Creating Value with an Outsourced International Purchasing Office in China
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Transcript of Creating Value with an Outsourced International Purchasing Office in China
Case Study
Creating Value with an OutsourcedInternational Purchasing Office in China
Dragon Sourcing - 龙 源 Your Tailored Sourcing Approach to China
© 2007 Dragon Sourcing. All rights reserved.2
Agenda
1. Context
2. Sourcing Process
3. Governance Model
4. Results and conclusions
© 2007 Dragon Sourcing. All rights reserved.3
Context
European food Conglomerate:
• A global Manufacturer of food products, headquartered in the UK, with over 250 manufacturing locations around the world.
• They employ 85,000 people worldwide and have an annual turnover of £7 bn(14 bn USD)
• Within their portfolio of businesses are human and animal food companies, food additives, and well known consumer goods.
• The organization has recently launched a structured strategic sourcing programme to buy direct from suppliers in China with the assistance of Dragon Sourcing.
© 2007 Dragon Sourcing. All rights reserved.4
Agenda
1. Context
2. Sourcing Process
3. Governance Model
4. Results and conclusions
© 2007 Dragon Sourcing. All rights reserved.5
Dragon Sourcing service offering covers the end-to-end sourcing process
Feasibility Analysis Supplier Selection and Contracting Procurement Operations
• Analyse spend category in detail– Specifications and quality requirements– Volumes– Deadlines
• Analyse supply market and identify potential suppliers
• Pre-qualify potential suppliers through an RFI process
• Manage RFP process with pre-qualified suppliers
• Analyse supplier responses and calculate fully delivered price (logistics, import duties, ADT,..)
• Develop Business case and implementation plan
• Shortlist suppliers based on RFI/RFP process
• Audit shortlisted suppliers
• Select 2-3 suppliers for sample development process
• Manage sample development process
• Conduct final negotiations and select suppliers
• Finalise Contract
• Manage P/O and agree payment terms and details (L/Cs,..)
• Check in process production quality
• Conduct pre-shipment QC
• Arrange logistics
• Manage supplier performance
• Monitor new sourcing opportunities
Key
act
iviti
es
© 2007 Dragon Sourcing. All rights reserved.6
Feasibility Analysis Supplier Selection and Contracting Procurement Operations
• Analyse spend category in detail– Specifications and quality requirements– Volumes– Deadlines
• Analyse supply market and identify potential suppliers
• Pre-qualify potential suppliers through an RFI process
• Manage RFP process with pre-qualified suppliers
• Analyse supplier responses and calculate fully delivered price (logistics, import duties, ADT,..)
• Develop Business case and implementation plan
• Shortlist suppliers based on RFI/RFP process
• Audit shortlisted suppliers
• Select 2-3 suppliers for sample development process
• Manage sample development process
• Conduct final negotiations and select suppliers
• Finalise Contract
• Manage P/O and agree payment terms and details (L/Cs,..)
• Check in process production quality
• Conduct pre-shipment QC
• Arrange logistics
• Manage supplier performance
• Monitor new sourcing opportunities
Key
act
iviti
es
Dragon Sourcing service offering covers the end-to-end sourcing process
© 2007 Dragon Sourcing. All rights reserved.7
The first step is to develop a comprehensive understanding of the need and of the functional requirements
19 kg (±0.5 kg) Weight
Short: 190mm - Long: 190 mmCentral Block
Short: 510 mm - Long: 540 mmFork access
1000mm x 1200 mm x 150 mmSize
€150,000 (Business Unit 1)Current annual spend in EURO
€ 45.00Current DDP price in EURO
6.5% (China – UK)Customs Duty
3923900000HS Code
480 pcs/ 40’HC Packaging
Dynamic Load capacity: 1000 kg (±5%)
Static Load capacity: 4000 kg (±5%)
Rack Load capacity: 1000 kg (±5%)
Rack Loading Deflection: 60 mm max
Description
50 % Virgin HDPE - 50 % Recycled HDPE Material
1520 pcs Quantity
Product PicturePlastic PalletProduct Name
© 2007 Dragon Sourcing. All rights reserved.8
Product DemandQuantity
Quantity/40'HC
Samplecharge
(US$/pcs)
FOB price(US$/pcs) FOB port
FOB - CIFtransporta
tioncharges
estimates
CIF Price(US$/pcs)
Import taxduty
CIF - DDPtransporta
tioncharges
estimates
DDP Price(US$/pcs) savings
plastic pallet 1520pcs
Quotations for plastic palletswith recyclable raw material加回料塑料托盘报价
MaterialProportions (%)回料比例
Quotations for plastic pallets without recyclableraw material (Virgin)不加回料塑料托盘报价
Heavy duty HD PE plastic pallet quotation
Type of pallet
Plastic pallets 1000x1200x150 mm(annex1)塑料托盘 1000x1200x150 mm (附件1)
Plastic pallets 1165x1165x150mm (annex2)塑料托盘 1165x1165x150 mm (附件2)
Request for information
To 收件人: Ms. Vi vi an XuEmail 电子邮件: [email protected] number 电话: 021 - 6141 3958Fax number 传真: 021 - 6141 3966
Company Name公司名称Contact Person联系人Title职位Email电子邮件地址Tel电话Fax传真Mobile phone手机
What date was your companyfounded?贵司是在哪一年成立的?Ownership (State Owned/Priviate/Foreign Investement)企业性质 (国有/民营/外资)Registration capital (RMB)注册资本 (人民币)What is the workfloor size (m²)?贵司工厂面积有多少平方米?
How many employees do you have?贵司员工总数有多少?What kind of certification do youhave (ISO, Environment friendly,etc)有何质量管理证书?(例如 ISO,环境Do you have good Englishspeaker and writer in yourfactory? (Y/N)贵司是否有可用英语进行书面及口语交流的人员?(是/否)Are you capable to produce HDPolyethylene plastic pallets likeshowed in annex and that respect all
DRAGON SOURCING 龙源有限公司上海代表处
INTEND TO RESPOND答复意向
Then, an RFI/RFP process is administered to filter out most capable suppliers
Businessinformation
Logo on the pallet
Product and priceinformation
Logisticsinformatio
n
Contact detailinformation
© 2007 Dragon Sourcing. All rights reserved.9
1 Shandong 13-Sep 27-Sep € 17.18 € 31.24 —2 Zhejiang 12-Sep 27-Sep € 18.29 € 32.43 19-Oct3 Guangdong 13-Sep 27-Sep € 18.43 € 32.57 19-Oct4 Fujian 12-Sep 27-Sep € 20.16 € 34.42 19-Oct5 Zhejiang 10-Sep 27-Sep € 22.86 € 37.29 —6 Beijing 14-Sep 27-Sep € 36.90 € 52.24 —
Sample sent
Company Information
FOB priceSupplier Region RFI/RFQ sent RFI/RFQ replied
RFI/RFQ follow up
DDP price
During the tender process, the suppliers’ willingness to collaborate and to provide complete and accurate information is also assessed
Supplier 2:– Recycled HDPE at 50 %– Fork Access
• Short: 255 mm (required: 350 mm)• Long: 270 mm (required: 365 mm)
– Central Block• Short: 190 mm (required: 190 mm)• Long: 190 mm (required: 190 mm)
Suppliers 4:– Virgin HDPE – Fork Access
• Short: 260 mm (required: 350 mm)• Long: 260 mm (required: 365 mm)
– Central Block• Short: 190 mm (required: 190 mm)• Long: 190 mm (required: 190 mm)
Supplier 3:– Virgin HDPE – Fork Access
• Short: 260 mm (required: 350 mm)• Long: 260 mm (required: 365 mm)
– Central Block• Short: 190 mm (required: 190 mm)• Long: 190 mm (required: 190 mm)
X
XX
© 2007 Dragon Sourcing. All rights reserved.10
1 Shandong € 17.18 40'c 325 € 10.34 € 27.52 € 1.79 € 1.93 € 31.24
2 Zhejiang € 18.29 40'c 325 € 10.34 € 28.63 € 1.86 € 1.93 € 32.43
3 Guangdong € 18.43 40'c 325 € 10.34 € 28.77 € 1.87 € 1.93 € 32.57
4 Fujian € 20.16 40'c 325 € 10.34 € 30.50 € 1.98 € 1.93 € 34.42
5 Zhejiang € 22.86 40'c 325 € 10.34 € 33.20 € 2.16 € 1.93 € 37.29
6 Beijing € 36.90 40'c 325 € 10.34 € 47.24 € 3.07 € 1.93 € 52.24
Current € 45.00
CFRFelixstowe
value
Customsduties
Freight costfor inland
transportationper unit
DDP EURpriceSupplier Region
FOBPurchasing
Price
Containertype
Number ofpallet in a 40
container
Freight costper unit
Then all relevant information is collected to calculate DDP prices
Shanghai
SHANGHAI
Gansu
JiangxiZhejiang
BEIJING
Jiangsu
Guangxi
Hunan
Hubei
Ningxia
Shaanxi
Anhui
Fujian
Neimongu
Shanxi Shandong
Sichuan
Yunan
Guizhou
Henan
Jilin
LiaoningHebei
Guangdong
Gansu
Heilongjiang FOB Price (supplier) Freight forwarding, customs & duties
DDP Price
3
5
4
2
6
1
© 2007 Dragon Sourcing. All rights reserved.11
Price Comparison
€ 0.00€ 5.00
€ 10.00€ 15.00€ 20.00€ 25.00€ 30.00€ 35.00€ 40.00€ 45.00€ 50.00€ 55.00
supplier1 supplier2 supplier3 supplier4 supplier5 supplier6
Logistic Costs from FOB China to UKFOB Price
Finally a Go/No Go decision to proceed is given based on the savings potential vs. the risk associated with changing suppliers
Current DDP price € 45/pcs
€ 31.24
€ 52.24
€ 32.43
€ 32.57
€ 34.42
€ 37.29
© 2007 Dragon Sourcing. All rights reserved.12
Feasibility Analysis Supplier Selection and Contracting Procurement Operations
• Analyse spend category in detail– Specifications and quality requirements– Volumes– Deadlines
• Analyse supply market and identify potential suppliers
• Pre-qualify potential suppliers through an RFI process
• Manage RFP process with pre-qualified suppliers
• Analyse supplier responses and calculate fully delivered price (logistics, import duties, ADT,..)
• Develop Business case and implementation plan
• Shortlist suppliers based on RFI/RFP process
• Audit short listed suppliers
• Select 2-3 suppliers for sample development process
• Manage sample development process
• Conduct final negotiations and select suppliers
• Finalise Contract
• Manage P/O and agree payment terms and details (L/Cs,..)
• Check in process production quality
• Conduct pre-shipment QC
• Arrange logistics
• Manage supplier performance
• Monitor new sourcing opportunities
Key
act
iviti
es
Dragon Sourcing service offering covers the end-to-end sourcing process
© 2007 Dragon Sourcing. All rights reserved.13
Short-listed suppliers are audited to assess long-term partnership opportunities
Audit questionnaire
Audit report
Audit summary
Objectives• Meet top management and sales management teams• Present order details• Refine supplier offer understanding• Understand organization• Validate manufacturing capabilities• Visit factory and check work conditions
Topics• General Management• Order management• Shipping / packaging• Planning process• Goods flow• Procurement• Purchasing• Production• Quality…
© 2007 Dragon Sourcing. All rights reserved.14
Collected information is shared with customer through detailed audit reports
GENERAL INFORMATION
SUPPLIER NAME XXXXX Plastic Products Co., LtdCity Ningbo
Province Zhejiang
Zip code 31555
Contact person L G
Job title Purchasing Manager
Email [email protected]
Phone number 86-0555-5555-5555
Fax number 86-0555-5555-5555
Website www.webpage.cn
BUSINESS INFORMATION
Found Year 1993
Ownership foreign investment Capital in million RMB 27.3
Work floor size (m²) 50,000
Number of employees 500
Revenue/Turnover (in million RMB) 2007 100
% Sales exports to western markets 90%
Main export markets US & Japan
Actual annual production of plastic pallets 45,000 pcs
QUALITY & ENVIRONMENT CERTIFICATION
ISO 9001:2000 YES
ISO 14000 YES
Others JIS, UL, CSA
FACTORY PICTURE
COMPLIANCE WITH LOCAL LAWChildren labor YES
Working hours YES
Health & Safety YES
Environmental issues YES
© 2007 Dragon Sourcing. All rights reserved.15
Audit outcome is summarized in a rated profile of each supplier
DS Scoring Description
Please check the relevant
box
91 - 100 % Excellent
81 - 90 % Good
61 - 80 % Satisfactory
51 - 60 % Inadequate
- 50 % Poor
M 1 Management 77%4.1 Quality system and environment 80%4.2 Quality assurance and improvement process 90%2.1 Logistics: General 68%2.2 Logistics: Order management 64%2.3 Logistics: Expedition / Packaging 80%2.4 Logistics: Planning Process 64%2.5 Logistics: Goods flow 75%2.6 Logistics: Procurement 80%2.7 Purchasing 77%
T 3.1 Production and Work preparation 77%3.2 Development - general 75%
C 5 F&A 70%Average score 75%
Q
L
.0
.0
© 2007 Dragon Sourcing. All rights reserved.16
A closer look on collected samples shows slight feature differences among different suppliers
Supplier Name Province Recycled Stat. Load(kg)
Dyn.Load(kg) Fork Access Central Block Price €
FOB Picture
1 Shandong YES – 30% 1000 4000 Short: 220 mmFront: 270 mm
Short: 180 mmFront: 180 mm 17.18
2 Zhejiang YES – 50% 1000 4000 Short: 255 mmFront: 270 mm
Short: 190 mmFront: 190 mm 18.29
3 Guangdong NO 1000 4000 Short: 260 mmFront: 260 mm
Short: 190 mmFront: 190 mm 18.43
4 Fujian NO 1000 4000 Short: 260 mmFront: 260 mm
Short: 190 mmFront: 190 mm 20.16
5 Zhejiang YES – 10% 1000 4000 n/a n/a 22.86
6 Beijing NO 1000 4000 Short: 268 mmFront: 268 mm
Short: 141 mmFront: 181 mm 36.90
© 2007 Dragon Sourcing. All rights reserved.17
The final supplier selection relies on the short-listed suppliers’ offers, audits and sample quality
Suppliers’ quotation
Samples
Audit summary
Supplier Name
Supplier 1
Supplier 2
Supplier 3
Supplier 4
Supplier 5
Loadingamount 40Ft
in pcs
FOB-CIF SouthHampton 40Ft cost
FOB-DDPZaandma 40Ft
cost
1 Shandong € 20.00 325 € 3,360.64 € 3,988.27 € 30.34 € 1.97 € 32.27
2 Zhejiang € 21.11 325 € 3,360.64 € 3,988.27 € 31.45 € 2.04 € 33.38
3 Guangdong € 21.25 325 € 3,360.64 € 3,988.27 € 31.59 € 2.05 € 33.52
4 Fujian € 22.98 325 € 3,360.64 € 3,988.27 € 33.32 € 2.17 € 35.25
5 Zhejiang € 25.68 325 € 3,360.64 € 3,988.27 € 36.02 € 2.34 € 37.95
6 Hebei € 39.72 325 € 3,360.64 € 3,988.27 € 50.06 € 3.25 € 51.99
Current € 48.00
Import DutyEurope(6.5%) DDP PriceSupplier Region
Logistics Cost Estimation
FOB Price CIF PRICE
Supplier 2: – Recycled HDPE at 50 %– Fork Access
• Short: 255 mm (required: 350 mm)• Long: 270 mm (required: 365 mm)
– Central Block• Short: 190 mm (required: 190 mm)• Long: 190 mm (required: 190 mm)
Suppliers 4: – Virgin HDPE – Fork Access
• Short: 260 mm (required: 350 mm)• Long: 260 mm (required: 365 mm)
– Central Block• Short: 190 mm (required: 190 mm)• Long: 190 mm (required: 190 mm)
Supplier 3: – Virgin HDPE – Fork Access
• Short: 260 mm (required: 350 mm)• Long: 260 mm (required: 365 mm)
– Central Block• Short: 190 mm (required: 190 mm)• Long: 190 mm (required: 190 mm)
© 2007 Dragon Sourcing. All rights reserved.18
Feasibility Analysis Supplier Selection and Contracting Procurement Operations
• Analyse spend category in detail– Specifications and quality requirements– Volumes– Deadlines
• Analyse supply market and identify potential suppliers
• Pre-qualify potential suppliers through an RFI process
• Manage RFP process with pre-qualified suppliers
• Analyse supplier responses and calculate fully delivered price (logistics, import duties, ADT,..)
• Develop Business case and implementation plan
• Shortlist suppliers based on RFI/RFP process
• Audit shortlisted suppliers
• Select 2-3 suppliers for sample development process
• Manage sample development process
• Conduct final negotiations and select suppliers
• Finalise Contract
• Manage P/O and agree payment terms and details (L/Cs,..)
• Check in process production quality
• Conduct pre-shipment QC
• Arrange logistics
• Manage supplier performance
• Monitor new sourcing opportunities
Key
act
iviti
es
Dragon Sourcing service offering covers the end-to-end sourcing process
© 2007 Dragon Sourcing. All rights reserved.19
Overall methodology & 7-step process
Quality is regularly monitored during production and at pre-shipment
• Dragon Sourcing teams are trained to follow a 7-step process to execute Quality inspections
• Sampling and criteria requirements are detailed in a specific document for customer approval
• On-site data are recorded in a specifically designed Excel table
• Inspections are documented in a report submitted to customer
• Action plans are defined in order to improve product quality
Sampling & Criterias
Excel recording tool
Checkitem # Box # \ Marking Inner carton Mug Quantity Mug heigth Mug upper
diameterMug lowerdiameter
Wallthickness Mug weigth Material type Quality
1 OK OK 48 104.3 64.9 3.6 326 OK OK2 OK OK 48 103.4 64.5 4.2 346 OK OK3 OK OK 48 104 64.6 3.9 344 OK OK4 OK OK 48 104.6 64.8 3.8 317 OK OK5 OK OK 48 104.3 57 3.6 308 OK OK6 OK OK 48 104.8 61 3.8 317 OK OK7 OK OK 48 103.7 64.5 3.9 328 OK OK8 OK NO 48 103.8 62 3.9 345 OK OK9 OK OK 48 103.3 64.1 3.1 322 OK OK10 OK OK 48 103.2 63.4 3.7 325 OK OK11 OK OK 48 104.4 64.8 3.9 317 OK OK12 OK OK 48 102.3 64.2 3.2 316 OK OK13 OK OK 48 105.4 63 4 316 MO OK14 OK OK 45 105.6 65 4 322 OK OK15 OK OK 48 106.3 65.6 4.1 357 OK OK16 OK OK 48 103.4 65.5 3.9 311 NO OK17 OK NO 48 104.7 64.1 3.8 300 OK OK18 OK OK 48 104 60 3.8 342 OK OK
© 2007 Dragon Sourcing. All rights reserved.20
QC Reports provide detailed information concerning production quality
© 2007 Dragon Sourcing. All rights reserved.21
Supplier performance is closely monitored and new potential suppliers regularly audited in order to manage the supplier for continuous improvement
Supplier performance management Alternative sourcing opportunities monitoring
Overall performance
Q1 Q2 Q3 Q4
Potential Supplier
2
Potential Supplier
3
Potential Supplier
4
Current Supplier
Price
Prod. 1 26.4 23.8 24.9 24.6
Prod. 2 36.1 33.8 34.9 33.7
Prod. 3 13.4 15.1 12.2 12.8
Prod. 4 40.2 38.1 41.3 38.4
Region Jiangsu Zhejiang Shanghai Shanghai
Turnover (M€) 6 14 8 19
Staff 350 700 430 880
Capabilities 100/day 120/day 75/day 140/day
Sample quality N/A Good N/A Good
Cooperation Good Good Average Good
Potential supplier assessment
Potential Supplier 1 Potential Supplier 2 Potential Supplier 3 Current Supplier
Competitivity Capabilities Motivation
© 2007 Dragon Sourcing. All rights reserved.22
Agenda
1. Context
2. Sourcing Process
3. Governance Model
4. Results and conclusions
© 2007 Dragon Sourcing. All rights reserved.23
The China sourcing programme is managed via a series of frequent conference call meetings
Dragon SourcingClient procurement unitBusiness Model• Dragon Sourcing is a service provider
assisting customer in sourcing and procurement activities
• Customer places Purchase Orders directly with selected suppliers and suppliers invoice directly Customer
• Customer pays DS a fixed monthly mgmt fee + evaluates every quarter Dragon Sourcing performance
Communication• Steering Committees weekly (conference
call) to review overall progress on all categories
• Categories follow-up meetings on an ad-hoc basis to review category issues
• Meeting minutes record main decisions, planned actions and project status
DS CEO
DS Account Manager
President
LCC Programme Director
BU1
Logistics
Buying Analyst
Buying Analyst Vietnam
Buying Analyst
Buying Analyst
Buying Analyst China
BU1 BU1 BU1
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
© 2007 Dragon Sourcing. All rights reserved.24
During these meetings, projects’ status and issues are discussed
Project No.
Project request date
Customer project leader
Job title Organization Product category
Current estimated
annual spend
Current supplier contract ending date
statusTarget
completion request date
Priority
1 Aug J H Buyer US Bouillon Cubes 1.3 M USD Dec Finished Oct Mid
2 Aug C L Cat Mgr BSPlastic Pallets
0.5 M USD None 1st Order Feb High
3 Aug C L Cat Mgr AUBread Baskets
3.6 M USD Dec Finished Nov Mid
4 Sep K M Cat Mgr WW Vitamin C 2.8 M USD Jan In Progress June High
5 Oct C L Buyer AU Bread Bags 1.2 M USD None In Progress TBD Low
6 Oct S G Cat Mgr UKAnimal Feed sacks 1.6 M USD None In
Progress TBD Mid
7 Nov M Q Cat Mgr BS GXNitrates and Phosphates Polypropylene
0.6 M USD None In Progress TBD High
© 2007 Dragon Sourcing. All rights reserved.25
Agenda
1. Context
2. Sourcing Process
3. Governance Model
4. Results and conclusions
© 2007 Dragon Sourcing. All rights reserved.26
Spend Categories
Bouillon CubesPlastic PalletsBread BasketsVitamin CBread BagsAnimal Feed sacksNitrates and Phosphates Polypropylene Sugar Sacks Carton packaging Bread Tins Twinings ProjectsTransportation and Warehousing 1 Ton Woven PP and 25 Kg Paper Sugar Sacks Beet Slicing Knives & FraisersIT System Telecom ServicesMultilayered Paper SacksNon-Dairy CreamerSoy ProteinsBuckets Etc….
The sourcing programme has covered a high variety of items
© 2007 Dragon Sourcing. All rights reserved.27
Savings range from 5 to 30% depending on the product and the “as-is” sourcing situation
Generated savings per product(%)28%
6%9%
5%
12%
5%
0%
5%10%
15%
20%25%
30%
PlasticPallets
Animal Feedsacks
(AB Agri UK)
Animal Feedsacks
(AB AgriChina)
Polypropylenesugar Sacks
Cartonpackaging
Bread Tins
(%)
© 2007 Dragon Sourcing. All rights reserved.28
In addition to savings, the Client benefits from a range of other benefits from our “Sourcing on Demand” service
• Reduced sourcing risks in terms of:– CSR– Capacity/availability/delivery reliability– Quality
• Total Supply Chain transparency– Sourcing process (RFI, RFP, Audits, QCs,…)– Knowledge about the suppliers (regular visits by client)– Assurance that product is really made to the spec
• Pro-active market intelligence about category opportunities and innovative products in China
• Flexibility to increase/reduce sourcing capacity on Demand
• Window to other Asian countries (e.g.: Vietnam, Malaysia,…)