Synchronizing Global Freight May 29, 2008 © Copyright 2008 United Parcel Service of America, Inc. All rights reserved. Enabling Global Commerce UPS: UPS Supply Chain Solutions: World’s largest package delivery company and a global leader in supply chain services • A global provider of integrated logistics and supply chain solutions • Revenue of $49.7 billion in 2007 • Revenue of $8.4 billion • Moves 6% of U.S. gross domestic product • Operations in 120 countries with over 1,033 facilities and 38 million square feet of warehouse space • Serves more than 200 countries and territories around the world • Customs brokerage services in all major international trade locations • 7.9 million customers daily • 93,637 ground vehicles • Global air and ocean freight forwarder and a leading Non-Vessel Operating Common Carrier • 268 aircraft - World’s 9th largest airline • 101 years of experience Logistics and Distribution International Trade Services Supplier Management North American Air Freight International Air Freight Truckload Road Freight Ocean Freight LTL Road Freight Small Package Information Management Trade Financing 2 The Cost of the Global Supply Chain Freight and transportation accounts for an average 4.36% of Cost of Goods Sold (COGS). This is the largest and most actionable area for near-term supply chain improvement. Supply Chain Element Spend Freight and Transportation - All Modes 4.36% of sales Warehousing 1.8% of sales Order Entry / Customer Service .55% of sales Administration .36% of sales Inventory Carrying Costs 2.07% of sales Total Average Supply Chain Cost 9.14% of sales Sources: CASS, Stephens, Herbert W. Davis 3 Average Shipper Freight Spend by Mode Twice a decade 100,000 businesses across all freight shipping segments are asked to quantify their transportation spend across modes. Average Freight Spend, International and Domestic Other 14% TL / LTL 19% Rail Freight 4% Ocean Freight 28% Sources: Shipper Surveys, U.S. DoT / U.S. DoC Air Freight 35% 4 Freight Routing: Different Modes for Different Needs These modes each deliver a different balance of Effectiveness (speed and precision) and Efficiency (shipment expense and per-carton cost) Effectiveness 10x Cost Efficiency 10x Time 5 Freight Routing: One Size Does Not Fit All 26 28 40 Seasonal Merchandise Replenishment Merchandise Seasonal 16 Margin 7 Geography 6 High Velocity Merchandise Demand Time in Transit 5 High Margin Merchandise Basic Solutions 3 Complex Solutions E: Competitive Analysis Appendix Customer Ready Store Ready Pooler Ready DC Ready High Service Standards Low Service Standards Shelf Life 2 November 2004 RWG Draft (Confidential) 55 6 Example: An Integrated, Mode-Shifting Solution PICKUP / CONSOLIDATE SHIPMENTS CLEAR CUSTOMS DECONSOLIDATE SHIPMENTS FINAL DELIVERY FULL VISIBILITY: End-to-end tracking provided throughout the supply chain. Freight and individual packages are picked up and consolidated Consolidated shipment crosses the border in a single customs clearance Freight moves via LTL Packages enter UPS package delivery network Package and LTL shipments are delivered direct to multiple retail stores and/or end customers 7 Progression of Global Freight Management Strategy Full Supply Chain Management Mode-Shift Capabilities Multi-Modal Management Single Mode Focus End-to-end global supply chain cohesion, total distribution cost management, active management of suppliers, integrated customer and regulatory compliance Sea-Air, Trade Direct, DC bypass, transload, in-transit VAS application, shortened transit, heightened value SKU level routing optimization, maximum utility with lowest opportunity cost, heightened agility, decreased disruption Potential economy of scale at cost of agility and responsiveness 8 Global Freight is Not a Level Playing Field Effective management of end-to-end freight and ancillary functions can reduce total distribution cost by up to 5%, with the same impact on profit as a 30% increase in sales. Retail Business Improvement Through End-to-End Supply Management Reduced Stock-Outs 2%-8% improvement Lower Inventory Levels 10%-40% improvement Increased Sales 5%-20% improvement Manufacturing Business Improvement Through End-to-End Supply Mgmt Lower Inventory Levels 10%-40% improvement Faster Replenishment Cycles 12%-30% improvement Higher Sales 2%-10% improvement Better Customer Service 5%-10% improvement Sources: Benchmark analysis, AMR survey 9 Thank you www.ups.com © Copyright 2008 United Parcel Service of America, Inc. UPS, the UPS brandmark and the color brown are trademarks of Untied Parcel Service of America, Inc. All rights reserved.