Cases e-fulfillment ATCOSTPLUS CISCO Track One

Cases e-fulfillment • • ATCOSTPLUS CISCO Track One - Startle Amazon. com Lensonline. com Liquorconnet. com IBM Dell Buck Consultants International 0

ATCOSTPLUS • Winner of the “Nederlandse Logistiek Prijs 2000” • “ATCOSTPLUS reduced for her customers her own physical logistics activity without losing control over the Supply Chain. This unique combination is innovative and challenging. ” says Prof. Dr. H. B. Roos, chairman of the Jury Logistiekprijs 2000 Buck Consultants International 1

ATCOSTPLUS originated from former Back Office of IT reseller (CSS) • • • Complete custom built ICT-solutions 4 Business Units > 2000 employees, 23 branches (Benelux) Turnover > 300 mil. Eur. Net income ca. 9% • Customer demands: – – – • Supply Chain: fast, reliable & more efficient More stock availability More reliable information & reporting possibilities The challenges were: – – – High stock, high risk Reducing margins IT products Decreasing lifecycle IT products (6 months > 6 weeks) Databases in different formats Low efficiency of traditional IT Supply Chain Buck Consultants International 2

The create the leading B 2 B e-Marketplace in the EU by offering both buyers and sellers comprehensive sets of functionality (value added services) that they can use to optimise their value chain • business at your finger tips*) *) = When, what and how you want it Buck Consultants International 3

• Since 1 -1 -2000 • Carve-out from CSS, former Back-Office (technology / knowledge) • Owners: CSS (49%) & ING Bank (51%) • Based on ‘proven’ backoffice of CSS • Current turnover: 600 mio / years • Situated in Breda Buck Consultants International 4

Buyer E-Market Seller Computer Services Solutions telecom Buck Consultants International 5

• Increase availability for our customers • Improve customer service – Faster and better delivery time’s – Higher fulfilment ratio • Decrease available stock in the Supply Chain • Increase order flow information • More efficiency in the Supply Chain • Get ready for an E-Commerce backbone Buck Consultants International 6

Scope ATCOSTPLUS Manufacturer Factory Manufacturer DC Distributor Reseller Customer end-user contractor Outsourcing Logistics Buck Consultants International 7

• Supply Chain driven – – – • Reduction of stock and risk Reliable fulfilment / Increased availability Order information available for customer Customer driven – – Increased service levels Full digital order process, less handling Offering value adding services On-line Available-to-Promise, customers have access to many supplier-stock Detailed Costomer information available through the whole supply chain to deliver your customer what you promised! Buck Consultants International 8

Efficient Control ACP-back office Sales order One-step business Purchase order Multivendor Distributor Customer Control Delivery ACP-back office Buck Consultants International SLA’s 9

Control ACP-back office • • • Sales Matching of databases in the Supply Chain Stock of suppliers real time available Fast, electronic communication Sales order Synchronised master data Virtual warehouse Purchase order Electronic order flow Distributor Customer Control Delivery ACP-back office Buck Consultants International SLA’s 10

• System Landscape • SAP APO • Business Connector • Synchronised data • Order flow / one-step business Buck Consultants International 11

Business Connector XML AP O CI F XML/ FTP EDI/ FTP Buck Consultants International 12

Available To Promise B Supply Production Detailed Network Planning Scheduling Planning ve Cach e APO Solvers Enabling ng, Connectivity OLTP R/3 Buck Consultants International R/3 Legacy OLTP Non/R3 OLTP 13

@ ATCOSTPLUS The internet channel R/3 System SAP BC XML Web browser HTML R/3 System Internet/HTTP XML Interface Non SAP Systems Buck Consultants International XML HTML/ XML Web Content Server Web Applications 14

• Master data F 1 – Daily update (21. 000 / day) • • Product information Price information – Ca. 20. 000 products per vendor – Mapping functionality • D 1 IM Number distribution Vendor part number ACP F 1 O 1/2/3 D 2 C 2 F 1 C 1 D 3 Q 4 Number ACP Stock updates Number ACP C 1 APO Buck Consultants International 15

End-user 5 a. Shipment 1. 6 b. Billing 5 a. Billing Supplier 3 Supplier 2 5 b. Shipping notification & Serial numbers 4. Credit limit Purchase order Confirm. Credit insurance 2 b. 2 a. ATP request Supplier 1 Order Confirmation APO Business connector Sales order 3. DC Availability Supplier 1 Update ATP Availability Supplier 2 Availability Supplier 3 Update ATP APO: Advanced Planning & Optimiser ATP: Available to Promise Buck Consultants International 16

• Fully digital integrated Supply Chain (efficiency) • Virtual warehousing (real time) • 200 mio stock available • Multi vendor, multi channel, multi brand • Following existing or creating new standards Buck Consultants International 17

Cisco’s business strategy Product leadership Customer Focus Buck Consultants International “Cisco’s number one priority is our customers. Our customer support organization offers comprehensive solutions designed to help oour customer to be successful in today’s internet economy. Our goal is to create the most innovative, Internet-based, customer support organization in the world. ” Ecosystem Partners John Chambers President and CEO Cisco Systems Inc. 18

Cisco. com (September 2001) • 800 K registered users • 4 Million monthly visits • 123 million page views Features Cisco e-commerce model: • On line ordering • Product configuration • Validity checks • Order status • Updates • Technical documentation Buck Consultants International 19

Cisco’s ‘virtual demand chain’ model Internet Based architecture Demand & supply planning Sourcing & supplier management Manufacturin g& Operations Transportatio n& Distribution Customer Service & Order management suppliers customers Plan Buy Make To ship any product from any location to any customer transparently supported by using the internet Buck Consultants International Move Sell “ 50% of customer orders are shipped without a Cisco touch” 20

Influencers to Ecosystem Strategy th & Network is strategic w y lit i ab al sc re a ha orm S f in ro G on ti pr ten oc d es se Ex n so s cu th Fo reng st Buck Consultants International Customer driven s Cisco Ecosystem model 21

Cisco internet commerce usage history 93% 100% 90% 80% % of orders 70% 60% 50% 40% 30% 20% 10% 0% 1996 Buck Consultants International 1997 1998 1999 2000 2001 2002 22

Ecosystems architecture Fabric of relationships TPI locations Seamless connectivity Operations TPM Locations Common integration layer Re-sellers Suppliers Customers Technology Infrastructure Buck Consultants International 23

Supply chain applications -> visibility Order monitor Inventory monitor World wide web Customer order MRP II Raw mat TMS Comp onents Buck Consultants International Transport Legacy Contract manufacturer WMS ERP Transport Ass’y Transport 3 PL PC Enduser 24

Logistics solution Business layer Cisco Logistics Orchestrator UPS Logistics Group Resources Danzas Buck Consultants International DFDS TNT Expeditors 25

Summary and review - Cisco’s success factors • It’s about culture • There is no single answer • Must be open to collaborate • Using the internet as enabler • Strategic decision for the long term Buck Consultants International 26

Track One Background Telstar Records Recording Label Wholesale Business Web Design Company Digital Jukeboxes Startle plc IPO Tibbett & Britten Group • • • Track One Logistics Startle plc was spun out of Telstar Records in 1999 with plan to IPO. Traditional wholesale business with $100 million revenue, serving retailers for 20+ years. Formed Track One (50/50 jv) with Tibbett & Britten Group in Fall 1999 to provide fulfilment Startle raised $40 m of venture capital December 1999 to fund e-fulfilment and digital download. Startle folded May 1, 2001. TBG purchased 100% of Track One in summer 2001 Buck Consultants International 27

UK Music Distribution Model Background : UK Music Market • 200 m albums • 90 m singles • 5 record companies >80% of sales • top 100 SKUs account for > 30% of sales • 24% of albums sold in December • Startle raised $40 m of venture capital December 1999 to fund e-fulfilment and digital download. • Startle folded May 1, 2001. • TBG purchased 100% of Track One in summer 2001 Buck Consultants International 28

Startle’s e-com Strategy • Establish JV with leading 3 PL to create a large scale and credible e-fulfilment operation • Invest in a web based database of artists and titles, generating orders for product to be serviced by the wholesale company • Create a searchable database of music for use by media companies • Develop infrastructure to support a network of digital jukeboxes Buck Consultants International 29

Startle’s Virtual Music Model Payment Retailers Accounts Department Invoice for product supplied to consumer Payment remitted Retailers Bank Facility Customers Payment Startle Wholesale Company 3. Order for product Startle Product Database Music Store Front 2. Browse, select, pay Paper flow Product flow Retailers Web site 1 Access Funds flow 4 Order fulfilled, product shipped with retailers branded paperwork Consumer Buck Consultants International 30

Key Business Issues • • Consumer continues to shop stores for current titles Some customers have own inventory of faster movers (Virgin, Amazon) Track One therefore increasingly used for infrequent titles from database Pricing – – – Startle adds no premium for e-fulfillment to wholesale discount model Single picks of SKUs, whether in stock or not, delivered direct to consumer, charged at same discount as full pallets of best sellers Track One is on cost plus pricing Buck Consultants International 31

Old marketing saying “Hey, the margin on this deal is terrible, so we’d better make it up on the volume” Buck Consultants International 32

What went wrong? • Some elements of general malaise of e-commerce in 99/00 – – • Fundamental flaw in commercial model – – – • Many companies focused on IPO Many companies focused on front end More haste, less focus, less speed Neither partner in Track One asked all the necessary questions “Build it and they will come” Track One serviced primarily “exceptions” No price premium for service, handling, delivery Operational issues – – Handling product from 550 vendors: inbound ordering/ receipt/ payment process not integrated and highly variable Poor integration of order/ payment system with WMS. No priority given to create batch order system. Buck Consultants International 33

Amazon. com • • Sales up to 1, 7 billion Euro (losses of 720 million Euro) Surpassing 20 million customers in 150 countries Bookseller with a flourishing sideline in CDs, DVDs and videos Specializing in deep discounting - the top 40 best selling books at half-price, with hundreds of thousands of others available at discounts up to 40 per cent 6 DCs in the US 2 in Europe (UK: Milton Keynes; Germany: Regensburg) Margin low: volume necessary to amortize the fixed costs of DCs and headquarters: E-commerce is a scale business, with costs tat are largely fixed. The solution: create mass and volume “ 4 years ago, we were US only and books only. We were not selling music, videos or the other product categories we now sell. Nowadays half of our revenue comes from these categories and business. And with every additional dollar, the fixed costs of the distribution centers and headquarters systems are amortized that little bit further. “ John Bezos - founder and CEO of Amazon Buck Consultants International 34

Research showed that Amazon. co. uk and Amazon. de are the most visited ecommerce site in their respective countries. “In our first year, we did not do a dollar of paid advertising, and we still grew incredibly rapidly”, Bezos says Amazon patented the ‘one click’ approach to online shopping E-Christmas disaster avoided 99% of orders were dispatched by 24 th December Buck Consultants International 35

European DC’s in Milton Keynes and Regensburg (for own account) Forecasting Inventory Management Financial /MIS Warehouse management system Order management systems webfront National postal systems customers amazon. com amazon. co. uk amazon. de Buck Consultants International 36

• Imperative behind Amazon’s selling proposition: – – • end-to-end, order-to-delivery customer experience in other words: the quality of the buying experience from fist logging on the placing an order to finally receiving the order in your hands The end-to-end customer experience is even more important online than it is in the physical world: – “Every internet customer has a big megaphone, and if we make a customer unhappy, they don’t tell five friends, they tell 5, 000. And the reverse is true: you create evangelists. If you do a great job for your customers, then they tell 5, 000 friends in newsgroups, listservers, chat areas, etcetera - so that on-line, your marketing dollars are best spent building great customer experiences. ” Place a call to Amazon, or send an e-mail and your query is dealt with 24 hours a day, 7 days a week (Bill Price, head of customer service). Buck Consultants International 37

• Availability is key: – – • One of the things that differentiates us from other retailers is the way we hold inventory as a network – – – • 1. 2 million books in the UK 900, 000 books in Germany inventory deployment is key splitting shipments in case of non availability/non compliance customer doesn’t pay in case this happens Our vision is that if we have 20 million customers then we should have 20 million stores” - Jef Bezos, Founder of Amazon: – – – if a customer likes literary fiction, then Amazon should tilt a store towards literary fiction collaborative filtering - data mining in order to merge customers into something of an electronic soul mate “and then we look at the things that electronic soul mate has purchased, but that this particular individual customer has not. And then we recommend those things. ” Buck Consultants International 38

• The DCs are highly automated, using barcodes and scanners to track and sort inventory that moves through the facilities. A typical Amazon DC has 10 miles of conveyor belts and ships most in stock items within 24 hours of the order click • The ultimate model of Amazon would be a sort of a one-stop shopping mall, delivering your products directly to your door in a single consignment - ideally from a single shipping point in order to save costs. Imagine, goes theory being able t buy not just a video about barbecuing and some recipe books, but the barbecue itself - and in a single transaction. Buck Consultants International 39

Lens-Online. com Background • Virtual company: entrepreneurs with 20+ years experience in ophthalmic industry • Had developed web-pages with other partners and seeking fulfillment partner • TBG e-commerce group project managed – – – fulfillment center integration with front end integration with vendors and payments Buck Consultants International 40

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Lens-Online Model Back Office Order Capture Telephone Fax Contact Centre Logistics Stock Orders released Verification Process Pick, pack and ship Data Input Web Orders Financial BUSINESS INTELLIGENCE - EVENT MANAGEMENT AND DATA MINING Online stock range availability Order acknowledgement Buck Consultants International Order track and trace Interface to finance house Despatch Stock confirmation and replenishment carrier interface Trend information CRM data 42

Lens-Online. com Background • Target market is optometrists: – – • Product line: spectacle lenses: not contacts – – • 6, 500 in UK 65, 000 in Continental Europe (price break) 5, 000 SKUs, fast movers only Very limited special orders Currently 400 orders/ week Buck Consultants International 43

Lens-Online. com Lessons • One-stop concept works • Limited scale, but commercial success for both partners • >95% commonality of process with previous B 2 C experience Buck Consultants International 44

Liquorconnect. com Background • Liquor in Canada controlled by Provincial Governments • Liquor retailing in Alberta liberalized in 1994 • Distribution privatized in 1995. TBG wins competitive bid to take over Government assets, founds Connect Logistics • Number of liquor retailers quadrupled overnight as government stores closed – – No common systems or visibility No set pricing constraints - tax changes Cash constraints on inventory and selection Volume spikes for seasonality Buck Consultants International 45

Effects of Privatization / Commercial issues for Connect • Vendors now have more to do – – – • import what they like, subject to labeling, fitness for human consumption vendors now own inventory until sold inventory management issues SKUs more than tripled over first two years Need for variable services vendors need to communicate with retailers Only active distributor license in Alberta – – – Competition has tried and failed Need to satisfy Government, retailers, vendors to survive Need to delight all of the above to prosper Buck Consultants International 46

Operational issues for Connect • Seamless systems interface required with Government – – • Inventory accountability: tax Management of payments Previous mechanized sortation redundant – – Explosion of SKUs, services Demand is now for small specialized orders Buck Consultants International 47

Connect Logistics - Alberta · St. Albert warehouse: 430, 000 square feet · · · · Typically 1. 1 Million cases of inventory 17, 200 registered products 9, 000 active products in stock daily Products from 1430 suppliers, 60 countries, and 185 agents Warehouse operational 24 hours a day, 6 days a week All liquor sold in Alberta except domestic beer Agent services available: on-packing, bar-coding, strip labeling, assembly of gift packs, allocations and restriction of products, inventory management · Key indicators - Alberta: - Received – 6, 255, 467 cases (average 120, 297 cases per week) Shipped - 52, 461 orders (average - 1009 orders per week) Shipped - 6, 145, 635 cases (average – 118, 185 cases per week) Radio Frequency Scanning ensured a 99. 996% accuracy rate on orders shipped Customer Service processed 28, 134 calls (in-coming and out-going) Buck Consultants International 48

Liquorconnect. com Rationale • • Obvious in 1999 that complexity was labor-intensive and fragile Mixture of order types: EDI, fax, phone, mail etc which was complex in a real-time environment • Need to create sustainable competitive advantage • Phase 1 – • Database of SKUs and inventory, accessible to retailers and vendors and allowing real-time order placement and tracking Phase 2 – Fully illustrated web-site with product information, pricing and availability usable by consumers, vendors and retailers Buck Consultants International 49

Liquorconnect. com Phase 1 results • Service launched in test summer 2000 • Rolled out progressively to Spring 2001 • Success to date – – 40% of orders, 60% of volume now via the Web Main holdouts are those with existing EDI facilities Buck Consultants International 50

Liquorconnect. com Next steps • Extension of concept to other parts of Canada - even where still partially Government operated • Utilization of concept for other distributive customers • Development of Phase 2 Buck Consultants International 51

The IBM Corporation Worldwide @ a glance • The world’s largest information technology company – Revenue in 2000 • Hardware • IT Services $88. 4 B $37. 7 B $33. 2 B • Services, middleware & EOM technology are > 50% of revenu • $23. 3 B e-commerce • $43. 2 B e-procurement • Present in 164 countries with over 300, 000 employees • Hired over 45. 000 employees in 2000 • The largest IT financier with an asset base of nearly $40 B Buck Consultants International up 53% yoy up 230% yoy 52

IBM Global Services • The world’s largest business and IT services company with revenu of $33. 2 B in 2000 • Services backlog $85 B up from $60 B at ye 1999 • More than 140, 000 skilled professionals in 164 countries • IBM has a growing global network of twenty e-business Innovation Centres staffed to help customers take their franchises to the Net • IBM Global Services is people. Strategists Problem Solvers. Implementers. Over 100, 000 people world-wide who have worked in all kinds of industries. People who understand how technology can solve real business problems, or take advantage of new opportunities. People who help you make sense of technology, who work with you -making sure the solution you want is the solution you get. >500 Outsourcing contracts of which more than 120 with contract value over $100 M Buck Consultants International 53

In EMEA major re-engineering of Part Logistics has led to one virtual network with total visibility in all pipelines and country warehouses AMSTERDAM COUNTRY A COUNTRY B Consigned inventory - One virtual network • • • ‘Do once/run once’ process & systems Total visibility Optimisation of parts per warehouse – • Optimisation of warehouses – • Based on customer base and electronic roadmaps Flexible supply routes – – – • Cost vs Service Optimiser (incl. simulation) Fast and direct replenishment Cross-country supply Overnight emergencies to customer Reverse Logistics / re-utilisation processes Buck Consultants International 54

EMEA Network with Main Hub in Amsterdam, NL Suppliers Physical Distribution Customers Domestic Service Technician IBM plants 33% Customers Dealers Parts Vendors 45% Repair Vendors 22% Buck Consultants International Central Buffer - Amsterdam Country Stockroom Regional support Stations Brand offices/local support 1 x 30 x 75 x 129 x International AP/LA US Canada External Logistics 55

EMEA Network with Main Hub in Amsterdam, NL Suppliers Physical Distribution Customers Domestic Service Technician IBM plants 33% Customers Dealers Parts Vendors Repair Vendors 45% 22% Buck Consultants International Central Buffer: Mechanicsburg Back-up: - Santa Fe Springs - Atlanta, GA EPSC/LPS On-site/Service Rep 1 x 2 x 122 x 9000 x International AP/LA US Canada External Logistics 56

Global Service Logistics provides worldwide logistics support Facts Main developments areas • • e-logistics • Globalisation 200, 000 partnumbers WW 30 million movements a year WW 5 world-wide hubs Singapore established as 2 nd AP hub in 2000 300 main stock locations WW (180 countries) Most stock locations have been outsourced Amsterdam Mechanicsburg Tokio Singapore IBM’s position in the Market Rio de Janeiro • IBM is the largest Service Provider in the IT • Superior coverage in 180 countries in combination with service delivery centres/ customer engineers workforce • External Benchmark of the IT industry ranks IBM as best balanced performer on inventory/cost/service Buck Consultants International 57

IBM Integrated Technology Services provides hardware support for a wide range of products with varying degree of service requirements Hardware Service High end Requirement mainframe printers • On site committed recovery services • 2 -4 hours service servers • Same day service PC’s • Next day Low end IBM Buck Consultants International OEM Product Customer 58

IT Infrastructure Developments IBM Planning. Intelligent planning tools Supply Chain Management Transaction recording & Finance Service Delivery Order mgt Procurement Portal Contact mgt Service Planning Gateway Brand/ Service Planning Service Delivery Gateway IBM/ Alliance Customer Suppliers Distribution Gateway Physical Handling, Warehousing Buck Consultants International 59

Some recent or current developments • Internet Parts Sales linked to ‘IBM. com’ – • Global Parts System – – • – Daily Call Centres Ordening, Product Collection at Customer/Pick-up Point, Central Repair Vendor, Direct Delivery to Final Destination incl. POD Use of MQseries integrator to establish B 2 B communication with Vendor: repair instruction/confirmation, status information Express Repair – – • Interlock with Call Management/Contract Management with Siebel Gloval Planning with Xelus Advanced planning techniques with own ‘neighbourhood planning’ Use of MQseries integrator to link IBM systems to Warehouse vendor WMS Product Depot Repair – • Web-based Front End: Exploded view of product, PDM data, ordering (shopping basket), real time prices, order status Web-based Front End on Call Management systems Repair Vendors access detailed product-defect information stored in Call Management systems to increase speed of repair WAP pilot – – Provide WAP access on Parts Order status to customer engineers Pilot ongoing. Buck Consultants International 60

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IBM develops important business model solutions and in parallel creates an e-ready IT infrastructure Business Developments IT (infrastructure) Developments • Globalisation • • – • • • Organisation ‘do-once’ Internet Parts Sales Partnerships/alliances New planning model Mass customisation/entitlement – • • AP Hub Differentiated Service levels IBM Intranet/internet Middleware Webpages B 2 B communication Run-once Applications ‘Make or Buy’ Application consolidation (2 to 1) Same day/Next day network Vendor Controlled Inventory Reverse Logistic Cost transparency Network Manager Vendorized supply Logistics Service Provider(s) Repair Service Provider(s) • Ongoing Outsourcing • Move towards: Network Manager (3 PL to 4 PL) • Sale of in-house repair centres to Contract Manufacturers • Product Depot Repair Suppliers Buck Consultants International • Direct Sourcing • e-Procurement • Vendor Owned Inventory 62

Operating above the e-line Information Leveraging Information co Eer m m er ips om sh st ion Cu elat R ce Supply Chain E-line Data ry io ct e iv le l De l Co n Automation Transport Buck Consultants International 63

IBM is not only transforming Customers, but also IBM internal processes to full e-business solutions Old world model • Distance between E 2 E Business and IT solutions • Traditional/separate processes • GEO or Country centric • Customer/Service Rep interacts with organisation or with IT New world model • • • Convergence of E 2 E Business and IT E 2 E process integration Intra Enterprise business (B 2 B) Global reach Customer/Service Rep interacts with Business processes IT Customer or Service Rep Business processes IT Organisation Buck Consultants International Information technology Customer or Service Rep E-business solutions Information technology Organisation 64

Service model is moving from costly on-site support to a more value enriched e-service technology driven model From on-site support …. To remote collaboration and e-service EService Least Cost Medium Cost Self Service Remote Support Greatest Cost Remote Collaboration On Site Most efficient & effective Expert use of Tools and technology Exception or Customer Choice On Site Buck Consultants International 65

Dell Profile Headquarters : Round Rock, TX Important acquisitions : None Main products : Personal Computers, laptops and servers Revenues : $ 18. 2 billion E-commerce revenues : $ 14 billion, 15. 000 internet pages world-wide Capital Investments : $ 2. 7 billion (working capital), main investments focus on expansion manufacturing capacity (300. 000 m 2) in Austin, Texas and Limerick. Workforce : 26, 100 people Buck Consultants International 66

Dell sells over 14 Million Euro per day from its web site Almost 78% of Dell’s revenu comes from internet-sales via www. dell. com. Dell internet pages offer services, product configurations (including customisation), global pricing, paperless purchase order, real-time order tracking, invoicing and other tools. Buck Consultants International 67

Business and Commercial strategy • Dell Computer Corporation pioneered the direct business model 15 years ago. By incident (insiders say) Dell was the first computer corporation serving its customers direct, without intermediaries • Dell’s ambition is to provide superior customer experience by being accountable. “Efficient, responsive, engaged, reliable and evolutionary” are important mission statements • “Be direct”. It’s a better way of doing business. For customers buying computer systems and services and for Dell (Source: Fiscal 1999 in review) • Almost 78% of Dell’s revenu comes from internet-sales via www. dell. com. Dell internet pages offer services, product configurations, global pricing, paperless purchase order, real-time order tracking, invoicing and other tools • Dell’s success of the direct business model has attracted the attention of all competitors. Dell is still expanding the Internet presence. Recently, Dell launched www. gigabuys. com. An internet site with an on-line source offering thousands of computer peripherals at competitive prices • Nearly 2/3 of Dell’s sales are to larger corporations, government agencies and educational institutions. Dell also serves medium and small business and home PC-users. Buck Consultants International 68

Logistics Strategy • Built-to-order (BTO) strategy. Competition forces companies to minimise inventories and maximise the right product availability • In the supply chain this means: “Instead of pushing products through the chain, with intermediate stocks, to a process where products are pulled out the chain” • Dell implements the BTO-strategy in buying components and assembling, customising and shipping to the order of dealers (or customers). IT plays a crucial role • Dell co-operates closely with its suppliers in order to shorten cycle times throughout the supply chain • The logistics organisation of Dell is sourced out to third party logistics providers Buck Consultants International 69

• Dell expects these third party logistics partners to move away from the traditional forwarding and are expected to become specialised in expertise and technology. They should be able to provide value added delivery on desk tops, including unpacking, plugging in, powering and reverse logistics • Compared to others in the industry. Dell’s supply chain is very efficient as illustrated below. Time to customer: Others in industry: Manufacturing inventory Transport to distribution Manufacturing inventory Transport to consumer Distribution inventory Transport to VAR inventory Transport to consumer 72 -78 days 22 -25 days Dell: Buck Consultants International 70

Supply chain: Dell locations in Europe Legend: = Distribution Centre = Manufacturing Centre EMF 1: Raheen-Limerick (1991): - 28. 000 m - Manufacturing customer configuration workstations - Servers, desktops, notebooks, workstations 2 EMF 2: Castleroy-Limerick (2001 -2003): - 110. 000 m - Servers desktops notebooks, workstations - Vendor hub monitors Limerick by Irish Express 2 Dell-Vendor hub Liverpool: - Monitors and speakers - UK market by Irish Express Buck Consultants International Dell-Vendor hub Göteborg: - Monitors - by ASG EMF = European Manufacturing Plant EMEA 71

Supply chain: Dell PCs+Laptops, (low- and midrange) Main Supplier Location Inbound Location Warehouse S 1+S 2: Monitors: • Dell plants outside Europe • Taiwanese vendors • Others, Far East+ sources Manufacturing Warehouse Outbound Distributor End user Free phone M 2: Limerick Raheen. EMFI: • PCs, laptops and servers serving European markets S 1+S 2: Peripherals: • Local suppliers Ireland, UK • US and Far East vendors D 2: Monitor vendor hubs • Liverpool • Gothenburg Direct sales via channel partners M 2: Limerick 1) Castleroy, Limerick EMF 2 • PCs, laptops and server serving European markets Ro ad S 1+S 2: laptops: • various suppliers and vendors US, Europe, Far East R d oa D 2: Logistics services providers networks in Europe Internet S 1+S 2: PCs: • Mother board Dovatron, Kidsgrove, UK • Local suppliers Ireland (IBM)+approx: 40% of total raw material 1) Currently under construction EMFfor America 2 will be operational soon and • various sources completed in 3 to 5 years US and far East Buck Consultants International 72

Organisation of the supply chain Outsourcing • Dell has outsourced its logistics organisation, i. e. the warehousing and storage as well as the distribution and transportation activities • Dell, while selecting its logistical partners, expects these companies to move away from the traditional forwarding and are expected to become specialised in expertise and technology. They should be able to provide value added delivery on desk tops, including unpacking, plugging in, powering and reverse logistics • In Europe the outsourcing is according to the following geographical market areas: United Kingdom and Nordic United Kingdom Nordic Continental Europe Germany France The Netherlands • : Irish Express Cargo (IEC). The following parties are involved: : Irish Express Cargo : ASG (Gothenburg) : Walsh Western, working with e. g. the following local partners: : Unidata : LTI (Le Petit Quevilly) : Ploeger (Harderwijk) For small orders (maximum 5 units) which do not require any special delivery services the express carrier UPS is used. Buck Consultants International 73

Inbound logistics • The components such as microprocessors and disk drives often come from the Far East or the United States. These are largely bought to forecast, while their demand is much more predictable than the demand for finished computers. Up to 40 percent of the plant’s raw materials are produced on a just-in-time basis, because a further 45 percent of inbound materials are hubbed, These hubs are stockholdings of suppliers’ components, which are called off either to the final consumer’s order of Dell’s • For example monitors and speakers for computers going to the United Kingdom (a major part of Dell’s business) are held in Liverpool. This hub carries some twenty days’ stock of monitors, because “monitors are the single most constraining process. Similar hubs are located close to Limerick for high value items such as hard drives, and the Liverpool concept is likely to be expanded to continental Europe in the near future” Buck Consultants International 74

Level of integration The power of virtual integration, according to Michael Dell, is lying in: • organizations should seek to close the gap between customers, manufacturers and suppliers by establishing direct relationships • Organizations should define their value added very tightly and create partnerships for capital intense and labor intensive services and at the same time keep their focus • Organizations should close best-of-breed partners and allow them to be part of their business Web based decision support system • Customers are served by the internet with a buying decision support, supplied by Dell. Comparison between products form different suppliers can be made on line. For large organizations web pages are available, called Premier Pages. Dell started this service in 1996 with Shell Oil and Ford Motors, and currently over 30, 000 Premier customer pages are active. The pages contain, for example, account team information, on-line purchase data, customized serviced and support information to the company involved Buck Consultants International 75