Industrial Footprint - EY

1 Industrial FootprintIndustrial Footprint2We define Industrial Footprint as What and how much products and services should we develop and produce where .Typical questions to be answered are: What products and services should we offer to what markets? Where should we locate our operations How can we generate value and HOW should we develop and make our products and servicesIndustrial Footprint what and why?Why perform an Industrial Footprint Analysis?A Footprint study can have a major impact on the business and is all about balancing several competing goals.

2 Dynamic markets force companies to revisit their operational Footprint regularly in order to stay competitive. Typical triggers that cause a need to revisit the production Footprint and the sourcing setup are: cost /cash restraints demand a restructured Footprint in order to invest, amortize on debt or give dividend Current Footprint is not suitable for existing business due to changes in the market or cost development Current Industrial Footprint does not support strategy- or business development Industrial Footprint3 The underlying drivers behind can be both external and internal of external drivers are.

3 Consumer demand growing from emerging economies Changed structure of the market due to the competitive situation Low cost countries turn into emerging economies Examples of internal drivers are: Changes in the company strategy results in product line no longer being core Business unit no longer core due to change in market focus Changes in the supply chain setup reduce need for many production facilitiesThere are several issues that force companies to consider the level of production cost , future production capacity needs and general structure of the company.

4 Including considerations of optimization of the production Footprint and supply chain network design can deliver reduction in supply chain costs by up to 20% and lead to improvements in service levels by better aligning supply chain strategies. Network optimization can be used to close the gap in performance in the critical areas of cost , service and control. The result is enhanced visibility, control of costs and performance and a reliable and flexible logistics Footprint4 Examples of workstreams depending on the issues that triggers the footprintDraft Examples of workstreams depending on the issues that triggers the Footprint cost /cash restraints demand a restructured Footprint in order to invest.

5 Amortize on debt or give dividend A Preparation As-is analysis Sub- scenarios Aggregated scenarios Activities Understand constraints Data verification Current Footprint is not suitable for existing business due to changes in the market or cost development B As-is analysis Scenario analysis New platform strategy Activities Analyse key areas based on facts and trends Analyse current sourcing strategy Current Industrial Footprint does not support strategy- or business development C Activities Data gathering and verification Understand constraints and objectives Project duration 4-6 weeks 10-12 weeks 2-6 months Preparation As-is analysis Platform strategy Carry-out a spend analysis Analyse current sourcing strategy Analyse current technology / Know-How Build-up & evaluate alternative To-be scenarios Derive capacity & sourcing requirements based on the scenarios Develop a criteria catalogue to assess scenarios Develop alternative To-be scenarios Assess risks issues Derive capacity & sourcing requirements Build-up a policy regarding Sourcing

6 Strategy Build-up overall business case (incl. customs), final concept and recommendation Carry-out a spend and sourcing analysis Scenario development and capacity & sourcing analysis Carry out a risks assessment Build-up a comprehensive implementation roadmap Define actions for transformation of the Footprint Industrial Footprint5 Industrial Footprint6Re-design of manufacturing Footprint for global automotive manufacturerClientDescriptionGlobal automotive manufacturerRegion in focus:GlobalChallenges Rapidly shrinking revenues caused by the financial crisis Substantial losses during the prior two years The goal was to determine short-term and mid-term measures to improve the profitability of the company to achieve a turnaroundEY s Role Analysis of the product profitability situation, related reasons for low profitability.

7 Identification of product related cost reduction and revenue improvement potentials Definition of measures to reduce the cost basis on unprofitable products as well as revenue improvement measures concerning price increases at several OEMs Analysis of the market and competitive situation Detailed analysis of the manufacturing Footprint by carrying-out a Production Plant Performance Benchmarking: Analyzing and comparing the global locations with respect to product groups, technology, cost structure, revenue development and future prospects, operational performance, CAPEX demand, capacity utilization, personnel cost structure, and others Building alternative plant closure scenarios in order to reduce the fixed cost basis and to eliminate over-capacities in the network Definition of measures to reduce the CAPEX ( , stop investments in building-up a LCC plant)

8 Detailed analysis of the manufacturing processes for unprofitable products and definition ofcost reduction measures Detailed analysis of the Other Operating Expenses with specific focus on Repair & Maintenance costs, and detailed definition of cost reduction measuresProject Achievements Identified cost reduction of approximately 80m. Defined measures on a detailed level agreed upon with top managementIndustrial Footprint7Re-design of international supply chain network to reduce logistics and duty costs for retailerClientDescriptionEU retailerChallenges This EU retailer (multi-CP formats)

9 Wanted to redesign the international logistics network to reduce logistics costs and dutiesEY s Role Mapping of current and future business requirements & flows which the network must support Network cost modelling for current and future network options, based on consolidation hub location options Indirect tax analysis to reduce customs costs based on current and future network optionsProject Achievements Identified logistics network cost savings of 10% ( 30m) of total logistics costs, based on reduced product recirculation, cargo optimisation and customs duty improvements Defined new organisation international trade structure to support and sustain the new network model and savings Identified indirect tax opportunities through the use of bonded warehouses, customs valuation.

10 Capability improvement and limiting ongoing customs risk exposure Identified further operations and processes improvements to reduce cost and increase efficiencyEY has helped several clients optimizing their operational footprintEY | Assurance | Tax | Transactions | AdvisoryAbout EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders.