1. SSCS Prepared by :

2. EXECUTIVE SUMMARY ACME will see a significant reduction in inventory cost with newly implemented information technology systems. ACME will warehouse merchandise more efficiently through a variety of methods such as structuring regional distribution centers to handle both home electronics and apparel. ACME will have more control and visibility of their logistics processes. SSCS’s findings herein conclude that ACME needs to “adapt or die” to compete in today’s lean and agile distribution industry. ACME will need to implement modern information technology to manage inventory replenishment/distribution, efficiently utilize distribution centers, and manage all transportation processes.

3. Implement Lean Six Sigma DMAIC -Define Opportunities -Measure performance -Analyze the opportunity -Improve performance -Control performance

4. Benefits of Lean Six Sigma Basic Principles of Six Sigma are common sense: Lower supply chain costs Reducing inventory/waste Better quality service, higher customer satisfaction and continuous improvement (SIPOC) Push VS. Pull (COPIS) Logistics System COPIS (Customer, Outputs, Process, Input, Supplier) Push Pull

5. ACME Adopts 4PL Mindset

6. Partner Factories must have: Proper manufacturing and logistics infrastructures Participation in respective FTA’s National Security programs Requisite Licenses/Certifications for Import/Export participation Willingness to integrate with ACME’s WMS CartonLogic barcode recognition system. Manufacturer Requirements

7. Apparel: Why Korea? - NAFTA does not include garment importation - Korea has developed a reputation as top-quality manufacturing nation - Faster transit time to Long Beach than from China or SE Asia -Stable labor and wages -US Ally Republic of Korea- United States Free Trade Agreement (KORUS FTA) -Garments duties fall from 16% in other Asian nations to… 0% in South Korea!!!

8. BCO Advantage Develop relationships with multiple carriers Minimum Quantity Commitment= 50 TEUs per carrier Benefits: 1.Reduced All-In Rates 2.Waived PSS Surcharges 3.No General Rate Increases ACME's past Ocean FCL Rates: Ex Busan to LAX/LGB USD 2500/20', USD 3150/40', USD 3480/40'HQ ACME's BCO Ocean FCL All-In Rates: Ex Busan to LAX/LGB USD 1455/20', USD 1820/40', USD 1847/40'HQ

9. CURRENT (LCL): ACME currently ships 10,637 cartons per year Total LCL Ocean Freight costs = $127,657 Freight cost per carton = $12.00 PROPOSED (FCL): 20’ container rate for Busan to Los Angeles is $1455 All-In Capacity for 430 apparel cartons per 20’ container = 25 containers/yr Total FCL ocean freight costs = $36,375 Freight cost per carton = $3.30 Total Annual Savings = $91,282 Three Year Savings = $273,846 Apparel: Why Ship FCL?

10. Home Electronics: Why Mexico? –Faster transit times enable a Just-In-Time distribution system –Avoid union labor issues in ports –No Harbor Maintenance Fee –Shared time zones - NAFTA: Home Electronics are DUTY FREE compared to current 9.3% duties ALSO… -Languages with similar script and linguistic roots -Lower carbon foot print through near shoring -Factory visits much easier

11. Home Electronics International Transportation Process Electronics manufacturers conveniently located along California- Baja California border Electronics purchased FOB and trucked to USA when DC inventory levels necessitate a purchase order equivalent to the volume of a 53’ FTL Trucked FTL from Baja to Novell in Rancho Dominguez, CA LA market DC serviced directly from Baja California Crossdocked at Novell with other ACME imports, trucked FAK in 53’ FTLs to regional DCs Total transit times from manufacturer to market is 2 to 7 days (1 day to LA market) CURRENT: Ocean transit times from China to Long Beach (16-18 days) 40’ FCL rates = $2065-3190

12. Annual Transportation Cost Comparison APPAREL Current: LCL to Store Door = $127,657 per year vs. Proposed: Busan to Novell =$36,375 per year Novell to Door =$9348 per year Savings: $91,282.00/yr HOME ELECTRONICS Current: FCL to Novell or Baltimore = $ 13,146,259 per year vs. Proposed: Tijuana to Novell 1272 53' trailers at $535+FSC = $680,520 per year Novell to Door =$2,835,519 per year Savings: $9,630,220/yr

13. Yearly Transportation KPI Comparison Home Electronics CURRENT: Novell/Baltimore T/T: 34-46.5 days Vs. PROPOSED Tijuana to Novell T/T: 1-2 Days Novell to Door T/T: 3-7 Days Time Savings: +20 days Apparel CURRENT: Origin to Store T/T: 16-25 days Vs. PROPOSED Busan to Novell T/T: 8-9 days Novell to Door T/T: 3-7 days Time Savings: +16 days

14. HTS Classification Issues Current ClassificationCorrect Classification 42” LCD HDTV with 9.13% 8521.90.0000 42” LCD HDTV with 5.00% 8528.72.7250 With incorrect classification, ACME has paid $25,704,690 extra in duty for 42” LCD HDTV With incorrect classification, ACME has paid $1,644,310 extra in duty for women’s blouses. Current ClassificationCorrect Classification Women’s Blouses with 16%Women’s Blouses with 4.7% 6211.43.00006106.90.3000

15. SSCSwill file post-entry amendment for entries that have not been liquidated, and protests for entries that have been liquidated up to 180 days from the date of liquidation. SSCS can help ACME to recuperate $6,213,989 from the post entry amendment entries and protests for 42” LCD HDTV $119,782 can be reclaimed by ACME from the post entry amendment entries and protests for women’s blouses Due to the incompetency of ACME current Customs broker, SSCS has found a new customs brokerage house. WHL Customs Broker Services, INC. will lower the entry fee to $50 per entry thanks to a three (3) year contract for apparel commodities from Busan A three year contract will be signed with Agencia Aduanal Pérez Ortíz (with option for fourth year extension). They will be our Customs House for Home Electronics out of Mexico http://www.perezortiz.com.mx/ Customs Classifications Actions

16. CURRENT ENTRY FEES WITH PROJECTED 10% INCREASE in business (Apparel) CURRENTYEAR 1YEAR 2YEAR 3TOTAL ENTRY FEE$75 ENTRIES PER YEAR 128141155171 TOTAL COST$9600$10,575$11,625$12,825$35,025 NEW ENTRY FEES WITH PROJECTED 10% INCREASE in business CURRENTYEAR 1YEAR 2YEAR 3TOTAL COST ENTRY FEE$75$50 ENTRIES PER YEAR 128141155171 TOTAL COST$9600$7050$7750$8550$23,350 With the new customs brokerage, ACME will save a total of $11,675 in entries fees by the end of the 3 year plan

17. CURRENT ENTRY FEES WITH PROJECTED 10% INCREASE in business (Home Electronics) Year 1Year 2Year 3Total Entry Fees$200 Entries per year 106117129 Total Cost$21,200$23,400$25,800$70,400 Enroll in the Customs-Trade Partnership Against Terrorism program (C-TPAT). Use Automated Clearinghouse (ACH). RECOMMENDATIONS PERTAINING TO CUSTOMS

18. C-TPAT importers are 4 to 6 times less likely to incur a security or compliance examination

19. C-TPAT certification breaks down to three different levels:  Tier 1: Validation on paper  Tier 2: Certification through site audits of ACME supply chains  Tier 3: “Best Practices” mark on the security protocols. * The higher the tier, the less chance for examination. C-TPAT

21. EXAM FEE20’ Cont.40’ Cont. Clean Truck Fee$35$70 Full Devan$440$600 Cont. Pick up and Return$220 Facility Cost$370 Other Charges$120$170 Total Cost per Cont.$1,185$1430 Possible annual cost:$5925$7150 Estimated fees associate with exams Possible 3 years cost: $21,456

22.  Break down Initial Cost for C-TPAT: a)Coordination with Suppliers: $ 2400 b)Personnel Training: $ 1200 c)Physical Systems: $ 2400 d)IT: $ 520 Total: $ 6520  Annual Cost to be estimated at around $1700 thereafter. 3 years total cost: $ 9900 C-TPAT cost

23. A.Conduct comprehensive on-site Supply Chain Security Risk Assessments of ACME’s operations in all DCs B.Provide C-TPAT Security and Threat Awareness Training during the on-site Supply Chain Security Risk Assessment. C.Develop the Supply Chain Security Risk Assessment Report following the completion of the Supply Chain Security Risk Assessment. D.Develop the Supply Chain Security Profile E.Develop requisite policies, procedures and forms (C-TPAT policies & Procedures Manual). F.File all required reports and documents with U.S Customs. G.Facilitate certification of Clients as a U.S. Customs Broker. H.Prepare Client for the C-TPAT Validation (official U.S. Customs on-site audit). I.Participate in the C-TPAT Validation J.Manage post C-TPAT Validation work that needs to be completed following the C-TPAT Validation. SAVIOR’s CT-PAT Development Strategy for ACME

24. o ACH is an electronic payment method that customs uses to accept duties, taxes, and other fees. Benefits: a)Quick process for payments and refunds b)Accuracy, less paperwork c)15 extra days to pay duty: i.Less tied up capital in clearance process ii.More cash on hand Automated Clearing House

25. Reclaim: $ 6,333,771 from Post Entry Amendment and protests. Save: $ 11,675 for Broker Fees at the end of year 3 for Apparel. Save: $ 31,119,480 in duty for Home Electronics. Save: $ 627,888 in Merchandise Processing Fee and Harbor Maintenance Fee for Home Electronic commodities. Save: $ 11,556 in Exam fees (3 years) TOTAL SAVING: $ 38,104,370 Customs Summary  Number of exams a year  Saving of exam fees  Saving in Brokerage fees  Saving in duty fees  Saving in interest from ACH payment  Become C-TPAT tier 3 certified by the end of year 1 KPI PriorDuringDifference Year 1 Year 2 Year 3 TOTAL

26. Warehouse Management System (WMS)

27. What is CartonLogic? CartonLogic is Wolin Design Group's premier web browser based, on-demand warehouse and inventory management software It offers over-the-web access anytime, anywhere and at a low monthly price WDG offers 24/7/365 phone and email support, as well as option system administration and EDI management. Web-server based method for a 3PL's clients to access inventory and order information at the warehouse –Web Exchange Portal: The Exchange Portal software provides a secure way for Vendors to view their inventory, enter shipping orders and (with some configuration) enter pre-receiver orders.

28. CL gives management, the logistics department, and DC personnel global access to ACME’s inventory data and levels Ensures Inventory is Balanced and Optimized Enables ACME to make ordering decisions based on real time inventory figures Generates inventory and distribution reports and allows for integrated billing “Shopping Cart” Integration (For ACME’s future plan E-commerce aspirations) What will CartonLogic do for ACME?

29. ACME’s Current WMSCartonLogic WMS Server Hardware and Maintenance Cost Cloud-based server eliminates the costs associated with purchasing server hardware, network setup and technical staff overhead Outdated WMS based on 90’s Model No software to install. CartonLogic provide on-demand web browser based interface that is continuously updated to changing meet retail industry demands - Slow, Inefficient, with no transparency for Vendors and Customers Enables up-to-date informed inventory decisions - No EDI integration Increase efficiency, transparency and visibility to vendors and customers using CartonLogic's robust reporting New WMS Features

30. ACME’s Current WMS Estimated Cost ACME’s In-House WMS Estimated Cost 40 DCs / yr Hardware Servers$1,008,000 Maintenance and Support $288,000 User errors and productivity $3,204,000 Yearly Total$4,500,000 CartonLogic On-Demand WMS Estimated Cost CartonLogic On- Demand WMS Estimated Cost 40 DCs / yr Hardware Servers$0.00 CartonLogic Cost$65,720 RF wireless Scanners$392,000 Yearly Total$457,720 CurrentYear 2013Year 2014Year 2015Total Cost / yr$4,500,000$457,720$65,720 $589,160 Savings /yrN/A$3,034,280$1,937,500$852,500$5,824,280

32. System Features Extensive mobile computing and RF wireless barcode scanning Complex Billing Configuration System Available in multiple languages. Supports Multiple UOMs Supports full EDI Complex Pick ‘n Pack Configurable Triggers for Replenishment Accessorial Billing Web Portal Wave Picking QuickBooks Integration Custom Reports

33. CartonLogic Industry Breakdown

34. IT System Partnerships Microsoft Dynamics GP Motorola Mobile Computers Intuit Quickbooks PeachTree, MAS90/200 SMC AS/2 EDI Loftware Labeling SAP Oracle, PeopleSoft, JDE LXE Mobile Computers Intermec Mobile Computers Zebra Printers NiceWare Labeling

35. Distribution Center Strategy SSCS believes that ACME’s system of 40 DCs is (A)unnecessarily large and (B) not flexible enough to implement lean principles. These two problems represent loss in productivity and wasteful spending. In response, SSCS will seek to: (1) Reduce the total number DCs (2) Regionalize ACME’s distribution system (3) Introduce efficiency to warehouse operations

36. DC Reduction Current DC NetworkProposed DC System Apparel from Asia

37. DC Reduction: Year One ACME will introduce racking to 11 selected regional DCs Racking will be installed during the low inventory months of January, February, and March to minimize distribution ops. disruptions.

38. A 5-stack racking system will double DC holding capacity, allowing ACME to warehouse more than 32,000 full pallets of inventory per 282,000 sq. ft. DC and 28,750 pallets per 250,000 sq. ft. DC. Reduced lead times from manufacturer to market coupled with CartonLogic IT purchasing, receiving, and order fulfillment integration capabilities will reduce need to store large inventories Because boxes and cartons will be bar-coded and scanned into the inventory system in country of origin, DC personnel will know contents of FAK in-bound FTLs. Upon delivery to DCs personnel will be ready to crossdock cargo and send outgoing FAK FTLs to retail stores. Year One (2013): ACME needs to invest $6,600,000 for steel racking systems for 11 regional DCs and $1,200,000 for 60 forklifts. Total investment of $7,800,000. Racking System

39. By introducing a warehouse racking system, ACME will be able to utilize its DC footprint in a more logical and efficient manner. 282,000 sq. ft. DCs will utilize 257,000 sq. ft. DCs or warehousing space. Remaining square footage set aside for staging, loading, break rooms, offices, fire clearance, etc. 250,000 sq. ft. DCs will utilize 230,000 sq. ft. for warehousing space. 250,000 sq.ft. DCs that service small markets (>80 stores) will be maintained to allow for future regional expansion (NW-Spokane, Rocky Mountains-Denver, Florida-Clearwater) and emergency warehousing space in the event of unforeseen disasters. Racking’s Relation to DC Reduction

40. In January 2013, one year’s advance notice of termination of lease will be given for the following DCs: -5 DCs @ 282,000 sq. ft: Detroit, Charleston, Little Rock, Edison, Springfield -10 DCs @ 250,000 sq. ft: Miami, San Francisco, Savannah, Kansas City, Raleigh, Phoenix, Baton Rouge, Rockford, Albany, Montgomery Starting April 1, distribution activities at the phased-out DCs will begin to move to regional DCs. This gradual phasing- out will occur in equal increments over the course of 9 months. Complete closure of these 15 DCs will be complete by January 1, 2014. Year One DC Phase-Out Plan (2013)

41. 14 remaining non-essential DCs will be phased out in Year Two. Termination of lease will have been given at the end of June 2013. Thanks to existing racking infrastructure in regional DCs, movement of operations from this second group will begin during the slow months (January to March). Closure of these 14 DCs will be completed before peak summer inventory season starts in July Year Two DC Phase-Out Plan (2014)

42. ACME operates 10 DCs that contain 282,000 square feet of floor space and 30 DCs that contain 250,000 square feet of floor space. At cited market rates of $4.41 per square foot per year, ACME is spending $45,511,200 per year to lease 40 DCs. By reducing the total number of DCs to11 (5 at 282,000 square feet and 6 at 250,000 square feet) ACME will only spend $12,833,100 per year to lease its DC space. -2012 leasing costs = $45,511,200 -2013 total leasing costs = $45,511,200 -2014 total leasing costs = $20,550,600 -2014 vs. 2012 = $24,960,600 in savings -2015 total leasing costs = $12,833,100 -2015 vs. 2012 = $32,678,100 in savings Total 3 year lease savings = $57,638,700 Distribution Center Reduction and Lease Savings

43. 2013: $224,488,800 (40 DCs)- $3,426,260 (Current IT)+ $65,720 (Carton Logic) 2013: Operating Costs = $220,820,820 2013 vs. 2012 = $3,360,560 in savings 2014: $99,302,200- $2,181,500 + $65,720= $97,186,420 operating costs 2014 vs. 2012 = $127,302,380 in savings 2015: $29,686,250– $942,227 + $65,720 = $28,809,743 operating costs 2015 vs. 2012 = $195,679,057<---Per year savings from here on Total 3 year savings = $326,341,997 Savings on DC Operating Costs (Separate of Leasing Costs)

44. KEY PERFORMANCE INDICATORS We have four types of indicators: Quality Time Cost / Financial Productivity This guide is organized by supply chain/logistics functions and our strategies in: Sourcing Warehousing/Storage Inventory Management/ Logistics Management Information System/Customer Response Distribution / Transport

45. Quality Indicators Response Time Indicators Cost/Financial Indicators Productivity Indicators Sourcing Order Compliance On –Time Delivery Total Supply Cost Supplier Fill Rate Percentage of Orders with Products on Back Order Shipping Accuracy SOURCING

46. Inventory Accuracy Rate Warehouse Order Processing Time Total Warehousing Cost Storage Space Utilization Put-Away Accuracy Customs Clearance Cycle Value of Product Damaged in the Warehouse Units Moved Per person Hour Picking Accuracy Rate Put-Away Time % of Storage Space Dedicated for Handling Warehouse Accident Rate Defined Security Measures Quality Indicators Response Time Indicators Cost/Financial Indicators Productivity Indicators WAREHOUSING STORAGE

47. Stock out ratesOrder Entry Time Inventory Holding Cost Inventory Velocity Order Fill RatesOrder Lead Time Value of Unusable Stock % or Orders Placed Through Electronic Ordering System Inventory Accuracy Rate Stock Wastage due to Expiration or Damage Plan in Place for Predictable Change in Demand Order Entry Accuracy Invoice Accuracy Quality Indicators Response Time Indicators Cost/Financial Indicators Productivity Indicators INVENTORY MGMT.

48. Quality Indicators Response Time Indicators Cost/Financial Indicators Productivity Indicators On-Time arrivals Average Delivery Time Total Transportation Cost Vehicle Use Availability % of Shipments Where Quantity Dispatched Equals Quantity Received Average Vehicle Loading/Unloadi ng Time Average Transportation Cost per Mile/Volume/ Weight Container Capacity Utilization % of Shipments Arriving in Good Condition Vehicle Turnaround Time Ratio of Transportation Cost to Value of Product Average Number of Stops per Route DISTRIBUTION TRANSPORT

49. On- Time Delivery Definition This indicator measures the percentage of all orders delivered by the requested delivery date, as indicated in the PO/contract during a defined period of time. Formula number of orders delivered by requested date X 100 total number of orders delivered Purpose and Issues Logistics managers can use this indicator to monitor supplier response time on shipments over a specified period of time. Data Sources Procurement records Receipt records Customs records. Data Requirements Delivery dates as indicated in POs/contracts Number of orders delivered by requested date. Total number of orders delivered during specified time period. KPI SOURCING - TIME

50. Final Figures (By 2015)SSCS ProposalCurrent HE Transportation Costs$ 3,516,039$13,146,259 Apparel Transportation Costs$ 36,375$ 462,544 WMS IT Cost$ 65,720 CTPAT$ 3,300 Customs Cost HE$ 70,400$ 635,088 Customs Cost Apparel$ 23,350$ 58,347 Operating Cost (w/ DC Lease)$ 41,642,843$ 270,000,000

51. Consulting Fees Savior Supply Chain Solutions will charge a flat rate of $600,000 per year for the three year consultation. To ensure proper plan implementation and execution, SSCS proposes a 1% annual profit sharing package based on the total savings and profits ACME will gain due to SSCS’s consultancy.

52. Questions ? Thanks…!