Creating Value with an OutsourcedInternational Purchasing Office for a large FMCG company in China

Case Study

Creating Value with an OutsourcedInternational Purchasing Office for a large FMCG company

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

• A global consumer-goods company headquartered in USA. It has operations in more than 40 countries and sells its products in over 180 nations

worldwide. 50,000 employees sells food, beverage and household products

• Launched a “Direct to manufacture LCC sourcing” initiative

• Selected Dragon Sourcing to manage the programme


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

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The first step is to develop a comprehensive understanding of the need and of the functional requirements, e.g.: laminated packaging

Product Name Laminated film Product Picture

Quantity M-OPA15/PE45(270mm):12,200,000M2/yearM-OPA15/PE45(338mm):6,500,000M2/yearM-OPA15/PE70(270mm):1,000,000M2/year

Current spending (DDU price)

M-OPA15/PE45(Width 270mm): EUR XX/1000 M



Total spend of Laminated film

Total spend: Over € 5M

Food Approval Standard BGA,FDA,EC

Thickness M-OPA15/PE45: Layer1:15µm Layer2:45µmM-OPA15/PE70: Layer1:15µm Layer2:70µm

HS Code 39232900

Customs Duty 6.5%


Then, an RFI/RFP process is administered to filter out most capable suppliers

Company Name

Address

Town

Province

Company Website

Contact Person

Title

Email

Tel

Fax

Mobile phone

Alternative Contact Person

Title

Email

Tel

CONTACT I NFORMATI ON联系信息

COMPANY I NFORMATION

Contact detailinformation

I. Company Background

What date was your company founded?

What is the nationality/region of your company?

How much capital do you have (in RMB)?What is the workfloor size (m²)?

How many employees do you have?

2006 2005 2004 2003Revenue/Turnover (in RMB)

US (%) EU (%) Japan (%) Total (%)% Sales exports to the main markets (US, Europe, Japan)

Customers Industry Country Percentage of sales

Who are your top 5 Customers?

Business overview

Type Product Reference Material Material cost Manufacturingcost Packaging cost Logistics cost Total Price

13% VATrefund

FOB totalprice

FOB seaPort

Example PA9+EVOH3+PA9+PE54 xxx M2 50.000 40.000 3.000 7.000 100.000 -13.000 87.000 Qingdao

M-OPA 15/PE 45 Felxblend M-OPA 15+ PE 15 M2 0.000 0.000 0.000 ShanghaiM-OPA 15/PE 45 Felxblend M-OPA 15+ PE 15 M2 0.000 0.000 0.000 Shanghai

M-OPA 15/PE 70 Peel M-OPA 15+ PE 70 M2 0.000 0.000 0.000 Shanghai

laminatedfilm

All in USD / 1000 M2

Annual Quantity

Product and priceinformation

Type Reference Material Proposed PackagingProposedpallet size

(mm)

Nb of palletper 20'

container

Nb of palletper 40'

container

Filmlength/reel

(m)

Number ofreels/pallet

Total Filmlength (1000m)

per 20'container

Total Filmlength

(1000m) per40' container

每Example PA9+EVOH3+PA9+PE54 Reels on filmed pallets 800 x 1200 10 21 1000 160 1,600 3,360

M-OPA 15/PE 45Felxblend

M-OPA 15+ PE 15 0 0

M-OPA 15/PE 45Felxblend

M-OPA 15+ PE 15 0 0

M-OPA 15/PE 70Peel

M-OPA 15+ PE 70 0 0

Laminatedfilm

Logisticinformation


Suppliers’ competitiveness is first measured on an FOB basis

Laminated film Project RFQ Control General Sheet

Supplier Contact Information

Supplier Name Y/N Date Y/N Date Y/N Date M-OPA 15/PE 45(Width 270 mm)

M-OPA 15/PE 45(Width 338 mm)

M-OPA 15/PE 70 Peel(Width 270 mm)

Supplier 1 Y 29-Sep Y 8-Oct Y 29-Sep US$75.00 US$86.00 US$88.00




FOB Price in US$ per 1000MIntend to RespondReceivedRFQ Sent Out Phone Call Follow

Up

02

1


Then all relevant information is collected to calculate DDP prices

FOB Price (supplier) Freight forwarding, customs & duties

DDP Price

Supplier Name Product type per supplierFOB

Purchasingprice

Containertype Units of measure Length/r

eel

Numberof reelsper Pallet

Numberof palletpercontainer

Number offilms in a20'container

Freight cost perunit

CFR Rotterdamvalue Customs duties CFR

Freight cost forinlandtransportationper roll

DDP US$ price

M-OPA 15/PE45(270mm) US$74.25 20' 1000 M film 1,500 54 10 810,000 US$3.13 US$77.38 US$5.03 US$77.38 US$1.49 US$83.90

M-OPA 15/PE45(270mm) US$75.00 20' 1000 M film 1,500 54 10 810,000 US$3.13 US$78.13 US$5.08 US$78.13 US$1.49 US$84.70M-OPA 15/PE45(338mm) US$86.00 20' 1000 M film 1,500 45 10 675,000 US$3.76 US$89.76 US$5.83 US$89.76 US$1.79 US$97.38M-OPA 15/PE70(270mm) US$88.00 20' 1000 M film 1,500 54 10 810,000 US$3.13 US$91.13 US$5.92 US$91.13 US$1.49 US$98.55

M-OPA 15/PE45(270mm) US$76.00 20' 1000 M film 1,000 27 20 540,000 US$4.70 US$80.70 US$5.25 US$80.70 US$2.23 US$88.18M-OPA 15/PE45(338mm) US$94.00 20' 1000 M film 1,000 27 20 540,000 US$4.70 US$98.70 US$6.42 US$98.70 US$2.23 US$107.35M-OPA 15/PE70(270mm) US$93.00 20' 1000 M film 800 27 20 432,000 US$5.88 US$98.88 US$6.43 US$98.88 US$2.79 US$108.09

M-OPA 15/PE45(270mm) US$118.00 20' 1000 M film 1,000 36 20 720,000 US$3.53 US$121.53 US$7.90 US$121.53 US$1.67 US$131.10M-OPA 15/PE45(338mm) US$150.00 20' 1000 M film 1,000 27 20 540,000 US$4.70 US$154.70 US$10.06 US$154.70 US$2.23 US$166.99M-OPA 15/PE70(270mm) US$137.00 20' 1000 M film 1,000 24 20 480,000 US$5.29 US$142.29 US$9.25 US$142.29 US$2.51 US$154.05

Supplier 1

20'

Supplier 2

Supplier 3


Finally a Go/no Go decision to proceed is given based on the savings potential vs the risk associated with changing suppliers

DDP Price analysis for M-OPA15/PE45(338mm) with pallet

0.0020.0040.0060.0080.00

100.00120.00140.00

Supplier 1 Supplier 2 Supplier 3

With pallet Current purchasing price

DDP Price analysis for M-OPA15/PE45(270mm) with pallet

0.00

20.00

40.00

60.00

80.00

100.00



DDP Price analysis for M-OPA 15/PE70(270mm) with pallet

€ 73.39 € 70.67 € 107.26

0.00

20.00

40.00

60.00

80.00

100.00

120.00























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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 organisation• 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 INFORMATIONSUPPLIER NAME Jia Pu

City KunshanProvince Jiangsu

Contact person Mr. Wu Yun

Job title Sales Manager

Email [email protected]

Phone number 13311779692

Fax number 86-21-64806899

Website www.caihua.comBUSINESS INFORMATION

Found Year 1990

Ownership Private Owned

Capital 10000 million USDNumber of employees 308

Revenue/Turnover (in million RMB) 2006 722 million RMB

% Sales of the film in total revenues 70%% Sales exports to western markets 20%

Main export markets Europe, US,

Customer Reference Kraft, Pepsi, Danone

Production capacity per year laminated film 7000 tons

QUALITY & ENVIRONMENT CERTIFICATION

ISO 9001:2000 Yes

ISO 40001 Yes

GMP Yes

Factory picture

　

COMPLIANCE WITH LOCAL LAW

Children labor Yes　Working hours Yes

Health & Safety Yes

Environmental issues Yes


Audit outcome is summarized in a rated profile of each supplier


The final supplier selection relies on the short-listed suppliers’ offers, audits and sample quality

Suppliers’ quotation

Samples

Audit summary

Supplier summary

Supplier capabilities

Supplier assessment

Supplier Name

Final Ranking

Supplier 1 1

Supplier 2 4

Supplier 3 2

Supplier 4 5

Supplier 5 3





















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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

Type Cartons and wipes # of boxes checked # defects

Crit Crushed boxes 40 -

Maj　 Carton holes, cuttings not causing damage of wipes inside 40 4

Maj　 Case containing lower number of packs than requested, i.e. 12 packs per box 40 -

Maj　 Case label missing and/or illegible 40 -

Maj Footprints on cases 40 -

Maj Incorrect box dimension (41x23x18.5 cm) 40 -

Maj Misprint of shipping mark 40 -

Type Wipes and laminates# of

cartons checked

# of samples checked

# defects

Crit Conditions of the laminate: holes, sealing 40 70 -

Crit Printing quality 40 70 -

Crit Printing content same as confirmed graphic 40 70 -

Maj Number of wipes per packs (70 pcs) tolerance: +/- 2 wipes 40 70 -

Maj Dimension of the wipes 19x19cm, tolerance: +/- 0,5cm 40 70 -

Maj Edges OF THE LID don’t cut 40 70 -

Maj LID opens/closes properly 40 70 -

Maj Laminate packaging shrinkage 40 70 -

Min Less weight per pack 40 70 3


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

Buying Analyst China


During these meetings, projects’ status and issues are discussed

Project Overview & Follow up2008-4-14

ProjectNo.

Projectrequest date Project Name Organisation Product category

Currentestimatedannual spend Status Followed by

1

Paper cup

N/A Paper cup 5 sizes

75 million for7.5oz

30 million for 8oz4 million for 12oz Sampling Leon GU

3

Calciumpropionate

N/A

Calciumpropionate in25kg bag 46 ton Sampling Leon GU

4Laminated film

N/A

PA/PE laminatedfilm for coffeepacking 20 million m2 Sampling Leon GU

5 Wipes N/A Baby wipes 4 million units Sampling Leon GU

6

Filter paper

N/A Filter paper 3000 ton

Supplymarketsurvey Leon GU


Agenda

1. Context

2. Sourcing Process

3. Governance Model



The sourcing programme has covered a high variety of items

Paper cup Calcium propionate Laminated film

Baby wipes Filter paper


Savings range from 15 to 32% depending on the product and the “as-is” sourcing situation

Generated savings per product

0%

5%

10%

15%

20%

25%

30%

35%

paper cup Laminatedfilm

Calciumpropionate

Baby wipes Filter paper

On-going


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 OutsourcedInternational Purchasing Office for a large FMCG company in China

Business

Transcript of Creating Value with an OutsourcedInternational Purchasing Office for a large FMCG company in China