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					EATON CORPORATION


Eaton Global VMI Logistics
Program
USER MANUAL – EATON SUPPLIERS


Revision: 4.3
April 6, 2006


Eaton Global Logistics
Eaton World Headquarters
Cleveland, Ohio USA




Filename: Introduction to Eaton Global VMI Program V.4.3.1doc
TABLE OF CONTENTS

SECTION                                     PAGE

1. INTRODUCTION                               3
  OVERVIEW
  CONCEPT
  METHODOLOGY
2. GENERAL RESPONSIBILITIES                   5

3. REPLENISHMENT AND INVENTORY MANAGEMENT     6

4. PROBLEM RESOLUTION                         7




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SECTION 1: INTRODUCTION TO EATON VMI PROGRAM



OVERVIEW


This document is designed to provide users with an overview of the concepts, key
processes and methodologies, and general requirements and conditions of the Global
VMI (Vendor Managed Inventory) Program. Additional program documents including
standard operating procedures, implementation procedures and training materials are
available from the program administrators.


CONCEPT

The Global VMI Program was designed and developed by Eaton to support Eaton’s
global sourcing initiatives. This is a logistics and inventory management program that
uses web-based tools for visibility and execution. Planning and operations are
collaborative efforts by the logistics provider, supplier and Eaton material and
procurement personnel. Planning includes establishing re-order points and safety-stock
levels, standard lot sizes, packaging, and lead times.

Logistics services are provided by UPS Supply Chain Solutions (UPS-SCS), a logistics
service provider (LSP) engaged and managed by Eaton Global Logistics. UPS-SCS is a
vertically integrated services provider and all primary logistics activities remain within the
providers network.

All commercial activities, including pricing, PPAP, quality assessment, return
authorization, product ownership, and material invoice payment remain the responsibility
of the Eaton Commodity Managers, Eaton plants and the Supplier.


METHODOLOGY

Logistics Design Principles
The Program designed incorporates strategic and tactical logistics principles. These
satisfy and support Eaton business objectives and Eaton Business System strategies
including lean, e-commerce, cost reduction and related supply chain initiatives.

Vendor Managed Inventory
Inventory management in the Program is a collaborative effort with each party
responsible for specific functions. Suppliers are responsible for maintaining required
inventory levels in the US facility. This includes monitoring stock levels and adhering to
shipping requirements and timelines. Eaton materials personnel are responsible for
identifying and communicating trends and changes in the demand requirements that



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impact system alert triggers. Eaton plants are responsible for managing inventory targets
and supplier relationship. UPS-SCS provides logistics services that include:
transportation, facilities, systems and personnel. All participate in and have certain
responsibility for the inventory planning function.

Virtual Order Management
Purchase or release orders are not sent to the supplier to replenish inventory. The
supplier’s obligation is to use the visibility tools provided by the Logistics Provider to
maintain proper inventory levels.

Eaton issues blanket purchase orders to Suppliers that include normal and customary
content and language. The order number is used for tracking purposes.

The Eaton plant release or “call-off” is transmitted to the UPS-SCS Inventory Hub via
EDI, direct web-interface or manually.

Continuous replenishment
Under a controlled re-ordering environment, the supplier ships product based on virtual
inventory levels. Once inventory levels reach the pre-determined re-order points, the
Supplier is signaled. Order quantities (lot sizes), transit windows and delivery
requirements are determined in advance.

Inventory replenishment process
The UPS-SCS inventory management system (FLEX) will send a signal to the supplier
advising that inventory require replenishing - specifically, that it has dropped below the
re-order point. The Supplier accesses the system to determine the specific part number
(sku) requiring replenishment. Re-order points are determined during implementation.

Supplier delivers the goods to the designated UPS CFS/CY according to the terms and
conditions of the Supply Chain Program, the Supplier Agreement with Eaton and the
operating procedures.

The standard Incoterm for the Global VMI Program is FCA. The specific FCA term used
is FCA - CY/UPS-SCS CFS, nearest port of departure. This requires the Supplier to
deliver the goods, cleared and packaged for export to a designated UPS container
Freight Station (CFS) or container yard (CY). CFS facilities are located in all major port
cities. All risks and responsibilities are in accordance with the ICC Incoterms 2000
guidelines.

UPS origin offices will coordinate with the Supplier the necessary formalities required for
satisfaction of delivery within the parameters of the operating procedures and conditions

Standardized Processes
Standard operating procedures and general business conditions were developed to
ensure consistent operations and defined responsibilities. Failure to follow these
standardized processes will be measured and reported as non-compliance in the
program.




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Inventory ownership and title transfer
The standard policy for participation in the Program includes Supplier owned inventory.
If applied, transfer of title occurs when goods are shipped from Inventory hub to the plant
or other point agreed upon by the Supplier and Eaton as described in the Eaton supplier
contract.


SECTION 2: GENERAL RESPONSIBILITIES


Supplier Responsibilities

Implementations – Chapter 2 UPS SOP for additional information.
   1) Supplier contracts and agreement must be complete in order to move forward
      with the implementation process. (Step 1 implementation process)
   2) Supplier name and address spreadsheet must be completed and provided to
      UPS implementations. (Step 2 implementation process)




   3) Sku info data sheet completed and provided to UPS implementations. (Step 10
      implementation process)




Invoicing – Chapter 11 FGV User Guide
   1) Vendor is responsible to bill Eaton for parts that are shipped from the UPS VMI
       warehouse.
           a. The Client Detail Activity report from FGV can be used to determine the
              part number and quantity to be billed. See Chapter 12 in FGV User guide
              for further instructions.
   2) When billing from the Client Detailed Activity Report you should bill according to
       the “Trn Qty” column at the Exceed Transaction Number level. E.g. if part
       number 123 has three lines of 10pcs each for transaction number 0012345 then
       you would bill for 30pcs on your invoice to the customer for that week under
       transaction number 0012345.
   3) When invoicing the Eaton plant, the following two payment ID’s must be used:
           a. Exceed TRN NO = primary payment ID/reference
           b. External Ref NO = secondary payment ID/reference
   4) The Client Detailed Activity report should be attached to your invoice to the
       customer as backup of the transactions.


Marking and Packaging

Supplier must mark all packaging and shipping containers in accordance with any
requirements set forth by the Eaton Plants as stated in the Supplier Agreement. This


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would include but is not limited to carton size, carton quantity, carton grade, and carton
labeling.

Late delivery
Suppliers are responsible for all costs including accelerated transport, and expedited
delivery coordination, caused by delays resulting from:
            incorrect loading – overweight, imbalanced (if loaded by Supplier)
            improper or unsuitable packaging
            late, missing or incorrect documentation
            non-compliance to pre-determined shipping/delivery schedules


SECTION 3: REPLENISHMENT AND INVENTORY MANAGEMENT

Alert Management – Chapter 5 of FGV User Guide
   1) Alerts are notification of events requiring attention.
   2) The urgency level of alerts are as follows(1 – low and 4 – high)
          a. Level 1 – ROP trigger – this alert is sent as notification that one or more
              skus now needs replenishing.
                   i. Response to this alert is expected and measured within 72 hours.
          b. Level 2 – Inventory Threshold – this alert is sent by SKU per day as
              notification that the ROP is negative 20 or more percent and requires
              immediate attention.
          c. Level 3 - Available inventory threshold – this alert is notification that the
              available inventory in the VMI warehouse is less than 20% of the ROP.
          d. Level 4 - Backorder alert – this alert is notification that there is insufficient
              stock to fill an order.
        *** Level 2,3,4 are unfavorable alerts***

Intent Management and Creation – Chapter 6 of FGV User Guide
    1) Intents are to be created in response to alerting.
           a. Must be created within 72 hours of receiving a level 1 alert
    2) Products must be shipped on or less than one week before the intent date.
           a. Intents that are shipped late will be measured and distributed weekly to
               both Eaton and the supplier.
           b. Intent date or quantities should NEVER be changed without the approval
               of the Eaton destination plant.

ASN Management and Creation – Chapter 7 of FGV User Guide
  1) ASN’s must be created for each shipment.
         a. Multiple plants and parts should be consolidated.
         b. Multiple ProForma invoices may be used on one single ASN.
  2) The UPS export team will provide UPS carrier reference number within 2 working
     days of receipt of the named FCA point (UPS container yard or UPS CFS).
  3) ASN’s should be completed as described in Chapter 7 of the FGV User Guides
     with all fields completed.
         a. Intents not linked to an ASN that show late in FGV, will be reported and
              measured as late.
         b. ASN’s keyed late will also be reported and measured as late.




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Inventory Management

Suppliers are responsible to manage their inventory using the online tools provided by
the VMI program. Suppliers are expected to view their inventory multiple times a week
regardless of alert triggers, and will be held accountable for late or missed
replenishments resulting from the lack of inventory management.


Section 4: Problem Resolution
UPS-SCS
        Carol Stream, IL Warehouse
         Customer Service Representative
          Bobbie Bohn
          Ph: 630-588-8169
          Fx: 630-588-8313
          Email: bobbie.bohn@ups-scs.com

          Customer Service Representative
          Cheryl Topps
          Ph: 630-588-8049
          Fx: 630-588-8313
          Email: ctopps@ups-scs.com

          CSR/Warehouse Supervisor
          Heidi Hughes
          Ph: 630-588-8170
          Fx: 630-588-8308
          Email: heidi.hughes@ups-scs.com

        Pharr, TX Warehouse
         Benito Cepeda
         Ph: 956-782-6805
         Fx: 956-782-4540
         Email: benito.Cepeda@ups-scs.com

          Teodoro Candanoza
          Ph: 956-782-6805
          Fx: 956-782-4540
          Email: teodoro.candanoza@ups-scs.com

Program Management
UPS VMI Program Management/Implementations
       Kevin Ayriss
       Ph: 616-575-6921
       Fx: 616-957-5965
       Email: kevin.ayriss@ups-scs.com

Eaton VMI Program Management/Implementations
        Justin Wolf
        Ph: 216 523 4675



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        Fx: 616-957-5965
        Email: justinmwolf@eaton.com




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