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The Benefits of Technology to Large Scale Wholesale

Distribution

ERP Benefits at

Graybar Electric Company

Updated from 2006 10K filing

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“It is managerial ingenuity that creates stockholder wealth through the inventionand exploitation of new products, the development and more efficient provision of services, and sound financial management.” 

Leo E. Strine, Jr.,Vice Chancellor of theDelaware Court of Chancery

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Agenda

I. Graybar – ProfileII. Project Background and ObjectivesIII. Project Risks – The Challenge of TransformationIV. Graybar Business CaseV. Outcomes and BenefitsVI. Link to the Distribution Value MapVII. Conclusion

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I. Graybar Company Profile

• Founded in 1869.

• Spun off from Western Electric and sold to employees in 1929.

• 250 locations in North America.

• 8,000 employees.

• 6,000 shareholders.

• Based in St. Louis.

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Graybar as an Industry Leader• One of the largest electrical wholesaling companies in the U.S. • One of the largest private companies in the U.S.• A Fortune 500 ranked company. • Recognized technology leader by InformationWeek,

InfoWorld, and BusinessWeek.

I. Graybar Company Profile

Primary Markets Served• Contractor• Industrial• Utility• Government

Graybar Business Volumes• $5 billion in revenue• $1.5 billion in assets• 250,000 customers• 4,500 suppliers

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II. Graybar Project Background

The Tipping Point:• Our current system was running out of capacity –

Home built/Mainframe based.

• Our business and industry were becoming more complex – Regulations/Rebates.

• Our customers needed us to be more responsive – One off requests/electronic interaction.

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• To use Technology as a catalyst for business process change.

• To Standardize, Simplify, and Automate our business process using ERP as a global best practice source.

• To create value by improving our asset management and generating positive cash flows using the most up-to-date tools available.

• To improve profitability by increasing employee productivity by focusing on activities the customer is willing to pay for.

II. Project Objective

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III. The Challenges of Transformation

Design

Build Test Deploy

2003 2004 2005 2006 2007

Project Risk Phase

Stabilization

A/R

Inventory

Employee Self Service

Gross Margin Improvement

Business DisruptionRisk Phase

Investment Risk Phase

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III. The Challenges of Transformation

Project Risk Phase

Business Disruption Risk Phase

InvestmentRisk Phase

• 12 to 24 months duration

• Focus – Expenditure control

– Design issues

– Scope issues

– Technical issues

• 12 to 18 months duration

• Focus – Customer & Employee retention

– Training issues

– Productivity issues

– Morale issues

• 60 to 120 months duration

• Focus – ROI

– Priority issues

– Impact issues

– Speed issues

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IV. The Graybar Business Case

• To improve cash flow by better Accounts Receivable management.(10% reduction in days sales outstanding)

• To improve cash flow by better Inventory management and deployment.(10% reduction in days inventory)

• To improve profitability by increasing employee productivity.(10% increase in sales per employee)

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V. Outcomes & Benefits

Productivity

Inventory

A/R

10%

10%

10%

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V. Outcomes & Benefits

$698Million

$765Million

2000 2006

45

50

55 53Days

50Days

Accounts Receivables 5% Improvement in days $67 million in positive cash flow

10%

10%

10%

Days

Updated from 2006 10K filing

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V. Outcomes & Benefits10%

10%

10%

$385 M

$748Million

25

55

52Days

28Days

Inventory 46% Improvement in days $363 million in positive cash flow

2000 2006Days

40

Updated from 2006 10K filing

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V. Outcomes & Benefits

$596 K

$469 K$450

$550

$650

Sales Per Employee 20% Improvement $100 thousand per employee

improvement in productivity

Thousands 2000 2006

10%

10%

10%

Updated from 2006 10K filing

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V. Outcomes & Benefits10%

10%

10%

A/R Inventory Productivity

100% 100%

• 5% reduction in DSO• $67 million • Positive cash flow

• 46% reduction in Inventory days • $363 million • Positive cash flow

• 20% increase Sales per employee• $100 thousand

more per employee

100%

Near Miss

Hit Hit

Updated from 2006 10K filing

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V. Outcomes & Benefits

Unanticipated ERP/SAP Benefits• Significantly increased the tempo of

our business.• Provides much richer data about

our business.• Provides greater control of our business.• Taught us to be better project managers.• Taught us the value of change management.

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V. Outcomes & Benefits

$505M $386

M$326M

$373M $312

M $198M

$641M

2000

150

400

650Net Debt (adjusted)

69% Improvement $443 million reduction

20062001 2002 2003 2004 2005

$ Millions

Updated from 2006 10K filing

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V. Outcomes & Benefits

Balanced ScorecardYTD - 12 Months 2005 vs. 2006

0%

17%

5%

10%

15%

20%

25%

30%

19%

14%

-5%

4%

RevenueGross Margin

SG&AOperating Margin

Net ProfitNet Working Cap.Headcount (U.S.)

8%

88% 242%

Updated from 2006 10K filing

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VI. Links to Deloitte’s Distribution Value Map

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Enterprise Value Driven by ERPAccounts Receivable

DSO is down 5.5% at Graybar

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Enterprise Value Driven by ERPInventory

Inventory is down 46% at Graybar

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Enterprise Value Driven by ERPProductivity

Sales per employeeup 33%

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Enterprise Value Driven by ERPIncrease the “Tempo” of the business

Decision making at the speed of light at Graybar

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Enterprise Value Driven by ERPProvide much richer data about the business

Real time dataabout businessperformance

DailyKPI’s

on everyManagersdesktop

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Enterprise Value Driven by ERPProvide greater control of the business

Meet regulatoryand governancerequirements

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VII. Conclusion

• Using technology to transform a large distribution company has risks and rewards.

• Process re-design and technology helped to generate significant value at Graybar through asset management improvements and gains in productivity. ERP/SAP is part of the secret sauce to our success.

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Questions?