1. © Copyright 2008 United Parcel Service of America, Inc. All rights reserved. Goods, Funds, and Information: Supply Chain Tactics for 2010

2. 2 Supplier Manufacturer Distributor Retailer End User SupplierManufacturerDistributorRetail End User The Evolving Global Supply Chain

3. 3 Supplier Management Information Management Regulatory Compliance Post-Sales Support Customer Compliance International Trade Management Logistics and Distribution Multi-Modal Freight and Transportation Reverse Logistics Inventory Management Order Management The Evolving Global Supply Chain The extended global supply chain is the foundation for business competition in 2010, and it is comprised of numerous disparate elements

4. 4 Delays, errors and missed orders Higher costs Slow response to demand variability Poor customer service Inadequate supply chain visibility Higher inventory levels Inefficiency/process redundancy Increased capital investment The Importance of Supply Chain Integration Decentralized, disconnected supply chain management produces unintended consequences.

5. 5 Creating Business Advantage In good markets and bad supply chain leaders have been shown to outperform their average competitors by a factor of two to one. Total supply chain cost Percent of revenue The global supply chain directly impacts, on average, 75% of a business’ operating results. Corporations with best-in-class freight and logistics competencies benchmark operational costs that are less than half of those of their direct competitors. They also manifest market cap growth 7%-26% above industry average. This will be an increasingly critical market advantage to possess in 2010 and beyond. Sources: CFO research and benchmarking

6. 6 Published with permission from The Performance Measurement Group, LLC, subsidiary of management consultants PRTM. No use or reproduction without written permission Total Supply-Chain Management Cost The Advantage of Effective Supply Chain Management Corporations with integrated best-in-class supply chain management have a distinct advantage over competitors.

7. 7 The approach to achieve operational competitiveness Rationalize both agendas to create a balanced supply chain strategy Efficiency Pursue money-cost and time-cost improvement initiatives Effectiveness Enable service execution and growth: differentiate Through value-added execution Success Requires Efficiency and Effectiveness Many have focused solely on the cost side of the equation. It is equally important to build value through enhanced coverage and capabilities.

8. 8 Focus on Supply Chain Fundamentals in 2010 In this challenging market the global supply chain must be managed to increase coverage, manage costs, and provide business continuity. Contain Supply Chain Costs Intersect Market Opportunity Reduce Capital Needs Actively Manage Transportation Spend Streamline Supply Chain Processes Improve Net Trade Cycle Leverage Information Management Tools Optimize End-to-End Distribution Network Reduce Concentrations Of Static Inventory

9. 9 Cohesive, Sustainable Supply Chain Management Business advantage requires active holistic management of the interconnected flows of goods, funds, and information.

10. 10 Information Management Creates Business Advantage Both import and export operations require focused information management to create business advantage: Harmonized Code Management Denied Party Screening Export License Management Shipment Management Landed Cost Calculation Trade Documents And Forms Trade Forms and Documents Shipment Visibility Import Compliance Filings P.O. and Supplier Management Landed Cost Calculation Harmonized Code Management

11. 11 Compliance Management Creates Business Advantage Source: “Global Trade Compliance Priorities”, Aberdeen Group Compared to Industry Average, Best-in-Class companies experience fewer processing errors and border delays, lower compliance costs and improved productivity Best-in-Class had: 50% fewer orders executed with compliance errors 35% fewer import delays Nearly 60% fewer export delays Best-in-Class were: 4x more likely to have lower annual compliance costs per international shipment than the average company Nearly 2x more likely to see productivity improvement in compliance staff Compliance Errors and Border DelaysCosts and Productivity

12. 12 Physical Execution is Critically Important Effective supply chain management depends on understanding and addressing four key imperatives: Strategic Routing Mode Optimization Product Preparation Leveraging Provider Strengths

13. 13 Packaging – How much are you paying to ship wasted space? The consumer electronics industry has seen its products shrink, while its packaging has remained unchanged. Software packages, conversely, have decreased by over 40%. Consider alternate packaging strategies. Palletization – Shippers benefit from a well built pallet. A typical target weight for a pallet is approximately 2,000 kilos. After the first 2,000 kilos favorable economies of scale can be achieved. Shipment Consolidation – The cost advantage of effective ocean container load building has never been more pronounced. The cost differential for a 20’ vs 40’ container is narrowing. The cost advantage of an optimally laden container is substantial. Prepare Product Strategically

14. 14 Mode Optimization: Understanding the Options Different modes each deliver a different balance of Effectiveness (speed and precision) and Efficiency (shipment expense and per-carton cost) Effectiveness Efficiency 10x Cost 10x Time

15. 15 Time in Transit 3 5 6 7 16 26 28 40 Customer Ready Store Ready Pooler Ready DC Ready Shelf Life Margin Seasonal Geography Demand High Margin Merchandise Seasonal Merchandise High Velocity Merchandise Replenishment Merchandise Strategic Routing: One Size Does Not Fit All Market leaders realize competitive advantage through routing aligned to the specific needs of their products.

16. 16 Operational Scale Procurement research shows that doubling volume on a trade lane can decrease overall purchased transportation expense by 2% - 6%. The fastest route to achieving this scale advantage is to leverage the spend of top-tier supply chain integrator. This is particularly advantageous for smaller shippers which dramatically benefit from effective consolidation solutions, such as LCL ocean or LTL surface freight. Information Management 71% of corporations report that their primary global trade management system is ‘paper and spreadsheets’. Only 33% of average corporations currently utilize their logistics provider’s global information management systems… … versus nearly 60% of the corporations in the top five leadership positions for their industries. Leverage Service Provider Strengths Source: Monitor, and UPS primary research

17. 17 Integrated Supply Chain Example: Trade Direct A complete, integrated, multi-modal solution Freight and individual packages are picked up and consolidated Consolidated shipment crosses the border in a single customs clearance Freight moves via LTL Packages enter UPS package delivery network Package and LTL shipments are delivered direct to multiple retail stores and/or end customers PICKUP / CONSOLIDATE SHIPMENTS CLEAR CUSTOMS DECONSOLIDATE SHIPMENTS FINAL DELIVERY FULL VISIBILITY: End-to-end tracking provided throughout the supply chain.

18. 18 Integrated Supply Chain Example: TradeAbility

19. 19 Supplier Management Distribution Cargo Insurance Commercial Docs Export Formalities Consolidation Local Pick-Up Inland Transport Customs Clearance Deconsolidation Local Delivery Inland Transport Multi-Modal Transport Visibility Financial Solutions Visibility Effective Supply Chain Management in 2010 Business advantage is created through end-to-end management of goods, funds, and information. Compliance Solutions

20. 20 Active Supply Chain Management Creates Advantage Effective management of end-to-end freight and ancillary functions can reduce total distribution cost by up to 5%, with the same impact on profit in many segments as a 30% increase in sales. Retail Business Improvement Through End-to-End Supply Management Reduced Stock-Outs2%-8% improvement Lower Inventory Levels10%-40% improvement Increased Sales5%-20% improvement Manufacturing Business Improvement Through End-to-End Supply Mgmt Lower Inventory Levels10%-40% improvement Faster Replenishment Cycles12%-30% improvement Higher Sales2%-10% improvement Better Customer Service5%-10% improvement Sources: Benchmark analysis

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