1	Distribution Network Redesign Logistics Network Inc.
2	Project Definition Issue: As a consequence of price erosion on the client’s products as they became more commoditized, it became essential for them to preserve margin through cost efficiencies. Due to temperature constraints, they deliver a particular product line via air freight. Because of the numerous distributor sites in place, they relied heavily on LTL delivery, rather than truckload. Objective: Reduce freight costs without negatively affecting service.
3	Primary Metrics Freight cost per unit of sale (lbs.or gm.) On-time delivery performance
4
5	Sales Distribution by State - $$$
6	Sales Distribution by State (%)
7	U.S. Sales by State
8	Canadian Sales Distribution by Province – (%)
9	Canadian Sales
10	Mexican Sales Distribution by State
11	Mexican Sales
12
13	Preliminary Facts Total Freight Expense: $1.93 mil. (net after prepay and add) Approx. Int’l Freight: $150k Net N.A. Freight: $1.78 mil. Prepaid Distributor Freight: $915k – 51% Prepaid Direct Freight: $865k – 49% Freight Terms: 33% Prepaid 67% Customer Paid (Prepay & Add/Collect)
14	Additional Supporting Facts Overall Mode Mix 28% Air/72% Ground ($490k/$1,281k) Prepaid Distributor Mode Mix 19.5% Air/79.5% Ground ($178k/$737k) Overall Freight/Sales Ratio: 1.5% Total Freight Paid/Total Revenue Below 2% is considered quite good. Prepaid Freight/Sales Ratio – 4.6% Total Freight Paid/Revenue Associated with Prepaid Freight Transactions Cost Comparison – Freight Modes ($/lb.) Average: Air $1.00/lb. LTL Truck $0.10/lb. TL Truck $0.08/lb.
15	Considerations Under the present model, for every $100 in additional distributor sales, where client pays the freight, their freight costs increase by $4.60. Converting to prepaid distribution $8 mil. of additional tier three direct business, currently moving on a collect basis, would cost client $368k (based on current freight ratios). If a significant amount of our current direct business is converted to distribution, they could, under the present model, incur a substantial increase in freight costs.
16	Process Improvements Consolidate deliveries to partners on a weekly basis with shipment via truck, rather than air. Reduce the number of ship-to locations to maximize the opportunity for consolidation. Present distributor network displays many apparent redundancies. The fewer ship-to locations, the more opportunities for consolidation of shipment and reduced freight costs.
17
18	Site Recommendations
19	Project Recommendations Migrate from 15 to 5 distributors Reduce number of distributor locations from 39 to 9 Increase reliance on truckload vs. LTL Increase reliance on refrigerated surface transport vs. air shipment Position distributor sites to maximize opportunity for next day surface delivery to our customer base Under proposed model, surface delivery is possible to virtually every point in the continental U.S.
20	Project Summary Reduced the number of distribution sites, simplifying the process. (Soft costs not calculated.) Maintained service levels to the customer. Reduced freight costs from $1.78 million to $1.51 million (15% - $271K)