Supply Chain Reality Show Vande Vate Supply Chain

Supply Chain Reality Show Vande. Vate Supply Chain Logistics January 24, 2006

Purpose To share a “Live” Case study with you that illustrates how International Logistics and Distribution must evolve to support and meet the needs of dynamic complex Global Supply Chains. Expected Outcome Understanding of an Overall “Supply Chain Logistics” Project and the importance of Logistics to drive operational efficiencies, reduce lead time, and capture savings.

AGENDA • ADTRAN - Company Overview • Reality Show Set UP ØTheme Ø The House Ø The Location Ø The Cast Ø The Challenges the Cast must overcome • The ROI analysis • Q&A

The Network Access Company

Corporate Statistics · FY 2004 Revenue: $455 Million · FY 2004 Net Income: $75. 4 Million · 17 Years of profitable growth · Employees: ~1, 600 total · Headquarters: Cummings Research Park, Huntsville, Alabama · Sales office throughout the US · In-house and outsourced manufacturing (China) · NOTE: Released Earnings Today

Earnings History * ** 2004 2000 1996 1998 1994 *Excludes gain on sale of securities **Excludes investment impairment charges 2002 1994— 2004 Annual EPS

Adtran Products Module Assembly Cards Plug In Cards Chassis, Routers Access shelves-Cabinets

Proven Track Record ADTRAN Market Share 93% Domestic DDS Circuits 46% Worldwide Enterprise TDM IAD 87% Domestic ISDN Extension 46% Worldwide Enterprise DDS DSU/CSU 70% Domestic HDSL Deployment 39% Worldwide Enterprise T 1 DSU/CSU Sources: Gartner Dataquest, internal company estimates

Solid Customer Base Carrier Global Enterprise

Supply Chain “Reality Show” Theme Locate a fine-tuned, process driven, efficient, well established best in class “domestic distribution” process, unplug a piece of it, take it 8, 000 miles to a foreign land, plug it back up, teach it a foreign language, expose it to the elements and see if it can increase operational efficiencies, reduce customer lead times, and drive cost reductions.

Supply Chain “Reality Show” The House A Two Room House Room One: 85, 000 square foot room used for Finished Goods Room Two: 75, 000 square foot room used for RMS & Kitting

Supply Chain “Reality Show” Location Existing location for 16 Years, Huntsville Alabama Proposed location for the Future, Hong Kong

Supply Chain “Reality Show” The Cast of Characters Finished Goods Direct Ship – Bypass Huntsville distribution Direct Fulfillment – Hold inventory in HKG vs HSV Raw Materials 3 PL Distribution-Warehousing service provider

Supply Chain “Reality Show” Challenges to Overcome • • • • Locate and find a suitable house, 3 PL service provider Throw everyone together in the house Mix in import-export complexities, terms of delivery, EOR-IOR Add Corporate Tax liability burden (17% HKG vs 36% US) Non Resident offshore status vs stand-a-lone Hong Kong Entity 13 Hr time difference, language barrier Logistics-Transportation problems (capacity, rate variances, damage) Inventory management and reporting (inventory mgt, liability, loss) IT-ERP interface/integration-support dedicated and public lines SOP and 3 PL training for FG and RMS ERP sales order entry Prepare Business case with ROI and get Sr. Mgt Buy-in 3 PL Contract, legal review, mutual language-partnering vs adversarial Negotiating Rates Sarbanes Oxley audit review, controls

3 PL Distribution in Hong Kong Finished Goods ROI Analysis Direct Ship Direct Fulfillment

ROI Summary • Annual Savings = low to mid six figures • Break Even Analysis = 20, 000 units • Volume Analysis • Cost Analysis • RFP-3 PL Analysis • FG Internal Distribution Cost Analysis • SWOT • DS Logistics Flow Chart • DF Logistics Flow Chart • Qualitative Analysis

ROI Analysis Raw Materials Drop Ship Rogue Turn. Key

ROI Analysis • Annual Savings = • Freight Lane Analysis low to mid six figures Inbound-Outbound Ocean/Air • Oracle Report to Data Mine out of ERP • 3 PL DC Cost Analysis • Internal DC Cost Analysis • Customs-Tax Impact on Duties/Fees/Taxes • Pallet-Carton Volume Analysis • SWOT • Logistics Flow Process

Conclusion You are the Sr. Management of ADTRAN What is your decision now with regard to my recommended change? Do we proceed with the new HKG Remote DC or do you kill the idea and we continue to ship through our existing HSV DC? Revenue Savings mid to high six figures

Quotables “ There is nothing so useless as doing efficiently that which should not be done at all” • Peter Drucker

Q&A

Thank You!