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March 2009

Inventory Visibility -- A Provider’s Perspective

John Brockwell

Global Supply Chain Practice Lead

Trade Management Consulting

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Topics

Why is J.P.Morgan in this space?

The business problem we’re trying to solve

Industry Statistics Adoption Scope Ranges of savings

Why is this good business for a service provider?

What do we see happening in this area over the next couple of years

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Treasury and

Securities Services

Chase Middle Market

Asset-Based Lending

Commercial Real Estate

Equipment Leasing

Treasury Services

Global Trade Services

Worldwide Securities Services

Card Services

Credit Cards

Merchant Processing

Consumer Banking

Auto and Education Finance

Home Finance

Insurance

Small Business Banking

Credit and Rate Markets

Investment Banking (Mergers and Acquisitions)

Institutional Equities

Proprietary Positioning

Commercial Banking

Retail Financial Services

InvestmentBank

JPMorgan Private Bank

Private Client Services

BrownCo (online trading)

JPMorgan Fleming Asset Management

Asset and Wealth

Management

JPMorganChase Bank N.A. Corporate Structure

1J P M

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 N   

G L

 O B

 A L

   T R

 A D

 E   

S E

 R V

 I C E

 S

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REAL-TIME FINANCIAL & PHYSICAL SUPPLY CHAIN SERVICES FOR REAL-TIME FINANCIAL & PHYSICAL SUPPLY CHAIN SERVICES FOR THE WORLDTHE WORLD

Flexible Global Trade Management Offerings

• Customs, export, and supply chain management

• SCM Process design and optimization

• Trade compliance assessments, compliance improvement plans, implementations and audits

• Sourcing and Fulfillment landed cost analysis

TRADE MANAGEMENT CONSULTING

• Letters of Credit and Open Account initiation

• Electronic notification of Purchase Order requirements to suppliers

• Exception resolution

• Government Documentary compliance review

• Settlement

• Supply chain financing

TRADE FINANCE

• Trade documents

• Duty calculation and Customs clearance

• Regulatory screening and automated license decision

• Government reporting and agency/bureau interfaces

• Consistently updated with the most recent trade regulations

STATE-OF-THE-ART

TECHNOLOGY

• Outsourced import and export trade operations support

• Product classification

• Trade compliance resolution

• Special trade program management

• Brokerage and broker management

GLOBAL TRADE MANAGED SERVICES

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Import Processes

Classify HS #’s

Submit Pre-Entry

Generate Documents

Binding Rulings

File Duty Drawback

Minimize Duties

Perform Liquidation

Assist Tracking

Education & Training

Invoice Adjustments

Post Entry Info

Inbound Landed Cost

Export Processes

Classify ECCN #’s

Screen Orders

Determine Licensing

Apply for Licenses

Generate Documents

Submit SED

Track/Trace Shipment

Education & Training

Deemed Export Mgmt

Landed Cost Modeling

Trade Management Professionals

Forwarder Processes

Select Carriers

Book Carriers

Consolidate Freight

Track Shipments

Carrier Processes

Transport Goods

Track Shipments

On-time arrivals

Bulk Breaking

Broker Processes

Pre-Entry

Submit Entry

Clear Customs

Exporter/SellerExporter/Seller International International CarrierCarrier

Importer/BuyerImporter/BuyerForwarderForwarder BrokerBroker

Export ProcessesClassification

Jurisdiction Determination

EAR/ITAR

Screen Orders

Determine Licensing

Apply for Licenses

Generate Documents

Submit Export Dec

Education & Training

Deemed Export Mgmt

Landed Cost Calc.

Metrics

Import Data review - 10+2

Trade Logistics Mgt

Supply Chain Security and

Safety- CTPAT/AEO

Import ProcessesClassify HS #’s

Import Data Mgmt

Manage Doc Creation

Binding Rulings (BTI)

Manage FTAs

Manage Duty Recovery

Manage CoO

Declare Goods Value

Education & Training

Post Entry Processing

Supplier Management

Metrics

Trade Logistics Mgt

Supply Chain Security and

Safety – CTPAT/AEOSupporting

Technology

We’re integrating systems and platforms to leverage the financial and trade information from export to import and on to final delivery

Track Shipments Resolve Issues Manage Brokers

Government

Export Declaration Import Declaration

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Global trade management costs are small as a percentage of the value of the goods traded but the activity is critical

Trade Management Affects

•Revenue, Cost of Goods Sold, Inventory, Development Expense, Sales and General Administration

(SG&A), Days Purchases Outstanding, Days Sales Outstanding

• Operational staffing

• Supply Chain Flow - Defects in the Trade Management process can and do

stop the supply chain

Trade Management

Costs

•People

•Processes

•Technology

Typically for large companies < .1% of goods value traded

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Supply Chains have become more global, more extended, and riskier

Supplier

ComponentsManufacturing

Distribution

Customer

Consumers

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Future trends demand flexible “smart” global supply chains that support operations

Supply chain security programs

Failure to plan and develop secure supply chains will result in significant disruptions when supply chains are threatened

Environmental and Safety regulatory concerns

Failure to incorporate the regulations in supply chain processes can expose companies to disruptions, seizures, significant fines and inventory write-downs

New intense competition for demanding global customers

Highly efficient “Greenfield” competitors are entering the global markets

Customers in all global markets are demanding high product availability and reliability, creating intense competition and high risk of “diminished value”

Security, Environment and Customer Demands create significant risk to inventory value, we have a choice, to let it happen or manage it with flexible supply chains

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More hand-offs in the supply chain decreases reliability

Domestic factory to the store, 3 days at 95% reliability

1 day 2 days 18 days 1 day 3 days

International factory to the store, with 5 hand-offs and each leg 95% reliable for a total of 25 days. 0.95x0.95x0.95x0.95x0.95 = 77.4% reliability

Irregularities in goods flow like cargo cut-offs or customs delays can result in full days added to the supply chain, causing expedited

freight and increased inventory

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The purpose of the Value Chain is to deliver product at maximum profit to the market

Time

Raw Materials & Component

s

Inbound Logistics

Manufacturing

Outbound Logistics and Inventory Investment Risk

Selling Season Start

Selling Season End

Selling Season Expected Price

75% reduction in price

In Season Out of Season

Service Level Requirement

For On Time Delivery Late

Sh

ipm

en

t

Dim

inis

hed

Sale

s

Diminished Profit due to Higher

Product, Storage Cost, Inventory

Obsolescence and Write-downs

Product & Distribution

CostsForecasting

Diminished Price

Does not include lost revenue and profit from product service and follow-on sales

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If you think “Diminished Value” is an abstract term … …………………………………….think again!

Inventory write-off, lost sales, lost service contracts, lost tie in sales, disappointed customers, expensive restock

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Understanding the Risks

Sourcing and Fulfillment decisions are often based on assuming

an accurate Forecast and a Perfect Order

12© 2006 JPMorgan Chase and Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC.

The Perfect Order

•Order Fill Rate 100%

•On-Time Delivery 100%

•Discount or mark-downs 10%

•100% Quality (no rejects)

•Accurate Paperwork 100%

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Perfect Order meets the Real World

“91% of companies reported that unexpected supply chain costs were eroding their anticipated low-cost country savings”

-- New Strategies for Global Trade Management

Aberdeen Research

Top Reasons:

Transportation (due to variability)

Raw Materials

Supplier Charges

Taxes and Tariffs

Inventory

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Value of a Perfect Order

3% better = 1% additional Profit Margin

5% better = 2.5% increase in Return on Assets

10% better = $0.50 better Earnings Per Share

—AMR Research

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How are companies addressing the challenge?

Majority of logistics departments currently monitor carriers’ websites for tracking

Roughly one out of four companies utilizes an internally-developed tracking solution or maintains inventory visibility through their ERP solution

Most tracking is focused on in-transit events

Trend for increased monitoring of order acknowledgements and/or advanced shipping notices

54% of these firms are automatically monitoring order quantities, shipment dates and order commitments

Of companies that track 71% check shipment status at least once per day

-- A Study on Inventory Visibility

Logistics Management Magazine and Sterling Commerce, December 2008

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Why is this good business for a service provider to be in?

The inventory visibility space is being attacked from many different angles ERP providers Pure inventory visibility software as a service (SaaS) companies 4PL’s/3PL’s Global Trade Management companies Even Banks !!!

Why? Leverage existing data flowing through systems Extend reach – become more “sticky” with the customer Economies of scale

I/T infrastructure Software application logic Database formats Connections with carriers

Provide better service to the client

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What is the future of inventory visibility?

Increased integration with supplier and customer collaboration efforts

Demand forecasting Supplier inventories Key milestones in supplier’s supply chain for raw materials and

components Intra-company inventories Vendor managed inventory

Trend towards re-creating a vertically integrated “enterprise” through information vs. brick-and-mortar