Company X

Distribution Center Audit

Seymour, CT

Developed by

St. Onge Company

Specializing in the Planning, Engineering & Implementation of Advanced
Material Handling, Information & Control Systems Supporting
Manufacturing & Distribution Excellence.

1400 Williams Road, York, PA 17402

Phone: (717) 840-8181 FAX: (717) 840-8182
 TABLE OF CONTENTS

1. INTRODUCTION .......................................................................................................................1

2. ST. ONGE COMPANY BACKGROUND..................................................................................2

3. EXECUTIVE SUMMARY .........................................................................................................3

3.1. Storage ................................................................................................................................3
3.2. Receiving ............................................................................................................................4
3.3. Shipping ..............................................................................................................................4
3.4. Systems ...............................................................................................................................4
3.5. Material Handling Equipment.............................................................................................4
4. DATA SUMMARY .....................................................................................................................5
4.1. Weights and Measures ........................................................................................................5
4.2. Inventory Report .................................................................................................................5
4.3. Category Item Assignment .................................................................................................5
4.4. Product Categories ..............................................................................................................5
4.5. Safety Stock Report ............................................................................................................5
4.6. Growth Rates ......................................................................................................................6
4.7. Inventory Growth ................................................................................................................6
4.8. Current Facility Capacity ....................................................................................................6
5. STORAGE ...................................................................................................................................7
5.1. Small Parts Storage Area for Components. ........................................................................7
5.2. UWS Product to PT2 building. ...........................................................................................8
5.3. Cantilever Rack for UWS Cartons. .....................................................................................9
5.4. Varying Storage Mediums for Corrugated .......................................................................10
5.5. Granby Space ....................................................................................................................11
5.6. Rack Numbering ...............................................................................................................11
5.7. Fill Cross-Aisle Tunnel Scheduled ................................................................................12
5.8. New Rack Locations .........................................................................................................13
5.9. Random Reserve vs. Ready Reserve ................................................................................13
5.10. Clean Out Obsolete Components ....................................................................................14
5.11. Additional Space / Product Assignment .........................................................................14
6. RECEIVING ..............................................................................................................................15
6.1. Slip Sheets .........................................................................................................................15
6.2. Inbound Pallet Movement .................................................................................................15
7. SHIPPING..................................................................................................................................16
7.1. Reconfigure Pack Out Lines .............................................................................................16
7.2. Improve Outbound Order Staging ....................................................................................17
7.3. Consolidate Carriers..........................................................................................................17

Page i St. Onge Company

8. SYSTEM RELATED.................................................................................................................18
8.1. Locator System for Finished Goods .................................................................................18
8.2. Voice Pick .........................................................................................................................18
9. MATERIAL HANDLING EQUIPMENT .................................................................................19
9.1. Order Picker Truck versus Turret Truck ...........................................................................19
9.2. Robo-wrapper ...................................................................................................................19
10. GENERAL ...............................................................................................................................20
10.1. Junk Pallets .....................................................................................................................20
11. APPENDIX ..............................................................................................................................21
11.1. Cantilever Rack Information...........................................................................................21

Page ii St. Onge Company

1. INTRODUCTION

With a 6% projected annual growth rate and an increasing inventory level of larger truck boxes
and RV accessories, the Seymour, Connecticut facility is experiencing a storage crunch.
Currently 19,000 square feet of storage space is leased within the industrial park in the PT2
building. That space, coupled with the available storage space in the manufacturing facility is
still inadequate to handle the current inventory volume. We estimated, during our two day visit
on May 7th and 8th , that the facilities were operating with a greater than 100% storage utilization
rate, meaning that product was stored in aisles, on the receiving dock, the majority of racked
storage positions were filled, and product was sitting in trailers in the yard. This results in lost
inventory, additional labor costs to retrieve pallets, cycle counting problems, increased damages,
and overall higher labor costs to service the business.

With service level and brand recognition being the driving force behind product growth, it is
imperative that finished goods be available for shipments to distributors and out of stock
conditions are reduced to their lowest possible level.

The current available storage is 18,910 square feet in the PT building and 34,780 square feet,
including the shipping dock expansion, in the main manufacturing plant. Both manufacturing
components and finished goods are stored in both facilities.

One main congestion point exists in the manufacturing plant. The intersection point of the
receiving dock, the manufacturing operation, component storage, and finished goods storage
creates crossing traffic patterns and congestion for all operations. The congestion is also
manifested by the amount of inventory residing in the facility.

Company X has asked St. Onge Company to prepare a storage audit of the Seymour, CT facility.
The report that follows represents the documentation of that audits findings.

Page 1 St. Onge Company

2. ST. ONGE COMPANY BACKGROUND

The St. Onge Company is a logistics engineering and project management company. We have
been in business since 1983 and have grown to a staff of over 80 people. Our primary business
is planning, engineering, specification, implementation management, and control system
integration of logistics networks and advanced material handling systems in support of
manufacturing and distribution. Our work is typically offered in a three-phased approach and
encompasses efforts ranging from supply chain planning and within the walls engineering to
work process definitions and standardization to specific material handling systems design
including horizontal transportation, storage and retrieval, process/fabrication, system
development and packaging/assembly line design.

We are not a turnkey contractor. We feel that we play a vital role in engineering the best
solution without a bias to particular processes, equipment or vendor selected. After the network
analysis and the initial design phase, we move into the detailed design and specification phase
where selected vendors competitively bid to a well-defined and specified system. As bids are
received, we actively support the evaluation and negotiation process between the client and
selected vendors. This second phase is crucial in the development of documentation, training,
performance, acceptance field service, and warranty requirements as well as the development of
the Functional Systems Design Document and control system specifications. We then move into
the third phase, which is the monitoring of vendor/system performance and/or the actual site
management of contractors. Beyond the three phase design, procurement and implementation
work, we also perform operations planning management projects which both define best
practices and standards within an operation, as well as train management and line associates in
those best practices if so desired by our clients.

Our work is evenly distributed between manufacturing and distribution and is supported through
three primary in-house functions, which are distribution engineering, manufacturing engineering
and controls engineering. Where significant facilities engineering work is required, we will
provide or work with client selected firms. Since our inception, we have worked for numerous
industries and completed over 1,000 assignments for 300 client companies.

We have been most fortunate over the years with most of our work coming from repeat business
and references. We maintain a strong reputation for excellence based upon progressive attitudes,
creativity, leadership, integrity, work ethic and knowledge. We feel that we make a superior
contribution.

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3. EXECUTIVE SUMMARY

The nature of this project was a 2 day site visit and audit report. Limited data analysis was
conducted on high level inventory storage requirements. Recommendations are made based on
our observations and past experience. Sample testing, or due diligence justification should be
performed for all recommendations to make sure they are applicable to Company Xs unique
operating environment and future business strategies. The recommendations, divided into X
discrete sections are as follows:

1. Storage areas of concern or modifications primarily related to the storage of

components and finished goods

2. Receiving recommendations related to the inbound operation

3. Shipping recommendations related to the outbound operation

4. Systems recommendations relating to computer systems designed to assist in the

operational aspect of the facility

5. Material Handling Equipment Recommendations related to the movement of product

3.1. Storage

1. Install bins for storage of small parts. Allows for easier retrieval of small quantities.

2. Move UWS product to the PT2 facility. Receive and ship UWS product directly from PT2
and avoid having it in the manufacturing facility.

3. Install Cantilever rack for UWS product, based on the oversized pallet configurations.

4. Store corrugated pallets in a different configuration. Larger quantities of the same product
are better suited for drive in or bulk floor storage.

5. Complete rack numbering project. Not all locations are numbered in the component side
of the warehouse.

6. Fill one of the Cross Aisle Tunnels in the finished goods warehouse to increase pallet
storage capacity by 72 positions.

7. Add additional selective racking at existing pack out station locations once the stations are
relocated to the shipping expansion.

8. Migrate to a random reserve storage operation versus a ready reserve storage system.

9. Remove obsolete product from the facility.

10. Potential transfer of product categories to other facilities to reduce storage requirement in
Seymour.

Page 3 St. Onge Company

3.2. Receiving

1. Migrate to a slip sheet environment wherever possible for container shipments.

2. Hold inbound pallets on the receiving dock until the component warehouse can process
and putaway.

3.3. Shipping

1. Move pack out operation to shipping expansion. This will allow for conveyorized case
loading directly into the UPS trailers and free up higher clear space for additional racking
in the warehouse.

2. Install drive in rack for outbound pallet staging along the shipping dock wall.

3. Consolidate outbound LTL carriers for volume discounts and ease of loading.

3.4. Systems

1. Install a locator system for finished goods to replace todays manual operation.

2. Voice picking for customer orders will improve picking and provide performance tracking
capabilities.

3.5. Material Handling Equipment

1. Order picker truck versus turret truck for case picking.

2. Robo wrapper for odd shaped UWS pallets.

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4. DATA SUMMARY

4.1. Weights and Measures

1,329 Records
272 had Skid Quantity Values
o Finished Good 217.9 average
o Raw 420 Average
o RTS 308.3 Average
Assumed 6 units per pallet for UWS product

4.2. Inventory Report

4,815 Records(unique SKUs) on the Inventory File

69 Had zero or negative values (4,746 carried forward)
619 Finished Goods
7 No Data
3,007 Raw
512 RTS
670 Semi Finished
Matching this file to the weights and measurements file yielded 175 matches or less
than 4% of the SKU count on the inventory file.
Removed 381 Industrial Items (4,366 Remaining)
Based on limited data analysis, inventory projections are:
o 1,903 pallets of finished goods/RTS
o 2,468 pallets of components and raw materials

4.3. Category Item Assignment

14,063 records
4.4. Product Categories

279 category codes

4.5. Safety Stock Report

2,187 records
521 had values

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4.6. Growth Rates

Core Business 6% annually

Pro and RV 10% annually 75 SKUs coded as RV totaling 53 pallets of inventory or
3% of finished goods pallet inventory.

4.7. Inventory Growth

Throughput growth of 6% annually will yield an estimated inventory growth of 70% of the
throughput growth, or 4.2% inventory growth per year. That growth will yield the following
storage requirements for the CT operation, based on the current SKU profile.

2008 2009 2010 2011 2012 2013 2014 2015

Inventory 4,371 4,555 4,746 4,945 5,153 5,369 5,595 5,830

Pallet Inventory by Year

4.8. Current Facility Capacity

Total available pallet positions for the Seymour operation 4,401

Manufacturing facility 3,576 pallet positions

o Component Side 1,614 pallet positions
o Finished Goods Side - 1,962 pallet positions
PT2 Facility 825 pallet positions

Based on the limited component and finished goods packing information available, the pallet
inventory appears to be about equal to the capacity of the two facilities. A more detailed
analysis, including verification of all packing information, would show that the actual
inventory is slightly higher than shown here. During our audit visit, it was apparent that the
pallet inventory was higher than the actual capacity of the two facilities.

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5. STORAGE

5.1. Small Parts Storage Area for Components.

Install bin shelving or drawer storage for smaller component items. Currently, multiple
components are stored on pallet positions in rack storage. Bags and small boxes are
prone to falling between pallet boards or getting lost among the numerous items on a
single pallet. Picking also becomes easier, and more efficient, as single items are assigned
to single locations.

Existing Small Part Storage

Recommended Small Part Storage

Page 7 St. Onge Company

 Storage drawers, installed with movable dividers, are ideal for smaller quantities and can
be located within the racking or located in a controlled area. The above example fits in
the space of a standard pallet and is used to store the plastic bins in the above example.

5.2. UWS Product to PT2 building.

Relocate Truck boxes (UWS) and accessories to the PT2 building. The majority of box
orders are for only UWS product. Inventory records show that approximately 231 pallets
are on hand of UWS product. This is based on the assumption that 6 finished goods
cartons will fit on each pallet.

Receipt and shipment of this product should occur from the PT2 site, without ever hitting
the main manufacturing facility. From time to time, a carrier may need to make a two
stop pick up, when the order calls for UWS and non UWS product. The other option is to
transfer the UWS product back to the manufacturing site for a consolidated order pick up.

The 231 pallets of inventory will fill approximately half of the available space in PT2,
based on four high pallet storage. Standard selective rack, currently installed in PT2
should be replaced with cantilever racking to better handle the length of odd sized
product.

Page 8 St. Onge Company

 Based on the quantity of lengthy material, a side load truck can be used to access the
racking, while still maintaining a reasonable aisle width.

5.3. Cantilever Rack for UWS Cartons.

Regardless of the location of the UWS product, sections of single deep selective rack
should be removed and replaced with cantilever racking. This will allow for vertical
storage on the longer boxes and facilitate a reduction in damage via warehouse abuse.
UWS product has been designed for full pallet and truckload quantities and the individual
cartons do not contain any corner protection and are prone to damage during normal
warehousing operations.

The average dimension of a UWS product is 58.5 X 21.5 X 18.4. This will yield
approximately 6 cases on a 60 wide pallet, 42 deep and 55 high.

187 items had inventory totaling 1,386 pieces. At 6 pieces per pallet, we need to store
approximately 231 wide pallets. About 72 wide pallets, four high can be stored in each
aisle in PT2. This would require about half of the building, or 3.5 aisles to be configured
with cantilever rack.

The cantilever racking should be designed to handle pallet storage, if and when UWS
product is located in another facility.

Page 9 St. Onge Company

To reduce the aisle width requirement, a side loading fork truck should be used. The
following is one example of a side loader.

Side Load Example

A detailed cantilever rack document is included as an appendix to this document. It is

intended as informational and is not a recommendation for one supplier over another.

5.4. Varying Storage Mediums for Corrugated

There are a numerous pallets of corrugated located in both the main manufacturing plant,
as well as PT2. Our inventory snapshot did not include corrugated, but it appears that
certain corrugated items may be able to benefit from a denser form of storage. Either
drive-in rack or bulk floor storage may suit higher volume items rather than multiple
locations of selective racking. A separate inventory analysis will need to be completed to
determine the optimal storage medium based on actual inventory levels.

Current Corrugated Storage

Page 10 St. Onge Company

5.5. Granby Space

During our audit visit, Hugo Berube mentioned that Granby has available space and is
looking for product lines to handle, in an attempt to relieve Seymour of volume, while
increasing Granbys volume. While the idea has merit, moving product to Canada, only to
ship the majority back to the States, would involve import and export issues, while increasing
transportation costs. With fuel prices increasing daily, we are not recommending product
lines moving north, at this point.

5.6. Rack Numbering

An earlier initiative to number pallet locations within the facility was not completed. On the
component side of the business, pickers are required to search certain full rack bays to locate
product needed for a manufacturing cell. The entire facility should have bay and pallet
location numbers to assist pickers in locating product.

No Pallet Location Numbers Present

Page 11 St. Onge Company

 Pallet Locations Identified

5.7. Fill Cross-Aisle Tunnel Scheduled

The finished goods portion of the manufacturing site has two sets of cross-aisle tunnels to
allow for aisle changes without traveling to the dock side of the facility. Filling in one of
those tunnels, which is already planned, will increase pallet storage by 72 positions. Only 24
pallet beams are required for this modification.

Additional Pallet Positions

Page 12 St. Onge Company

5.8. New Rack Locations

Newly installed racks near the current pack out station are not lagged to the floor. These
should be lagged as soon as possible, particularly since they are located adjacent to
unprotected individuals working the pack out line. Our recommendation regarding the pack
out line is covered in a future section and involves adding additional racking once the pack
out line moves. All of the rack bays should be lagged down, as soon as possible.

5.9. Random Reserve vs. Ready Reserve

With the finished goods portion of the facility operating in a manual mode, the overhead
reserve storage locations are held for product slotted in the floor level pick locations. While
this makes replenishment easier and reduces the time necessary to locate reserve pallets, it
adds to the issue of an over utilized facility. The few pallet positions that are sitting empty
are being held for particular product, while pallets of other product is sitting in aisles and
stored on trailers in the yard.

The facility should operate with a true random reserve locator system, which allows for
product to reside anywhere in the overhead locations. When replenishment is needed the
pallet is moved from its reserve location to its assigned pick location.

A locator system or full WMS system would facilitate this conversion to a true random
reserve operation.

Page 13 St. Onge Company

5.10. Clean Out Obsolete Components

During our audit tour, it was mentioned that some obsolete product is located in the storage
area. Removing this product from the rack and discarding it goes without saying. Any
additional pallet positions that can be gained, even if its one, is a help for the current
operation. Every additional pallet we can locate in the racking versus on the floor is a
potential savings when it comes to retreiving a particular pallet. When the aisles are full,
retrieving a single pallet can result in 20+ pallet moves to retrieve one single pallet. Ten
pallets moving out of the way, retrieve the required pallet, and 10 pallets moving back into
the aisle.

Product in Aisles

5.11. Additional Space / Product Assignment

Several alternatives exist for transfer of product categories to other facilities, in an effort to
relieve some of the pressure currently being experienced in the Seymour operation. One
scenario is to move the RV product to the Chicago area. This is estimated to be around 300
to 400 pallets of product. The UWS product could also move to another facility. This is
approximately 250 pallets.

Based on the projected growth, this would allow the two existing Seymour facilities to
function for approximately three more years before experiencing the same pain they are
currently experiencing with their inventory levels.

Without moving any product categories, Seymour is in need of additional warehouse space to
support the shipments to distributors. Actual configuration of the space will be dependent on
corporate direction regarding category movement. Ideally, we want to store locally
manufactured product local.

Page 14 St. Onge Company

6. RECEIVING

6.1. Slip Sheets

Migrating from floor loaded trailers to slip sheeted loads would reduce the amount of labor
needed to unload a trailer. In addition to the reduction in labor costs, the receiving dock door
availability will improve with a more efficient inbound process.

Two to three containers per week are unloaded in Seymour. It is estimated that six to eight
hours per trailer could be saved by utilizing slip sheeted loads. At three containers per week,
18 to 24 hours, or half an FTE, could be saved by a conversion to slip sheeting.

6.2. Inbound Pallet Movement

Currently, as components are received, they are transported to the staging area within the
component warehouse. Once that staging area is full, the pallets continue to flow into the
warehouse and are set in the cross aisle tunnels. While this relieves the pallet congestion on
the dock, it complicates the operation within the warehouse. This congestion adds to the
time required to retrieve product for the manufacturing operation and results in additional
pallets moves that would not be necessary if the pallets were held on the dock.

Our recommendation is to meter the received pallets into the component facility, if at all
possible, based on the rate of putaway. This will need to be a joint effort between the
receiving operation and the component putaway operation to work towards a better solution
for the facility, as a whole.

Page 15 St. Onge Company

7. SHIPPING

7.1. Reconfigure Pack Out Lines

The current pack out line runs perpendicular to the pick aisles and requires UPS cartons to be
palletized and wrapped prior to transport into the trailer. Once the cartons arrive at the UPS
terminal, the pallets are broken down and individual cases are again handled. Configuring
the pack out station to allow for loose case conveying directly into the trailer will eliminate
the need for palletizing and stretch wrapping.

Moving the pack out line to the lower clear height shipping expansion creates additional
storage space in the higher clear warehouse portion of the building. This space will be better
utilized with racked storage.

The pack out line also acts as a barricade to expanding the racking towards the dock.
Relocating and reconfiguring the pack out operation into the shipping expansion will allow
for:

Direct conveyance of cartons into the UPS trailer

Additional rack storage, thus increasing the capacity of the facility
Reduce congestion with the elimination of the UPS pallets
Improve safety with pack out staff removed from the storage area

Current Pack Out configuration

Page 16 St. Onge Company

 Recommended Pack Out Configuration

7.2. Improve Outbound Order Staging

The current staging for outbound orders is floor storage in the shipping expansion. Product is
only double stacked for full pallets and the majority of the vertical cube is lost. By moving
the pack out line into the shipping expansion, we gain higher clear space in the storage
facility. To gain additional staging positions, 2 deep, 4 high, drive in racking can be installed
next to the docks for outbound staged pallets. Additionally, the front bays of selective rack
can be used for staging outbound loads.

7.3. Consolidate Carriers

Current outbound shipments are being transported via six different LTL carriers based on
final destination, weight and freight rates. Negotiations with one or two carriers to become
your primary freight vendor will most likely result in favorable rates, regardless of
destination, while streamlining the loading process. Fewer and larger shipments will result in
better dock utilization and improved loading rates for larger loads.

Page 17 St. Onge Company

8. SYSTEM RELATED

8.1. Locator System for Finished Goods

Installation of a basic locator system would allow for true random reserve storage, while
aiding in the replenishment and picking operation. The locator system could be interfaced via
an RF application or voice application. Both would yield real time location and availability
of product. Empty pallet locations positioned above assigned pick locations could be used
for any reserve product, thus reducing the amount of multiple handles and reduce the amount
of product in the aisles.

8.2. Voice Pick

Installing a voice pick application would allow for system assisted batching of customer
orders with matching SKUs, grouping single piece orders within the same picking aisle, and
reduce the learning curve necessary for new order pickers.

Voice picking would also trigger real time replenishment based on pick slot quantity, create a
potential hands free picking environment, as well as creating the ability to track individual
performance of employees. Performance tracking of individuals can improve production
from as low as a 10% to as high as 40%.

Page 18 St. Onge Company

9. MATERIAL HANDLING EQUIPMENT

9.1. Order Picker Truck versus Turret Truck

Case picking for product moving to the manufacturing cells and case replenishment is
currently being completed using a man up turret truck. Turret trucks are designed for full
pallet moves and are not necessarily designed for case picking. Man up order picker trucks
are better designed for case picking from upper positions and are substantially cheaper than
turret trucks. ($80,000 versus $35,000).

Our recommendation is that if additional trucks are required, order picker trucks should be
considered for future purchases. Utilize the turret trucks for full pallet putaway and full pallet
picking.

9.2. Robo-wrapper

Odd size pallets, particularly the UWS product can be wrapped with a robo wrapper. This
will eliminate the need for a manual wrapping of every pallet. A staging area is needed to
place the pallet for the robotic wrapper to travel around the target pallet. While the pallet is
being wrapped, the order selector can continue with his next pallet.

CT Packaging Systems in Cheshire, Connecticut is the local source for the robo wrapper.

Page 19 St. Onge Company

10. GENERAL

10.1. Junk Pallets

Minor mention of the fact that junk pallets are being thrown into the trash bin. Not only can
scrap wood be sold, or donated to recyclers, you would avoid the cost of paying to dispose of
the junk wood via trash hauling. Most trash is costed at a full can pull or by the ton. Either
way, the junk pallets are filling up the trash, when they are a potential source of income.

Page 20 St. Onge Company

11. APPENDIX

11.1. Cantilever Rack Information

The attached file is not a recommendation for a particular rack supplier, but simply an
explanation of cantilever racking and should be used as an information tool only.

Page 21 St. Onge Company