SUPPLY CHAIN SERVICES
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1 EB-0-0 Exhibit F Schedule Page of SUPPLY CHAIN SERVICES INTRODUCTION Supply Chain supports THESL asset management plans by ensuring that all required goods and services are available when needed. Strong Supply Chain operations are vital to ensuring that the catalogued materials are ordered and delivered in a cost effective and efficient manner, and that optimal inventory is on-hand or held at the supplier to support demand. 0 SUPPLY CHAIN CORE OBJECTIVES Provide an uninterrupted flow of required materials, supplies and services Optimize inventory investment Maintain and improve quality of materials Find or develop competent suppliers Standardize, where possible, the items and services bought Purchase required items and services at lowest total cost 0 SERVICES Procurement (Including Vendor Sourcing and Relationship Management) Outsourcing Distribution & Logistics, Forecasting and Planning Inventory Control Warehousing, Storage & Materials Handling
2 EB-0-0 Exhibit F Schedule Page of ACTIVITIES Supply Chain is structured under two main functional areas: ) Supply Chain Demand & Acquisition Services ) Warehouse and Logistics 0 0 Supply Chain Demand & Acquisition Services Typical activities associated with this area are: Statistical analysis Managing inventory stock levels and critical spares Re-order analysis Forecast inventory requirements and collaborate with internal customers and vendors to optimize inventory levels Disposal of all surplus and obsolete material Vendor sourcing and assessment Administration of competitive bidding processes Developing strategic supply, service agreements and contracts Processing purchase orders Expediting materials Providing reporting to the business units and executives Ensuring adherence to the Procurement Policy Developing supplier alliances Vendor performance management In order to drive service improvements from suppliers, Supply Chain has formalized its vendor management program. Accordingly, scheduled management business meetings take place to review key performance metrics, communicate market trends, and align expectations and strategy. Moreover, an escalation process has also been formalized to address performance issues. Demand and Acquisition Services costs are recovered
3 EB-0-0 Exhibit F Schedule Page of through a cost allocation program administered by the Finance Department, as described below in this schedule under the heading Cost Allocation Program. Warehousing & Logistics Warehousing & Logistics receives, stocks, and issues all inventory materials for both capital projects and maintenance requirements. Material is distributed to field crews from three warehouse locations. 0 The major activities associated with this service are to: Pick, stage, and load electric distribution material onto fleet vehicles Unload, inspect, receive, and store electric material from vendor vehicles Deliver and distribute materials to and from job sites and other warehouses Issue miscellaneous (over-the-counter) items such as tools, clothing and safety items Perform daily inventory cycle count activities 0 The transition to a Warehouse Management System ( WMS ) is currently underway. This software solution is based on barcode technology and provides real-time visibility of inventory position and adds efficiency to the receiving and picking functions. In addition, use of this software will assist with resource and inventory prioritization, and improve customer service to THESL crews. The new system will be in operation by November 0. COSTS Table below provides the historical, bridge and test spending for Supply Chain operating and maintenance costs.
4 EB-0-0 Exhibit F Schedule Page of Table : Supply Chain O&M Costs ($ millions) Department Actual Actual Actual Bridge Test Test Test Acquisition Services Warehouse, Demand, Management, Administration Total The 0 bridge year budget reflects a $.M increase over 00. This increase is driven by: the impact of new personnel hired to complete the 00 hiring plan; the additional occupancy charges for the expansion of outdoor space at one warehouse facility; and the reduction of transformer reclaim credits back to a more typical level after the higher than budgeted credits recorded in 00. The 0 Test year reflects an increase of $.M versus 0 and this is comprised of: the hiring of two additional employees, one of whom will assist in the competitive procurement process and the other will provide enhanced data analysis to support analysis and decision making; general labour rate increase of three percent; and an adjustment to the allocation rate charged for space. The budget estimates for 0 and 0 assume a five percent and a three percent increase per year, respectively. Change in both years is driven by payroll increases, plus the addition of one new employee in mid 0, which will allow for an adequate training
5 EB-0-0 Exhibit F Schedule Page of period before anticipated retirements in 0. Cost Recovery Supply Chain costs are fully recovered from user departments through the use of the inventory on-cost rate and the cost allocation cost-recovery program. 0 0 Inventory On-cost Rate The costs associated with operating the warehouse, and general administrative functions are recovered through a materials on-cost recovery program, which is applied to the cost of inventory materials at the time of issue. The current on-cost rate for 0 inventory is percent, up from percent in 00. The increase was due to the three cost drivers outlined above, matched with decreased internal materials spend supporting the capital projects. Although overall capital spend increased in 0 compared to 00, the quantity directly purchased and handled by Toronto Hydro declined. The balance was managed by the electrical contractors. In 0 the on-cost rate will decrease to percent primarily because in the middle of that year THESL will begin undertaking Supply Chain activities for the equipment and materials used by its electrical contractors in addition to those used by its own crews. This will enable better control and disbursement of materials across all work on THESL infrastructure. The resulting increase in material throughput and the relatively small increase in supply chain overhead expenses combine to cause the on-cost rate to fall. In 0, the on-cost rate will decrease by an additional four percent (to ten percent) as THESL completes the process of assuming control over all Supply Chain activities for the equipment and materials used by electrical contractors. In 0 the on-cost rate is projected to drop a further one percent (to nine percent) due to the increase in material throughput as capital spending increases to support the capital plan proposed for that year.
6 EB-0-0 Exhibit F Schedule Page of Table : On-cost Rate (%) Year On-Cost Rate 0 Cost Allocation Program Supply Chain Demand & Acquisition Services costs are recovered through a cost allocation program, which apportions these costs based on the percentage of purchase orders transacted by each user department.
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