, Houston-SVC SVC 565, Los Angeles-SAT SAT 942, Los Angeles-SVC SVC 683, Phoenix-SAT SAT 267, Portland-SVC SVC 396, San francisco-SAT SAT 1,208, Seattle-SAT SAT 379, ,470, N 35.69W

SITE ANALYSIS - ALBUQUERQUE 4/17/14GSCMI 2014 CASE COMPETITION 23 RouteCityDistance (M)ETT (Hrs) B Dallas A Denver B Houston C Los Angeles C Phoenix A Portland C San Francisco A Seattle RouteTotal Premium CostDistanceETT A B C Average

ECONOMIC ANALYSIS OF NEW WAREHOUSE 4/17/14GSCMI 2014 CASE COMPETITION 24 Annual Operational Cost Annual Savings ($13,572,386.18) Rate10% Life time5 Future Value0 Estimated Cost # of Employees Electricity Insurance Maintenance MISC