Who & What Is Leveraged Execution Providers (LXP)

Q: Who is LXP?
A: Dedicated to the McDonald´s System, LXP is owned by Armada Group Ltd., which has been providing manufacturing, distribution and transportation services to McDonald´s for more than 30 years. LXP resources have been managing distribution and transportation relationships with a majority of the vendors in the McDonald´s System for the last 10 years, and they possess long-term, established relationships throughout the McDonald´s supply chain. Armada currently has accountability for the existing Re-Distribution (slow-moving) and Toy distribution networks through Hub One Logistics. Armada today has purchase order visibility to 100% of the orders in and out of re-distribution centers through Hub One Logistics. LXP resources have developed and managed national food transportation networks. Through the McDonald´s Managed Freight Steering Team (MFST) and the LXP Academic Advisory Board, LXP will ensure McDonald´s culture combined with industry-leading best practices.

Q: Is LXP a 3PL or a 4PL?
A: LXP really should be considered as more of a Lead Logistics Provider, with the McDonald´s System objectives of full visibility, assured supply and leveraged/single point of carrier negotiations. LXP is currently open to relationship structures with existing McDonald´s System vendors and distributors that have best-practice capability to play a role as a carrier -- or in the physical execution of the transportation management program.

Q: Who do I contact to learn more about LXP or to partner with LXP?
A: If you are a manufacturer or a McDonald´s system supplier, you can contact Norm Dick at 815.886.7401 or Jeff Bayer at 815.293.3827. If you are a carrier or would like to provide transportation, you can contact Mike O´Rourke at 412.963.6519 or John Staab at 412.963.6837.

LXP Operations

Q: Who will I call with issues related to LXP carriers? For example, late trucks/no shows?
A: By and large, the fundamental responsibility and accountability to manage inventory and ensure movement between manufacturers and distributors will remain intact with manufacturers and distributors.
LXP is addressing this in several manners:

1. LXP views a potential role for existing system player and 3PL involvement in the system-wide management of transaction execution.
2. LXP is focusing initially on the direct FTL network and is considering "3PL-type" partnerships with existing McDonald´s System 3PLs to manage LTL and high-variability lanes
3. LXP has procured and will implement Lean Logistics system-wide - among manufacturers, distributors and carriers - a common Transportation Management System. This will provide every trading partner in the supply chain with full visibility and proactive carrier management capability.

Q: Manufacturers, distributors and system 3PLs today have existing relationships with carriers. How will LXP handle this?
A: LXP shares the exact same McDonald´s objective of assured supply at the best value. LXP wants to understand what carrier relationships exist today for carriers providing solid track records of performance within the McDonald´s supply chain, which also have the ability to grow. We want to include those carriers in LXP´s sourcing events in 2006 and 2007.

Q: How will LXP ensure no disruption to assured supply during this transition from locally managed to nationally/centrally managed freight?
A: Nowhere in the McDonald´s supply chain today can LXP go to determine exactly which carriers are managing the thousands of lanes of supply on a daily basis. Manufacturers, distributors and system 3PLs that have strategic relationships with specific McDonald´s System carriers need to contact LXP so that we can include those carriers in the sourcing events -- and to communicate together with those carriers to minimize any supply disruptions.

Q: Today in the McDonald´s U.S. supply chain, the liability for the product while in-transit is a function of either the "delivered" (manufacturers liability) or "picked-up" (distributor or Hub One liability) process. Under LXP, where carriers are paid by LXP, who is responsible for the liability of the product in-transit?
A: LXP is working with McDonald´s legal resources to further define how in-transit liability will be structured, as well as where the financial accountability will reside within the supply chain. As LXP will be contracting carriers, standard LXP and carrier liability will be established in Phase I. Carriers will not be held responsible for product loss resulting from the McDonald´s Transportation Security Policy.

Q: What will be the process for handling all claim activity, including claims arising from the McDonald´s Security Policy?
A: LXP will "own" carrier performance and will be tracking all incidents. Inevitably claims will arise, and we anticipate the process working very much like it does today. Since LXP never pays for any product in the supply chain, we are working with McDonald´s legal resources to determine the best method for claims management. Initially, LXP will establish a $500 claim minimum, and typical OS&D variances will be handled between the manufacturer and the distribution centers. Carrier liability will be limited to total loss incidents involving gross negligence, water damage, infestation, or temperature issues.

Q: How is LXP going to handle backhauls, where a restaurant delivery DC uses its delivery equipment to manage an inbound shipment from a manufacturer?
A: All vendor-to-DC shipments will be included, and DCs will have an opportunity to initially "bid" on those lanes, and most likely will need to ensure minimum tender acceptances in order to assure supply. In the long term, LXP will provide analytical support in evaluating backhaul opportunities within each DC´s delivery geography to ultimately come up with the right answer. Currently, backhauls play an important role in lowering inbound costs and providing delivery-driver retention in several geographies.

Q: When will LXP be communicating with DCs to identify their operational requirements?
A: We currently are working on the communications process and implementation alternatives for the 2006 rollout. It is our plan to engage several resources from distributors, manufacturers and system 3PLs, in addition to guidance from the MFST. Specific location by location operating requirements will be gathered prior to the Strategic Carrier Sourcing event, and also refined as we begin lane by lane implementation.

LXP Processes

Q: Who am I going to call when there is an issue?
A: Contact LXP directly. Whether these are LXP employees, or LXP decides to outsource this function is yet to be determined. Also, LXP will be providing an end-to-end event management platform in partnership with Lean Logistics (not currently resident within the McDonald´s supply chain today), enabling proactive notification of exceptions related to transportation.

Q: What will happen to the existing Benchmark Program?
A: LXP also understands the current challenges of the BM program, and we might anticipate overall system changes to this construct 18 to 24 months into the future, based on direction from the McDonald´s supply chain. In the short run, however, LXP will be implementing cash-flow management processes aligning with the existing BM practice.

Q: How will LXP ensure no reduction to BM revenue credited to the O/Os?
A: Through the McDonald´s supply chain, LXP is taking the position that we will make the system O/Os "whole." The specific process for how LXP will distribute BM revenue back out to the O/Os is being considered by McDonald´s, and we will take their direction on how to conduct this.

Q: Significant relationships are in place today between restaurant delivery DCs and the system 3PLs that support their day-in, day-out transportation execution needs. Disrupting this could significantly interrupt assured supply.
A: LXP believes that partnership opportunities between the System 3PLs and LXP can exist to minimize that disruption. This would enable the McDonald´s supply chain to retain a significant amount of institutional execution knowledge and skill.

Q: Various manufacturers, distributors or system 3PLs have made investments in Transportation Management Systems (TMS). What will happen to these systems?
A: Effectively nothing. Several of these systems are in place to enable manufacturers and system 3PLs to conduct business inside and outside of the McDonald´s supply chain. LXP has completed a technology sourcing event with on-demand solution providers only, and has selected LeanLogistics as the TMS provider to establish a system-wide, common TMS operating platform for the McDonald´s supply chain.

LXP Strategic Carrier Sourcing

Q: Within LXP´s strategic carrier sourcing event, how will fuel surcharges and other accessorial charges would be accounted for?
A: There will be published schedules for fuel surcharges for Dry Van and Refrigerated and the method/rates for applying various accessorial charges in the up-front portion of the on-line bid. LXP´s objective is to establish the purest base-lane rates for varying service levels and mode types. Known and common accessorials will be set by LXP prior to the sourcing event.

Q: Are you obtaining weekend, expedite and other service-level quotes from carriers through the CombineNet process?
A: We are soliciting base-lane rates from carriers across multiple service levels. Accessorials, like weekend deliveries, will be priced and negotiated separately. Ultimately, we will be providing purchasing and manufacturing managers across the supply chain with different service levels and pricing options to manage their assured supply, inventories, DC labor schedules, dock and storage capacity constraints, etc.

Q: How will fuel be handled? The plan is to go to a system-wide separation of fuel from BM freight.
A: LXP will manage fuel on a common, national schedules, based upon distance, not percentage. Additionally, fuel will be a separate line item, in that fuel will not be bundled within the BM base-lane rates.

Q: There are legacy behaviors of vendors and DCs in our system that result in carriers building in fairly common accessorials (like weekend deliveries, or less than 24-hour tender notification) to their base rates. How will LXP be able to measure system leverage when there are so many "freight contracting" entities out there in the system today?
A: Again, the problem we have in the U.S. supply chain is that there are hundreds of transportation-contracting entities across thousands of carriers within the network managing just McDonald´s freight. This variability and fragmentation by definition has made it impossible for any of the supply chain trading partners to fully understand all of the unique contractual structures and corresponding actual costs of providing transportation. In the sourcing event, we are going to be isolating common accessorials like weekend deliveries, and less than 24-hour load tendering (expedites) from the base-lane rates. In this manner, we establish a common, uniform approach to managing base-lane rates and we will provide alternative service levels that purchasing and manufacturing managers can use to effectively run their businesses.

Q: What is the McDonald´s System policy for how to treat system vendors with assets? For example, we cannot provide two competing manufacturers with assets with lane/volume information for the other competing manufacturer.
A: At a minimum, we encourage system players with assets to bid on their outbound lanes to hubs or DCs. LXP owns the responsibility -- potentially through the Managed Freight Steering Team (a collection of manufacturers, distributors and McDonald´s supply chain representatives) to determine what level of participation system vendors with fleet assets can have. Several possible constructs exist:
1) System vendors will have access to bid all "deadhead" lanes that originate after delivery to a DC and/or hub, returning to their manufacturing or forward warehouse location.
2) System vendors also may have the ability to carry freight for "non-competing" suppliers.
3) System vendors will not have the ability to carry outbound product from manufacturing to restaurant delivery DCs for direct competitors within the supply chain.

Q: If a food or packaging supplier uses its assets to haul system freight and has performance issues (not with manufacturing) with transportation reliability, who then owns the relationship with the supplier?
A: LXP will manage carrier performance, and we will provide buyers with performance reports on their vendors -- and on their vendors´ fleets if they are selected to move freight within the system. We will have to work together to determine the most effective/joint way of managing performance.

Do I have to use LXP to be a Carrier to McDonald´s?
A: Yes. LXP will work with you to convert the lanes.

Q: What if I am already using a 3rd party and am under contract with them—do I have to break this contract?
A: LXP will need to review these case by case for McDonald´s supply lanes. LXP will be contracting directly with Carriers, so at a minimum a new Services Agreement will be established between the Carrier and LXP.

Q: What if I am already committed to a service such as Nistevo and have obligations to members who I am working with to form complimentary lanes and carrier discounts—do I have to change over to LXP?
A: Yes; all McDonald lane by lane movements will need to move to Lean Logistics. The majority of the time, the carrier will be doing the interface with Lean Logistics, not the suppliers. With our relationship with Lean Logistics, we can still collaborate with many other food shippers to gain similar complimentary lanes, and achieve higher carrier capacity utilization.

Q: What happens to my existing contracts with my carriers that may or may not have a volume commitment?
A: LXP will need to review these case by case for McDonald´s supply lanes. LXP would like your carriers to participate in the Strategic Sourcing Event, which could result in more volume with that particular carrier and better leverage for the McDonald´s system.

Q: Is it guaranteed that my lane rates will stay the same or go down?
A: No. Establishing Strategic Carrier relationships at the local, regional, and national levels, we fully anticipate overall value to the McDonald´s system. Individual lanes may increase or decrease as a result of our future Carrier relationships.

Q: How will LXP factor in my pick up requirements such as hours of loading, unique holiday or plant shut downs etc?
A: LXP will be evaluating/soliciting your specific location service requirements prior to lane conversion. On an ongoing basis, it is still the responsibility of the restaurant delivery DCs and the manufacturers to assure supply. Thus, unique holiday or plant shut downs resulting in unique Carrier capacity obligations must be communicated to LXP.

Q: Will LXP handle all loads including rushes, expedited special request moves and weekends and holidays? How about exceptions loads in lanes not bid or new lanes that are added after the bid?
A: Yes.

Q: Who will own the product after pick up?
A: McDonald´s MFST is currently considering unique, system-wide options. In Phase I, anticipate that LXP will operate legally very much like a 3PL does today.

Q: Who will resolve issues/disputes between LXP and the suppliers?
A: LXP and suppliers to work together to resolve any issues.

Q: Will LXP provide me the carrier proof of delivery?
A: No. However, delivery confirmation will be available through Lean Logistics. If a POD is needed LXP will provide the paper POD´s, and pass that cost along to the inquiring party.

Q: As a supplier, will LXP provide me proof that they paid the carriers in full for my loads?
A: No.

Q: What will my relationship be with LXP—will they sign a contract with me?
A: As a Carrier, yes. In Phase I, LXP will be the agent of the Manufacturers and/or the Restaurant Delivery DCs/Hubs.

Q: How will I provide future Benchmark rates if I am not moving any loads?
A: TBD by the MFST & McDonald´s Supply Chain.

Q: What if I am currently using private/dedicated fleets on my moves and they participate in the bid but do not win - what will happen to these costs?
A: These will be reviewed by your Purchasing Agent on a case by case basis for resolution.

Q: Who will provide cargo insurance?
A: Cannot answer this one yet. Will await further feedback from the MFST to make this decision.

Q: Will LXP be providing rail service or just motor?
A: We will be reviewing all modes including inter-modal and railcar.

Q: How will LXP handle fuel surcharges? Will they absorb fuel surcharge losses until the next Benchmark adjustment?
A: LXP is establishing a system wide, single fuel schedule for use in establishing Strategic Carrier relationships for Dry Van and Refrigerated. Carriers will be paid according to these schedules, updated weekly with DOE indices. LXP will adjust fuel rates up or down slightly on each lane on a monthly or quarterly basis, with an objective of being ‘fuel neutral´ on each lane.

Q: Who is responsible if the LXP carrier breaks/loses the seal in route and McDonald´s decided to scrap the entire load?
A: As is the policy today, the Manufacturer holds the liability, as Delivery DC´s do not receive the product/pay for the product. Carriers will not be held liable for Product Loss. The MFST is considering alternatives to the existing overall Security Policy.

Q: Will I pay LXP by lane rate or freight per case?
A: LXP will bill Manufacturers for the effective Benchmark and a Standard Fuel on each shipment.

Q: Is McDonald´s responsible for LXP´s performance and will they guarantee LXP financial obligations?
A: All terms and agreements for LXP have been reviewed with McDonald´s. They are comfortable and willing to discuss this with any carrier or supplier. Please contact LXP at 412-963-6903 to obtain the appropriate McDonald´s Supply Chain contact.

Q: Will there be any responsibilities for the suppliers after loading and sealing the loads?
A: LXP will be sourcing carriers with a ‘Shipper Load & Count´ process. Carriers will not be held responsible for Product Loss associated with the McDonald´s Security Policy. Poor performing Carriers will not move freight with McDonald´s longer term.

Q: Who do we call if the Carrier does not show up?
A: Within the Lean Logistics operating platform, shipping and receiving locations will be able to view confirmed appointments, and have access to all of the carrier contact information, reference numbers, etc. Additionally, for appointments not confirmed by Carriers with 24 hours of requested dates/times, the Carrier, Shipper, and Receiver will receive an exception notification. Most issues will be resolved between the shipper/receive and the carriers, and also there will be an LXP Service Representative available to help resolve issues such as these.

Q: Do we bill LXP for carriers that show up late and require overtime in loading?
A: No; the system will continue to operate in the manner it has. If there is a major issue the supplier will call LXP for resolution.

Q: I see that I have to send shipping info to the LXP system. Will LXP provide this linkage to me? Will it be compatible with my systems? How much will it cost?
A: LXP is providing a single, common, web-enabled real-time transportation management platform for use by all suppliers, carriers, and distributors. In the current LXP operating process, suppliers will enter little to no information into the transportation management system. All suppliers can access this system via the web. Integration with suppliers legacy systems will be addressed individually and in a business case manner.

Q: What happens if LXP actually has to pay more than the Freight Comparison rates--will they absorb this expense or look to me for payment?
A: LXP will bill the supplier no more than the McDonalds agreed FRT comparison rate. The Distributor ordering the product, and the supplier making the product will have different service level options for Normal, Expedite, or Special Service (eg weekend delivery) rates to choose from in best managing the assured supply. Exceptions will be handled on a case by case basis.