Presented to the Global Pouch Forum

Clearwater, Florida

12th May 2010

Five updates on global sourcing

Peter Agnew, President and COO

Advanced Global Sourcing

1 2 3 4 5

Global sourcing drivers

1

1 Reduce direct product costs toimprove competitiveness.

2 Consolidate worldwide suppliers to leverage global spending.

3 Tap increasing Asian demand to increase market potential.

4 Connect to innovation–outside the United States.

Two familiar drivers; two emerging drivers

Global sourcing evolution

2

Stage 1:

Domestic supply

Stage 2:

Individual opportunities

Stage 3:

Managed relationships

Stage 4 :

Global supply solutions

Stage 5:

Integrated global supply system

Evolution from international purchasing to global supply system

Product Life Cycle

Prototype Introduce Normalize Scale OptimizeConcept

2010 - 2012 Pre 20072007 - 2009

Real EffortResource Requirement

Major organizations global sourcing expectations, 2009 - 2012

Asia sourcing as a percentage of total

0% 5% 10% 15% 20% 25% 30% 35% 40%

Automotive

Comm & High Tech

Packaging

Resources

Industrial Equip.

Pharmaceutical

Packaging

Global sourcing risks

3

Indian Rupee Versus USD Vietnam Dong Versus USD

Korean Won Versus USD Indonesian Rupiah Versus USD

Market risk: Currency fluctuation

-8.4%

42

43

44

45

46

47

48

16500

17000

17500

18000

18500

19000

19500

20000

1040

1060

1080

1100

1120

1140

1160

1180

1200

1040

1060

1080

1100

1120

1140

1160

1180

1200

-9.21%

-7.54% +11.25%

January 2009 – July 2009: North American polypropylene

priced 10% - 20% less than Asian polypropylene

January 2010:

North American

polypropylene priced

30% more than Asian

polypropylene

Market risk: Material cost fluctuation

Source: Compiled average using ICIS-LOR, PLATTS and LME

-30%

-20%

-10%

0%

10%

20%

30%

40%

Market risk: International trade regulations

United States Commerce Department

June 2008: The United States announces duties

of 95% to 445% on Chinese producers of laminated

woven bags.

Petitions filed by Bancroft Bag Inc.; Coating Excellence International; Hood Packaging

Corporation; Mid-America Packaging, LLC; and Polytex Fibers Corporation charging

Market risk: Politics

Thailand: November 2008

Anti-government protestors

take-over Suvarnabhumi

airport in Bangkok,

grounding people

and shipments out of one

of Asia's busiest air hubs.(Source: Time)

Market risk: Unpredictable events

United States: April 2010

An explosion occurs on BP’s

Deepwater Horizon rig off

the U.S. Gulf Coast.

BP and the U.S. Coast

Guard expect no significant

oil spill.

Uneducated (unrealistic) upfront contract agreements

Lack of Unit price / index linked formula – forces deviation from GMP

Inefficient pouch producing equipment

Lack of Capital Investment

High Turnover of highly skilled staff

Major problem in China

Supplier risk: Quality

Supplier risk: Capacity & Delivery

Increasing Domestic Demand in Asia for Pouches

Higher risk further down the supply chain

roll-stock suppliers / cylinder makers, etc.

Quality case study

U.S. packaging

leader sources

flexible bags in

China for its

major U.S.

pet food client.

Chinese

manufacturer

ships two

containers of

non-conforming

bags to the client.

Pet food client

rejects the

bags and no

replacements

are available.

Pet food client

halts production

while

replacement bags

are expedited.

Initial transaction cost: $62,000

Ultimate transaction cost: $1.9 million

Quality case study

Problem 1:

The packaging company provided ambiguous product performance

specifications to the Chinese bag manufacturer.

Problem 2:

The factory had insufficient quality systems and quality control processes.

Problem 3:

The supply system failed to consider the lead times of replacing poor quality

products that were not detected until they reached the U.S. customer.

Problem 4:

The contract between the U.S. packaging firm and the Chinese supplier

did not require the supplier to have insurance against quality defects.

Global sourcing best practices

4

Strategy and planning

Strategy Development establishes the strategic roadmap

•Expanding Reach

•Innovation

•Cost Reduction

Category assessment: the foundation of what to source where

•Review of Total Spend

•Country Profiling

•TCO Modeling

Risk Assessment as the basis of a mitigation plan

•Country Risk Assessment

•Product Risk Assessment

•Supplier Risk Assessment

Executive Commitment

•Have your sourcing strategy in place

•Get formal CEO and Board commitment to the strategy

•Establish a cross-functional steering committee

Well-defined goals, processes, roles, and timing

•Gain input from all cross-functional partners

•Leverage current processes and resources

•Understand and incorporate the lessons you’ve learned already

The right resources

•Have access key cross-functional partners and budgets

•Enlist outside support to fill any gaps in internal resources or expertise

•Have the expertise to develop good contracts and performance documentation

Best practices

21

Integration through information technology

•Use technology to see key data and information real time

•Maintain integrated project, supply chain, and supplier quality management

Organizational Design

•Establish a functional team–internal and external–with clear integrated roles

•Establish an international presence to support the initiative

Definitive Communication

•Hold frequent strategy review and coordination sessions

•Report to senior executives regularly

•Make the best use of the technology available

Best practices

22

Metrics and Methods for Measuring Savings

•Have agreement on methods of validating savings

•Meet regularly with leaders to review current and expected savings

Needed Enhancements for Success

•Look beyond unit cost

•Outline global performance drivers and the metrics for each

•Establish compatible information systems across the value chain

•Be consistent globally in how you evaluate and develop suppliers

Translate Global Vision into Global Reality

•Agree upon metrics and sourcing priorities with your suppliers

•Establish a multi-year, multi-country strategy

•Get cross-functional commitment and involvement

•Establish unbiased financial evaluations for your results

Best practices

Global sourcing benefits

5

Benefits of Asia Sourcing

Enhancing Global Consolidation

Increases Leverage and Reduces Cost Pouch and Supplier Management

Primarily towards the majors.

Leveraging Innovation Opportunities

Asia Suppliers (lead by India) are at forefront of packaging innovation

Leveraging Cost Savings

Different throughout Asia

Calculating Asia Cost Savings in Pouch Industry

Risk TCO Savings

LOW

MEDIUM

HIGH

LOW

MEDIUM

HIGH

20+

Suppliers

80+

Suppliers

200+

Suppliers

Suppliers

CLASS 1

CLASS 2

CLASS 3

10% - 13%

13% - 18%

18% - 25%

Calculating Asia Cost Savings in Pouch Industry

11%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

India Korea Indonesia Vietnam China

Parting thoughts

Global sourcing is more than China.

There is no lowest cost solution there

is a greatest total value solution.

There are significant risks: know them,

prepare for them, manage them.

Peter Agnew

Advanced Global Sourcing

pagnew@advancedglobalsourcing.com

Thank you.