SUPPLY CHAIN SERVICES INVENTORY MANAGEMENT & MATERIALS COSTS

Transcription

1 EB-00-0 Exhibit C Tab Schedule Page of SUPPLY CHAIN SERVICES INVENTORY MANAGEMENT & MATERIALS COSTS INTRODUCTION Supply Chain Inventory Management plays a key role in supporting THESL s asset modernization plan by ensuring that the optimum level of inventory is available at the right time, place, quality, and cost. 0 INVENTORY Supply Chain Services continues to implement business process initiatives that drive improvements in inventory mix, measurement and fill rate performance. The following are four key inventory performance measures: Performance Measure 00 Actual 00 Actual 00 Bridge 0 Test Net Inventory Value $ M $ M $ M $ M Order Fill Rate % % % % Inventory Turns..0.. Slow Moving/Obsolete Inventory Value $ M $ M $.M $.M Net inventory value has increased as part of an action plan to improve fill rate to the field. Specific inventory items have been identified to drive improved availability to our reactive teams to support improvement of SAIDI results. These items include transformers and pole line hardware equipment such as fusing. The 0 Test year levels are consistent with 00 to maintain improved service levels. The decision to hold more inventory has had the effect of edging inventory turns slightly down. Similarly, the slow

2 EB-00-0 Exhibit C Tab Schedule Page of moving inventory trend is reflecting the decision to maintain inventory of legacy materials to assure availability in the event of an outage. 0 Currently over percent of THESL s inventory is purchased through long-term (threeto five-year) supply agreements. The contracts are structured to drive continuous improvement through reduction of total cost of ownership initiatives and the implementation of vendor value added services. These services include improved reel deposit terms on wire and cable, reduced minimum order quantities and lead times, and achievement of dedicated stock targets. Other services offered by suppliers also include vendor-held dedicated inventory, improved product warranties, job site deliveries, job kitting, and materials preassembly. These additional options, combined with leveraging long term supply agreements and internal process improvements, will allow THESL to continue to achieve cost savings without compromising quality. 0 Reduction of total costs in the manufacturing and distribution chain (i.e., process improvements, product design, packaging, extended warranties, distribution and storage, shipping, handling) balanced with sustainability considerations, along with opportunities to reduce internal Supply Chain costs in the areas of Procurement, Inventory Management and Warehouse/Logistics, remain an operational focus for THESL. Table below shows the historical, bridge and test year forecast of materials costs to support the planned capital and maintenance programs.

3 EB-00-0 Exhibit C Tab Schedule Page of Table : Total Materials Cost ($ millions) Inventory Type 00 Actual 00 Actual 00 Bridge 0 Test Total THESL (excluding emerging portfolios)....0 Emerging Portfolios Total THESL.... Costs include all Capital and Operations inventory costs including warehouse on-cost rates (as described in Exhibit F, Tab, Schedule ). 0 THESL s materials expenditures decreased by. percent in 00 from 00. This difference reflects the change of materials mix supporting the identified projects, offset by minor materials price increases. From 00 to 00, purchases of materials for existing infrastructure remain relatively flat, but incremental materials purchases of $ million are being undertaken to support emerging portfolio activity as described in Exhibit D, Tab. Overall, the 0 test year figure represents a. percent material cost decrease compared to 00. This is driven by a reduction of the material spend supporting Emerging Portfolio work. Material costs in this area have decreased percent versus 00, largely due to a decrease for Transit City and a higher focus on the civil construction aspects of the projects. This decrease is somewhat offset by incremental material spend on other categories such as System Standardization also sees the advent of a Harmonized Sales Tax in Ontario. This will have a favourable impact on the purchase price of materials. The following table reveals estimated net impact of this change in 00 and 0.

4 EB-00-0 Exhibit C Tab Schedule Page of Table : Total Materials Cost, with HST ($ millions) Inventory Type 00 Actual 00 Actual 00 Bridge 0 Test Total THESL.... Total THESL with HST.. Materials costs are also impacted by a number of factors such as the economic environment, global supply and demand, currency valuation, metals pricing, crude oil pricing, and production capacity limitations. Overall, THESL expects that the net effect of these factors will be relatively stable pricing next year. Materials cost forecasts are based on current information gathered from the Bank of Canada, recognized commodity indexes, manufacturing associations such as the Electrical Equipment Manufacturers Association of Canada ( EEMAC ) and forecasts from THESL s contracted strategic alliance partners. 0 THESL s forecast for materials cost changes over the major commodity groups are shown in Table.

5 EB-00-0 Exhibit C Tab Schedule Page of Table : Commodity Price Net Change (%) Materials Cost Materials Cost Forecast Cost Commodity Poles Transformers. Wire & Cable 0 - Energy Meters Pole Line Hardware 0 - Weighted Overall Average Cost Change The overall estimated average cost change applies to all inventory items required for THESL s work program.