Supply Chain Reality Show

VandeVate Supply Chain Logistics

January 24, 2006

PurposeTo 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 OutcomeUnderstanding 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

Theme

The House

The Location

The Cast

The Challenges the Cast must overcome

• The ROI analysis

• Q&A

The Network Access Company

Corporate Statistics

FY2004 Revenue: $455 Million

FY2004 Net Income: $75.4 Million17 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

19941996

19982000

20022004

$0.93

$0.76

$0.42

$0.22

$0.82

$0.66

$0.51$0.51$0.50

$0.37

$0.26

Earnings History

1994—2004 Annual EPS

*Excludes gain on sale of securities **Excludes investment impairment charges

*

**

19941996

19982000

20022004

Adtran Products

Module Assembly Cards

Plug In Cards

Chassis, Routers

Access shelves-Cabinets

Proven Track Record

WorldwideEnterprise TDM IAD

WorldwideEnterprise T1 DSU/CSU

WorldwideEnterprise DDS DSU/CSU

DomesticHDSL Deployment

Domestic ISDN Extension

Domestic DDS Circuits

Sources: Gartner Dataquest, internal company estimates

70%87%93%

46% 39%46%

ADTRAN Market Share

Carrier Global Enterprise

Solid Customer Base

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

3PL Distribution-Warehousing service provider

Supply Chain “Reality Show” Challenges to Overcome

• Locate and find a suitable house, 3PL 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 3PL training for FG and RMS ERP sales order entry• Prepare Business case with ROI and get Sr. Mgt Buy-in• 3PL Contract, legal review, mutual language-partnering vs adversarial• Negotiating Rates• Sarbanes Oxley audit review, controls

3PL 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-3PL Analysis

•FG Internal Distribution Cost Analysis

•SWOT

•DS Logistics Flow Chart

•DF Logistics Flow Chart

•Qualitative Analysis

Adtran Networks Pty Ltd

AustraliaADTRAN

Global Customers

ADTRAN 3PL DC PANALPINA

ADTRANHuntsville FGDC

Truck to 3PL HKG

ADTRAN Carriers ADTRAN Carriers ADTRAN Carriers

Celestica DongguanJabil Huangpu

Jabil Pays for Freight to ADTRAN 3PL DC in HKG

Celestica Pays for Freight to ADTRAN 3PL DC in Hong Kong

ADTRAN responsible for freight DDU To Australia

ADTRAN ships EXW, FCA Hong Kong using Customer named carriers to global customer locations

ADTRAN pays 3PL for Cross Dock Distribution & Export Document Prep

Direct Ship through 3PL Hong Kong Distribution

Truck to 3PL HKG

ADTRAN ships DDP to HSV

CelesticaJABIL

Customer Carriers

ADTRAN ships DDP, CIP, DDU to global customer locations

ROI Analysis Raw Materials

Drop Ship

Rogue TurnKey

ROI Analysis

•Annual Savings = low to mid six figures

•Freight Lane Analysis Inbound-Outbound Ocean/Air

•Oracle Report to Data Mine out of ERP

•3PL DC Cost Analysis

•Internal DC Cost Analysis

•Customs-Tax Impact on Duties/Fees/Taxes

•Pallet-Carton Volume Analysis

•SWOT

•Logistics Flow Process

RM SupplierRM Supplier RM Supplier

Drop Ship Raw Material through 3PL Hong Kong Distribution Center

Air Freight to Hong Kong

ADTRAN 3PL DC PANALPINA

ADTRAN pays 3PL For:Cross Dock Distribution, Import entry clearance Export Doc Prep, Baan System Transactions -- Purchase Order Receipt -- Sales Order Shipments Delivery of RMS to CM Distribution Centers in HKG

Truck to Celestica from 3PLTruck to Jabil from 3PL

ADTRAN pays freight from 3PL DC to Celestica HKG RM DC

ADTRAN pays freight from 3PL DC to Jabil HKG RM DC

Jabil C/O E-Commerce Logistics Hong Kong

Celestica Hong Kong Distribution Center

Dro

pShip

Ocean Freight to Hong Kong

ADTRAN Importer of Record into HKG

Jabil EOR / HKGIOR /China

Celestica EOR/HKG

IOR / China

Trucking intra China

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!