Case Study
Creating Value with an OutsourcedInternational Purchasing Office in China
Dragon Sourcing - 龙 源 Your Tailored Sourcing Approach to emerging markets
© 2013 Dragon Sourcing. All rights reserved.2
Agenda
1. Context
2. Sourcing Process
3. Governance Model
4. Results and conclusions
© 2013 Dragon Sourcing. All rights reserved.3
Context
• One of the fastest growing beauty companies in Europe– Around 1.5 billion Euros in annual sales – Approximately 3 million Consultants, 7,900 employees– Product range of approximately 1000 products – Operations in more than 60 countries of which 11 franchisees
• Decided to reduce trader-based purchasing
• Launched a “Direct to manufacture LCC sourcing” initiative with the help of Dragon Sourcing
© 2013 Dragon Sourcing. All rights reserved.4
Agenda
1. Context
2. Sourcing Process
3. Governance Model
4. Results and conclusions
© 2013 Dragon Sourcing. All rights reserved.5
For this client we cover the entire 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
© 2013 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
© 2013 Dragon Sourcing. All rights reserved.7
The first step is to develop a comprehensive understanding of the functional requirements
Product Name Toothbrush Product Picture
Quantity 400K~500K/ year for each color
Current DDP price in EURO XXX
Current annual spend in EURO €XXXXXX
Handle Material PP and TPR
Bristles Material Nylon or PBT
Color 6 colors
Packaging PET Blister 1/0-c printed backing card 1/4-c printed inner card
QUOTATION 美元报价( USD)PRODUCTION LEAD TIME 生产周期 PACKAGING PROPOSAL 包装
FOB based on annual quantityFOB 单价(基于年度订购量)
MOQ 最小订购量
FOB for MOQ or full
container单价 ( 基于最小订购量和整箱 )
FOB port 港口Annual
quantity 年度订购量Carton
dimensions 纸箱尺寸
Number of
pcs/carton 每箱数量
Carton weight 每箱毛重
Quantity in 20"ctr 20 尺柜装箱量
Quantity in 40"ctr 40 尺柜装箱量
Quantity in 40HQ
40 尺高柜装箱量
Client specifications 客户产品的规格
Product Name: Toothbrush产品名称:牙刷
Product size requested产品尺寸
Product Weight产品重量
Product color产品颜色
Handle Material刷柄材质
Bristles Material刷毛材质
Bristle type刷毛类型
Packing requirement of one toothbrush每支牙刷包装规格
Annual Client's required quantity客户需求的数量
Adult toothbrush 1~6
© 2013 Dragon Sourcing. All rights reserved.8
Then, an RFI/RFP process is administered to filter out most capable suppliers
Request For Information 征询单Confidential 保密
To 收件人:Email 电子邮件:Tel number 电话:Mobile 手提电话Fax number 传真:
SUPPLIER NAME 公司名称
Adress 地址- 街道City 城市Province 省Zip code 邮政编码Contact person 联系人Job title 头衔email 电子邮件Phone number 电话Fax number 传真Website 网址
Which year was your company founded?贵司是在哪一年成立的?Ownership所有权Capital in million RMB固定资产(百万人民币)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?Do you have a good English speaker and writer in your factory?(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)How many years have you been in the PP trolley suitcasebusiness?
PP贵司从事 拉杆旅行箱生产有多少年?Do you have an export license ?是否持有进出口许可证 ?
Europe USA Others% of turnover exported to出口占销售百分比
CONTACT DETAILS INFORMATION 联系方式
GENERAL INFORMATION 概况
DRAGON SOURCING 龙源有限公司上海代表处Rachel Yao 姚瑛莹
[email protected] - 6141 3974
021 - 6141 3966159 00 89 89 18
BUSINESS INFORMATION 公司规模
Contact detailinformation
Businessinformation
Productinformation
Price and Logisticsinformation
Product pictures
© 2013 Dragon Sourcing. All rights reserved.9
During the tender process, the suppliers’ willingness to collaborate and to provide complete and accurate information is also assessed
Toothbrush control sheet
Supplier contact information RFQ Sent1st
Follow Up
2nd Follow
Up
Intend to Respond Received RFP Received
Supplier Name City Region Date Date Date Date Remark Equivalent
productFOB US$
NylonFOB US$
PBT FOB PortSample Charge per set
Production Lead Time
Supplier 1 Shenzhen Guangdong 21-Nov N/A N/A 20-Nov
very professional
and spontaneous
20-Nov US$0.075 US$0.074 Shenzhen US$96.00 10 days
Supplier 2 Wenlin Zhejiang 17-Nov 20-Nov 21-Nov 20-Nov
Professional supplier, with a competitive
price; cooperative
20-Nov US$0.085 US$0.085 Ningbo None 10 days
Supplier 3 Shenzhen Guangdong 17-Nov 18-Nov 18-Nov
very professional
and spontaneous
18-Nov US$0.088 US$0.085 Shenzhen None 35 days
Supplier 4 Deqing Zhejiang 17-Nov 20-Nov 22-Novgood
supplier, supportive;
22-Nov US$0.090 US$0.090 Ningbo US$96.00 45 days
Supplier 5 Ruian Zhejiang 17-Nov 20-Nov 21-Nov 20-Nov
Missing information received by
22-Nov
4-Dec US$0.096 US$0.098 Ningbo None 30 days
© 2013 Dragon Sourcing. All rights reserved.10
Then all relevant information is collected to calculate DDP prices
Sup-plier City Region
FOB Price
($)
Volume/carton (dm3)
Weight / carton (kg)
# Cartons / 20-feet
container
Freight, customs,insurance duties ($)
DDP Price
($)
1 Shen zhen
Guang dong
US$0.075 0.041 8kg 695 0.016 0.091
2 Wen lin Zhe jiang US$
0.085 0.041 8kg 695 0.016 0.101
3 Shen zhen
Guang dong
US$0.088 0.041 8kg 695 0.016 0.104
4 De qing Zhe jiang US$
0.090 0.041 8kg 695 0.016 0.106
5 Rui an Zhe jiang US$0.096 0.041 8kg 695 0.016 0.112
Shanghai
SHANGHAI
Gansu
JiangxiZhejiang
BEIJING
Jiangsu
Guangxi
Hunan
Hubei
Ningxia
Shaanxi
Anhui
Fujian
Neimongu
Shanxi Shandong
Sichuan
Yunan
Guizhou
Henan
Jilin
LiaoningHebei
Guangdong
Gansu
HeilongjiangFOB Price (supplier) Freight forwarding, customs & duties
DDP Price
1
2
3
4
5
© 2013 Dragon Sourcing. All rights reserved.11
Finally a Go/no Go decision to proceed is given based on the savings potential
© 2013 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 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
© 2013 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 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…
© 2013 Dragon Sourcing. All rights reserved.14
Collected information is shared with customer through detailed audit reports
GENERAL INFORMATIONSUPPLIER NAME Supplier 1
City ShenzhenProvince Guangdong
Zip code 518000Contact person
Job title Sales Manager
Email xxxPhone number 86-755-33333333
Fax number 86-755-33344444
Website xxxBUSINESS INFORMATION
Found Year 1998Ownership Private-owned
Capital in million RMB 200Work floor size (m²) 60,000
Number of employees 500Revenue/Turnover (in million RMB) 2005 120
% Sales of the PP Trolley in total revenues 100%
% Sales exports to western markets 50%Main export markets EU
Customer Reference
Production capacity per month for PP Trolley 400,000 pcs per month
QUALITY & ENVIRONMENT CERTIFICATION
ISO 9001:2000 YES
ISO 14000 N/A
Others N/A
FACTORY PICTURE
COMPLIANCE WITH LOCAL LAWChildren labor YES
Working hours YES
Health & Safety YES
Environmental issues YES
© 2013 Dragon Sourcing. All rights reserved.15
Audit outcome is summarized in a rated profile of each supplier
© 2013 Dragon Sourcing. All rights reserved.16
A closer look on collected samples shows slight feature differences among different suppliers
Supplier Number of samples requested Sample details Similarity with client's toothbrush-
Comments Sample receipt date Number of samples received
Supplier 1 3 See below detailed sheets for sample details
* very similar design* similar size
*similar weight*same handle material*same bristle material
*acceptable quality
August 14, 2012 3 adult
Supplier 2 3 See below detailed sheets for sample details
* very similar design* same size
*similar weight*similar handle material*same bristle material
*acceptable quality
August 14, 2012 3 adult
Supplier 3 3 See below detailed sheets for sample details
*similar design* similar size
*similar weight*different handle material* different bristle material
*less good quality
August 15, 2012 4 adult
Supplier 4 3 See below detailed sheets for sample details
*similar design* similar size
*different weight*similar handle material* same bristle material
*acceptable quality
August 15, 2012 7 (4 adult, 3 kids)
Supplier 5 3 See below detailed sheets for sample details
* different design* similar size
*similar weight*similar handle material* same bristle material
*acceptable quality
August 13, 2012 6 ( 3 adult, 3 kids)
Supplier Toothbrush picture Toothbrush size in cmToothbrush weight in gsm Toothbrush color Handle Material Bristles Material Bristle type Sample quantity Sample delivery date
Supplier 1 18.8cm 17.2g 3 blue pp+tpr BPT BPT 3 August 11, 2012
© 2007 Dragon Sourcing. All rights reserved.17
The final supplier selection relies on the short-listed suppliers’ offers, audits and sample quality
Suppliers’ quotation
Audit summary
Supplier summary
Supplier capabilities
Supplier assesment
Supplier Name
Final Ranking
Supplier 1 1
Supplier 2 4
Supplier 3 2
Supplier 4 5
Supplier 5 3
Samples
© 2013 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
© 2013 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
© 2013 Dragon Sourcing. All rights reserved.20
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
© 2013 Dragon Sourcing. All rights reserved.21
Agenda
1. Context
2. Sourcing Process
3. Governance Model
4. Results and conclusions
© 2013 Dragon Sourcing. All rights reserved.22
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
© 2013 Dragon Sourcing. All rights reserved.23
Agenda
1. Context
2. Sourcing Process
3. Governance Model
4. Results and conclusions
© 2007 Dragon Sourcing. All rights reserved.24
Spend Categories
Hand BagWinter Scarf
Silver Drop NecklaceToothbrush
Twisted Pearl NecklacePerfume Pump
Etc….
The sourcing programme has covered a variety of items
© 2013 Dragon Sourcing. All rights reserved.
© 2013 Dragon Sourcing. All rights reserved.25
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,…)
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