IW SMART MANUFACTURING CONFERENCE SMART GLOBALIZATION

1
IW SMART MANUFACTURING CONFERENCESMART
GLOBALIZATIONSTRATEGIC GLOBAL SITING

• Moderator Anand Sharma, TBM Consulting Group
• Panel Paul Adelberg, Hayward Pool
  Products
• Ron Hicks, Lantech Inc.
  (A/O) May 04
• Keith Bernard, Applica
  Inc.
• June 14, 2004

2
THE GLOBAL MANUFACTURING LANDSCAPE IN 2004
FACTORS BEARING ON THE PROBLEM

• POLITICAL, ECONOMIC, SOCIAL TENSION
• EMPOWERED CONSUMER
• ACCESS TO ON-LINE COMMERCE
• DEMANDING CUSTOMIZATION
• SEEKING NEXT GENERATION PRODUCTS NOW!
• COST, QUALITY, RESPONSIVENESS TRADE OFFS
• EROSION OF MASS PRODUCTION AS WE KNEW IT
• METAMORPHOSIS IN SOURCED NATIONS COST V/S
  PARTICIPATION

3
OUTSOURCING IS TOP OF MIND EVERYONES LOOKING
FOR ANSWERS

• Outsourcing is the economic topic du jour.
  While there is plenty of talk about the concept
  of outsourcing, fewer are stories about how
  manufacturers actually do it.
• The Manufacturer, April 2004
• Maytag dishwashers have Chinese motors, Mexican
  wiring and are assembled in an American factory.
  Some refer to this manufacturing approach as a
  triad strategy.
• The Wall Street Journal, Oct. 6, 2003
• Outsourcing shows no signs of fading. The surge
  in offshore outsourcing has attracted the
  attention of American politicians worried about
  the loss of jobs at home
• The New York Times, May 9, 2004

4
DYNAMIC STRATEGIC TRIAD
? ? ?
U.S. EUROPE
KEY SITING FACTORS TO CONSIDER???
ASIA
MEXICO
? ? ?
? ? ?
5
KEY SITING FACTORS ?

• ? ?
• ORGANIC EXTERNAL
• ? ? PRODUCT/PART COMPLEXITY ? DEMAND
• ? LEAD TIME/JIT PRESSURES ? CURRENCY
  FLUCTUATION
• ? DEGREE OF CUSTOMIZATION/ ? WORKFORCE
  ELEVATION
• LOCALIZATION FACTOR
• ? STABILIZATION OF WORKFORCE ? X FACTORS
  (DOCK STRIKES,
• TERROR, WAR, TYPHOON)
• ? ? COMPETITIVE
  PRESSURES
• ?
• ? ? ?

?
6
2001 Gross National Product (US billions)

• USA 10,082 Growth (01/99) 8.7
• Germany 1,846 Growth (01/99) -12.2
• UK 1,424 Growth (01/99) -2.3
• France 1,310 Growth (01/99) -9.3
• China 1,159 Growth (01/99) 17
• Mexico 618 Growth (01/99) 28.8
• Brazil 504 Growth (01/99) -9.2
• India 481 Growth (01/99) 18.5

7
Total Hourly Compensation

• Country 1995 2001 Change
• Germany 30.27 22.86 -25
• USA 17.19 20.32 18
• Brazil 5.61(98) 3.02 -43
• Mexico 1.65 2.34 42
• India 0.50 0.61 22
• China 0.41 0.40 -2
• Source US dept. of labor (Other for India
  China)

8
Global Triad Sourcing Strategy
Labor/Hour .40-.60 Range
Labor/HOUR 2-4 Range
Labor/Hour 12-20 RANGE
Low Cube, Low Value, High Labor Content, High
Design Stability and Mature Products Mature
(Garden Variety) Components
Medium Cube, Value and Labor Content, Medium
Design Stability and Semi custom Products Sub
Assemblies with High Variety
High Cube, High Value, Low Labor, Mass
Customization ( Highly custom / New Products ),
Typically Low Volume High Variety
9
STRATEGIC GLOBAL SITING

• EVOLVING WISDOM
• TWO, THREE OR FOUR-WAY STREET
• GLOBAL TRIAD INSURANCE POLICY?
• LEAN VALUE CHAINS GOING LOCAL MAKING AND
  SELLING IN MULTIPLE VENUES
• SOLUTION MUST BE TAILORED TO PRODUCT/MARKET
• MUST BE AGILE AND CREATIVE

10
WHOS GETTING IT RIGHT?

• DELL
• MAYTAG
• TOYOTA
• APPLICA (Panelist)
• HAYWARD (Panelist)
• LANTECH (Panelist)

11
It is not the strongest of species that survive,
nor the most intelligent but the ones most
responsive to change
Charles Darwin
Circa 1859 origin of
species
12
PANEL OF OUTSOURCING VETERANSLessons in Global
Sourcing China, Mexico, the World

• PAUL ADELBERG -- HAYWARD POOL PRODUCTS
• RON HICKS -- LANTECH
• KEITH BERNARD -- APPLICA INC.

13
OVERVIEW

• FOUNDED 1923
• LEADING MANUFACTURER OF FILTRATION SYSTEMS AND
  FLUID CONTROL EQUIPMENT
• MANUFACTURING FACILITIES IN EUROPE, NORTH
  AMERICA, SOUTH AMERICA, ASIA

14
OUTSOURCING MOTIVATION

• SEVERE PRICE PRESSURE
• KNOCK-OFFS COUNTERFEITERS
• PROTECT HAYWARD MARKET SHARE
• INITIALLY PURELY DEFENSIVE!

15
OUTSOURCING STRATEGY

• GAIN CONFIDENCE FROM IN-HOUSE SALES STAFF AND
  CUSTOMERS
• DUPLICATE TOOLING NO INTERRUPTION OF SERVICE
• NO DEVIATIONS FROM EXISTING B/M
• PRODUCT TRANSPARENT TO OUR CUSTOMERS
• ESTABLISH BASELINE SAVINGS CRITERIA
• OUTSOURCING PRODUCT CRITERIA
• LIMIT PRODUCTS TO A ITEMS ONLY
• LONG LIFE-CYCLE
• NO IMMINENT ENGINEERING CHANGES
• LOW CUBE, LABOR INTENSIVE (WE THOUGHT)

16
ACTION PLAN FOR CHINA SUPPLIERS

• VISIT HAYWARD TOP MANAGERS
• OBSERVE AND REPLICATE MANUFACTURING PROCESSES
• TRAIN CHINA PERSONNEL IN STANDARD WORK
• SUPPLY CAPABILITY REPORTS

17
ACTION PLAN AT HAYWARD

• VISIT VENDOR PLANTS IN CHINA
• TRAINING SESSIONS
• PRODUCTS USE STANDARD WORK AND HAYWARD STANDARDS
• TEST EQUIPMENT DUPLICATED AND SUPPLIED TO CHINA
  VENDORS
• ARRANGED AND NEGOTIATED WITH U.S. SUPPLIERS TO
  SUPPLY AND SERVICE CHINA VENDORS

18
ACTION PLAN AT HAYWARD (CONTD)

• USE INDEPENDENT THIRD-PARTY INSPECTION COMPANY
  INITIALLY ON ALL PRODUCTS
• KAIZEN EVENT WITH OUTSOURCE TEAM
• WRITE STANDARD WORK FLOWCHART
• GENERATE RFQ
• REQUEST FOR QUOTE CHECK LIST

19
RESULTS

• OPPORTUNITIES
• USE IDLED CAPACITY FOR GROWTH NO ADDITIONAL
  CAPITAL
• FORCING U.S. PLANTS TO BE INNOVATIVE BY APPLYING
  LEAN PRINCIPLES TO DRIVE DOWN COSTS REDUCING
  OUTSOURCING

20
LANTECH INC.--COMPANY SITUATION

• PRIVATELY HELD PACKAGING EQUIPMENT COMPANY
• PRODUCT DRIVEN, MARKET LEADER
• GROWING NUMBER OF COMPETITORS MOVING INTO NORTH
  AMERICAN MARKET
• DESPITE AGGRESSIVE WASTE REDUCTION PROGRAM
  DECLINING MARGINS
• VISION TO BECOME GLOBAL LEADERS IN INDUSTRY

21
OUTSOURCING ACTIONS

• CONDUCTED RESEARCH AND INITIATED DIRECT MATERIAL
  PROCUREMENT FROM COUNTRIES AND REGIONS WHERE BEST
  PRODUCTS (MATERIAL) AVAILABLE AT BEST VALUE
• INITIATIVE BEGAN 18 MONTHS AGO
• CHINA PRIMARY TARGET

22
ISSUES

• WHICH COUNTRIES PROVIDE THE BEST VALUES ON A
  COMMODITY-BY-COMMODITY BASIS
• WHAT REGIONS WITHIN A COUNTRY ARE THE BEST
  CHOICES FOR SOURCING COUNTRIES ARE NOT
  HOMOGENOUS
• DISCOVERY PROCESS URGENT

23
SOURCING SITE CONSIDERATIONS

• PRICE ? TIME ZONE
• LOGISTICS ? WARM HEART
• CULTURE ? FLEXIBILITY
• TECHNICAL EXPERTISE ? CREATIVITY
• CAPACITY ? GOVERNMENT INCENTIVES
• POLITICAL PREDICTABILITY

24
SUMMARY

• DIG DEEP
• GO TO EXPERTISE AND CAPACITY
• LOOK FOR THE WARM HEART
• COUNT ALL COSTS

25
Applica Overview

• Applica manufacturer and marketer of branded
  small electric appliances and innovations to
  include kitchen , home , pet , pest and personal
  care products.

Sales Revenue/ 2003 640 mm NYSE APN
Retail Brands
Professional Brands
26
(No Transcript)
27
Out Sourcing Experience
28
Lessons Learned

• Keep Abreast of the Global Manufacturing
  Environment
• - Things Change
• Choose Your Suppliers Wisely
• - Or you may find that your are doing their job
• Develop and Communicate a Cross- Functional Plan
• - Or Things will get out of Control Quickly
• For ApplicaWe intend to maintain dual
  manufacturing locations.
• - China and Mexico