Why Does It Even Matter?

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1 Six Sigma Managing Your Supply China: Speed vs. Predictability Why Does It Even Matter? Six Sigma is a fact-based, data-driven philosophy of improvement that values defect prevention over defect detection. It drives customer satisfaction and bottom-line results by reducing variation and waste, thereby promoting a competitive advantage. It applies everywhere variation and waste exist, and every employee should be involved. End-to-End Transit Time Variations are Preventable and Unacceptable Critical-to-Delivery (CTD) CTDs represent those customers with stated needs regarding delivery. CTDs are translated into critical customer requirements through the quantification of these impact areas. Predictable Delivery Times are Critical Competitive Benchmarking Competitive Benchmarking forces an organization to take an external perspective. There are four steps in benchmarking: * Analyze the operation * Know the competition and the industry leaders. * Incorporate the best of the best * Gain superiority If USWC doesn t solve its congestion, the cargo will go elsewhere Source: The Certified Six Sigma Black Belt Handbook - Second Edition

2 10 OPTIONS: Quote: Adam Ruckh, General Manager, Procon Pacific LLC I am waiting to see if the expanded Panama Canal will bring us any good shipping options next year. Otherwise we will just continue to play West Coast Port roulette. Define Parameters: In our case, cargo destined for USWC itself is limited. Majority of our cargo is destined for Midwest & Gulf USA. We do have options. 1. Play Roulette Status quo Ship via USWC and take the risk of congestion and unpredictable deliveries. 1. Pay a Premium Ship Matson or APL on their premium services to LA (faster transit time and privately operated terminals) and hope that it makes a difference. 1. Canada Option Route via Prince Rupert BC and rail to Chicago.

3 10 OPTIONS (Cont.): 4. Panama Canal Option Will USGC/USEC truly become competitive for cost and transit time from China? 5. Suez Canal Option Very slow, but predictable 4. Inventory/Warehousing Expense (Increase Cost) Only an option for M-T-S 5. Faster Production Time Can the vendor be speed pressured? 6. Increase End-to-End Delivery Time (Diminish Product s Value) 7. Air Freight on reactive basis to meet client urgencies 8. Combination of the above on constant fire-fighting mode.

4 Carrier-Direct vs. 3PL 5 Strategies and Considerations 1. 3PLs are true service companies; thus more sensitive and attentive/aware of customers deadlines. 1. 3PLs can provide additional service offerings (clearance, warehousing, fulfillment, trucking and last mile delivery); thus more integrated and solution-focused. 1. 3PLs have more flexibility by monitoring carriers/alliances port rotations and can provide a greater array of options for door-to-door solutions. 1. Carriers in Alliances are sometimes at the mercy of the VSA partners on particular vessels within a string and a 3PL can decide which carrier s B/L to use on a vessel-by-vessel basis within a VSA string. 1. Working with a couple 3PLs keeps em honest!

5 Port Efficiencies in the Era of Mega Ships (Batch vs. Continuous Flow Processing) Continuous Flow Daily port calls of 3,000 TEU ships allow the trailer, chassis, on-dock CY and customs, etc. to have a predictable even flow of traffic. Batch Flow Weekly port calls of 20,000 TEU ships mean that the vessels are departing load port and arriving discharge port on a batch basis. However, the port/inland infrastructure remains in a continuous structure. Challenge - A natural mismatch results, which will always cause a port bottleneck due to Theory of Constraints (TOC) until (if) the infrastructure can adapt. Said change can only happen if all stakeholders cooperate and allow metrics (not emotions nor politics) to guide them toward solutions.