Case Study-Creating Value with an Outsourced International Purchasing Office in China

Case Study
Creating Value with an Outsourced
International 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

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

Agenda
1. Context
2. Sourcing Process
3. Governance Model

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
Keyactivities

Supplier Selection
and Contracting
requirements
– Volumes
– Deadlines
qualified suppliers
implementation plan
RFI/RFP process
development process
process
select suppliers
Keyactivities
Dragon Sourcing service offering covers the end-to-end sourcing process

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 ）
PRODUCTIO
N LEAD TIME
生产周期
PACKAGING PROPOSAL 包装
FOB based
on annual
quantity
FOB 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/cart
on 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
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 suitcase
business?
贵司从事PP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
yingying.yao@dragonsourcing.com
021 - 6141 3974
021 - 6141 3966
159 00 89 89 18
BUSINESS INFORMATION 公司规模
Contact detail
information
Business
information
Product
information
Price and Logistics
information
Product pictures

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 Sent
1st
Follow
Up
2nd
Follow
Up
Intend to Respond
Received
RFP Received
Supplier
Name
City Region Date Date Date Date Remark
Equivalent
product
FOB US$
Nylon
FOB US$
PBT
FOB Port
Sample
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-Nov
good
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

Then all relevant information is collected to calculate DDP prices
Sup-
plier
City Region
FOB
Price
($)
Volume/c
arton
(dm3)
Weight /
carton
(kg)
# Cartons /
20-feet
container
Freight,
customs,
insurance
duties ($)
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
Jiangxi
Zhejiang
BEIJING
Jiangsu
Guangxi
Hunan
Hubei
Ningxia
Shaanxi
Anhui
Fujian
Neimongu
Shanxi
Shandong
Sichuan
Yunan
Guizhou
Henan
Jilin
Liaoning
Hebei
Guangdong
Gansu
Heilongjiang
FOB Price (supplier) Freight forwarding, customs & duties
DDP Price
1
2
3
4
5

Finally a Go/no Go decision to proceed is given based on the savings potential

Supplier Selection
and Contracting
requirements
– Volumes
– Deadlines
qualified suppliers
implementation plan
RFI/RFP process
development process
process
select suppliers
Keyactivities

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 INFORMATION
SUPPLIER NAME Supplier 1
City Shenzhen
Province Guangdong
Zip code 518000
Contact person
Job title Sales Manager
Email xxx
Phone number 86-755-33333333
Fax number 86-755-33344444
Website xxx
BUSINESS INFORMATION
Found Year 1998
Ownership Private-owned
Capital in million RMB 200
Work floor size (m²) 60,000
Number of employees 500
Revenue/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 LAW
Children labor 　 YES
Working hours 　 YES
Health & Safety 　 YES
Environmental issues YES

Audit outcome is summarized in a rated profile of each supplier

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
sample details
* very similar design
* same size
*similar weight
*similar handle material
*same bristle material
*acceptable quality
Supplier 3 3
sample details
*similar design
* similar size
*similar weight
*different handle material
* different bristle material
*less good quality
Supplier 4 3
sample details
*similar design
* similar size
*different weight
* same bristle material
*acceptable quality
August 15, 2012 7 (4 adult, 3 kids)
Supplier 5 3
sample details
* different design
* similar size
*similar weight
* same bristle material
*acceptable quality
August 13, 2012 6 ( 3 adult, 3 kids)
Supplier Toothbrush picture Toothbrush size in cm
Toothbrush 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

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

Supplier Selection
and Contracting
requirements
– Volumes
– Deadlines
qualified suppliers
implementation plan
RFI/RFP process
development process
process
select suppliers
Keyactivities

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
diameter
Mug lower
diameter
Wall
thickness
Mug weigth Material type Quality
1 OK OK 48 104.3 64.9 3.6 326 OK OK
2 OK OK 48 103.4 64.5 4.2 346 OK OK
3 OK OK 48 104 64.6 3.9 344 OK OK
4 OK OK 48 104.6 64.8 3.8 317 OK OK
5 OK OK 48 104.3 57 3.6 308 OK OK
6 OK OK 48 104.8 61 3.8 317 OK OK
7 OK OK 48 103.7 64.5 3.9 328 OK OK
8 OK NO 48 103.8 62 3.9 345 OK OK
9 OK OK 48 103.3 64.1 3.1 322 OK OK
10 OK OK 48 103.2 63.4 3.7 325 OK OK
11 OK OK 48 104.4 64.8 3.9 317 OK OK
12 OK OK 48 102.3 64.2 3.2 316 OK OK
13 OK OK 48 105.4 63 4 316 MO OK
14 OK OK 45 105.6 65 4 322 OK OK
15 OK OK 48 106.3 65.6 4.1 357 OK OK
16 OK OK 48 103.4 65.5 3.9 311 NO OK
17 OK NO 48 104.7 64.1 3.8 300 OK OK
18 OK OK 48 104 60 3.8 342 OK OK

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 unit
Business 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
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Logistics
Buying Analyst
Buying Analyst
Vietnam
Buying Analyst
Buying Analyst
Buying Analyst China

Agenda
1. Context
2. Sourcing Process
3. Governance Model

Spend Categories
Hand Bag
Winter Scarf
Silver Drop Necklace
Toothbrush
Twisted Pearl Necklace
Perfume Pump
Etc….
The sourcing programme has covered a variety of items
© 2013 Dragon Sourcing. All rights reserved.

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,…)

Case Study-Creating Value with an Outsourced International Purchasing Office in China

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