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


Context

AB Foods:

• ABF is a global Manufacturer of food products, headquartered in London UK, with over 250 manufacturing locations around the world.

• ABF employs 85,000 people worldwide and has an annual turnover of £6.8 bn(13.6 bn USD)

• Within it’s portfolio of products are well known brand such as Twinings teas, Ovaltine, Tone spices, Mazola oils, and Ryvita.

• AB Foods has recently launched a structured strategic sourcing programme to buy direct from suppliers in China with the assistance of Dragon Sourcing.


Agenda

1. Context

2. Sourcing Process

3. Governance Model



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





















Key

act

iviti

es



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

€XXXXXXCurrent annual spend in EURO

€ 48.00Current 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


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


During the tender process, the suppliers’ willingness to collaborate and to provide complete and accurate information is also assessed

Supplier 2: Ningbo Changqi– 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: Aceally– Virgin HDPE – Fork Access



Supplier 3: Foshan Bright-June– Virgin HDPE – Fork Access



1 Shandong 13-Sep 27-Sep € 20.00 € 32.27 —2 Zhejiang 12-Sep 27-Sep € 21.11 € 33.38 19-Oct3 Guangdong 13-Sep 27-Sep € 21.25 € 33.52 19-Oct4 Fujian 12-Sep 27-Sep € 22.98 € 35.25 19-Oct5 Zhejiang 10-Sep 27-Sep € 25.68 € 37.95 —6 Beijing 14-Sep 27-Sep € 39.72 € 51.99 —

Sample sent

Company Information

FOB priceSupplier Region RFI/RFQ sent RFI/RFQ replied

RFI/RFQ follow up

DDP price


Loading amount40Ft in pcs

FOB-CIFSouth

Hampton 40Ft

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 Beijing € 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

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


Price Comparison

€ 0.00)

€ 10.00)

€ 20.00)

€ 30.00)

€ 40.00)

€ 50.00)

€ 60.00)

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 € 48/pcs

€ 32.27

€ 51.99

€ 33.38

€ 33.52

€ 35.25

€ 37.95










• Audit short listed suppliers











Key

act

iviti

es



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…


Collected information is shared with customer through detailed audit reports

GENERAL INFORMATION

SUPPLIER NAMENingbo Changqi Fluorine Plastic Products Co., Ltd

City Ningbo

Province Zhejiang

Zip code 315029

Contact person Lola Guan

Job title Purchasing Manager

Email [email protected]

Phone number 86-0574-56131221

Fax number 86-0574-87580015

Website www.changqi.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　


Audit outcome is summarized in a rated profile of each supplier

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

DS Scoring Description

Please check the relevant

box

91 - 100 % Excellent

81 - 90 % Good

61 - 80 % Satisfactory

51 - 60 % Inadequate

- 50 % Poor

Ningbo Changqi Fluorine Plastic Products Co., ltd Audit 23rd of November 2007

77% 80%

90%

68%64%

80%

64%

75%80% 77% 77% 75%

70%75%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 4.1 4.2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 3.1 3.2 5 Averagescore


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 20.00

2 Zhejiang YES – 50% 1000 4000 Short: 255 mmFront: 270 mm


3 Guangdong NO 1000 4000 Short: 260 mmFront: 260 mm


4 Fujian NO 1000 4000 Short: 260 mmFront: 260 mm


5 Zhejiang YES – 10% 1000 4000 n/a n/a 25.68 n/a

6 Beijing NO 1000 4000 Short: 268 mmFront: 268 mm



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: Ningbo Changqi– Recycled HDPE at 50 %– Fork Access



Suppliers 4: Aceally– Virgin HDPE – Fork Access



Supplier 3: Foshan Bright-June– Virgin HDPE – Fork Access























Key

act

iviti

es



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


QC Reports provide detailed information concerning production quality


Following the failed QC Audit Solutions were proposed and issue was resolved working closely with the client

• Shipment was stopped pending input of the client

• Key Reasons for QC failure were evaluated– Antiskid inserts were missing on some pallets– Antiskid inserts were not correctly inserted on

some pallets

• A Solution was proposed– Because this is a minor problems DS suggested

that the Supplier provide extra Antiskid inserts at no cost so they could be easily fixed if they fall out or are found missing a later time

• Client Agreed with the Solution and the containers were released for Shipment


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

1

Potential Supplier

2

Potential Supplier

3

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


Agenda

1. Context

2. Sourcing Process

3. Governance Model



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

Sourcing Director

BuyerBuyer

BuyerBuyer

BuyerBuyer

Logistics

Buying Analyst

Buying Analyst Vietnam

Buying Analyst

Buying Analyst

Buying Analyst China


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

status

Target completion

request date

Completion date

definitionPriority

1 Bouillon Cubes J H

2 Plastic Pallets C L

3 Bread Baskets C L

4 Vitamin C K M

5 Bread Bags C L

6 Animal Feed sacks

S G

7 Nitrates and Phosphates Polypropylene

M Q TBD

Project Overview & Follow up4/6/2007

ProjectNumber

Projectrequest date

CustomerProject Leader Job title Organi-

sation Product categoryCurrent

estimatedannual spend

CurrentSupply

Contractending date

StatusTarget

completionrequest date

Completion datedefinition Priority

1 10-Jul-06 A B Buying Manager Not For Resale Paper cup Sampling 18-Sep-06 1st Shipment High

2 11-Jul-06 A B Sourcing Manager Not For Resale Shelving systems RFP To be defined 1st Shipment High

3 21-Jul-06 A B Buying Manager US Paper cup, Garbage bag,cup

Supply MarketSurvey 6-Sep-06 e-auction for supplier

selection High

4 10-Jul-06 C D European SourcingManager Private Label

Corrugated packaging fordetergents & householdcleaning

RFP To be defined Business Case To bedefined

5 12-Jul-06 C D Sourcing Manager Not For Resale Roll container Supply marketsurvey To be defined To be defined To be

defined

8 24-Jul-06 A B European SourcingManager Not For Resale Tissue Paper Supply market

survey To be defined To be defined To bedefined

10 25-Mar-06 A B Buying Manager Not For Resale Plastic produce bag 1-Feb-07 RFP 15-Dec-06 1st Shipment To bedefined

11 25-Aug-06 C D Buying Manager To be defined Pet Food Supply market surveyTo be defined To be defined To bedefined


Collaborative workflows facilitate clear communication and quick decision making

Customer SupplierDragon Sourcing

Supplier databaseRFP design

RFP analysis

Analysis report

Suppliers audits

Decision torealize project

Final sample

RecommendationRFP answers

Final selection

Delivery

Production

Quality Control

Supplier performance

Payment management

Market monitoring

Reporting

Project information (specs., samples,

quantity, price)

Feasibility analysis Supplier selection and contracting Procurement Operations


RFP launch


Negotiation

Contracting

Sample development


Agenda

1. Context

2. Sourcing Process

3. Governance Model



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

http://www.samsclub.com/shopping/navigate.do?dest=2&item=185824


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

(%)


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,…)

Creating Value with an Outsourced International Purchasing Office in China

Food

Transcript of Creating Value with an Outsourced International Purchasing Office in China