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Purchasing Handbook (DPSG-M040200)

Purchasing Handbook

- Master process documentation

Released EDM checkout 06/02/2013

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Purchasing Handbook (DPSG-M040200)

Table of Contents

1 PURPOSE ..................................................................................................................... 8

2 PURCHASING GUIDELINES ........................................................................................ 8

2.1 Purchasing policy ..................................................................................................................... 8

2.2 Purchasing objectives .............................................................................................................. 9

3 PURCHASING PROCESS .......................................................................................... 10

3.1 Purchasing process in N5 ...................................................................................................... 10 3.1.1 P04.02.01 Request for Quote (RFQ) ............................................................................. 10 3.1.2 P04.02.02 Disposition ................................................................................................... 10 3.1.3 P04.02.03 Order ........................................................................................................... 10 3.1.4 P04.02.04 Invoice Verification ...................................................................................... 11

3.2 Creation of new item numbers ............................................................................................... 11 3.2.1 Process flow ................................................................................................................. 11 3.2.2 Creation of a new item number in MMS001, MMS002, XMMX001, XMMX003 .............. 12 3.2.3 Important fields in Movex .............................................................................................. 12

3.3 Document flow to suppliers (OP-0740) .................................................................................. 12 3.3.1 Purchase Orders ........................................................................................................... 12 3.3.2 Delivery Instructions for Purchase Orders ..................................................................... 13 3.3.3 Registration of Delivery Instructions .............................................................................. 13

3.4 Purchase of standard catalogue parts with 41-/42-drawings ............................................... 14 3.4.1 Definition of 41-/42-drawings for standard parts ............................................................ 14 3.4.2 Definition of the item-manufacturer database (XMMX003) ............................................ 14 3.4.3 Purchase process for standard parts ............................................................................. 15

3.5 Purchase of drawing- and/or tooling- related parts .............................................................. 15

3.6 Purchase of safety relevant parts (TDPPF-A040204)............................................................. 16 3.6.1 Marking of safety relevant parts .................................................................................... 16 3.6.2 Declaration of Conformity ............................................................................................. 16 3.6.3 Delivery Instruction 32-0028 ......................................................................................... 17 3.6.4 Creation of a new part number ...................................................................................... 18 3.6.5 Changes to an existing part number .............................................................................. 18 3.6.6 Incoming Quality Inspection .......................................................................................... 18 3.6.7 Data Maintenance ......................................................................................................... 18

3.7 Purchase from broker/stockist (DPPF-A040201) ................................................................... 19

4 PLANNING CONCEPT FOR RAW MATERIALS ....................................................... 20

4.1 General requirements ............................................................................................................. 20

4.2 Material classification ............................................................................................................. 20 4.2.1 Classification of items with ABC .................................................................................... 20 4.2.2 Classification of items with XYZ .................................................................................... 20 4.2.3 Combination of ABC- with XYZ Analysis ....................................................................... 21

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4.2.4 Display of ABC-XYZ parameters in Movex MMS002 ..................................................... 21 4.2.5 Manual planning classes ............................................................................................... 22

4.3 Overview planning parameters .............................................................................................. 22

4.4 Safety stock ............................................................................................................................. 22 4.4.1 Effects of planning according to Safety Stock Principle ................................................. 22 4.4.2 Movex parameters (MMS002/F) used in calculation of Safety Stock ............................. 22 4.4.3 Calculation of Safety Stock ........................................................................................... 22 4.4.4 Calculation of Annual Demand (as basis for safety stock calculation) ............................ 22 4.4.5 Calculation of ABC-classes (as a basis for safety stock calculation) .............................. 22 4.4.6 Planning the Safety Stock method ................................................................................ 23

4.5 Planning the Optimum Order Quantity .................................................................................. 23 4.5.1 Order Quantity Days ..................................................................................................... 23 4.5.2 Order Multiple ............................................................................................................... 23 4.5.3 Minimum Order Quantity ............................................................................................... 23 4.5.4 Order Quantity .............................................................................................................. 23

4.6 Forecast ................................................................................................................................... 23 4.6.1 Parameter settings for computation of forecast quantity and forecast periods ............... 24

4.7 Lead time ................................................................................................................................. 24 4.7.1 Lead Time registration for new part numbers ................................................................ 24 4.7.2 Lead Time updates ....................................................................................................... 24 4.7.3 Lead Time fields in Movex ............................................................................................ 24

4.8 Monthly routine procedure ..................................................................................................... 24

5 PLANNING STRATEGY FOR RAW MATERIALS ..................................................... 25

5.1 Background ............................................................................................................................. 25

5.2 Planning strategy for standard commodities ........................................................................ 25

5.3 Planning strategy for manual planning classes .................................................................... 26 5.3.1 Planning strategy for exception commodities ................................................................ 26 5.3.1.1 Raw Cables and Raw wires (insulated) .......................................................................... 26 5.3.1.2 Carton Boxes ................................................................................................................ 27 5.3.1.3 SOC related parts from P+F (UK) ................................................................................. 27 5.3.2 Planning strategy for new items in E-class .................................................................... 27 5.3.3 Planning strategy for Phase-Out items in D-class .......................................................... 27 5.3.4 Planning strategy for Project- or One-time-demand items in G-class ............................. 27

5.4 Planning strategy for critical commodities ........................................................................... 27 5.4.1 Definition of critical commodities .................................................................................. 27 5.4.2 Determine a new planning strategy for critical commodities .......................................... 28

5.5 Planning strategy for Bintan production (BT1) ..................................................................... 28 5.5.1 Raw materials planning in BT1 ...................................................................................... 28 5.5.2 Raw materials planning in BT1 with Planning Policy RL ................................................ 28 5.5.3 MMS002 Parameter settings with Planning Policy RL ................................................... 29 5.5.4 MMS002 Monthly forecast routine ................................................................................. 30

5.6 Planning strategy for Floor Stock items ................................................................................ 30 5.6.1 Settings in Movex ......................................................................................................... 30

5.7 Planning guidelines ................................................................................................................ 31 5.7.1 POP Status in PPS170 ................................................................................................. 31 5.7.2 A-class items ................................................................................................................ 31 5.7.3 C-class items ................................................................................................................ 32 5.7.4 B-class items ................................................................................................................ 32

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6 SCHEDULING OF PURCHASE ORDERS.................................................................. 33

6.1 Background ............................................................................................................................. 33

6.2 Definition of Action Messages in Movex ............................................................................... 33

6.3 Translation of Action Messages to Activities in Purchasing ................................................ 33 6.3.1 A - Release Messages .................................................................................................. 33 6.3.2 B - Reschedule Messages ............................................................................................. 34 6.3.3 C - Delay (Past Due) Messages .................................................................................... 34

6.4 Scheduling activities .............................................................................................................. 34 6.4.1 Reschedule-Ins (B1, C1) ............................................................................................... 34 6.4.2 Re-schedule Outs (B3) .................................................................................................. 34 6.4.3 Cancel or Re-schedule Outs (B7) .................................................................................. 35 6.4.4 POs with Plan-Date in the past...................................................................................... 35 6.4.5 POs without PO-confirmation (in status 20) ................................................................... 35 6.4.6 Expediting list to P+F Mannheim and P+F Hungary ...................................................... 35 6.4.7 Change Mode of Transport (MoT) ................................................................................. 36 6.4.8 Exceed- and Short-delivery from Supplier ..................................................................... 36

6.5 Escalation flow ........................................................................................................................ 37 6.5.1 Background................................................................................................................... 37 6.5.2 Procedure and escalation levels.................................................................................... 37 6.5.3 Information base ........................................................................................................... 38

7 STRATEGIC CONCEPTS WITH SUPPLIERS ........................................................... 39

7.1 Supplier managed inventory (SMI) concept .......................................................................... 39 7.1.1 Objective ...................................................................................................................... 39 7.1.2 Eligibility of parts .......................................................................................................... 39 7.1.3 Brief description of SMI ................................................................................................. 39 7.1.4 Task of buyer ................................................................................................................ 39

7.2 Consignment concept............................................................................................................. 40 7.2.1 Objective ...................................................................................................................... 40 7.2.2 Eligibility of parts .......................................................................................................... 40 7.2.3 Consignment Methodology ............................................................................................ 40 7.2.4 Internal organization and workflow ................................................................................ 41 7.2.4.1 Warehouse MF1 ........................................................................................................... 41 7.2.4.2 Warehouse Zxx ............................................................................................................ 41 7.2.5 External organization and workflow ............................................................................... 42

7.3 Blanket Agreement .................................................................................................................. 42 7.3.1 Objective ...................................................................................................................... 42 7.3.2 Eligibility of parts .......................................................................................................... 42 7.3.3 Blanket Agreement Methodology .................................................................................. 42

8 DATA MAINTENANCE MANAGEMENT SYSTEM ..................................................... 44

8.1 Background ............................................................................................................................. 44

8.2 Base Data Management (BDM) system .................................................................................. 44

8.3 Transaction Data Management (TDM) system ....................................................................... 44

9 PERFORMANCE MEASUREMENT AND -CONTROL ............................................... 45

9.1 Inventory Management ........................................................................................................... 45 9.1.1 Introduction ................................................................................................................... 45

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9.1.2 Inventory Measurement ................................................................................................ 45 9.1.3 Inventory Statistics........................................................................................................ 46 9.1.4 Inventory Management Activities .................................................................................. 46 9.1.5 Inventory Analysis of non- or slow moving parts ............................................................ 47 9.1.6 Intercompany Stock Exchange Guideline ...................................................................... 47 9.1.7 Scrap activities ............................................................................................................. 48

9.2 Availability Management ......................................................................................................... 48 9.2.1 Introduction ................................................................................................................... 48 9.2.2 Availability Measurement .............................................................................................. 48 9.2.3 Availability Statistics ..................................................................................................... 49 9.2.4 Availability Activities ..................................................................................................... 49 9.2.5 Reminder system in Workplace .................................................................................... 50

9.3 Cost Reduction Management ................................................................................................. 50 9.3.1 Introduction ................................................................................................................... 50 9.3.2 Cost reduction measurement ........................................................................................ 50 9.3.3 Cost reduction calculation methodology ........................................................................ 51 9.3.4 Cost reduction statistics ................................................................................................ 52 9.3.5 Cost reduction activity: analysis of price deviations ....................................................... 53 9.3.6 Cost reduction activity: central negotiation plan ............................................................ 54 9.3.7 Cost reduction activity: Material Group Management and Lead Buyer Concept ............. 54

10 QUALITY MANAGEMENT .......................................................................................... 56

10.1 Request for qualification of alternate suppliers .................................................................... 56

10.2 Raw Material Qualification Procedure (OP-0801) .................................................................. 56

10.3 Non-conformance Materials Flow .......................................................................................... 56 10.3.1 OP-0302 (IQC Inspection and rejection from Production) .............................................. 56 10.3.2 Document types for rejection ........................................................................................ 56 10.3.3 Non-conformance locations (H-….) ............................................................................... 56

11 SUPPLIER MANAGEMENT ........................................................................................ 57

11.1 P04.01.01 Obtaining Information ............................................................................................ 57

11.2 P04.01.02 Evaluation ............................................................................................................... 58

11.3 P04.01.03 Test Order ............................................................................................................... 59

11.4 P04.01.04 Supplier Audit......................................................................................................... 59

11.5 P04.01.05 Evaluation/Decision ............................................................................................... 60

11.6 P04.01.06 Periodic Supplier Evaluation ................................................................................. 60

12 PROCESS DOCUMENTATION .................................................................................. 61

12.1 Process Product Transfer ....................................................................................................... 61 12.1.1 Decision on Product Transfer ........................................................................................ 61 12.1.2 Preparation of Parameter Settings in FL ....................................................................... 61 12.1.3 Planning of demand ...................................................................................................... 61 12.1.4 Planning of Supply ........................................................................................................ 62 12.1.5 Material availability check ............................................................................................. 62 12.1.6 Coordination Material Transfer from TL to FL once mass release is given .................... 62 12.1.7 Final Checks ................................................................................................................. 63

12.2 Process Change Flow ............................................................................................................. 63

12.3 Process (Product Cancellation) ............................................................................................. 63

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12.4 Process Material Obsolescence ............................................................................................. 63

12.5 Process Product Change Notice from supplier ..................................................................... 64 12.5.1 Objective ...................................................................................................................... 64 12.5.2 Scope ........................................................................................................................... 64 12.5.3 Workflow ...................................................................................................................... 64 12.5.3.1 Supplier Selection ..................................................................................................... 64 12.5.3.2 Data Maintenance ..................................................................................................... 64 12.5.3.3 Collection of Email Address ...................................................................................... 64 12.5.3.4 Prepare PCN Cover Page ......................................................................................... 64 12.5.3.5 Tracking of PCN Status............................................................................................. 64 12.5.3.6 PCN Sent .................................................................................................................. 64 12.5.3.7 PCN Acknowledgement ............................................................................................ 65 12.5.3.8 Reminder to Supplier ................................................................................................ 65 12.5.3.9 Reject from Supplier ................................................................................................. 65

12.6 Process Handling of Dangerous Goods ................................................................................ 65

12.7 Tool investment flow .............................................................................................................. 65

12.8 Tool transfer flow from local toolmaker to 008 ..................................................................... 65

12.9 Consignment to supplier ........................................................................................................ 65

13 APPENDIX INDEX ...................................................................................................... 67

Overview process documentation ................................................................................................... 67

13.1 Delivery Instructions ............................................................................................................... 68 13.1.1 Introduction ................................................................................................................... 68 13.1.2 Background................................................................................................................... 68 13.1.3 Cover Letter for Delivery Instruction .............................................................................. 68 13.1.4 Delivery Instruction ....................................................................................................... 68 13.1.5 Acknowledgment for Delivery Instruction ...................................................................... 68

13.2 Consignment to Suppliers ...................................................................................................... 69 13.2.1 Pre-requisite Parameter Settings in Movex (1 time set-up)............................................ 69 13.2.1.1 PDS010: Work Center .............................................................................................. 69 13.2.1.2 CRS780: Purchasing Parameter Settings .................................................................. 69 13.2.1.3 PPS095: Purchasing Parameter Settings .................................................................. 71 13.2.2 Pre-requisite Parameter Settings in Movex (for each supplier) ...................................... 72 13.2.2.1 CRS622: Supplier Address Type 05 .......................................................................... 72 13.2.2.2 CRS623: Supplier Reference Type 15....................................................................... 72 13.2.2.3 CRS080: Department/Cost Center ............................................................................ 72 13.2.2.4 MMS040: Stock Zone................................................................................................ 73 13.2.2.5 MMS010: Location .................................................................................................... 74 13.2.2.6 MMS123: Allocation Control ...................................................................................... 75 13.2.3 Parameter Settings in Movex (for each item) ................................................................ 76 13.2.3.1 MMS002: Item Warehouse ....................................................................................... 76 13.2.3.2 PPS040: Item Supplier .............................................................................................. 78 13.2.3.3 PPS100: Agreement ................................................................................................. 79 13.2.3.4 PDS001: Product Structure ....................................................................................... 80 13.2.4 Review Consigned Materials Availability in POP ........................................................... 83 13.2.4.1 PPS177: Planned PO Select Subcontracting............................................................. 83 13.2.5 Release of Purchase Order Proposal ............................................................................ 84 13.2.5.1 PPS170: Purchase Order Proposal ........................................................................... 84 13.2.6 Allocation Logic ............................................................................................................ 86 13.2.7 Changing from Buy-part to Buy-part (with materials consignment) ................................ 86 13.2.8 Changing from Buy-part (with materials consignment) to Buy-part ................................ 86

13.3 Planning Concept ................................................................................................................... 88

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13.3.1 Lead time ...................................................................................................................... 88 13.3.1.1 Registration of a Lead Time for new part numbers .................................................... 88 13.3.1.2 Update of Lead Times ............................................................................................... 88 13.3.1.3 Movex Lead Times fields in MMS002 ....................................................................... 89 13.3.2 Safety stock .................................................................................................................. 89 13.3.2.1 Effects of planning according to Safety Stock Principle ............................................. 89 13.3.2.2 Movex parameters (MMS002/F) used in calculation of Safety Stock ......................... 89 13.3.2.3 Calculation of Safety Stock ....................................................................................... 90 13.3.2.4 Calculation of Annual Demand (as basis for safety stock calculation) ........................ 90 13.3.2.5 Calculation of ABC-classes (as a basis for safety stock calculation) .......................... 90 13.3.2.6 Planning the Safety Stock method ............................................................................ 91 13.3.3 Planning the Optimum Order Quantity .......................................................................... 91 13.3.3.1 Order Quantity Days (precondition: Order Policy = 12) .............................................. 92 13.3.3.2 Order Multiple ........................................................................................................... 92 13.3.3.3 Minimum Order Quantity ........................................................................................... 92 13.3.3.4 Order Quantity .......................................................................................................... 92 13.3.4 Forecast........................................................................................................................ 93 13.3.4.1 Parameter settings for computation of forecast quantity and forecast periods ........... 93 13.3.4.2 Calculation of forecast quantities .............................................................................. 93 13.3.4.3 Determination of periods to extrapolate forecasts ...................................................... 93 13.3.4.4 Explanation about mode of operation of forecasts ..................................................... 94 13.3.4.5 Monthly Forecast routine procedure .......................................................................... 95

13.4 SMI Strategy .......................................................................................................................... 104 13.4.1 Preparation ................................................................................................................. 104 13.4.2 Implementation ........................................................................................................... 104 13.4.3 Replenishment Quantity Formula ................................................................................ 105 13.4.4 Part is removed from SMI ........................................................................................... 105

13.5 Product Cancellation ............................................................................................................ 106 13.5.1 Scope ......................................................................................................................... 106 13.5.2 Responsibilities ........................................................................................................... 106 13.5.3 Workflow .................................................................................................................... 106 13.5.4 Usage of databases .................................................................................................... 107

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Purchasing Handbook (DPSG-M040200)

1 Purpose This handbook serves as a central collection and information for all processes, work instructions, statistics and guidelines related to purchasing in Asia and its interfaces. At the same time it supports a harmonization of processes and guidelines across all purchase locations in Asia (in line with processes in Europe) under consideration of the special requirements and processes for individual location. The handbook should provide an easy access and understanding of the purchasing environment for training, learning and coaching purposes in every location. All relevant processes are linked as well to the P+F Quality Management System N5. In a later step it is intended to transfer this handbook structure and –content into a new purchasing intranet side.

2 Purchasing Guidelines

2.1 Purchasing policy The Purchasing and Logistics Guidelines form the framework for all purchasing and logistics activities. The guidelines are applied with the aim of balancing the fulfilment of quality, cost and supply targets. In the con-text of an increasing globalization of markets and of our company we consciously embrace our social re-sponsibility. Our approach to purchasing and logistics is based on the Code of Conduct principles with re-gard to respect for human rights, working conditions, environment and strong action against corruption. Pursuing the path to sustainable growth of company success, we let ourselves guide by the following land-marks. Customer satisfaction Our purchasing goals are decisively influenced by the requirements and the satisfaction of our customers. In implementing these goals, we rely on interdisciplinary cooperation with the organizational units so as to ensure, in the medium term, the optimal combination of function, delivery, delivery dependability and price. Reaching the quality goals is indispensable to this end. Responsibility for quality We are responsible for the quality of third-party products and services, and we pursue a zero-defects policy regarding purchased parts, goods and services. In implementing the quality goals, we closely cooperate with other organizational units within our company. Supplier development We need capable and innovative suppliers for goods and services, with whom we cooperate in an open-minded and fair manner on a long-term basis. We respect our suppliers as independent contractors, and we actively promote supplier development. Fairness and transparency We make our purchasing decisions solely on the basis of objective and plausible criteria. When it comes to selecting suppliers, implementing goals and assessing supplier performance, we reach internal agreements and proceed on the basis of standardized criteria and procedures.

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As a matter of principle, we refrain from accepting any kind of benefit; this is prerequisite to granting all parties involved the independence needed to reach this goal. Internationality Internationally focused, systematic purchasing-market development creates competitive advantages for our company. Constant improvement We are constantly improving the structures and operations in the entire purchasing process. Sophisticated SCM strategies and best-practice solutions are the basis of our work.

2.2 Purchasing objectives The general objective in purchasing is to provide best value purchases. Best value is not necessarily about achieving the lowest initial price. It is defined as the optimum combination of whole life costs and quality. Best Value purchasing is the achievement of the 7 Rights:

Right Product - Right Time – Right Place - Right Price - Right Quality - Right Quantity – Right Se-quence Resulting from these general objectives, purchasing at P+F is focusing on balancing the fulfillment of the following conflicting main objectives:

Aligned with the company’s annual targets, the performance of purchasing is measured with KPI’s.

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3 Purchasing Process

3.1 Purchasing process in N5 This chapter explains the general purchasing process. This Process defines the responsibilities and sup-plies, cost centre supplies, assemblies, merchandise, investments and services for optimum supply to the company.

3.1.1 P04.02.01 Request for Quote (RFQ) P04.02.01.01 Reviewing Existing Quotes The buyer analyses the relevance and validity of existing quotes according to requirements. Rule: The quotes are evaluated on the basis of available market information, the results of the process sup-plier management and supplier selection. P04.02.01.02 Request for Quotes The buyer makes enquiries about the part from several released and suitable suppliers. Rule: If valid quotes already exist from previous stages of the process but additional quotes are necessary, they will be requested. P04.02.01.03 Selection The buyer evaluates suppliers based on technical ability, price, quality-related and environment-related features. Rule: The offer with the minimum total cost of ownership is selected.

3.1.2 P04.02.02 Disposition P04.02.02.01 Setting required delivery schedule The buyer examines the proposed del. date by the system and modifies it as necessary to meet require-ments. P04.02.02.02 Setting required delivery quantity The buyer examines the proposed quantity by the system and modifies it as necessary to meet require-ments.

3.1.3 P04.02.03 Order P04.02.03.01 Release of the Order According to available quotes and schedule and quality inspection, the order is placed with the correct sup-plier. Rule: For drawing-based raw material applies: The order can be released only if: A) The drawing is in EDM B) The drawing status in MOVEX and EDM is the same C) In cases of moulded parts, the first sample is released. Documents: DPPF-A040202: Black-and-white list of broker

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DPPF-A040201: Purchases of raw materials from broker (stockist) with FTM-0259 P04.02.03.02 Schedule Follow-up The buyer shall ensure on-time delivery of materials. Rule: The order should be confirmed within 14 days. Otherwise the supplier will be reminded. Deviating order confirmation must be reviewed and accepted by the buyer. If the delivery is seven days overdue a reminder is sent to the supplier.

3.1.4 P04.02.04 Invoice Verification P04.02.04.01 Invoice Verification Invoices for ordered, stored goods are prepared for payment. Rule: In case of payment conditions deviating from price, quantity or other things, the purchase department is consulted. P04.02.04.02 Payment process The invoice is entered for payment if it matches the conditions of the PO. Rule: Checks are run once a week.

3.2 Creation of new item numbers New item numbers are normally requested by R&D for their new design, re-design or engineering changes.

3.2.1 Process flow • Requestor need to fill-up a template “Request for a new part number” to request for new item number to

be created in Movex. Template FTM-0054 (latest index) is available in EDM • Requestor hands the filled document to CMT.

CMT controls creation of new item number to avoid duplication of item number created for any existing similar part. Filled form is then released to Purchasing.

• Buyer creates new item number by ‘copying’ from appropriate template in MMS001. New item number is auto-generated based on the selected template in MMS001. Note: Maintenance of MMS001 must be with DCN or with a change request in “Request for a new part number” form.

• Buyer will also create XMMX001, to register extended information (REACH and ROHS compliance) regarding the newly created item number.

• Buyer will also create XMMX003 to fill in the released manufacturer(s) as per data in request form. Note: Refer below (XMMX003) for maintenance responsibility.

• Buyer return the “Request for new part number” form to CMT, who archive them in EDM under MRDE…folder.

• Buyer is not allowed to initiate any purchases if drawing is not fully released in EDM. Buyer must con-tact CMT (41-/42-drawing) or R&D (P+F customized drawings) to release drawings in EDM.

• For 41-/42- items, if first-buy quantity is registered in this form, Buyer has to activate the purchase of the new item for requestor. If value of first-buy quantity exceeds $5,000, approval must be released by PM.

Note: Generally, MMS002 is not created yet as we do not know the production location in Asia.

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3.2.2 Creation of a new item number in MMS001, MMS002, XMMX001, XMMX003 To strictly follow the standard parameter settings from the defined planning concept, creation of new items can only be done using defined templates (TMPL). Never copy from existing part numbers as too many data from MMS001 and MMS002 are taken over into the new part numbers e.g. drawing number, item group, weight, lead time, annual demand, ABC class, safety stock etc. The following templates are used for item number creation in MMS001 and MMS002. Item numbers created for Asian warehouses are assigned the number series 8xxxxx. It is important that these templates are used because the number series are attached to these templates.

3.2.3 Important fields in Movex • The following fields needs to be changed (according to MRDE-form) from the TMPL

Important field M1 M2 Buyer CMT 41/42 Buyer CMT

Item responsible x x Name x Description x Drawing number x Status x x item group x PLC x Spec 2 x Spec 1 x Ext Inst x

• Drawing numbers should be created only in “Drawing field” and not in the description field.

3.3 Document flow to suppliers (OP-0740) For the control of document flow to supplier, like P+F - Drawings, Specifications, Delivery Instructions, etc. refer to the Operating Procedure OP- 0740 (latest version) “Control of Document Flow to Vendors”.

3.3.1 Purchase Orders The Purchasing Manager shall have the responsibility to ensure that all materials purchased to produce products must have purchase documents and that unconfirmed telephone orders are not permitted.

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Documents for Purchase Orders The Purchasing Manager shall ensure that purchase documents contain sufficient data and information to ensure that the product supplied is totally compatible with certified design. If it is a P+F customized compo-nent, i.e. housing or printed circuit board, the Buyer shall ensure that all purchase orders state the issue level of all drawings affected. Documents for Initial Order For P+F customized component, i.e. housing or printed circuit board, the Buyer shall supply the appropriate drawing as stated in the Purchase Order. Documents for Repeated Orders For P+F customized component, i.e. housing or printed circuit board, the Buyer shall supply the latest ap-propriate drawing

• if there is a change or revision on the drawing (Change Notice/Change Flow Procedure ) OR • when there is a change in the Main Supplier.

The next or amended purchase order, whichever is appropriate, shall reflect the new revision and issued with the revised drawing to the supplier. The above conditions are valid for all P+F’s suppliers with the ex-ception of P+F Group of Companies, which are linked by EDM (Electronic Document Management) system. Please also refer to the ‘General Supply Agreement’ with Vendors.

3.3.2 Delivery Instructions for Purchase Orders For all materials, the Supplier shall adhere to P+F’s delivery instructions. The Buyer is responsible to ensure that the Supplier always has the latest Delivery Instruction document available. The Delivery Instruction document is sent to:

• All relevant Suppliers when there is a new index • All new (qualified) suppliers

The above conditions are valid for all P+F’s suppliers with the exception of P+F Group of Companies, which have their respective Delivery Instructions to their suppliers. To enable monitoring and proof, the acknowledgment of receipt has to be registered. This registration has to be done in the same way, for all buyers responsible, in supplier master (CRS620, additional text). For de-tails please refer to next chapter. The document name (and index), the mailing date and the confirmation of receipt have to be registered. The information about the document change together with the mailing of the new documents has to be ac-companied by requisition to the supplier to destroy the old documents. Please also refer to the ‘General Supply Agreement’. Delivery Instructions for Initial Order For all relevant parts, the Buyer shall ensure that all suppliers have the latest index of Delivery Instructions document. All part numbers will have an External Instruction Code to indicate request of compliance to de-livery instructions. It is in the responsibility of the respective buyer to create this code in Movex (MMS135) and assign it accordingly in Item Master (MMS001). Delivery Instructions for Repeated Orders For all relevant parts, reference has to be made according to the respective Delivery Instructions document whose number (and/or index) will be printed with each item in the purchase documents. The supplier shall ensure that the Delivery Instructions document, which shall be sent in the conditions as stated in chapter above, corresponds to that printed on the purchase documents.

3.3.3 Registration of Delivery Instructions Please refer to appendix.

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3.4 Purchase of standard catalogue parts with 41-/42-drawings

In P+F, we distinguish between customized parts (with a customized P+F drawing) and standard- or cata-logue parts from manufacturer. Such standard parts are defined with

• a manufacturer datasheet and • a manufacturer ordering code.

In order to clearly define a standard part for the usage in products as well as for the process of purchasing,

• the manufacturer’s datasheet is transferred into an internal P+F drawing (called 41-/42-drawing) • the manufacturer’s ordering code is transferred into the database XMMX003 (Item-Manufacturer)

3.4.1 Definition of 41-/42-drawings for standard parts With the release of a standard part by CMT (Component Management Team), a new part number is creat-ed. In order to clearly define this new part number, the manufacturer datasheet(s) for all released manufac-turer are transferred into an internal P+F “drawing”: • 41-drawing: manufacturer datasheet for electronic components • 42-drawing: manufacturer datasheet for electro-mechanical and mechanical components The 41-/42-drawing is stated on the form for the creation of new part numbers. The buyer enters this draw-ing into the MMS001-item master (drawing field). Responsibilities • Creation of 41-/42 drawings: only by CMT • Change of 41-/42 drawings : only by CMT Refer to CMT Homepage: http://pfweb2.de.pepperl-fuchs.com/kn-db/kn-db-comp/team/cmt.pdf

3.4.2 Definition of the item-manufacturer database (XMMX003) The item-manufacturer database XMMX003 is created to exclusively administrate the released manufactur-er for every standard part number in Movex. In XMMX003, every part number is connected individually with the released manufacturer (refer to the 41-/42-drawing) and the manufacturer’s ordering code. This combination is printed onto the purchase order to clearly define the correct manufacturer part for the supplier. Ordering codes are checked at Receiving/IQC when receiving deliveries. Responsibilities • Creation of a new item-manufacturer relation in XMMX003:

Responsibility of the buyer (necessary information are stated on the part number creation form) • Change flow in XMMX003:

All changes of an existing item-manufacturer relation in XMMX003 are exclusively in the responsibility of CMT only:

o change of a manufacturer order code o add/change/delete of a manufacturer (To be implemented by CMT): Automatic generation of email to all affected buyers when a change is made in XMMX003.

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Remarks: • The ordering code of a supplier could contain the packaging unit/-manner. In order to allow the buyer to

be flexible to choose a different packaging unit according to the usage of this part, CMT replaces the packaging unit information in the XMMX003-ordering code with placeholder dots (“…”). The requested packaging unit size is maintained by Buyer in MMS002 (“order multiple”), which is printed onto the purchase order as an additional information besides the ordering code from XMMX003.

• Creation of a new released manufacturer for usage in XMMX003: A new manufacturer number has to be created in CRS620 by the responsible buyer, using the Z- tem-plate. Note: only a “real” manufacturer should be created for the usage in XMMX003, not a distributor/supplier.

3.4.3 Purchase process for standard parts Purchase order: • 41-/42-drawing is an internal P+F drawing and is not printed on the purchase order • For the individual part number, all released manufacturer and ordering code are printed onto the pur-

chase order from the source item-manufacturer relation in XMMX003 • The order multiple (packing unit) is printed onto the purchase order from the source field in MMS002

(“order multiple”) Supplier Order confirmation: • Any changes to the confirmed ordering code must be verified by Buyer. Incoming control at receiving: • The ordering code is verified against XMMX003 ordering code

3.5 Purchase of drawing- and/or tooling- related parts This chapter is under work-in-progress Maintenance of the drawing-field in Movex item master In P+F, drawing and index are maintained in the international Movex item master field in MMS001/E “draw-ing number”. Every purchase order pulls the drawing number and index from this field. Hence, it is the buy-er’s responsibility to maintain this field and keep the supplier informed about eventual changes. Creation of a new item number At point of creation of a new item number, it is the Buyer’s responsibility to enter the respective data (neces-sary information is stated on the part number creation form). Change of drawing status/index Every change of status/index to an existing drawing is initiated and distributed via the Change Notice Flow. Based on Change Notice, Buyer has

• to update all relevant Movex fields (MMS001 drawing field) • to inform the respective supplier (see chapter “document flow to suppliers”).

Release of Purchase Orders For drawing-based raw material applies: The purchase order can be released only if:

• The drawing is released in EDM • The drawing status in MOVEX and EDM is the same • In cases of moulded parts, the first sample is released.

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Please refer to sub-process “Raw Material Qualification Procedure” (OP0801E)

3.6 Purchase of safety relevant parts (TDPPF-A040204) If the ‘safety component’ selection is ticked in the MRDE-form for new part number creation, TMPL-S09 must be used.

With TMPL-S09, it is important that reference is made to TDPPF-A040204AEN document.

3.6.1 Marking of safety relevant parts In general, all parts, which are listed in Certification documents, are considered as safety relevant. All these parts are marked in Movex’s Bill of Material (7*) and in MMS001/I in the specification 2 field.

3.6.2 Declaration of Conformity Generally, Pepperl+Fuchs requests for Declaration or Certificate of Conformity (DoC) for all

1. Printed Circuit Boards (PCBs) 2. Transformers 3. Customised mechanical parts with plating. 4. Customised (drawing-related) safety relevant parts

Reason: For some drawing related parts, it is not possible for Incoming Quality Control (IQC) to verify spe-cific essential characteristics (specific materials, plating thickness and/or tolerances). In such cases, it is necessary to get a confirmation by the supplier, that the parts are manufactured according to P+F specifica-tion. This information is maintained in the item master (MMS001) and verified with every delivery to ensure that the requested documents are available.

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A DOC is not required • For all standard parts and components which are bought according to a manufacturers datasheet

(MMS001: 41-/42-drawing) • For all parts manufactured by P+F Hungary • For all parts supplied by P+F affiliates as long as the P+F-affiliate has been successfully audited acc. to

the ISO/IEC 80079-34 (e.g. Mannheim, Singapore, Hungary, Tuttlingen, Berlin, Wernau, Bühl, Birming-ham)

3.6.3 Delivery Instruction 32-0028 The request to a supplier to attach a Declaration of Conformity to every delivery is declared with the deliv-ery instruction 32-0028 (latest index). In order to trigger the printing of the relevant text “PLEASE FOLLOW DELIVERY INSTRUCTION 32-0028x” on every P+F’s Purchase Orders and receiving documents, Purchasing need to fill the external instruction field in MMS001/F with the respective reference code from MMS135..

The following external instruction codes for the respective area language are available as a standard in MMS135.

The current applicable reference code is C01.

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In case there are several delivery instructions applicable for one single part, the buyer need to select a ref-erence code combination, e.g.

• C02 for turned parts with delivery instruction 82-0017.. and 32-0028.. • C03 for cables with delivery instruction 31-0159 and 32-0028..

In case there is an index change to any delivery instruction, the responsible simply need to adjust the index in the respective standard text in MMS135.

3.6.4 Creation of a new part number A new item number (raw materials) is created when Purchasing receives a “Request for a new part number” form. If a DoC is required, as indicated on this request-form, Purchasing need to select external instruction “002” in MMS001/F. This will trigger the printing of the relevant text “PLEASE FOLLOW DELIVERY IN-STRUCTION 32-0028B” on every P+F’s Purchase Orders and receiving documents, for this item number. For each item number where a DoC is required, the following steps need to be adhered to when creating a new PN: • Update MMS001/I ‘Specification 2’ field with fixed text SAFETY RELEVANT • Where a DOC is required, register the correct external instruction code in MMS001/F • Send delivery instruction 32-0028A (see Delivery Instruction Procedure) to supplier The procedure above is applicable for an existing part when there is a change in the safety relevant status.

3.6.5 Changes to an existing part number During its life cycle, the safety-relevant status of a part might be changed from a non-safety-relevant - to a safety-relevant status. About this change, purchasing should be informed via the form “Changes to existing part number” For each item number where a DoC is required, the following steps need to be adhered: • Update MMS001/I ‘Specification 2’ field with fixed text SAFETY RELEVANT • Where a DOC is required, register the correct external instruction code in MMS001/F • Send delivery instruction 32-0028A (see Delivery Instruction Procedure) to supplier

3.6.6 Incoming Quality Inspection Please refer to the respective process in IQC. When a DOC is required, the existence of such document is checked in IQC. For parts, which are supposed to be delivered with a DOC, IQC checks that the DOC document is attached and complete, with the follow-ing minimum requirements according to 32-0028. The statement “Declaration of conformity according ISO/IEC Guide or 22 EN 45014”

• Supplier’s Name and Address • P+F’s Part Number • P+F’s Part Description • P+F’s Drawing Number and its Revision Index • City and Date of Signing Up • Name, Function and Signature of the authorized person acting on behalf of the supplier

In case the DOC document is not attached or incomplete, the delivery remains in inspection until the correct DOC is available.

3.6.7 Data Maintenance For control and verification of the stated requirements in MMS001, available queries can be run periodically or when required.

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3.7 Purchase from broker/stockist (DPPF-A040201) Please refer to the Procedure for purchases of raw materials from broker (stockist) DPPF-A040201: Purchases of raw materials from broker (stockist) with FTM-0259 DPPF-A040202: Black-and-white list of broker A supply possibility for purchasing in cases of material shortages are so-called broker or stockist. Such sup-pliers are non-released suppliers for P+F and hence it should be avoided to buy from such suppliers. Bad experiences in the past underlines this statement as there are cases where broker are selling non-genuine parts or even fake-parts. Nevertheless, in desperate cases of material shortages there is sometimes no other choice but to buy from brokers, otherwise P+F cannot produce and deliver products to customers. This process serves to deter-mine the necessary steps to get approval for purchases from broker and use of the broker material from the decision-making responsible. For minimizing the risk a black-and-white list of brokers is created with • released brokers (white):

it is allowed to return deliveries which failed the IQC-test/payment terms ‘upon delivery’ è released for new inquiries

• prohibited brokers (black): already delivered faked or damaged parts or payment terms ‘in advance’ è prohibited/ strictly not al-lowed to place inquiries or orders

Broker are non-released suppliers for P+F. Based on the past experiences, there are reliable brokers and brokers where buying is not allowed any more e.g. at brokers with payment terms ‘payment in advance’. The black/white list of brokers reflects these experiences and serves as a guideline for buyers. It is not allowed to buy from brokers of the black list (to be set to status 90 in CRS620).

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4 Planning concept for Raw Materials

4.1 General requirements A planning concept is determined by the planning strategy in purchasing and represents the selection of optimised forecast-, order quantity-, safety stock- and order scheduling methods. The result is a basic set-ting of planning parameters available in Movex A classification of all materials offers the possibility of a selective and optimised usage of available plan-ning methods and an alignment to the individual needs of the different material classes. Based on the material classification, a planning concept should help to achieve the following requirements and targets:

• High material availability • Optimised inventory level • Consideration of the individual requirements of every material class • Reduction of manual planning- and maintenance efforts • Dynamic adjustment of planning parameters to changes in demand

In a monthly routine, the individual material classes are re-calculated and updated for every item including the respective planning parameters in order to allow a dynamic adjustment to the planning of changing de-mand situation. The control of success is achieved via a performance measurement and –control system.

4.2 Material classification In order to design a planning concept right to the individual needs of a selected group of raw materials, it is necessary to classify them into different groups. For P+F, the following material classes are determined:

Material classes Description Planning method A-B-C Consumption value automatic X-Y-Z Consumption behaviour automatic

D Phasing out parts manual E New parts manual G Project- or one-time-demand manual

4.2.1 Classification of items with ABC The ABC class represents the classification of items by ‘consumption value’ A-class: 70% of the overall consumption value – about 20% of all items B-class: 20% of the overall consumption value C-class: 10% of the overall consumption value

4.2.2 Classification of items with XYZ The XYZ classes represents the ‘consumption behavior’ of an item, means how regular/stable or volatile an item is consumed by production.

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X-class: Low consumption fluctuations (or stable consumption) Y-class: Medium consumption fluctuations Z-class: Extreme consumption fluctuations

With a formula in Movex it is possible to calculate this XYZ class within the monthly routine and enable dy-namic adjustments to changed consumption situations.

4.2.3 Combination of ABC- with XYZ Analysis In order to combine the consumption behavior of an item with its consumption value, there is normally a matrix combination of ABC- with XYZ classes as shown in the overview:

For each of these 9 classes, an individual planning concept could be determined with different planning parameters for an optimized inventory- and availability strategy.

4.2.4 Display of ABC-XYZ parameters in Movex MMS002 As Movex is not offering any standard field to calculate and display the XYZ-parameters, we decided to manually update these parameters into MMS002, using the following fields:

ABC meth. Freq. must be set to 0 = manual

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4.2.5 Manual planning classes A manual planning is necessary for all parts which are either in their life-cycle NEW (Entry-class) or PHASE OUT (Dead-and Dying class) or which have a ONE-TIME-DEMAND (G-class) only. Only with a manual setting of planning parameters the buyer is able to individually align the planning to this exceptional situation.

4.3 Overview planning parameters In general, the planning of raw materials is based on the MRP concept, supported by the planning principles safety stock and forecast. Both parameters depend to a certain extend on the supply lead time. Addition-ally, there are few parameters which help to create an optimum order quantity into a new Purchase order proposal (POP), like the order multiple, minimum order quantity or order quantity days.

4.4 Safety stock The basic idea of a safety stock is to guarantee availability of raw materials to balance fluctuations in de-mand and deliveries from suppliers. The safety stock decides therewith the service (availability) level of an item. Out of the different methods to calculate the safety stock in Movex, the method 1 and 2 for automatic calcu-lation offers the advantage of a dynamic adjustment of the safety stock to the average consumption and lead time of an item. The classification of raw materials into ABC-(XYZ) classes is a precondition to differentiate the calculation of safety stock level in order to achieve a highest possible availability under the condition of an optimized stock value.

4.4.1 Effects of planning according to Safety Stock Principle A Purchase Order Proposal (POP) is generated once the projected on-hand-balance is below the defined safety stock level. All demand above safety stock level must be covered by stock on hand or released pur-chase orders. In P+F, we will calculate safety stock from historical consumption data of each item.

4.4.2 Movex parameters (MMS002/F) used in calculation of Safety Stock Refer to appendix for detailed explanation.

4.4.3 Calculation of Safety Stock Various formulae are available in Movex:

• Safety stock method 2: Average consumption per day * lead-time in days * safety stock value in % • Safety stock method 1: Average consumption per day * number of service-level days

4.4.4 Calculation of Annual Demand (as basis for safety stock calculation) Refer to appendix for detailed explanation.

4.4.5 Calculation of ABC-classes (as a basis for safety stock calculation) Refer to appendix for detailed explanation.

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4.4.6 Planning the Safety Stock method It is possible to choose for each item, to plan it with or without an automatic calculated and updated safety stock. This is dependent on the defined parameter in MMS002/F, Safety Stock Method. Setting an automatic calculated Safety Stock (safety stock method 1 or 2)

• Default setting to reduce manual planning- and maintenance efforts

Setting a manual Safety Stock (safety stock method 0) • Exceptions, which require a higher safety stock than automatic calculation e.g. high-risk items. • Exceptions, which require a lower safety stock than automatic calculation, e.g. new or obsolete

items.

4.5 Planning the Optimum Order Quantity The quantity that is proposed in a POP generated from MRP calculation is dependent on a few quantity-related planning parameters in MMS002.

4.5.1 Order Quantity Days With the setting of order quantity days (precondition: Order Policy = 12), a consolidation of all demands within the specified number of days, into one single POP is achieved. Therefore, a control of the order fre-quency can be achieved according to the individual material classes. Refer to appendix for detailed explanation.

4.5.2 Order Multiple With the setting of Order Multiple, Order Quantity will be in multiples of the number set in this field. Exam-ple: standard packing size, standard reel size and etc. Refer to appendix for detailed explanation.

4.5.3 Minimum Order Quantity With the setting of Minimum Order Quantity, the smallest possible order quantity is defined. This is normally the minimum quantity that the supplier can accept. Refer to appendix for detailed explanation.

4.5.4 Order Quantity Order-Quantity should be left blank. MRP will propose an optimized combination based on the 3 quantity-related fields above.

4.6 Forecast As raw materials’ lead time are stretched (can go up to more than 12 months) and the demand for raw ma-terials are only visible for 2-4 months, MRP cannot trigger POPs in the period between the last demand point up to the raw materials lead time point. As such, it is necessary to keep safety stock to cover a certain percentage of the average consumption dur-ing the raw materials’ lead time period and fill up the remaining period (up to the material with the longest

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lead time) with forecast. The safety stock and forecast will now trigger POPs covering the entire materials lead time period.

4.6.1 Parameter settings for computation of forecast quantity and forecast periods MMS002/E Forecast Method

• To determine the number of future forecast periods. • Forecast quantity is calculated based on 6 past periods.

MMS002/E Forecast Logic

• To determine if forecast is to be distributed at the beginning, mid or end of period. We will distribute future forecast at the beginning of a period.

Refer to appendix for detailed explanation.

4.7 Lead time Lead Time (LT) is one of the most important parameters in Movex with safety stock method 2. Without an accurate lead time - as a reflection of the actual market or supplier situation – the availability of raw materials can not be achieved. The current planning concept consists of two main pillars - Safety Stock and Forecast – both of them are based on the Supply Lead Time! Therefore it is one of the most important task for each buyer to be aware of the actual LT in the market and to continuously update this knowledge from the dialog with suppliers and, finally - to maintain and update the lead times in the system!

4.7.1 Lead Time registration for new part numbers New items are created with a default-lead-time coming from the template-item. This default must be over-written with the correct lead-time for that item. When connecting the new item with one (or several) supplier/s in PPS040, the lead-time must be entered at panel PPS040/E for each supplier. Please note that the system will update MMS002 automatically if suppli-er is entered as main-supplier in MMS002/E.

4.7.2 Lead Time updates Supply Lead Times can be updated with a mass-update in PPS040 and MMS002 via XPPX018, e.g. all parts of a selected supplier or all parts from a certain item group. Note: LEAD TIMES in Movex are counted as Working Days and NOT as Calendar days.

4.7.3 Lead Time fields in Movex Refer to appendix for detailed explanation.

4.8 Monthly routine procedure Refer to appendix for detailed explanation on monthly routine.

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5 Planning Strategy for Raw Materials

5.1 Background The fast and extreme demand increase through all market levels in 2010 together with the subsequent im-mediate lead time increase for raw materials in 2010 has shown us that our current planning strategy is not at all prepared to secure availability of raw material. Measures like increasing of forecast quantity and –future periods to trigger purchase orders to suppliers are without any effect the very moment the market lead times suddenly jump to an all-time-high and suppliers (esp. distributors) don’t respect/deliver existing- and already confirmed purchase orders any more, regardless how early they are placed. This horror market situation is well-known as allocation. Such an extreme market scenario can’t be handled by any normal planning concept or -strategy, regardless how advanced it is – the only possibility to secure availability is to keep sufficient inventory. In future, our management expects demand fluctuations like we have seen in 2009 and 2010 in higher fre-quencies and with higher amplitudes! The challenge now is to decide about an extraordinary improvement and change in our planning strategy which enables us to secure availability even in such extreme ‘allocation’ scenarios. Now, not all the different commodities are affected by the above scenario. While the lead time increase of components like ICs, tantalum caps and even resistors is sudden and extreme - easily by more than 20 weeks up to a lead time of 12 months and more – the lead time increases for mechanical commodities like housings, cables, etc, are moderate and could be absorbed by above mentioned measures, fast reactions on lead time changes with the current planning concept. The idea now is a) to determine a category of items who are highly jeopardized by extreme allocation scenarios b) to propose an improved planning- and inventory strategy e.g. to keep an inventory to cover 5-6 months of demand. This decision is subject to an approval by the management. In order to follow the management guidelines and to prepare the raw material availability for the future, we have to change our planning strategy and determine a new planning concept in 3 areas:

a) new planning strategy for critical commodities b) new planning strategy for normal/standard commodities c) new planning strategy for manual planning classes

The ABC-XYZ classes serves as the planning base. A strategy and the respective planning parameters needs to be defined for every of the 9 classes.

5.2 Planning strategy for standard commodities Standard commodities are planned to optimise the order quantity and order frequency and to cover the de-mand period up to the lead time with a combination of safety stock and forecast. The setting provides the following general planning strategy according to material classes: Items with high consumption value are planned with a lower safety stock level and higher delivery frequency to provide adequate availability coverage.

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Items with low consumption value are planned with a higher safety stock level and lower delivery frequency to provide adequate availability coverage and to minimise workload in purchasing, store, IQC and accounts. Parameter overview

5.3 Planning strategy for manual planning classes Special situations or life cycles require a special planning which is different from the standard, hence, a manual planning is necessary to fulfil the exceptional requirements, e.g.

• New- or Phase out items (New part number creation, product transfer, redesign) • Risk parts (single source – long lead time) • Strategy within a commodity or for one supplier • Parts with limited shelf life (e.g. chemicals)

Manual planning means

• to set a manual safety stock quantity (with safety stock method = 0) It is necessary to define and document exceptions. Besides that, it is necessary to regularly review these manual planning areas as situation and demand could change, which could make it necessary to adjust the manual planning or even revert to automatic planning method.

5.3.1 Planning strategy for exception commodities Exceptions are made for some commodities for various reasons. ABC class contribution for items in these commodities is set A, so that planning parameters of Safety Stock Value, Order Qty, Forecast Method are not changed by modification program (PPP052).

5.3.1.1 Raw Cables and Raw wires (insulated) We buy raw cables and raw wires in rolls and our production cut them into various lengths according to the length in Bill of Materials. To ensure availability and flexibility to production, we will plan this commodity with 3 months safety stock, regardless of ABC-class. Planning parameters should be set as below: Date: Mar 2012 Forecast method 92 • PO Coverage of at least 6 months. Safety stock Method 1 • Use method 1 Safety Stock Value 60 • Safety stock of 3 months to cater for production flexibility and to ensure

availability. Order qty days 20 • Cater for monthly deliveries, with default to use SEA freight.

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5.3.1.2 Carton Boxes As carton boxes are bulky, we need to increase the delivery frequency. Where possible, carton boxes should be localised to local suppliers. Blanket agreement (KON) will be used for purchases of carton boxes that are used commonly in P+F (~1k pieces per month). Date: Mar 2012 Forecast method 99 • PO Coverage of 12 months consumption. Safety stock Method 2 • Use method 2 Safety Stock Value • According to ABC-class.

• Based on average lead time of 30 days, safety stock coverage for ABC classes will be as below: A- class: 30 days * 0.3 = 9 days B- class: 30 days * 0.4 = 12 days C- class: 30 days * 0.5 = 15 days

Order qty days 5 • Order on call, usually once a week.

5.3.1.3 SOC related parts from P+F (UK) Due to the nature of SOC business, which is project driven, items which we buy from P+F (UK), are planned manually, based on lot-for-lot, recommended with the following parameter settings: Planning parameter Value Description Forecast method 99 PO issuance base on lot-for-lot. Safety stock Method 0 Use method 0, with qty decided by SEC Safety Stock Value 0 Order qty days 20 Sea freight delivery once a month.

5.3.2 Planning strategy for new items in E-class Every new item is created using template, into E-class. Only with the first consumption the item moves au-tomatically into ABC-class (with the next monthly calculation cycle). Manual planning means to decide about the safety stock quantity, which is either set to zero (safety stock method = 0) or a fixed quantity according to the phase in strategy.

5.3.3 Planning strategy for Phase-Out items in D-class Every planned phase out part should be changed to D-class manually. Safety stock should normally be set to zero. In exceptional cases a fixed quantity could be necessary according to phase out strategy.

5.3.4 Planning strategy for Project- or One-time-demand items in G-class Unique items with Project- and One-time-demand are planned with manual safety stock according to the project plan. The segregation into G-class allows the monitoring of the project status. It is necessary to up-date the project name in MMS002-text field.

5.4 Planning strategy for critical commodities

5.4.1 Definition of critical commodities Criteria to define critical commodities:

• only 41-items (SMT, THT parts) • only items with ABC-class A, B or C

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• only status 20 in MMS002 and MMS001 • number of released manufacturers (XMMX003) <=3

5.4.2 Determine a new planning strategy for critical commodities For critical components, the strategy is to keep an inventory level to cover between 3 to 5 months of aver-age consumption in order to overcome sudden lead time jumps and to secure availability.

Safety stock method: The method to calculate safety stocks will be changed to Movex method 1 (average days of consumption x number of days). This method excludes the lead time influence from the safety stock calculation as the lead time is not an accurate factor due to fast market changes. Forecast: Forecast will apply to this critical commodity as described in the standard material planning concept. In this parameter, the market lead time is reflected and determines the number of forecast periods. Order quantity: The order qty will be calculated as described in the standard material planning concept.

5.5 Planning strategy for Bintan production (BT1)

5.5.1 Raw materials planning in BT1 Generally, production in Bintan are producing products that are more stable and running in higher quantity. RM materials used in BT1 are distributed from MF1. Raw materials supply is consolidated according to Planning Time Fence, which is normally 10 days. Materials are delivered with 3 sea freights in each week. Raw materials in BT1 are planned with Planning Policy RM.

5.5.2 Raw materials planning in BT1 with Planning Policy RL To minimize the materials handling in MF1 warehouse, for bulky items that are used only in BT1, we plan the safety stock to be kept in BT1 instead of MF1. Items identified to be planned in BT1 warehouse, are generally from 2 commodities, namely, raw cables and plastic housings from Hungary. Every delivery from supplier to MF1 warehouse will be automatically arranged to be distributed to BT1 warehouse upon receipt. To differentiate the parts that are planned in BT1, Planning Policy RL is used.

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5.5.3 MMS002 Parameter settings with Planning Policy RL The following parameters are defined in MMS002 in MF1 and BT1: MMS002/E

MF1 BT1 MF1 BT1

Planner MF1 Buyer MF1 Buyer Sales-Planner MF1 Buyer BT1 Planner

Acquistion cd 2 (Cables) 3 (Hungary) 3 Consignment No No

Planning method 1 = MRP 1 = MRP Period frame 1 1 Mastr scheduled 0 0 Planning Policy RM/RL RL Admin lead tm From M3 From M3 Cont net change Tick Tick

Transm lead tm From order type

From order type Plan horizon 730 730

Supply lead tm Supplier Lead time blank Safety time blank Blank

Transp lead tm blank From DRS table Demand tm fence blank blank

Inspec lead tm According to inspection method

blank Planng tm fence blank blank

Lead time System calcu-lated

System calcu-lated F/C method 99 91 (6 months)

Status 20 20 F/C logic MD MD

Order type 102, 502 or /93 /92 Supplier no S8**** Blank

Supplying whs Blank or 008 MF1 Multiple supply 2 2

MMS002/F MF1 BT1 MF1 BT1

Safety stock 0 System Calcu-lated Safety stk mtd 0 1 (cables)

2 (others)

Safety stk unit 0 60 (mtd 1) 999 (mtd 2)

Reorder point RoP method Order qty blank Blank Order Policy Order qty days 20 20

Annual demand System Calcu-lated

System Calcu-lated Annual dmd mtd 1 1

Min order qty Max order qty Order multiple Std pack size Sts pack size Issue multiple

ABC cls volume System Calcu-lated

Copy from MF1 ABC mtd volume 1 1

ABC cls contrib. A J ABC mtd contrib. 0 0 ABC cls manual J J

MMS002/G

MF1 BT1 MF1 BT1 Location * BT1-T3 TRST-T3 Storage method 3 3 Pack location PK01 PK01 Dock location Stock zone BB TR Location type CTP policy STD STD Ph invent cycle 1 1 Hist stge mtd 1 1 Allocation mtd 2 2 Qty ctrld alloc Issue method 1 1 Whs equipment Alloc non-appr Dely split rule Buyer MF1 Buyer MF1 Buyer Warehouse type MF BT Whs subtype

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Note *: Location BT1-T3 is the put-away location in MF1 warehouse. This is the identification to warehouse person-nel that the goods received are to be transferred to BT1 immediately.

5.5.4 MMS002 Monthly forecast routine Monthly routine calculates safety stock and forecast for RL items in BT1.

5.6 Planning strategy for Floor Stock items Typically, these are chemical and non discrete items which cannot be counted or readily measured. Items that qualify as Floor stock are usually: • Raw material purchased by weight or volume (kg, grams, litres, ml, etc.). These include liquids and flu-

ids. Example: resins, hardeners, solvents, lacquer, ink, copper wire, color dye, etc. • Raw material purchased and issued in tubes, tins, cans, drums and bottles

Example: glue, spot masks, tampon printing ink etc. • Packing labels in rolls. These are labels used on our packing boxes, QC label, bar code label • Tapes (Kapton etc.) typically delivered in roll format Floor stock demand is not displayed in M8 in Movex and the demand is automatically booked out once MO pick-list is printed. Floor stock item is planned with safety stock and forecast (at least 3 months), to trigger POP in advance.

5.6.1 Settings in Movex • MMS002/G – set Whs subtype = F

• MMS003/F: MO Reservations = not ticked

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5.7 Planning guidelines In Movex, materials plan is viewed in MMS080 while Purchase Orders are planned in PPS170. When planning in these 2 screens, Buyer has to juggle with a few decisions which are bounded by conflict-ing targets set, such as cost, delivery date and purchase order quantity.

5.7.1 POP Status in PPS170 Below are POP status used. Note that POPs in status 20 and above are not re-planned by MRP. Status Explanation

00 POPs created by system with insufficient critical data, such as invalid / missing agreement, item-supplier, main supplier, etc.

10 POP calculated by system defaults to this status. POPs in status 10 are automatically re-planned and re-calculated when there is any demand-supply imbalance.

20 After Buyer has review the quantity, price and requested delivery date, change POP to status 20 before releasing the POP to PO. PO-line value that is above the Buyer’s assigned authorised limit will have error message F. Such POPs must be approved by higher Section Leader or Manager who are assigned higher author-ised limit.

30 Buyer change to this status if they wish to hold back the release of the order to main supplier. Such POPs must be reviewed every month to decide if the POP needs to be released.

40 Buyer change POP to this status if POP need not be released due to part is phasing out and ex-isting stock has to be depleted. MO-demand is not changed yet to the phasing in part.

50 POP calculated by system which is above the responsible Buyer’s assigned authorised limit are assigned this status, together with error message “F”.

The classification of raw materials into various classes will be used to assist a Buyer to make decisions to handle conflicting targets, namely purchase order quantity, delivery frequencies and optimum total cost.

5.7.2 A-class items • Generally, these items are with higher consumption values, are more expensive and hence, have high

influence on inventory value. • Delivery frequency will be higher, normally be on a monthly basis (order quantity days 20). • Safety stock is normally planned for 1 month of average consumption quantity. • Normally handle via strategic concepts with suppliers, example consignment program or blanket

agreement.

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5.7.3 C-class items • Generally, these items are with lower consumption values, hence, have little influence on inventory

value. • Delivery frequency will be lower, normally be on a quarterly basis (order quantity days 60). • PO proposals are summarised over forecast periods so as to order 3-6 months average consumption

into 1 Purchase Order. • As forecast quantity is projected into monthly future periods, PO Proposals triggered from forecast

needs to be topped up to cover at least 3 months consumption. • Reducing delivery frequency will minimize administrative effort in Purchasing, Receiving, IQC, Store

and Accounts.

5.7.4 B-class items • Generally, we the highest part count of items in this definition. • Consumption values are in mid-range hence, they have some influence on inventory value. • Most items are planned with automatic safety stock qty and with forecast. • Delivery frequency will be on alternate months

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6 Scheduling of Purchase Orders

6.1 Background It is important to have accurate planning (delivery) dates for Purchase Orders (PO) in MMS080, as this is the central planning information screen used in Movex system. These planning dates are widely used in our manufacturing environment, but we will only mention 2 main tasks below: • Purchases Orders, which are regarded as “Supply” in MRP calculation, translates to Action Messages

(AM). Raw materials Action Messages drive PO scheduling activities in Purchasing Department. • Plan-Date is also very important information for production to plan their capacity and to give order-

confirmation to customers. Therefore the raw material plan-date has to be accurate and cannot be in the past.

6.2 Definition of Action Messages in Movex Delivery time of supplies in MITPLO (MMS080) translates to Action Messages (AM) in Movex. Action Mes-sages generated from MRP are based on planning parameters set in MMS002. The planning-date of POs in MITPLO is consolidated from various files, depending on the status of our POs. An action message suggests certain planning action to be performed. It is created when there is deviation in the flow of materials compared to user-defined parameters and demand. Action messages can be categorized into three groups:

A = Release messages B = Rescheduling messages C = Delayed order messages

The following detailed action messages are used most commonly in our context: AM Related to Description A1 POP Release POP and reschedule in PO A2 POP Release POP B1 PO Reschedule in released PO B2 POP Reschedule in planned POP B3 PO Reschedule out released PO B4 POP Reschedule out planned POP B7 PO, POP Delete released PO or planned POP C1 PO Released PO is delayed from supplier

6.3 Translation of Action Messages to Activities in Purchasing

6.3.1 A - Release Messages Planning parameters set in MMS002 prioritize Purchase Order Proposals (POP) into A1- and A2-AMs.

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• A1-AMs must be reviewed immediately because these POPs are needed earlier than the suppliers’ stipulated lead-time. Hence, these POPs must be released to POs and sent to supplier soonest pos-sible, with desired delivery dates as the ‘requested delivery dates’.

• A2-AMs are POPs that needs to be released to PO on the same day the A2-action message is gen-erated from MRP. Any delay in releasing the POP would change to an A1 action message the very next day.

6.3.2 B - Reschedule Messages Any re-scheduling of orders is categorized under the B-group of AMs. Orders that need to be re-scheduled include planned orders (POPs in status above 20) and released orders (POs). In our environment, we focus on re-scheduling of released orders (POs) only.

• B1-AMs are triggered when the projected on-hand balance is below safety stock level. This AM is a prompt for the buyer to arrange for an earlier delivery date (alternate planning date) from the sup-plier.

• B1-AMs can be further segregated into shortage due to safety stock or shortage due to demand or reservation. B1-AM caused by shortage to meet demand needs to be expedited with highest priority.

• B3-AMs are triggered when the projected-on-hand balance is more than the safety stock quantity, i.e. planned delivery date from supplier is too early but will be needed at a later time.

• B7-AMs are triggered for cancellation of POs or planned POPs. This happens when the projected-on-hand balance is more than the safety stock quantity as well as no future demand.

6.3.3 C - Delay (Past Due) Messages In any environment, it is common for suppliers to delay deliveries to customers. As such, it is important that Purchasing follow-up on a regular basis to ensure that delayed (past due) POs are delivered.

• C1-AMs are triggered when there is insufficient stock-on-hand to cater demand up to today. As such, C1 action messages need to be expedited very critically.

• It is important that such action messages are cleared immediately either by reminding supplier to deliver the past-due PO or to re-schedule to the next best delivery date.

6.4 Scheduling activities Different queries have been designed in order to group Action Messages (AM) that requires similar actions from the buyers. These queries can be found in the central Database Availability Management Asia.

6.4.1 Reschedule-Ins (B1, C1) POs with B1- or C1 Action messages need to be rescheduled-in. Considering the huge number of B1-AMs, it is necessary to structure the work and allows the buyers to fo-cus on the critical parts with short-term availability problems rather than on all AMs at the same time. For this purpose, certain priority categories are defined (see chapter Availability Management).

6.4.2 Re-schedule Outs (B3) POs with B3 Action messages need to be rescheduled-out to the requested demand date. Considering the huge number of B3-AMs, it is necessary to reschedule-out only those B3-POs with an posi-tive effect on the inventory value, hence, certain exclusions criteria are defined (PO line value > x S$ and difference between demand date and confirmed delivery date of more than x weeks, for details Please refer to appendix) to minimise the number of B3-POs to be scheduled with suppliers.

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6.4.3 Cancel or Re-schedule Outs (B7) POs with B7 Action messages are POs without demand (date), hence, buyer need to check if a cancellation is required and if decision is yes, than execute the cancellation with supplier. Guidelines – a cancellation is required if…

• No demand or annual demand (if not for E-(new) class parts or product transfer) • Not used in any active BoM • PO-line is not issued for new products or product transfers (without demand yet) • Do not cancel problematic supply with long term POs, as demand and forecast may not be seen

now, especially if supply lead-time is > 12 months. • Consider POs for new items in E-class classifications (e.g. without demand yet) • Do not cancel POs that are issued under strategic programs with suppliers, especially items under

SMI program.

6.4.4 POs with Plan-Date in the past POs with a plan-date in the past can show different kind of AMs (C1, B7, B3 or no AM). Action highly de-pends on AM and ‘demand date’ shown, but in general buyer should avoid to have any PO with plan-date in the past as production is considering these POs as ‘to be delivered today’ as a delivery in the past is not possible. Hence, it is within the buyer’s responsibility to always provide realistic delivery dates for their POs.

6.4.5 POs without PO-confirmation (in status 20) POs without confirmation by supplier show a status 20. With a tolerance of one week after order date, all POs should have a confirmation to verify all conditions, prices, drawings and requested delivery dates by supplier. It is critical for production to plan with a reliable PO delivery dates in Movex.

6.4.6 Expediting list to P+F Mannheim and P+F Hungary • Expediting of supplies is standardized with our Availability Management Database. • Standardization allows us to have a common logic that can be easily understood by each Buyer, • Prioritization logic allows Buyers to work on urgent shortages first. Urgent items are usually from Pri-

ority 1 to 3. P+F Mannheim Guidelines to expedite PO deliveries from Mannheim: • On a weekly (every Monday) basis, respective commodity buyers, run queries from Access database

in MasterProcess_Purchasing folder, so as to prioritize the items that must be delivered from Mann-heim in the current week.

• A coordinator will send this file to Mannheim via email by the end of the day. • Mannheim will respond via return mail by Thursday or Friday on the same week.

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• Mannheim need to update confirmed changes in Movex so that PO-reconfirmation can be sent to our Movex system via netfile.

P+F Hungary Guidelines to expedite DO deliveries from Hungary: • On a weekly (every Wednesday) basis, respective commodity buyers, run queries from Access data-

base in MasterProcess_Purchasing folder, so as to prioritize the items that must be delivered from Hungary by the following week.

• The coordinator will send this form to Hungary via email by the end of the day. • Hungary will respond via return mail by the following Monday. • Hungary update confirmed changes in Movex so that DO information is transparent in Movex.

6.4.7 Change Mode of Transport (MoT) In order to re-schedule in or re-schedule out delivery dates from inter-company supplies, we may consider changing the MoT for our scheduled receipts. This is necessary especially when inter-company suppliers’ capacity is maximized. By changing the mode of transport, scheduled receipts can be delayed or pull-in by at least 4 weeks. • B1-AMs can be achieved by changing MoT from SEA to AIR:

Need to exercise control if items contribute to expensive airfreight costs, example splitting PO to partial quantity for air delivery only if the item is bulky or heavy. Inter-company supplier will split PO quantity and send PO confirmation by netfile.

• B3/B7-AMs can be achieved by changing MoT from AIR to SEA

Only applicable if conditions for Sea freight applies; example, components with shelf life should not be in sea freight, or, scheduled sea freight has not departed from factory, pending sea departure.

Note: Inter-company supplier to change MoT manually in CO in Movex: • OIS100/F (Delivery method) and OIS101/E (Rdldt - Requested delivery date).

When there is a change in the delivery method (MoT), inter-company supplier must always change the requested delivery date in OIS101/E. Only this will then trigger the netfile program to register this CO as a change and send re-confirmation using OIS610 program. Sgp uses “Cdldt” field to register confirmed ETD date.

• OIS100 option 25, which is DRS140 Work with Transport Planning.

6.4.8 Exceed- and Short-delivery from Supplier With inter-company suppliers, we at times, may receive items with actual quantity discrepant from invoiced quantity. Such variances need to be corrected in our POs and are triggered from Store-Receiving. It is not necessary to involve inter-company supplier as the CO is above status 66 (CO delivered) in their system. If the actual quantity received is greater than our PO-confirmed quantity, • Store-Receiving to inform Buyer about the revised higher qty.

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• Purchasing to change PO ordered and/or confirmed quantity in PPS200 and/or PPS250. If the actual quantity received is less than our PO-confirmed quantity, • Logistics/Shipping Manager will inform Buyers about the revised lower qty. • Purchasing to mark close the PO-line using PPS350, except PO-line in status 50. In both situation (greater and lower quantity), if the variant amount is greater than S$100, the Logis-tics/Shipping Manager will inform inter-company supplier to either send us invoice for additional quantity received or we will issue debit note to them for shortage quantity.

6.5 Escalation flow

6.5.1 Background In increasing frequency, market situation are turning into extreme difficult supply situation with many com-ponents under allocation and long lead times with the effect that the number of missing materials increases. The following working instructions serves as a standard procedure for all buyers to search for missing mate-rial and use all the options and escalation steps available to provide an immediate availability

6.5.2 Procedure and escalation levels Lvl Level Activity Action Source/Tool

0 Information about missing material

• To analyze critical materials acc. to the defined priority cat-egories

Database Availability Management Asia

Main Supplier

1 Improve lead time for outstanding PO

Escalation actions by Buyer: • Send email to supplier/distributor (CS/Sales personnel) • Call supplier/distributor (CS/Sales personnel) • Escalate urgency to next level (Call + email supplier/ distrib-

utor (Sales / Marketing) • Call supplier/distributor (Sales Manager/Marketing Manager) • To escalate to own superior (Section Leader) Degree of escalation (moderate / aggressive) • Frequency of calls / emails (daily, twice a day, hourly) • Duration of follow-up

2 Check stock at P+F worldwide warehouses

• Any stock available? • Any outstanding PO? • To check with counterpart for partial/full qty

XALX001 XMMX002

Alternate Supplies

3

Authorized distrib-utors (released manufacturers only)

Action by Buyer: • Search from authorized distributors for all released manu-

facturers (xmmx002) (Matrix for authorized distributors for each released manufacturers (email and/or telephone con-tact)

• Repeat inquiry every x weeks • Option: Request for check by supplier for available close

alternatives

XMMX002

4 Catalogue distrib-utors,

• Check availability on homepage • Repeat inquiry every x weeks

RS, Farnell, Digikey, Visual Chip, Part-

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Internet-Portal/Homepage

miner

5 Inquiry by coun-terpart buyer

• Request USA/Mhm counterpart to search from authorized distributors for all released manufacturers

• To indicate priority, what actions were already taken in Sgp and what is expected

6 Broker/stockist

• Search from non-authorized distributors / parallel importers for all released manufacturers.

• Search from brokers (Matrix for brokers for all released manufacturers (email and/or telephone contact)

• Repeat inquiry every x weeks • Request for DOC from manufacturer • Decision to release FTM-0259 must come from Purchasing

Manager or Section Leader

XMMX002 DPPF-A040201A Form FTM-0259C DPPF-A040202B

Alternate Specifications / Alternate Manufacturers

7

Request BU for a) Alternate

specifications or

b) Alternate man-ufacturers

• See option: Request for check by supplier for available close alternatives

• Decision to release FTM 0289 must come from Purchasing Manager or Section Leader

• Start inquiry for available stock for alternate part/brand once provided by BU

Note: • Feedback to BU once original stock is found in parallel to

their analysis. • This step may be after sequence 5

FTM-0289 Contact persons: FA- B. Weiskopf PA- T. Ofenloch

Remark: In escalation steps 1 to 6, mode of transport should also be consider to bring in the parts as quickly as pos-sible to P+F. If goods are imported by our supplier but with our permission to use our courier service account, it must be made clear to supplier that that the importer should not include P+F company name as the goods does not legally belong to P+F until the parts are delivered by our supplier and received by us.

6.5.3 Information base The following base for information is planned to be created:

• Matrix for authorized distributors for each released manufacturers • Matrix for brokers for all released manufacturers • Matrix for Catalogue distributors, Internet-Portal/Homepage suppliers

Each with Email and/or telephone contact • Others with Email addresses, phone number P+F counterparts, superiors,

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7 Strategic concepts with suppliers

7.1 Supplier managed inventory (SMI) concept

7.1.1 Objective The objective of this concept is to reduce the planning and administrative efforts while securing availability of materials.

7.1.2 Eligibility of parts C-class parts with high consumption. Some lower B-class parts with high consumption may also be included in this strategic program.

7.1.3 Brief description of SMI • P+F place a blanket order to supplier for an estimated 1-year demand. • On a regular/weekly basis, P+F submit actual demand quantity (e.g. the next 8 weeks) as well as mini-

mum/maximum stock quantity to supplier. • Supplier is now responsible for the planning and guarantees the material availability for the demand as

well as the replenishment of stock in between the limits of min/max stock level. • SMI-parts, including those with more than 4 released manufacturers, will be handled like CZ-class, hav-

ing safety stock of 3 months. This is to allow a consistent logic to be used to calculate the min/max re-plenishment qty. Moreover the safety stock value is low for C-class components.

7.1.4 Task of buyer 1) Replenishment Quantity Run query from Access Database to generate SMI (refer to 7.1.3 above for call-logic) report on weekly ba-sis. Example:

2) Supplier Delivery Performance – monthly This measurement is amended to measure Delivery Variance, short ship and over ship from supplier. Example:

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7.2 Consignment concept

7.2.1 Objective The objective of this purchasing strategy is to reduce the inventory level whilst securing availability to pro-duction.

7.2.2 Eligibility of parts • Usually used for standard components, 41-/42- drawings. • A-class parts with high consumption value.

Some B-class parts with high consumption may also be included in this strategic program.

7.2.3 Consignment Methodology • P+F issue PO to supplier from consignment warehouse, according to the usual MRP concept. • P+F provide storage space and handling of the inventory in consignment warehouse. • Suppliers deliver parts to this consignment warehouse and retain the ownership of the inventory value.

Supplier do not invoice for these deliveries to consignment warehouse. • According to P+F production demand, P+F (Buyers) decide on the inventory quantity to be released

from consignment warehouse into MF1 warehouse. • Inventory release from Zxx warehouse use the price from transfer price list maintained in OIS017. • P+F (Buyers) send consumption report to supplier on monthly (or fortnightly) basis for the quantity re-

leased from consignment warehouse. • Supplier send invoice to P+F for the inventory value that was released from consignment warehouse. • P+F (Accounts) pay invoice according to payment terms as agreed between supplier and P+F. • Supply chain between MF1 warehouse and consignment warehouse is handled in Movex, using Distri-

bution Orders.

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7.2.4 Internal organization and workflow P+F S’pore operate 2 warehouses with the following planning parameters and consequences:

Division 100 100

Facility MF1 Zxx

Warehouse MF1 Zxx

Acquisition Code 3 2

Supply Source Zxx Warehouse 3rd party supplier

Safety stock qty 1 wk demand (auto calculated) or 0 Calculate via FCS100

Safety stock method 2 (auto calculated) or 0 2

Safety stock value 100% or 0 x%, depending on ABC class

Order multiple Packing unit Packing unit

Order policy 12 12

Order qty days 10 (2 wks) e.g. 20 (4 wks)

Annual Demand Calculated via FCS100 Calculate via FCS100

Forecast calculated No Yes

Supply lead time 5 days Supplier lead time (days)

Average Price Update With every DO, based on Zx transfer price list in OIS017.

With every Receiving transaction and in-voice booking transaction. Monthly PPS296 (Transfer of avg- in cost price)?

7.2.4.1 Warehouse MF1 This warehouse is supplied by warehouse Zxx through Distribution Orders (DOs), which consolidates the demand of the next 3-4 weeks. The planning is not different to what we are doing today in MF1. Real demand plus safety stock (which is calculated based on annual demand and supply lead time of 5 days only) is creating DOs, which are sup-plied by Zxx. Average price will be re-calculated based on each DO transaction, using the price in transfer price list (Zx) in OIS017, converting from EUR/USD to SGD using monthly rate. Monthly rate is maintained in CRS056 by Finance Department.

7.2.4.2 Warehouse Zxx This warehouse is supplied by external-supplier. The inventory in this consignment store belongs to external supplier. The planning is also not different to what we are doing today in MF1: distributed quantity (DOs) from MF1 translates to consumption, which is reflected in the annual demand in Zxx warehouse. The next demand, which reduces the projected on hand balance below the calculated safety stock level, creates a purchase order to external suppliers. The PO quantity consolidates the demand of e.g. 20 days/4 wks. In Zxx, there is a receiving against this PO, which brings the PO to status 70 or 75.

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At the beginning of every month, P+F Singapore sends the consumed quantity (consolidation from all DOs) to Supplier. With the consumption report, Supplier can send invoice to P+F S’pore. Upon receipt of supplier’s invoices, Accounts (P+F S’pore) can book these invoices against our POs in Zxx, to bring the PO to status 80 or 85 (note that quantity from individual invoices will not match to PO total quantity). Average price will be re-calculated with each Receiving transaction and Invoice-booking transactions.

7.2.5 External organization and workflow Delivery by supplier Supplier delivers the PO quantity to P+F S’pore. Delivery into Zxx warehouse is considered as FOC replen-ishment of consigned stock in this warehouse. Invoicing by supplier At the beginning of every month, P+F Singapore sends the consumed quantity (consolidation from all DOs) to Supplier. Supplier will send invoice to P+F S’pore.

7.3 Blanket Agreement

7.3.1 Objective The objective of this purchasing strategy is secure raw materials availability, usually with long lead time, by committing to a blanket quantity to our supplier, for the contracted duration. This allows supplier to plan for their raw materials over the contracted duration, thereby reducing their lead time to P+F, whilst securing availability. Committing to a long term blanket agreement also allow us to negotiated for better price based on higher quantity break price.

7.3.2 Eligibility of parts • Usually used for P+F drawing related parts, with common raw materials used to produce a variety of

different parts according to P+F drawing. • Commodity related due to the unique conditions relating to a commodity.

Example: Raw cables/wires that can be used to cut into various lengths Packaging cartons of various sizes using same paper pulp Metal stamping parts with long lead time for base metal used

7.3.3 Blanket Agreement Methodology • P+F issue agreement-PO to suppliers for each unique part, contracted under Blanket agreement. • Quantity is usually for consumption of at least 6-months up to 1 year duration. Contract duration should

be 3-6 months longer than the contracted quantity, to allow P+F leeway to delay deliveries to cater for demand volatility.

• On regular periods, P+F release actual PO quantity from the blanket agreement quantity, to replenish the stock in our warehouse.

• The delivery lead time for these actual PO-quantity, will be the suppliers’ manufacturing lead time, ex-cluding the long raw materials lead time.

• Safety stock should be kept at supplier (if critical components, prefer 2 months of average monthly con-sumption) and this should be documented on agreement-PO text.

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• To avoid releasing PO for small quantity, and hence increasing the frequency of deliveries, we can de-fine the average monthly consumption as MOQ.

• Contract renewal quantity should be set at about 3-4 months quantity, to allow us more time to negotia-tion for renewal of contract.

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8 Data Maintenance Management System

8.1 Background The efficiency, performance and success of the purchase department depends to a significant extend on the correctness of the relevant base- and transaction data. Incorrect or incomplete data, parameter settings or wrong purchasing data or -transactions are influencing areas like material planning and scheduling, and leading often to wrong results and performances or even in the worst case to wrong purchases in areas like quality assurance, availability or inventory. Additionally, other areas like production, quality assurance, sales, accounts and controlling or store depend on the correctness of the purchase data as well to a huge extend. For this reason, the systematic maintenance, checking and correction of base data is important.

8.2 Base Data Management (BDM) system This chapter is under work-in-progress The BDM system is based on a frequent execution of control queries for base data. BDM database: path Database responsibility: M. Kirchner/Poh Cheng Cheng Execution responsibility: Buyer, central coordinator BDM areas: Planning concept, Quality assurance, etc

8.3 Transaction Data Management (TDM) system This chapter is under work-in-progress The TDM system is based on a frequent execution of control queries for incorrect transaction. BDM database: path Database responsibility: M. Kirchner/Poh Cheng Cheng Execution responsibility: Buyer, central coordinator TDM areas: POP/PO, DOP/DO, MMS100 Orders with past-due plan date

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9 Performance Measurement and -control The following target categories for purchasing are derived from the company’s annual targets. Statistics and measurement tools are available for all levels of responsibility. Assessment for all levels is done periodical-ly. The management reviews the cost reduction status on a monthly basis.

9.1 Inventory Management

9.1.1 Introduction Inventory management and optimization covers a wide area, with varied necessary activities. It is an inter-weaving supply chain planning, starting with a demand management system and a business plan driving the planning of finished goods, product transfer activities, change flow activities, etc. which need to be integrat-ed into the planning for raw materials. For P+F environment, we will be focusing in these main areas: 1. Planning Concept The future development and optimization of inventory is organized through a planning concept for raw materials, customized for P+F Group’s environment. Information need to flow clearly, with minimum distor-tion, between Finished Goods Planning and Raw Materials Planning, which forms the two distinct ends of a supply chain pipeline. 2. Inventory statistics The results from the past will be reviewed using statistics, to help us analyze the causes of our slow mov-ing inventory. Improvement to work flows will be established as preventive actions to minimize past short-falls. 3. Inventory analysis A database assists us to analyze slow-moving inventory and to decide about necessary actions:

• Transfer to other P+F locations, where they are still using these parts. • Find possibilities of using up these non- or slow-moving parts • If above 2 options fail, scrap these non- or slow moving inventory

4. Inventory strategies With different kind of strategies, inventory and availability can be optimized at the same time. Effective strategies are logistic concepts with suppliers like consignment warehouse, SMI-concept or Blanket Agree-ments with safety stock arrangement at supplier’s side. One of the main tasks of Inventory Management is to provide an instrument for all purchasing departments in the P+F group, which helps to manage and optimize inventory in the group. There are standardized in-struments provided, which help to initiate activities to exchange inventory information between all locations and to manage the existing non- or slow-moving inventory. Statistics will provide detailed information about the development and trends of the inventory and devaluation values.

9.1.2 Inventory Measurement Objective is to optimise the inventory and at the same time, secure always a good availability of materials for production. In financial terms, Inventory value is associated with the usage of inventory and hence, the

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measurement is done with the KPI Turnover Ratio. This KPI shows in how many turns inventory is used compared to the demand resp. usage. Measurement of TR: [Annual demand value] / [Inventory value] Interpretation: • High annual demand and stable inventory value ==> high TR • Stable annual demand and low inventory value ==> high TR • low annual demand and stable inventory value ==> low TR • Stable annual demand and high inventory value ==> low TR • a TR of 1 means that the inventory turns once a year • a TR of 2 means that the inventory turns twice a year • a TR of 0.5 means that the inventory turns once every two years Purchasing is able to influence the TR with a permanent monitoring of the KPI and an alignment of invento-ry values to the rolling annual demand fluctuations.

9.1.3 Inventory Statistics To get an overview about the inventory trends of certain categories, statistics are available, generated on a monthly basis. This will support purchasing to monitor inventory trends and initiate actions, where neces-sary, when variations or exceptions occur. All statistics and analysis are consolidated in the Database Inventory Management Asia. This database is built from Access tables ‘Bestbew resp. InventoryManagement’, which is created through Controlling. In addition, a monthly updated table is providing an exchange of inventory and usage information from other locations. Purpose of these databases is to

a) Create statistics to provide a monthly overview of inventory and devaluation values b) Provide detailed listings for analysis with the purpose of salvaging slow-moving inventory and initi-

ate actions to prevent future occurrences.

9.1.4 Inventory Management Activities Most activities and tasks concerning IM are consolidated in the Database Inventory Management Asia. Further activities supporting IM as well as availability are integrated into planning- and scheduling activities.

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9.1.5 Inventory Analysis of non- or slow moving parts Inventory of non-or slow-moving parts must be ‘discovered’ and then reviewed in order to decide what fur-ther action is necessary. There are several indicators that may be reviewed but we will use the following as the basis for the analysis of our inventory, namely

• No usage in BoM • Devaluation class Z or F (high coverage of stock) • ABC class D (phase out) • Item master status 50 or 80 (phase out or invalid)

Through a combination of above parameters, the Database Inventory Management Asia provides listings of parts for review in order to reach a decision regarding necessary actions to be taken. The main targets are to find:

• A possibility to use-up these non- or slow-moving parts in own location • Another P+F location, which can still use these parts.

We will only scrap the parts if above targets are not successful. To avoid repetitive work, it is important to check with other locations first to see if they have demand and could take over the stock, before starting actions in own location (using up, scrapping). In order to avoid lengthy discussion between locations to re-distribute such stock, guidelines are drafted for supplying-location and receiving-location. These guidelines are documented in ‘Intercompany Stock Exchange Guideline’.

9.1.6 Intercompany Stock Exchange Guideline Often, each manufacturing site is stuck with excess inventory, which may/can no longer be used up. In order to salvage such inventory, this guideline is devised to optimize the coordination and distribution of inventory within P+F subsidiaries, so that excess inventory in one subsidiary (“Supplier”) can be re-distributed to an-other subsidiary, which uses them (“Customer”). If no other subsidiary can use the excess inventory, then they will be scrapped at the subsidiary, who is holding the inventory. There are many causes which contribute to our excess inventory. Some of these causes could be due to: • Engineering changes/Product redesign • Product End-of-Life (EOL) • Customers’ cancellation • Product Transfer This guideline is applicable to raw materials as well as to semi-finished materials. Guidelines and Rules for distribution of excessive stock • Raw materials (item type 0 and 1) are always transferred between Singapore and Mannheim for the

current price in the OIS017 price list of the selling location. If this price is not set, the average price (for item type 0) or cost price (for item type 1) + 5% handling charge applies. For semi-finished material, the transfer price of HK0 + 8.5% is applicable (OIS017 price list HK0 + 3.33%, 5 % are then added auto-matically). There are no exceptions to this rule.

• If material is obsolete at one location, the buying location takes over six months consumption (or fore-cast, in case of product transfer) once their demands require a next supply. Additional supply will be taken over according to demands.

• The buying location changes the main supplier in MMS002 to the selling location until the stock at the selling location is used up..

• This applies to raw (and semi-finished) material transfers after product transfers and stock exchange in case of obsolete stock at one location. The selling location guarantees that there is no further supply from 3rd supplier (or own production) once obsolescence or product transfer is known.

• If this rule significantly affects performance evaluation of individual buyers, commodities or parts affect-ed will be excluded from this evaluation.

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• Date Code Exclusion: Semi finished material must be produced during in the past two years. For all SMT components/PCBs with date code older than 3 years/2 years for PCBs, an evaluation test must be executed by supplier according to the agreed practice.

• Engineering Change Exclusion: All material must reflect the latest Index. • Vendor/Source Exclusion: For semi-finished material, the parts must comprise raw materials from ap-

proved vendors/suppliers.

9.1.7 Scrap activities Buyers consolidate the items for scrap in a template saved in our y-folder. Periodically, Materials Manager will review the raw materials from this template for scrap. Items approved for scrap are collected into a serialised scrap form and the scrap form is distributed to re-spective Stock Zone owners to transact the scrap in Movex. Stock Zone owners must use MMS100, order type -52, which is reserved for scrap transactions.

9.2 Availability Management

9.2.1 Introduction Reliability of scheduled delivery dates to customers is the most important objective in planning. Production planning contributes with an optimised production schedule which considers capacity- and re-source demand as well as material demand to determine the best possible fulfilment of customer request dates. Bottlenecks in production resources and –capacity as well as demand- and priority changes require fast adjustments of the production schedule to achieve a high reliability of delivery dates. Purchasing contribution to achieve reliability objectives of production is a high availability of materials and a high reliability of delivery dates for all purchase orders. Besides the planning concept and –strategy as a base to secure availability, the buyer has several tasks to manage availability of material as well as relia-bility of delivery dates in his area of responsibility. The following chapters describe the requirements of availability management to support the production schedule in the best possible manner. Central tool for statistics, measurement and scheduling tasks is the database Availability Management Asia.

9.2.2 Availability Measurement Availability measurement of raw material is not a simple task as it depends on many influencing factors in production, sales or market lead times as well as on conflicting targets like turnover ratio of inventories.

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Furthermore, availability measurement is as well a result of the planning concept and –strategy in purchas-ing as well as a result of the performance of every individual buyer. The decision how to the measure material availability is a key decision as it determines all expedit-ing/scheduling tasks in purchasing and hence, the contribution to a successful reliability KPI. Based on the fact that production maintains a frozen horizon in their planning timeline (minimum changes in production schedule), purchasing has decided to support this frozen horizon schedule by available inventory. Hence, availability measurement is decided as follows: Availability KPI in %: [total number of parts with demand] vs. [parts with supply < demand] Supply: all available stock (+ in transit) Demand: all reservation (in production and by customer) next 4 weeks (see appendix for detailed explanation) In order to structure and prioritize the scheduling tasks for the buyers, the parts with availability problems are categorized into priority categories.

9.2.3 Availability Statistics The following statistics - each for current week and last 4 weeks - are available for a) Management and b) Individual buyer Statistic Availability for raw material

• For all priority categories Statistic Purchase order proposal (POPs)

• Overview about the total number of POPs as well as critical action messages and critical status Statistic Action Messages for Purchase orders (POs)

• Overview about the total number of POs as well as critical action messages and critical status

9.2.4 Availability Activities All activities and tasks concerning availability resp. expediting/scheduling are consolidated in the Database Availability Management Asia as follows:

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9.2.5 Reminder system in Workplace This chapter is under work-in-progress Soon, a reminder system will be available in Workplace. Until now, D-EU purchasing is using this to auto send out the respective letters to suppliers (selection possible by buyers)

• All B1, B3, B7 • C1 • PO without PO-confirmation (once send, a new plandate is set in Movex which is 1-2- weeks into

the future)

9.3 Cost Reduction Management

9.3.1 Introduction With the international interweavement of suppliers and markets, it is necessary to align the cost reduction activities with all responsible purchase locations. Results of cost reduction activities are directly influencing the profit-and-loss situation of the company and are therefore extremely important for the success of P+F. All cost reduction results are consolidated into the database Cost Reduction Management Asia.

9.3.2 Cost reduction measurement The calculation of cost reduction should provide an immediate and close feedback from the invoiced prices paid to suppliers. Hence, the base of the calculation is an average invoiced price from past period to current period (e.g. past year 2010 to current year 2011) multiplied with the purchased-/invoiced quantity of the cur-rent period. [Avg invoiced price last period] minus [avg invoiced price current period] multiplied with [purchased qty cur-rent period] The difference to previous measurements methods is, that the period-average price is calculated as an av-erage from purchased- and invoiced prices, while the MMS003-average price refers to the stock quantity available on the cut-off date.

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9.3.3 Cost reduction calculation methodology Price determination: • Foreign currency prices are converted according to the daily exchange rate of the invoice date. • For the official saving report, the prices converted to the exchange rate of the invoice date are valid

and binding for target measurements. • In parallel, and for the purpose of a comparative calculation, the foreign currency prices are addi-

tionally converted to any selectable daily exchange rate in the database. To enable this comparative calculation, the prices of the current and the previous period are converted to the same exchange rate, thus a currency-adjusted savings can be calculated via these additional price fields.

Calculation of cost reductions:

• Via the purchasing statistics (PPS450 / file MPURST), with the help of the individual purchases (=

order positions), a time period-based average price is calculated. Average price for item X, current period: Total purchasing value in the current period . Total purchasing quantity in the current period

• One average price for the current- and one average price for the previous period are generated. • Average price of previous period minus average price of the current period results in the savings (=

positive sign) or negative savings. • This savings per item / piece is multiplied by the total purchasing quantity of the current period and

leads to the total savings for this item. • For the target measurement (à percental savings), it is necessary to compare the total savings with

the total purchasing value (based on the previous year, i.e. total purchasing quantity of the current period x average price of the previous period).

• The total savings and the percental savings can also be calculated, in which the total purchasing quantity of the current period is evaluated once with the current average price and once with the old average price. The difference indicates the savings and, subsequently, it is divided by the total pur-chasing value – valued at old average price.

Calculation of cost reductions for items from consignment- (Z*)-warehouse: • Remark: the purchase orders are placed and delivered from and to the consignment-warehouses.

After delivery, supplier won’t send an invoice as the items are still in the property of the supplier. The items are being transferred into P+F’s property once the buyer transfers a certain quantity via a Distribution order into MF1-warehouse. The invoicing happens manually on basis of the distributed quantity per month. Hence, PPS450 (MPURST) is not filled and therefore an alternative calculation method is required.

Determination of the quantity • Instead of the invoiced quantity, the monthly distributed quantity is taken from MMS090 (negative

transfer quantity from Z-warehouse to MF1-warehouse in MITSTA (MHMOVN)

Determination of the price

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• Instead of the average price from invoices, an average price are generated from the pricelist in OIS017. (OPRBAS)

Warehouse Price list Currency Z01 M0 EUR Z02 M8 SGD Z11 MY EUR Z21 M9 USD Z31 MJ JPY 10E ZA EUR 53E ZA EUR 53K ZB CZK

• It is necessary to maintain the pricelist with all price updates from supplier. • Only one pricelist at a time should be valid (valid from /valid to)! • Exchange rates are calculated with the current exchange rate

• Remark:

For the start of the cost reduction measurement the 2010-start price to compare is taken from MMS003-average price dated 31.12.2010. (This average price is build as per normal Movex aver-age-price creation from purchase orders at point of incoming). The average price for 2011 for the first six months (until including June) is generated with the cur-rent June’s-price.

Scope of the considered item (limitations / exceptions): • Raw materials and merchandise goods from third parties as well as consumables and supplies and

miscellaneous materials (item cost objects 0, 2 and Z*). For merchandise goods, the benefits of in-tercompany purchases are excluded. For this reason, stock exchanges, back-purchases and emer-gency purchases should not be taken into account.

• Only regular items are to be considered (item no. between "0" and "999999", à no X-numbers) • We consider only items, which were purchased both in the current as well as in the previous period. • We consider only entries, in which both invoice quantity and invoice price are <>0. (Negative quan-

tities or values do not exist.) • The time frame occurs via the creation date (= date of invoice posting).

9.3.4 Cost reduction statistics With the central database Cost Reduction Management Asia, maintained by Controlling dept., all results from various cost reduction activities can be reviewed and controlled. Cost reduction statistics are available per item / per supplier / per buyer / per location / per facility: For the purpose of a comparative calculation, results in the section STATISTICS show alternatively the exchange rates of all prices/savings converted to the CURRENT RATE to eliminate the influence of curren-cy fluctuations.

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9.3.5 Cost reduction activity: analysis of price deviations As a regular activity for all responsibility levels, it is required to check the highest price deviations per indi-vidual item in

• value deviation ( +/- 10,000,- S$ deviation) and/or • percentage deviation ( > +/- 50% deviation)

as well as the highest deviation per supplier. Responsible:

• all buyers • superiors

With the result of this analysis, it is necessary to conclude about necessary action points e.g. re-negotiation with suppliers. Error-correction possibilities: On a regular basis, Controlling dept. is checking together with Purchasing Manager the highest price devia-tions in value- and percentage deviation in order to detect deviations which could result from wrong prices e.g. wrong invoice, changes in consignment status, successor, change from make-to-buy part etc. Accepted deviations are included into a separate table within the database and excluded from cost reduction calcula-tion.

• Individual MPURST-entries with false prices can be entered into an auxiliary table and then deleted automatically via a delete request also in the subsequent months.

• As in the old analysis, purchasing parts with consignment lead inevitably to errors, as soon as the order status changes. Also for this case, there is an auxiliary table, in which the items are to be en-tered as well as respectively the invoice date, until the date it was calculated according to the old consignment method. The old entries are then automatically deleted – also in subsequent months.

• Successor-Predecessor-problems with different item numbers:

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Successor-Predecessor-pairs can be entered into an auxiliary table. The purchasing processes in the previous period, which ran on the predecessor-item, are thus assigned to the new successor-item number. Therefore, a savings is calculated and reported for the successor-item.

9.3.6 Cost reduction activity: central negotiation plan The central tool to manage the cost reduction activity is the master negotiation plan. This list contains

• information to all relevant suppliers (e.g. turnover last 3 years, terms and conditions) • name of responsible buyer (to be maintained in CRS624)

Purpose:

• to plan the annual negotiation with all suppliers • to discuss the plan with relevant buyers (for shared suppliers) and/or lead buyer in Mannheim • to follow-up and monitor the timely completion of the planned negotiation • to see the negotiation result per supplier • the archived minutes of negotiation allow all buyers to review past years negotiations

Tasks and maintenance:

• beginning of each year, individual buyers have to set a planned negotiation date for all suppliers • it is required to write a brief summary of the negotiation/minutes (standardized form is available)

9.3.7 Cost reduction activity: Material Group Management and Lead Buyer Con-cept

Description: Optimised decisions regarding the bundling of demands on a company-wide basis are generated by organi-zational measures. A so-called material group co-ordinator or lead buyer has the responsibility to make stra-tegic decisions regarding materials groups, into which commodity areas (division-wide) are classified. The decisions are co-ordinated with all involved purchase units and material group teams. The lead buyer has the full responsibility for prices and strategic decisions, the operational tasks as well as the material planning of the material groups are decentralized with the local purchase units in the context of the strategic requirements. Objectives: With this concept, a reduction of material costs as well as increase in efficiency shall be achieved as there is only one central price negotiation with the key suppliers rather than uncoordinated individual negotiations by all purchase units within the P+F group. With the bundling of demand and the centralised price responsibility, a Key Supplier Management process can be activated. Definition and responsibility of the lead buyers:

• The Lead Buyer has the guiding role for the defined materials groups. This contains the management responsibility and co-ordination of the internal and/or external strategic procure-ment activities of all organisational units within the material groups.

• The buyers of the individual purchase departments are functionally subordinated to the lead buyer; the disciplinarily responsibility remain in the respective procurement unit.

• Selection and determination of the material groups depending on the purchase volume and potential bundling possibility.

• Advantage: Clear responsibilities with instruction authority. Specialization within the material groups.

• Disadvantage: Danger of a predominant orientation at the objectives of the lead buyers as well as rivalry thinking between the divisions. Problem of the multiple assignments is the additional co-ordination effort and the high requirement of information transfer.

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Task of the lead buyers: • Demand identification and bundling • To initiate cost reduction measures with the material group teams • To lead the central price negotiation (with local support MGM) • Supplier selection • To decide about the allocation of purchase volume after negotiation • Observance of framework agreements • Communication with the key suppliers • Reporting / MGM Controlling

Key Supplier Management Objective: Creation of an active interface and relationship to important suppliers within the material groups. Tasks:

• Optimization of the relation with suppliers regarding quality and process simplification • Definition of the performance and relations intensity (key supplier, C-supplier, awards, )

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10 Quality Management This chapter is under work-in-progress

10.1 Request for qualification of alternate suppliers See FTM-0228

10.2 Raw Material Qualification Procedure (OP-0801) This chapter is under work-in-progress

10.3 Non-conformance Materials Flow

10.3.1 OP-0302 (IQC Inspection and rejection from Production) Non-conformance materials flow is handled in according to OP-0302.., which covers all non-conformances of raw materials that failed IQC inspection at incoming, as well as from production.

10.3.2 Document types for rejection 2 document-types are used in IQC to register all non-conformances:

• VCAR, Vendor Corrective Action Request, is used to register non-conformances at Incoming Quali-ty Checks for 3rd party suppliers

• NCDR, Non-Conformance Disposition Review, is used to register non-conformances at Incoming Quality Check for inter-company suppliers as well as all non-conformances detected at Production.

10.3.3 Non-conformance locations (H-….) All non-conforming materials are transferred to IQ zone and can be easily segregated from good parts in Movex. Locations in IQ zone starts with the alphabet H- (Hold-locations). MQE is responsible to provide materials disposition for items in H-locations.

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11 Supplier Management This process concerns the selection and approval of new suppliers of raw materials/commercial goods. This process governs the handling, responsibilities and measurement of success in respect of collaboration with ready-qualified suppliers. Important elements are the monitoring of suppliers performance, to enable a proactive approach All related documents can be reviewed in our N5 quality management system under chapter P04.01 suppli-er management process.

11.1 P04.01.01 Obtaining Information P04.01.01.01 Financial report For a positive commercial assessment of a new supplier, a financial report about the accounting is obtained. Rule: Critical, i.e. companies threatened by insolvency are not acceptable for Pepperl+Fuchs. Potential suppliers with a solvency index worse than 3 are separately checked for solvency or reliability in cooperation with our accounts. Documents: TDPDE-A040104_EN: Instruction for processP04.01 Supplier Management "Archiving of process docu-ments" P04.01.01.02 Self-disclosure The supplier questionnaire is sent to new suppliers and a reply is requested. Without a reply, no approval of the supplier can be given. Rule: After expiry of three years, a new self-disclosure is generally required. This is the case for all suppliers with an order volume of >EUR 40,000.00 p. a. For this purpose, a new questionnaire is sent. Documents: FTM-A087 P04.01.01.03 Environmental management questionnaire A questionnaire on environmental management is sent to suppliers and a reply is requested. Without a re-ply, no approval of the supplier can be given. Rule: The questionnaire is sent to suppliers of environmentally relevant products (chemicals, PCBs, turned and milled parts) with an expected turnover of >EUR10,000 p.a. After expiry of three years, new current answers are generally requested Documents: TFTM-0258_EN: Environmental questionnaire P04.01.01.04 Code of Conduct (CoC) Pepperl + Fuchs commit to align their entrepreneurial activity within the meaning of ZVEI Code of Conduct. The same is also expected from new suppliers. Supplier will receive a form of the Code of Conduct that has to be signed. Rule: Without a signed form a new supplier must not be add to supplier base. Documents:

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SFTM_0484_sg CoC P04.01.01.05 Product Change Notice (PCN) For his numerous certificates Pepperl + Fuchs need to be informed in advance of changes to purchased parts to ensure as appropriate to examine an impact on the products and bring about adjustments. Rule: Without a signed form a new supplier must not be add to supplier base Documents: SFTM-0483_sg PCN P04.01.01.06 General supplier agreement (GSA) The General Supplier Agreement contains the general rules for a commercial relation to Pepperl+Fuchs. The form is sent to the new supplier for signature. Rule: Without a signed form a new supplier must not be add to supplier base. Documents: TFTM-0558_en P04.01.01.07 Other information sources Other information sources might be

• Internet homepages • Image brochures • Printed advertising material • Catalogs • Trade fair visits • Representative visits • Others

11.2 P04.01.02 Evaluation P04.01.02.01 Verification The data collected should be verified for completeness. Rule: The result of the information obtained is to be documented in approval form FTM0131 EDM.. Documents: TFTM-0131_EN: Supplier approval form TDPDE-A040103_EN: Evaluation of potential suppliers and decision regarding adoption in the supplier base TDPDE-A040101_EN: Criteria for test order and/or audit within framework of supplier selec-tion/qualification P04.01.02.02 Decision The decision about the acceptance into the supplier base is taken and documented in approval form FTM-0131. Rule: The acceptance of a new supplier in the supplier master takes place in status 10. If there is a positive commercial assessment, the new supplier is activated (status 20). If there is a negative decision, the suppli-er is deactivated (status 90). Further qualification via a test order, or in the case of a sample order, the new supplier is activated (status 20). They remain in status 20 until a final decision is made. Until this time, the supplier is verified by the supplier development manager. Documents:

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TFTM-0131_EN: Supplier approval form TDPDE-A040103_EN: Evaluation of potential suppliers and decision regarding adoption in the supplier base

11.3 P04.01.03 Test Order P04.01.03.01 Test order The test order is to verify the technical capabilities of a supplier. The product sample supplied from the test order should be evaluated. At the same time, the quality of service should be verified, i.e. the reliability of delivery according to quantity and deadline. Rule: A further business relationship should only take place in the event of technically sound delivery. The item-supplier link (PPS040) is blocked until approval of the test order (status 90). Documents: TDPDE-A040101_EN: Criteria for test order and/or audit within framework of supplier selection/qualification P04.01.03.02 Documentation approval/non-approval The approval of samples from test orders depends on development/goods inspection which checks all criti-cal parameters. Rule: Successful approval is noted in the item-supplier link (PPS040) and the part approved for series order (PPS040 status 20). In the event of non-approval, it is for the relevant specialist buyers to decide whether the supplier may present another sample. The non-approval is to be documented in any case and the item-supplier link blocked until approval (status 90). The test order is documented in the item-supplier link PPS040 until approval. For tool-related parts, a sam-ple report is noted in EDM by R+D. For drawing-related parts, a first sample report is noted by IQC.

11.4 P04.01.04 Supplier Audit P04.01.04.01 Prerequisites for first audit Suppliers of particularly critical raw materials must undergo an audit for the business relationship to be ac-cepted. Rule: Suppliers with an expected turnover of >EUR 100,000 p. a., especially critical single-source suppliers and suppliers of safety-relevant models must be evaluated. P04.01.04.02 Prerequisites for existing supplier audit Strategic suppliers will be audited regularly or if intervention procedures are correspondingly advanced. For partner suppliers, an audit generally only takes place in the framework of intervention procedures. Rule: The order and necessity of supplier audits is established by the quality group consisting of purchase management, the supplier development manager, representatives of the QA department and optionally the responsible specialist buyers. Implementation and documentation is carried out by an audit team and the audit team leader. P04.01.04.03 Supplier audit An audit team is responsible for the implementation of a supplier audit. Rule: The audit team consists of at least 2 members from purchasing/development/QA/WE together and they will be nominated case by case. Output: Audit report.

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11.5 P04.01.05 Evaluation/Decision The decision for or against a new supplier is required. Rule: The decision for or against a new supplier must be noted in Movex (CRS620) (accepted/blocked by status and quality status) and documented in approval form FTM-0131. New suppliers are evaluated in the framework of the supplier management and grouped annually with the new classification in the correspond-ing supplier category. Documents: TDPDE-A040103_EN: Evaluation of potential suppliers and decision regarding adoption in the supplier base TFTM-0131_EN: Supplier approval form

11.6 P04.01.06 Periodic Supplier Evaluation Documents: DPPF-A040107 Supplier Assessment with IQX_Introduction Hardfacts and Workflows P04.01.06.01 Strategic suppliers Strategic suppliers: suppliers with the largest turnovers, suppliers with the most items, suppliers for safety-relevant winding materials and cables and suppliers of PCBs. Strategic suppliers are regularly evaluated. They are to be informed of their assessments. P04.01.06.02 Partner suppliers Partner suppliers: all suppliers that have supplied at least 24 order positions in the last 12 months. Partner suppliers are regularly evaluated. These suppliers are to be informed of their assessments.

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12 Process documentation This chapter is under work-in-progress

12.1 Process Product Transfer This procedure describes the necessary activities regarding the handling of raw material during a product transfer in order to achieve • Material availability for pilot run production and first customer order • Transfer of unique raw material Definitions: Product Transfer: PT Transferring Location: TL, e.g. Mhm, Berlin, USA Future Location: FL, e.g. S’pore ‘Critical’ material: unique material or main usage in the transferred product Technical Coordinator: TC Purchasing Coordinator PC

12.1.1 Decision on Product Transfer The information about a PT is given by the Technical Transfer Coordinator (TC) from TL to the responsible Product Engineer (PE) from FL as well as to purchasing coordinator at TL and FL. Information instrument is called ‘Transfer Sheet’ which includes information like

• pilot run quantity and -start date • annual demand or forecast quantity • 1st customer order quantity.

Note that the 1st CO quantity should be discussed with the respective sales planner to include their planning proposals or -requirements (e.g. safety stock quantity) With this information, PE at FL initiates the creation of parts (MMS001) and BoM in Movex.

12.1.2 Preparation of Parameter Settings in FL Buyers to create new part numbers in MMS002 according to the settings for new parts (see planning con-cept). Purchasing Coordinator (PC) to initiate the parameter settings in MMS001/MMS002

12.1.3 Planning of demand Activities at TL:(optional)

• PC to check future demand at TL for critical material (using database for structure analysis) • PC to create a Material Transfer Info (MTI) as an overview about the expected surplus quantity for

all critical material • PC to send the MTI to FL as a pre-information. It is expected to send this timely/close to the transfer

announcement. Please note that the transfer of material at this point of time is unlikely as the mass release date is not known yet and production at TL is still on going.

• PC to inform all buyers about the transfer as well as about the change in demand for all critical parts Activities at FL: • PC to plan the demand for the required raw materials. [DB Product Transfer] • Stock quantity for new parts only (guideline only) § propose a safety stock quantity for all new parts (Safety Stock method = 0 ) § if forecast > 1000pcs: set a safety stock = about 1-month-demand

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§ if forecast < 1000pcs, set a safety stock = Zero and SS method = 2, in order to let the consumption of the 1st CO quantity trigger auto calculation of SS

§ if no 1st order quantity is stated = Zero safety stock • Proposed Order Quantity: This quantity is based on the 1st CO quantity indicated in the transfer sheet. § If 1st CO qty = Zero, then ‘proposed order qty is = pilot run qty + proposed safety stock qty § If 1st CO qty > Zero, then ‘proposed order qty is = pilot run qty + proposed safety stock qty + 1st CO

qty • PC to inform all buyers about PT (start pilot run, -quantity), demand (forecast- and 1st CO quantity, safety

stock quantity) and Proposed Order Quantity. If available from TL-PC, add the MTI as a pre-information.

12.1.4 Planning of Supply Activities at TL: • buyers to adjust the parameters acc. to the change in demand (e.g. safety stock); add the info in M2(F6) • buyers to plan and control future demand and purchases carefully (e.g. buying on demand only) for all

critical parts Activities at FL: • buyer to check parameters and set the resp. safety stock and SSmethod • buyer to decide about the main supplier (create PPS040/100) • buyer to place orders acc. to Proposed Order Quantity and the resp. start date for pilot run • buyer to check (MTI, if available) if critical material can be supplied by TL

12.1.5 Material availability check • PC at FL to check regular the material availability and inform PE in case target start date cannot be met. • PC to check material availability for new parts as well as for common parts: (pls consider that the increase

in demand could ‚eat-up’ current material. • PC to control parameter settings (e.g. safety stock) and inform buyers to adjust if necessary

12.1.6 Coordination Material Transfer from TL to FL once mass release is given Information about the product mass release by the TC. Activities at TL: • PC to determine the final production quantity at TL together with production and TC, and fix these quanti-

ties in the system. Pls note: the planning of the final production quantity must include the semifinished goods/platines. In case these platines are already transferred to FL, the outstanding POs to FL need to be considered in order to avoid double booking of material at FL. ==> Final production quantity determines the remaining demand for platines. Consider stock-on-hand of the platines and adjust the outstanding purchase orders to FL.

• PC to check inventory/outstanding POs of critical materials against the remaining demand • PC to update MTI and send it as the final material transfer list to PC at FL • Pls note: MTI qty = [Stock + outstanding PO]-[final production orders at TL]-[est. remaining demand at TL] • PC to inform buyers about mass release • Buyers to set respective parameters to ensure that all purchasing activities for the critical parts are

stopped or reduced. • To release the 1st customer orders to FL (according to the quantity given in the transfer sheet). This will

create demand at the FL which would help triggering the material transfer. The release of the 1st COs should be send to FL together with the MTI.

Activities at FL: • PC to inform buyers about transfer of surplus material at TL including quantity and price • Buyers to buy transfer material acc. to MTI and the ‘intercompany stock exchange’ agreements

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12.1.7 Final Checks • Coordinator to monitor that 1st CO quantity is placed by TL • Coordinator to maintain the overview for all PTs in the actual year as an ‘activity checklist’ • Coordinator to monitor the transfer of surplus material; information to coordinator at TL in case of prob-

lems

12.2 Process Change Flow This chapter under work-in-progress

12.3 Process (Product Cancellation) This process serve as guidelines to the handling of phase-out raw materials due to Product Cancellation (document number: PDN-9999). The main objective of this process is to minimize raw material scrap cost, through below processes: § Identification of phasing out raw materials, and inform responsible buyers to take appropriate ac-

tions. i.e. order cancellation, control buy, reduce safety stock, and switch-off planning parameters etc.

§ Matching of stock for phase-out raw materials. § Make proposal to Product Manager or Sales to place more orders for the phasing-out models to use

up raw materials if possible. § And finally, submit excess raw material stock for scrap.

Precondition for this process is such that SCM-MF1 has to be in the distribution list for Product Cancellation PDN-9999. See appendix below for details of work flow.

12.4 Process Material Obsolescence This chapter is under work-in-progress (O.Reichertz and S.Stanelle) Status 40: need to differentiate between internal and external obsolescence of parts

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12.5 Process Product Change Notice from supplier P+F use electronic and electro-mechanical components produced by other manufacturers to build sensors. Manufacturers should inform P+F in cases of changes to its product which affect the form, fit, function and electrical specification or product recall through Product Change Notice (PCN). In P+F, PCN is managed by the Component Management Team (CMT). It is important that the Component Management Team receive the PCN.

12.5.1 Objective Streamline the flow of PCN from suppliers to a centralized email account managed by the Component Man-agement Team. Supplier will be informed by email and reminded in every 2 years.

12.5.2 Scope All suppliers/distributors of components with drawing number 41- or 42-series in item master (MMS001).

12.5.3 Workflow

12.5.3.1 Supplier Selection Select all main suppliers of 41- or 42- components with item-warehouse (MMS002) status 20. Generate the supplier listing in excel format with information: a) ADD1, ADD2, ADD3 and ADD4 from Supplier Address Type POST (CRS622) b) Responsible buyer (from CRS624).

12.5.3.2 Data Maintenance Update responsible buyer in CRS624 according to commodity distribution and address fields ADD1, ADD2, ADD3 and ADD4 in CRS622 according to the standardized format. Generate a fresh supplier list in excel worksheet after updating.

12.5.3.3 Collection of Email Address Buyer will provide the supplier email address in the excel worksheet.

12.5.3.4 Prepare PCN Cover Page A template for the PCN cover page is already available. In the cover page, suppliers are requested to send all information about the product changes to the central-ised email address, [email protected]. The buyer will update sent-date and due-date of 1 week before using Microsoft Word Tools - Mail Merge to insert supplier address in the PCN cover page. Save and convert each cover page from.doc to .pdf docu-ments. he PCN cover page in pdf format will be sent using the supplier email address in the excel work-sheet.

12.5.3.5 Tracking of PCN Status All PCN cover page sent and acknowledged will be registered in the Text Block of Supplier Master (CRS620) for tracking purpose.

12.5.3.6 PCN Sent Create Text block "PCN Y--W--" for PCN sent and a “.” in the text to save the Text Block. Y-- refer to the Year and W-- for the week PCN is sent .

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12.5.3.7 PCN Acknowledgement Once confirmation received from supplier, buyer will update text block Name as "PCN ACJ Y--W--". Reject from supplier, text block Name is updated as "PCN REJ Y--W--" and state the reason in the text. Y-- refer to the Year and W-- for the week PCN acknowledgement is received.

12.5.3.8 Reminder to Supplier Buyer will follow-up with email or call to supplier who does not response by the given deadline.

12.5.3.9 Reject from Supplier Buyer will talk to supplier refuses to comply with the PCN flow. If buyer is not successful at the end, discuss.

12.6 Process Handling of Dangerous Goods This procedure documents the process flow to define, identify and handle dangerous goods used in P+F. The flow is standardised as much as necessary between Singapore and Mannheim. Refer to TDPPF-A040205_EN released in EDM for handling details of this flow

12.7 Tool investment flow This chapter is under work-in-progress Master thesis from IA student (by summer 2013)

12.8 Tool transfer flow from local toolmaker to 008 This chapter is under work-in-progress

12.9 Consignment to supplier This procedure documents the process flow to handle parameter settings in Movex, for situation where we need to consign raw materials to supplier. In addition to planning parameters maintained by Purchasing,

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parameter settings in Item Master and Product Structure related to materials consignment to suppliers are also documented here. These parameter settings are necessary to ensure that inventory movements are transacted according to the design of consignment process. This will facilitate the release of Purchase Orders, as well as Requisition Order to decrement the stock level of consigned materials. In this process, we are also required to coordinate with Controlling, so that costing of an item is triggered on a timely manner. Refer to Appendix for set-up and handling details for this flow

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13 Appendix Index This chapter is under work-in-progress

Overview process documentation Table with overview of work instructions Topic Instruction N5 Reference

13.1 Delivery Instructions

13.2 Consignment to Suppliers

13.3 Planning Concept

13.4 SMI

13.5 Product Cancellation

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13.1 Delivery Instructions

13.1.1 Introduction In order to fulfil audit guidelines of ensuring vendors’ awareness of our standards and requirements, it is necessary to send a set of Delivery Instructions to every new vendor and with every new index change to the Delivery Instruction to existing vendors.

13.1.2 Background A new text block should be created in CRS620, text, using option 1, Text block title: DLVRY INST, Lng: GB, Ext/intern: 2 and Name: DELIVERY INSTRUCTION The following information should be kept in this text block to maintain a clean data storage. This has been recently implemented and with each standard set sent, a Delivery Instruction Cover page, the actual Delivery Instruction and Delivery Instruction Acknowledgement letter must be included. The date sent, recipient and acknowledgment date must be entered as evidence for auditors. The following manner should be observed for standardisation:

Document sent : 32-0045 (e.g.) Recipient : Mr./Ms _____________ (Official title) Date sent : DD MMM YYYY Date acknowledged: DD MMM YYYY Remarks : Nil / Please refer to attachment with acknowledgment letter.

13.1.3 Cover Letter for Delivery Instruction This cover page will explain to the recipient whether it is a new index or what this Delivery Instruction is for and the necessary actions to be taken by the recipient. This is a standard document pre-created except for details of vendor to be filled in.

13.1.4 Delivery Instruction Full descriptive details can be found in EDM, OP-0740, Control of Document Flow to Vendors. The proce-dures and the manner, with which this document is to be handled, can be found.

13.1.5 Acknowledgment for Delivery Instruction The return acknowledgment document, enclosed with every Delivery Instruction set sent, should be duly signed with vendor’s company stamp and returned to P+F for filing. This acknowledgment document serves only as verification that the vendor has received a set of our lat-est/current index of Delivery Instruction. It should by no means bind them to fulfil every requirement as stat-ed. The Cover Letter and Acknowledgment documents can be found in: Y:\50-Operations\20-Materials\30-Purchasing\Navigator\Quality Assurance Manual\Delivery Instruction fold-er. The relevant fields need to be filled in with the correct information before sending out. Outgoing email to supplier and acknowledgement from supplier need to be e-filed in Y:\50-Operations\20-Materials\30-Purchasing\Navigator\Quality Assurance Manual\Delivery Instruction\32-0045 Email and Acknowledgement Filing

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13.2 Consignment to Suppliers

13.2.1 Pre-requisite Parameter Settings in Movex (1 time set-up)

13.2.1.1 PDS010: Work Center Fixed work centre ‘EXTERN’ must be created. This work centre is used in Bill of Materials, to indi-cate that the operation is done at external subcontractor work centre.

13.2.1.2 CRS780: Purchasing Parameter Settings

Define the RO-type to use for sub-contracting

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Must be ticked for consignment parts’ demand visibility in MMS080.

Planning policy defined here for subcontract parts has priority in POP.

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13.2.1.3 PPS095: Purchasing Parameter Settings For sub-assembly level with raw materials consigned to supplier, we need to use PO-type with category 70, where parameter 150 is set to ‘1’.

PPS095/F:

PO-types below are defined for such items: PPS095/B1:

For sub-contract items,

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13.2.2 Pre-requisite Parameter Settings in Movex (for each supplier)

13.2.2.1 CRS622: Supplier Address Type 05 Supplier address type 05 must be created in order to print supplier’s address on our delivery note. CRS622/B:

13.2.2.2 CRS623: Supplier Reference Type 15 Supplier reference type 15 must be created for subcontracting-type suppliers. CRS623/B:

13.2.2.3 CRS080: Department/Cost Center Create supplier number as Department Code

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13.2.2.4 MMS040: Stock Zone Create stock zone for external location. Stock zones for external locations always starts with prefix ‘E’. The zone is used to define materials allocation priority.

MMS040/B:

MMS040/E:

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13.2.2.5 MMS010: Location Create location, with prefix E-xxxxx, where xxxxx is the 5-digit (without prefix ‘S’) supplier number. Location prefix ‘E-’ denotes external location at supplier’s location. The location is assigned to a zone, which is used to define materials allocation priority.

External location

External zone

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13.2.2.6 MMS123: Allocation Control Allocation priority control is pre-defined in MMS123. For raw-materials-consignment-to-supplier to be allocated from the correct zone, control fields are entered by warehouse and department combi-nation, which is pre-defined with priority 8.

MMS123:

MMS124/B: MMS124/E:

Priority 8

From- and To- Stock zones

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Warehouse/Department code combination is assigned to external zone Ex, with priority sequence 10. This is necessary in order for “–54” RO-type to decrement consign stock from the external (supplier) location. Note: As a pre-requisite, allocation method in MMS002/G must be set to “2”, for allocation to work according to the priority defined in this table.

13.2.3 Parameter Settings in Movex (for each item)

13.2.3.1 MMS002: Item Warehouse With P+F’s global database shared among all production sites, the identification of sub-assembled items can no longer be identified in item master (MMS001). Such items need to be defined in item-warehouse (MMS002) instead. This is to allow different production sites to handle our own purchase source independently. Sub-assembled items, where we consign raw materials to suppliers, are now identified in MMS002/E, with ‘Consignment’-field.

Label Field Name Remark

E1 Acquisition Code Always 2 for Buy-part E2 Consignment Tick if need to consign raw materials to supplier.

When this box is marked, P+F modification program takes over some param-eters, for example: 1. Item Category in MMS001/G, which is set to 00 for all items, will be

treated like item-cat. 3 in several modified programs. 2. Search for BoM of this item, with structure-type STD; components in

the BoM marked with subcontract code 2 are created in RO (type ‘-54’ in MF1).

E3 Planning Policy Always RM (for planning concept usage). With P+F’s modification, planning policy defined in CRS780 for subcontract parts has priority in PO proposals.

E4 Order type Use only 501, 502 or 503 Note:

E1 E2 E3

E4

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Item category 3 is the entry point for costing by Controlling.

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13.2.3.2 PPS040: Item Supplier PPS040/B1:

Label Field Name Remark

B1 Inquiry Type Must use 4 or 5 only B2 Service Process Enter structure-type, which is always STD B3 Service Enter operation number, which is always 0001

Note: if operation number is not entered, POP will not be calculated by MRP PPS040/E:

Label Field Name Remark

E1 Record type Always 2 E2 Order type Must be 501 (paper), 502 (fax) or 503 (paper + fax) only.

These order types are defined with order category 70.

B1

B3

B2

E1

E2

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13.2.3.3 PPS100: Agreement

Label Field Name Remark

E1 Group ID Always 10

E1

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13.2.3.4 PDS001: Product Structure For parts with Consignment-field ticked in MMS002, a product structure must be created in PDS001. If consignment –field is ticked and a product structure is not created, POP will not be calculated by MRP. In order for P+F modification program to work as intended, parameters in PDS001 must be set as below: In PDS001, use option 11 (Mtrl/Operation) to get to PDS002. With inquiry type 72, you get to PDS002/W:

Label Field Name Remark

W1 Inquiry Type Use 72. Scroll to right to see ‘Subcontract Control Code’. W2 Component No Raw materials that are used in this sub-assembled part. W3 Operation (Subcon-

tract) For all components used, an operation-no. 0001 must be connected to work centre EXTERN.

W4 Subcontract control The field indicates how orders for subcontract operations should be created. The valid alternatives are: Blank = No purchase order or requisition order is created.

1 = Purchase order and requisition order are created. Requisition order is created when the purchase order proposal is released.

2 = Only a requisition order is created. Requisition order is created when the manufacturing order is created.

W5 Standard Set to 1 to include in costing.

W1

W3

W2

W4 W5

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PDS002/G:

Label Field Name Remark G1 Work centre Always EXTERN for subcontracted external operation with consignment of

raw materials. G2 P day Supplier lead-time must be entered. G3 Subcontract ctrl • External Operation line must be set to ‘1’, in order to create a requisition

order (MMS100 order type –54) with the release of POP. • For raw materials consigned to supplier, components line must be set to ‘2’,

so that these items are created in RO-line. • For raw materials NOT consigned to supplier, components line must be set

to ‘*blank’. Note: This parameter also determine if a material line is created in “–54” RO-type, whenever a POP is released in PPS170, using option 70. The material lines in “–54” RO-type decrement (consume) the consigned stock from external loca-tion assigned to the supplier.

G4 Std This field must be hooked to include the supplier’s labour cost into the cost price of the sub-assembled part. To include the cost of consigned materials into the cost price of a sub-assembled item, the field ‘Standard’ must be set to ‘1’. To exclude the material cost of non-consigned materials from the cost of a sub-assembled item, the field is set to ‘0’. The material cost of the non-consigned part should be included in supplier’s agreement. Note: Operation number 0001 for work centre EXTERN must have standard = 1 so that the subcontract operation cost is added in costing.

G5 PgDn Use ‘page down’ to get to PDS002/H.

G1

G2

G4 G3

G5

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PDS002/H:

Label Field Name Remark

H1 Unit price At creation, agreement price must be given to PE/DS. Subsequent change in price is handled by modification program (from Controlling?) to copy agree-ment price to this field.

H2 Supplier no. Main supplier must be entered here. If the supplier number here does not match with supplier number in MMS002, you will see a POP in MMS080 but NOT in PPS170.

Summary of parameter settings for each material line in PDS001:

Parameter No consignment Consignment Standard (Std)

0 (Not included in costing)

1 (Include in costing)

Subcontract code (SCC)

Blank (Not consigned material)

2 (Consigned material)

Summary of parameter settings for subcontracted external operation line (EXTERN) in PDS001:

P day Suppliers’ lead-time Std 1 Subcontract code 1 Unit price Supplier’s agreement

Supplier No Must be the same main sup-plier in MMS002

H2

H1

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13.2.4 Review Consigned Materials Availability in POP

13.2.4.1 PPS177: Planned PO Select Subcontracting Availability of consigned material can be checked using option 20 in PPS170. This option lists the respective raw materials that need to be consigned as well as the required qty to consign.

PPS177/B:

Label Field Name Remark

B1 Required qty You may change the quantity that be consigned. It is not recommended to manually override the quantity calculated by system from BoM.

B2 F14 (Cfm update) Use F14 to accept the changed quantity.

B2

B1

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13.2.5 Release of Purchase Order Proposal

13.2.5.1 PPS170: Purchase Order Proposal Purchase Order proposals for items with consignment of raw materials to suppliers, will always have planning policy Z1. PPS170/B:

Label Field Name Remark

B1 Planning Policy Always Z1, as defined in CRS780. Note: Always maintain as ‘RM’ in MMS002.

B2 Item category Always 3, which is automatically updated via P+F’s modification. Note: maintain as 1 in MMS001.

B3 Status Always 20. B4 Option 20 ‘Subcontract Select’ to check availability of consigned materials B5 Option 70 Release each POP line, incl. Subcontracting consignment. B6 Option 72 Release by supplier, incl. Subcontracting consignment.

Option 70 and 72 in PPS170 triggers the creation of Requisition Order (-54) automatically if the fol-lowing conditions are met: • ‘Consignment’ checkbox in MMS002/E is ticked. This also means that the program will treat

such item as item-category 3. • A BoM with structure type ‘STD’ exists in the facility. • Creation of material lines in Requisition Order (-54), is triggered from the “sub-contract code” 2,

set in product structure (PDS001). • ‘Production days’ in subcontract operation line is used to offset lead-time. In case of cancellation of PO, respective ‘-54’ Requisition Order need to be deleted. If the RO qty is already decremented from E-location, reported qty need to be reversed. Note: Allocation method in MMS100 must be set to manual first before we transact reversal of qty in ‘-54’ RO. Reversal of ‘-54’ RO qty is transacted using MWS420 and can be done by Margaret only.

B4

B1

B1 B2 B3

B5 B6

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MMS100/B1: (Inquiry Type 3)

Label Field Name Remark

B1 Inquiry Type Use inquiry type 3 to list by Reference Order Category B2 Ref Order Category Select 2 to list by Purchase Order B3 Ref Order No. Purchase Order number B4 Ref order line PO-line/subline B5 Order No Sequentially generated by system. B6 Order Type Always ‘-54’, as assigned in CRS780.

When -54 RO is created, the following data are taken from PO and updated into RO:

Label MMS100/E (Inquiry Type 3) PPS200/E

E1 Reference-no. PO-no E2 Reference-line PO-line/subline E3 Recipient Supplier-name E4 Department Suppl.-no

Delivery-address Suppl.-address Our reference Buyer’s name Your reference Supplier-ref

MMS100/E:

B1

B2

B3

B5 B6 B4

E4

E3

E2 E1

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13.2.6 Allocation Logic In allocation table (MMS124), this department code is linked to a zone, which was assigned a priority. In each zone, one or more locations may be created. In our consignment situation, we created external loca-tions E-xxxxx. Logical linkage is now complete, which allocate stock of materials from assigned external supplier location E-xxxxx.

13.2.7 Changing from Buy-part to Buy-part (with materials consignment) When a Buy-part is changed to a buy-part with consignment, Buyer must coordinate changes with relevant departments to change the parameters below. Below parameters are to be changed:

Parameter Changed from Changed to MMS001 MMS002 MMS003 Responsible

Procurement group Respective Respective X Buyer Ext. Instruction If requested If requested X Buyer Planner, Buyer Responsible Buyer Responsible buyer X Buyer Acquisition code 2 2 X Buyer

Forecast method According to Plan-ning Concept F0 X Buyer

Forecast logic Always MD Always MD X Buyer Supplier no Else ‘S99999’ Else ‘S99999’ X Buyer Supply Lead time Else ‘199’ 14 or else ‘199’ X Buyer Admin Lead time 2 2 X Buyer Order type 502 502 X Buyer

MMS002/F

All planning pa-rameters; SStk, SStk Mtd, Order qty days, ABC class, etc

All planning pa-rameters; SStk, SStk Mtd, Order qty days, ABC class, etc

X Buyer

Cost Price NA

Cost price must be re-calculated based on prices of all con-signed parts plus labour cost. Labour cost is equiv-alent to our agree-ment with supplier.

X

Buyer to inform Controlling to update.

Average Price NA NA Note: Item Type and Main Supplier must be changed at the same time period. Once change is transacted, then Controlling can update Average Price or Cost Price accordingly. This sequential step is necessary to ensure that agreement picked up by Controlling is from the correct supplier. 13.2.8 Changing from Buy-part (with materials consignment) to Buy-part When a buy-part (with materials consignment) is changed to a buy-part (without materials consignment), Buyer must coordinate changes with relevant departments to change the parameters below. Below parameters are to be changed:

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Field Changed from Changed to MMS001 MMS002 MMS003 Responsible

Procurement group Respective Respective X Buyer Ext. Instruction If requested If requested X Buyer Planner, Buyer Responsible Buyer Responsible buyer X Buyer Acquisition code 2 2 X Buyer

Forecast method According to Plan-ning Concept

According to Plan-ning Concept X Buyer

Forecast logic According to Plan-ning Concept

According to Plan-ning Concept X Buyer

Supplier no PPS100 via PPS950, else ‘99999’

PPS100 via PPS950, else ‘99999’ X Buyer

Supply Lead time MMP987, else ‘199’ MMP987, else ‘199’ X Buyer Admin Lead time 2 2 X Buyer Order type MFX MFX X Buyer

MMS002/F

All planning pa-rameters; SStk, SStk Mtd, Order qty days, ABC class, etc

All planning pa-rameters; SStk, SStk Mtd, Order qty days, ABC class, etc

X Buyer

Cost Price NA NA X Buyer to inform Controlling.

Average Price NA

Average price must be manually updated based on the new agreement price.

X

Buyer to inform Controlling, who must update manually.

Note: Item Type and Main Supplier must be changed at the same time period. Once change is transacted, then Controlling can update Average Price or Cost Price accordingly. This sequential step is necessary to ensure that agreement picked up by Controlling is from the correct supplier.

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13.3 Planning Concept

13.3.1 Lead time The Lead Time (LT) is one of the most important parameters in Movex! The Lead Time is the foundation of planning accuracy. Without an accurate lead time - as a reflection of the actual market or supplier situation – the availability of raw materials cannot be achieved. The current plan-ning concept consists of two main ‚pillars’ - Safety Stock and Forecast – both of them are based on the Supply Lead Time! Therefore it is one of the most important task for each buyer to be aware of the actual LT in the market and to continuously update this knowledge from the dialog with suppliers and, finally - to maintain and update the lead times in the system!

13.3.1.1 Registration of a Lead Time for new part numbers New items are created with a default-lead-time coming from the template-item. This default must be over-written with the correct lead-time in MMS002. When connecting the new item with one (or several) supplier/s in PPS040, the lead-time must be entered at panel PPS040/E for each supplier. Please note that the system will update MMS002 automatically if suppli-er is entered as main-supplier in MMS002/E.

13.3.1.2 Update of Lead Times Supply Lead Times can be updated with a mass-update via XPPX018, e.g. all parts of a selected supplier or all parts from a certain item group. Lead-times in Movex are counted as Working Days and NOT as Calendar days, e.g. a LT of 30 (calen-dar) days given from supplier should most likely be transferred to Movex in only 20 working days!

XPPX018 is updating the new LT in all item-supplier-connections (PPS040 and MMS002) of the selected items.

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13.3.1.3 Movex Lead Times fields in MMS002 Panel Field Descr File Update through….

MMS002/E Supply LT MBLEA1 MITBAL • manual change in MMS002/E • manual change of LT in PPS040 for main supplier • mass-update with XPPX018

Inspection LT MBLEA2 MITBAL • From IQC-method Administration LT M9LEA4 MITFAC Transmission LT Not used. Always 0. Transport LT MBLEA3 MITBAL Not used. Always 0.

Lead Time MBLEAT MITBAL • New calculated with every change of MBLEA1: • Sum ( all 5 LT above) = Lead Time

This field is used for MRP calculation.

PPS040/E Supply Ltm IFLEA1 MITVEN • manual change of LT in PPS040/E • manual change of LT in MMS002/E of the main spl. • mass-update with XPPX018

Lead Time IFLEA5 MITVEN • Only displayed from MMS002 – LT/MBLEAT

13.3.2 Safety stock The basic idea of a safety stock is to guarantee availability of raw materials to balance fluctuations in de-mand and deliveries from suppliers. The safety stock decides therewith the service (availability) level of an item. Out of the different methods to calculate the safety stock in Movex, the method 1 and 2 for automatic calcu-lation offers the advantage of a dynamic adjustment of the safety stock to the average consumption and lead time of an item. The classification of raw materials into ABC-(XYZ) classes is a precondition to differentiate the calculation of safety stock level in order to achieve a highest possible availability under the condition of an optimized stock value.

13.3.2.1 Effects of planning according to Safety Stock Principle A Purchase Order Proposal (POP) is generated once the projected on-hand-balance is below the defined safety stock level. All demand above safety stock level must be covered by stock on hand or released pur-chase orders. In P+F, we will calculate safety stock from historical consumption data of each item.

13.3.2.2 Movex parameters (MMS002/F) used in calculation of Safety Stock

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No Field name

Field Description Value

1 MBSSMT Safety stk mtd 0: manually updated, 1+2: see formula above

2 MBSSDA Safety stk unit For SS method 2: Percentage of lead-time to cover safety stock level For SS method 1: number of days (average usage)

3 MBYEQT Annual demand Calculated with FCS100 4 MBYEQM Annual dmd mtd Always = 1 (to be calculated and updated automatically thru FCS100) 5 MBABCD ABC cls volume Calculated with MMS600

6 MBABCM ABC mtd volume Always = 1 (to be calculated and updated automatically thru MMS600)

Definition:

• Average consumption per day is taken from Annual Demand (MMS002/F, which is accumulated from various columns in MMS090) of past consumption over last 12 months.

• Lead-time in days from MMS002/E.

13.3.2.3 Calculation of Safety Stock Various formulae are available in Movex. In P+F (Sgp), we use Safety stock method 2: Average consumption per day * lead-time in days * safety stock value in % Safety stock method 1: Average consumption per day * number of days Safety Stock is calculated and updated in a monthly routine either through standard Movex programs FCS100 or MMS615. Only the calculation logic through FCS100 will be discussed here.

13.3.2.4 Calculation of Annual Demand (as basis for safety stock calculation) • The number of past periods to use to calculate annual demand is defined in Forecast Method. • The type of demand (from MMS090) used as basis for computing annual demand is: • Add Quantity Used/Less Positive inventory variances/Add Negative inventory variances/Add Nega-

tive transfer • Annual demand (MMS002/F) calculation is dependent on an item’s number of active periods in

MMS090: Items with less than 12 active months (Consumption is averaged over a 6-month period): Formula: Annual demand = (Total current usage of past 6 periods / 6) * 12 Items with more than 11 active months (Consumption is averaged over a 12-month period): Formula: Annual demand = (Total usage of last past 12 periods / 12) * 12

13.3.2.5 Calculation of ABC-classes (as a basis for safety stock calculation) • Differentiating raw materials into ABC-classes helps us to achieve an optimum inventory level.

Supplement with XYZ

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§ A-items (high consumption value) will be planned with a lower Safety Stock level and higher or-der frequency.

§ C-items (low consumption value) will be planned with a higher Safety Stock level and lower or-der frequency.

• Classification of ABC-classes is determined § According to the consumption value of the past 12 months § Monthly recalculation of consumption value and assignment to the latest ABC-class according

to the definition of these classes • Definition of ABC-classes § Class A: 70% of the overall consumption value (~20% of the overall number of items) § Class B: 20% of the overall consumption value § Class C: 10% of the overall consumption value § Class D: items phasing out, example: item master status 50 or 80 § Class E: new items

• Setting of parameters as pre-condition for calculation of ABC-class § MMS002/F, ABC method volume = 1 (ABC-class calculation and automatic update of ABC-

class) § MMS002/F ABC-class volume updated with A or B or C

Note: In MMS002/F, if ABC method volume = 0, then there is no update of the ABC-class volume. ABC calculation will still be computed for ALL items.

13.3.2.6 Planning the Safety Stock method It is possible to choose for each item, to plan it with or without an automatic calculated and updated safety stock. This is dependent on the defined parameter in MMS002/F, Safety Stock Method. Setting a manual Safety Stock (safety stock method 0)

• For items, which require a higher safety stock then automatically calculated, example: Asics, critical items, high-risk-items etc.

• For items, which require a lower safety stock then the automatically calculated items, example: new or obsolete items.

Note: Periodical checking by exception is required for items, where safety stock is manually controlled!

Setting an automatic calculated Safety Stock (safety stock method 2)

• For stable and volatile items that are used regularly on a yearly basis. • The formula to calculate safety stock qty according to method 2 is as described in 1.3 above. • Classifying raw materials into ABC-classes allows us to define different Safety Stock Value as a

precondition to differentiate the calculation of safety stock level in order to achieve a highest possi-ble availability under the condition of an optimized stock value.

ABC Class Safety Stock Value Results and Effects

A - high consumption value Safety Stock Value = 30 è Low safety stock B - medium consumption value Safety Stock Value = 40 è Medium safety stock C - low consumption value Safety Stock Value = 50 è High safety stock D - Phasing out parts Safety Stock Value = 0 è Zero safety stock E - New parts Safety Stock Value = 0 è Zero safety stock

Note: D- and E-class definition is swapped because as a part is phased out (annual demand drops to zero over 12-periods), standard Movex ‘drops’ the item into the next available class in alphabetical or-der.

13.3.3 Planning the Optimum Order Quantity The quantity that is proposed in a POP generated from MRP calculation is dependent on a few quantity-related planning parameters in MMS002. In Singapore, we use the following parameters:

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13.3.3.1 Order Quantity Days (precondition: Order Policy = 12) With the setting of order quantity days, a consolidation of all demands within the specified number of days, into one single purchase order proposal is achieved. Therefore, a control of the order frequency can be achieved. Setting of Movex parameters as pre-condition to consolidate POPs:

• MMS002/F, Order Policy = 12 • MMS002/F, Order Qty Days

ABC Class Order Qty Days Results and Effects

A: high consumption value Order Qty Days = 20 Low number of consolidation days è High order frequency

B: medium consumption value Order Qty Days = 40 Medium number of consolidation days è Medium order frequency

C: low consumption value Order Qty Days = 65 High number of consolidation days è Low order frequency

D: Phasing out parts Order Qty Days = 20 Low number of consolidation days è High order frequency

E: New parts Order Qty Days = 20 Low number of consolidation days è High order frequency

Note: D- and E-class definition is swapped because as a part is phased out (annual demand drops to zero over 12-periods), standard Movex ‘drops’ the item into the next available class in alphabetical or-der.

13.3.3.2 Order Multiple • With the setting of Order Multiple, Order Quantity will be in multiples of the number set in this field.

Example: standard packing size, standard reel size and etc. • Setting of parameter as pre-condition to pre-define POPs qty:PPS040/E, Order multiple Note: Order multiple should be defined in PPS040 instead of MMS002 because this is supplier-dependent. This way, when main supplier is changed in MMS002, the order multiple from PPS040/E will be transferred into MMS002 accordingly

.

13.3.3.3 Minimum Order Quantity • With the setting of Minimum Order Quantity, the smallest possible order quantity is defined. This is

normally the minimum quantity that the supplier can accept. • Setting of parameter as pre-condition to define POPs qty: • PPS040/F, Min order qty Note: ‘Min order qty’ should be defined in PPS040 instead of MMS002 because this is supplier-dependent. This way, when main supplier is changed in MMS002, the min order qty from PPS040/E will be transferred into MMS002 accordingly.

13.3.3.4 Order Quantity • Order quantity field can be entered manually. • If Order-Quantity field is not filled, MRP will propose an optimized combination based on the 3

quantity-related fields above. Note: Order Quantity should not be manually entered in MMS002/F if we want Movex to select and compute based on the 3 quantity fields above. This field will be displayed in MMS002/F, if any of the 3 quantity fields above are defined.

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13.3.4 Forecast As raw materials’ lead time are stretched (can go up to more than 12 months) and the demand for raw ma-terials are only visible for 2-4 months, MRP cannot trigger Purchase Order Proposals (POPs) in the period between the last demand point up to the raw materials lead time point.

As such, it is necessary to keep safety stock to cover a certain percentage of the average consumption dur-ing the raw materials’ lead time period and fill up the remaining period (up to the material with the longest lead time) with forecast (based on past consumption). The safety stock and forecast (acting like demand) will now trigger POPs covering the entire materials lead time period.

13.3.4.1 Parameter settings for computation of forecast quantity and forecast periods MMS002/E Forecast Method

• To determine the number of future forecast periods. Note: The number of forecast periods is in addition to the current period.

• To determine the quantity of past periods, from which the forecast periods are calculated • To determine the number of periods that the moving average should be based on • Available options:

90: extrapolate 03 future forecast periods based on 6 or 12 past periods 91: extrapolate 06 future forecast periods based on 6 or 12 past periods 92: extrapolate 09 future forecast periods based on 6 or 12 past periods 93: extrapolate 12 future forecast periods based on 6 or 12 past periods 99: extrapolate 00 future forecast period based on 6 or 12 past periods

Note: Forecast is calculated based on 6 past periods if the items have less than 11 periods in MMS090. Forecast is calculated based on 12 past periods if an item has 12 continuous periods (prior to current month, including zero values) in MMS090.

MMS002/E Forecast Logic

• To determine if forecast is to be distributed at the beginning, mid or end of period. We will distribute future forecast at the beginning of a period.

• Available option: MD: Forecast will be distributed at the beginning of a period

13.3.4.2 Calculation of forecast quantities • Annual demand (calculated using FCS100) logic is used similarly to calculate forecast quantity. See

section 1.4 above for the explanation of annual demand calculation logic. • Example:

Feasibility Calculation for the a.m. example, item #005312

Consumption of past rolling 12 periods (Consumption from various columns in MMS090) 200

Number of calculation periods (dependent on number of active periods) 12

1 future-period forecast = 17

13.3.4.3 Determination of periods to extrapolate forecasts • The number of forecast periods to extrapolate is dependent on the individual raw material supply

lead-time. • It is also dependent on the ABC classification of an item. • The matrix showing the relationship ABC class, lead time of an items and forecast periods is de-

fined in attached table - Planning Overview Settings and Effects.xls • The number of periods to extrapolate is set in FCS300/F “Extrapol per”

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13.3.4.4 Explanation about mode of operation of forecasts • Forecast Method is calculating the extrapolated forecast quantity for one period as demand for the

next x- months into the future. • Real demands, including IMRs, are reducing the forecast quantity in the respective month. Demand

types are defined in FCS300. Note:

⇒ Customer Orders (311) does NOT consume forecast ⇒ Movements between location (921/931) does NOT consume forecast

• Every future forecast quantity is reducing the projected on-hand-balance and is therefore creating a POP when the projected-on-hand-balance falls below the safety stock quantity.

• Forecast is acting as a demand at the beginning of each month • Forecast is transferred to MITPLO by using MPS100 program, which is a std Movex program.

Example of mode of operation of forecast using item #005312

Current period

Forecast for 6 fu-ture peri-ods

Aug: Demand + FC

Sep: FC. (CO does not reduce FC)

Jun: Balance FC

Jul: Balance FC

Oct: Balance FC

Nov: Balance FC

Dec: Balance FC

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13.3.4.5 Monthly Forecast routine procedure MF1 – Checklist

1) Reset M2 parameters Database: Y:\50-Operations\20-Materials\30-Purchasing\Navigator-Folder\Planning Concept\ABC XYZ Concept \ Raw Mate-rials MF1 Run query A010a: Reset SSMT SSDA ABFC (MBWHLO = MF1 or like Z*, MBPUIT = 2 or 3, MBSUWH <> BT1) • Safety stock method MBSSMT = 2 (from MBSSMT = 1) • Safety stock unit MBSSDA = 40 (for item with MBSSMT = 1) • ABC class frequency (XYZ) = J (from MBABFC <= C) Upload using XMMX011 for each parameter Note: Query A010a will include items need to be reset in Z-whs.

2) MMS805: Item statistics: Period run (Create current period in MITSTA) Description From To Remarks Warehouse MF1 MF1 Only Asian warehouse Item no 000000 999999 Period 1109 1109 Use current period YYMM in both fields Planning Policy RM RL RM = raw materials, RL = SMI parts

3) Login to iSeries (PFMAPROD) and call PPP050 sub-menu. PPP059: Reset planning parameters for D-class parts (Set ABC-volume-method, MBABCM = 0 for D-class item; take care of the scenario when buyer forgot to update MBABCM when a part is set to D) Warehouse MF1 Always MF1 Planning Policy RM, RL RM = raw materials; RL = SMI parts Acquisition code * 2 = buy part, 3 = distributed parts (from 008, not Z*)

4) FCS100: Calculate annual demand Description From To Remarks Warehouse MF1 MF1 Only Asian warehouse Item no 000000 999999 F/C method 90 99 Period 1109 1109 Use current period YYMM in both fields

(to fill M9 data of previous period into forecast table)

Start method 1 Always = 1

5) MMS600: ABC classification Description From To Remarks Warehouse MF1 MF1 Always = MF1 Item no 000000 999999 Planning Policy RM RL RM = raw materials, RL = SMI parts ABC cls volume A B C D E Cstng type 9 9 = raw materials Costing date DDMMYY Last calendar day of previous period Usage base 2 = Annual demand Class A 70% As defined in CRS015 Class B 20% As defined in CRS015 Class C 10% As defined in CRS015 Division basis 1 = Volume value Update X X = update ABC class

6) PPP055: Reset E parts with MBABCM =1 (to revert items dropped into D-class back to E-class due to non-usage in past 12 months) Warehouse MF1 Always MF1 Planning Policy RM, RL RM = raw materials, RL = SMI Acquisition code * 2 = buy part / 3 = distributed parts (from 008)

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7) PPP052: Reset planning parameters for ABCDE Parts (ABC-class) (Note: When ABC Cls Contrib, MBACOC = A, PPP052 will not reset the planning parameters.) Warehouse MF1 Always MF1 Planning Policy RM, RL RM = raw materials; RL = SMI Acquisition code * 2 = buy part; 3 = distributed parts (from 008)

Item class

Safety stk Value (%)

Order Qty days

FC mtd > 181 days

FC mtd 121-180

days

FC mtd 61-120 days

FC mtd 41-60 days

FC mtd 1-40 days

MBABCD MBSSDA MBEQDA MBPRCD MBPRCD MBPRCD MBPRCD MBPRCD A 40 20 93 92 91 90 99 B 50 40 93 92 91 90 99 C 60 65 93 92 92 90 99 D 60 20 99 99 99 99 99

8) Database: Y:\50-Operations\20-Materials\30-Purchasing\Navigator-Folder\Planning Concept\ABC XYZ Concept \ Raw Materials MF1

a. Calculate XYZ-class via Access database, run queries D1 – D6. b. Identify exclusions:

i. Manual set safety stock method (MBPLCD = RM/RL, MBPUIT = 2 or 3 (DO from 008), MBSSMT = 0)

ii. Safety stock value > S$100,000 iii. Items with XYZ calculation result = nc (not calculatable)

Run query E001 for exclusion ii and iii.

c. Run query E001a. Upload XYZ information into Movex (MBABFC) and ABC-frequency-method (MBABFM) to 0 (manual) using xmmx011. Note: XYZ update include items with manual safety stock MBSSMT = 0. d. Exclude manual safety stock MBSSMT = 0 (exclusion i), run query E001b. Upload MBSSMT = 1 and MBSSDA according to SS-days in table below using xmmx011. e. Identify inclusions for SMI and consignment parts, run query E002 and E003.

(Not applicable for Items with safety-stock-method, MBSSMT = 0 or ABC-class-volume, MBABCD = D.)

f. Upload MBSSMT = 1 and MBSSDA = 60 for SMI parts using xmmx011.

Upload MBSSMT = 1 and MBSSDA = 30 for Consignment parts using xmmx011.

9) PPP053: Delete forecast Warehouse MF1 Always MF1 Planning Policy RM, RL RM = raw materials Acquisition code * 2 = buy part / 3 = distributed parts (from 008)

10) FCS100: Calculate forecast and safety stock Description From To Remarks

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Warehouse MF1 MF1 Always = MF1 Item no 000000 999999 F/C method 90 99 Period 1109 1109 Use current period YYMM in both fields Start method 1 Always = 1

11) FCS020: Adjust Forecast Description From To Remarks Warehouse MF1 MF1 Always MF1 Item no 000000 999999 Item group Blank Product group Blank Period YYMM YYMM Select forecast period to adjust forecast Stock zone Select stock zone to adjust forecast (AA-ZZ) F/C method Blank or Select FC method (90 – 99) ABC cls volume Blank or Select ABC class volume (A–J) ABC cls manual Blank or Select ABC class manual (A-J) Item responsible Blank Manuf Planner Blank Sales-Planner Blank Acquisition code 2, 3 2, 3 Select 2=Buy parts; 3=distributed parts Update function 1 1=adjust forecast by +/- %

2= add specified +/- qty to forecast 4=delete manual forecast

Man adj value Value to adjust (+ or -). -10 = reduce by 10%

12) MPS100: Copy Forecast to M8 Description From To Remarks Warehouse MF1 MF1 Only Asian warehouse Item no 000000 999999 Period 1109 1209 Select period in YYMM to copy forecast.

Current period to next 12 periods or more. Forecast Method 90 93 Select FC method (90 – 98)

* Must not select “99” (zero forecast period). To MDS version Always 1

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Z** warehouse – Checklist 1) Reset M2 parameters (MBWHLO = like Z*, MBPUIT = 2)

• Safety stock method MBSSMT = 2 (from MBSSMT = 1) • Safety stock unit MBSSDA = 40 (for item with MBSSMT = 1) • ABC class frequency (XYZ) = J (from MBABFC <= C)

Upload using XMMX011 for each parameter. Note: Reset of M2 parameters in Z-whs is usually done in Step 1 for MF1 forecast run.

2) MMS805: Item statistics: Period run (Create current period in MITSTA) Description From To Remarks Warehouse Z01 Z31 Consignment Warehouse Item no 000000 999999 Period 1109 1109 Use current period YYMM in both fields Planning Policy RM RM = raw materials

3) FCS100: Calculate annual demand Description From To Remarks Warehouse Z01 Z31 Consignment Warehouse Item no 000000 999999 F/C method 90 99 Period 1109 1109 Use current period YYMM in both fields Start method 1 Always = 1

4) Copy ABC-volume-method MBABCD = A/B/C from MF1 to Z-whs, run query G001 and G002. (G001: MBWHLO = MF1, MBPUIT = 3, MBSUWH = Z*, MBABCD = A or B or C, MBSTAT < 50) (G002: MBWHLO = Like Z*, MBABCD <> D, MBSTAT < 50) Upload MBABCD using XMMX011.

5) Login to iSeries (PFMAPROD) and call PPP052 sub-menu. PPP052: Reset planning parameters for ABCDE Parts Warehouse Z01, Z02, Z11, Z21, Z31 Consignment Warehouse Planning Policy RM RM = raw materials Acquisition code 2 2 = buy part

Item class

Safety stk Value (%)

Order Qty days

FC mtd > 181 days

FC mtd 121-180

days

FC mtd 61-120 days

FC mtd 41-60 days

FC mtd 1-40 days

MBABCD MBSSDA MBEQDA MBPRCD MBPRCD MBPRCD MBPRCD MBPRCD A 40 20 93 92 91 90 99 B 50 20 93 92 91 90 99 C 60 20 93 92 92 90 99 D 60 20 99 99 99 99 99

6)

a. Pick all consignment parts from MF1 and copy MBABFC = A/ B/ C (X Y Z) and J into Z-whs, in-clude MBSSMT = 0.

Run query F001. (MBWHLO = MF1, MBPUIT = 3, MBSUWH <> BT1, MMDWNO = Like 41*, MBSTAT < 50) (MBWHLO = Like Z*, MBSTAT < 50, MBABCD <> D)

b. Upload XYZ information into Movex (MBABFC) and ABC-frequency-method (MBABFM) to 0 (manual) using xmmx011.

c. Exclude manual safety stock MBSSMT = 0. Run query F002.

Upload MBSSMT = 1 and MBSSDA = 60 using XMMX011.

7) PPP053: Delete forecast Warehouse Z01, Z02, Z11, Z21, Z31 Consignment Warehouse Planning Policy RM RM = raw materials

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Acquisition code 2 2 = buy part

8) FCS100: Calculate forecast and safety stock Description From To Remarks Warehouse Z01 Z31 Consignment Warehouse Item no 000000 999999 F/C method 90 99 Period 1109 1109 Use current period YYMM in both fields Start method 1 Always = 1

9) FCS020: Adjust Forecast Description From To Remarks Warehouse Z01 Z31 Consignment Warehouse Item no 000000 999999 Item group Blank Product group Blank Period YYMM YYMM Select forecast period to adjust forecast Stock zone Select stock zone to adjust forecast (AA-ZZ) F/C method Blank or Select FC method (90 – 99) ABC cls volume Blank or Select ABC class volume (A–J) ABC cls manual Blank or Select ABC class manual (A-J) Item responsible Blank Manuf Planner Blank Sales-Planner Blank Acquisition code 2 2 Select 2=Buy parts; 3=distributed parts Update function 1 1=adjust forecast by +/- %

2= add specified +/- qty to forecast 4=delete manual forecast

Man adj value Value to adjust (+ or -). -10 = reduce by 10%

10) MPS100: Copy from Forecast Description From To Remarks Warehouse Z01 Z31 Consignment Warehouse Item no 000000 999999 Period 1109 1209 Select period in YYMM to copy forecast.

Current period to next 12 periods or more. F/C method 90 93 Select FC method (90 – 98)

* Must not select “99” (zero forecast period). To MDS version Always 1

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BT1 warehouse – Checklist 1) MMS805: Item statistics: Period run (Create current period in MITSTA) Description From To Remarks Warehouse BT1 BT1 BT1-T3 items Item no 000000 999999 Period 1109 1109 Use current period YYMM in both fields Planning Policy RL RL = raw materials in BT1 2) FCS100: Calculate annual demand Description From To Remarks Warehouse BT1 BT1 BT1-T3 Item no 000000 999999 F/C method 90 99 Period 1109 1109 Use current period YYMM in both fields Start method 1 Always = 1 3) Cannot run MMS600 (ABC classification) because we do not plan all distributed parts in BT1. 4) Run query to check the planning parameters for Class ABC and E Parts:

• Safety stock method MBSSMT = 1 • Safety stock unit MBSSDA = 60 (raw cables, raw wires), 20 (for other items) • Order Qty days MBEQDA = 20 • FC method MBPRCD = 91

(For safety-stock-method = 0, MBSSDA will be standardized and set to 0.) Set forecast method MBPRCD to 99 for class D item. PPP052: Reset planning parameters for ABCDE Parts Warehouse BT1 BT1-T3 items Planning Policy RL RM = raw materials Acquisition code 3 3 = distribution part

Item class

Safety stk Value (%)

Order Qty days

FC mtd > 181days

FC mtd 121-180days

FC mtd 61-120days

FC mtd 41-60days

FC mtd 1-40days

MBABCD MBSSDA MBEQDA MBPRCD MBPRCD MBPRCD MBPRCD MBPRCD A 20 or 60 20 91 91 91 91 91 B 20 or 60 20 91 91 91 91 91 C 20 or 60 20 91 91 91 91 91 D 20 or 60 20 99 99 99 99 99 E 20 or 60 20 91 91 91 91 91

4) Login to iSeries (PFMAPROD) and call PPP053 sub-menu. PPP053: Delete forecast Warehouse BT1 BT1-T3 Planning Policy RL RL = raw materials planned in T3 Acquisition code 3 3 = distribution part 5) FCS100: Calculate forecast and safety stock Description From To Remarks Warehouse BT1 BT1 Always = BT1 Item no 000000 999999 F/C method 90 99 Period 1109 1109 Use current period YYMM in both fields Start method 1 Always = 1 6) FCS020: Adjust Forecast Description From To Remarks Warehouse BT1 BT1 Always BT1 Item no 000000 999999 Period YYMM YYMM Select forecast period to adjust forecast F/C method 91 91 Always 91 Manuf Planner Refer to M2 (Hungary / BT1 T3)

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Sales-Planner Refer to M2 (Hungary / BT1 T3) Acquistion cd 3 Always 3 distribution part Update function 1 1=adjust forecast by +/- %

2= add specified +/- qty to forecast 4=delete manual forecast

Man adj value 10 or 10- 10- = reduction by 10% 7) MPS100: Copy from Forecast Description From To Remarks Warehouse BT1 BT1 BT1-T3 Item no 000000 999999 Period 1109 1209 Select period in YYMM to copy forecast.

Current period to next 12 periods or more. F/C method 90 98 Select FC method (90 – 98)

* Must not select “99” (zero forecast period). To MDS version 1 Always 1

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VN1 warehouse – Checklist

1) MMS805: Item statistics: Period run (Create current period in MITSTA) Description From To Remarks Warehouse VN1 VN1 Item no 000000 999999 Period 1109 1109 Use current period YYMM in both fields Planning Policy RM RM = raw materials

2) Login to iSeries (PFMAPROD) and call PPP050 sub-menu. PPP059: Reset planning parameters for D-class parts (Set ABC-volume-method, MBABCM = 0 for D-class item; take care of the scenario when buyer forgot to update MBABCM when a part is set to D) Warehouse VN1 Always VN1 Planning Policy RM RM = raw materials Acquisition code * 2 = buy part, 3 = distributed parts (from 008, not Z*)

3) FCS100: Calculate annual demand Description From To Remarks Warehouse VN1 VN1 Item no 000000 999999 F/C method 90 99 Period 1109 1109 Use current period YYMM in both fields Start method 1 Always = 1

4) MMS600: ABC classification Description From To Remarks Warehouse VN1 VN1 Always = VN1 Item no 000000 999999 Planning Policy RM RM RM = raw materials ABC cls volume A B C D E Cstng type 9 9 = raw materials Costing date DDMMYY Last calendar day of previous period Usage base 2 = Annual demand Class A 70% As defined in CRS015 Class B 20% As defined in CRS015 Class C 10% As defined in CRS015 Division basis 1 = Volume value Update X X = update ABC class

5) PPP055: Reset E parts with MBABCM =1 (to revert items dropped into D-class back to E-class due to non-usage in past 12 months) Warehouse VN1 Always VN1 Planning Policy RM RM = raw materials Acquisition code * 2 = buy part / 3 = distributed parts (from 008)

6) PPP052: Reset planning parameters for ABCDE Parts (Note: When ABC Cls Contrib, MBACOC = A, PPP052 will not reset the planning parameters.) Warehouse VN1 Planning Policy RM RM = raw materials Acquisition code * 2 = buy part / 3 = distributed parts (from 008)

Item class

Safety stk Value (%)

Order Qty days

FC mtd > 181 days

FC mtd 121-180

days

FC mtd 61-120 days

FC mtd 41-60 days

FC mtd 1-40 days

MBABCD MBSSDA MBEQDA MBPRCD MBPRCD MBPRCD MBPRCD MBPRCD A 40 20 93 92 91 90 99 B 50 40 93 92 91 90 99 C 60 65 93 92 92 90 99 D 60 20 99 99 99 99 99

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7) PPP053: Delete forecast Warehouse VN1 Planning Policy RM RM = raw materials Acquisition code * 2 = buy part / 3 = distributed parts (from 008)

8) FCS100: Calculate forecast and safety stock Description From To Remarks Warehouse VN1 VN1 Always = VN1 Item no 000000 999999 F/C method 90 99 Period 1109 1109 Use current period YYMM in both fields Start method 1 Always = 1

9) FCS020: Adjust Forecast Description From To Remarks Warehouse VN1 VN1 Always VN1 Item no 000000 999999 Item group Blank Product group Blank Period YYMM YYMM Select forecast period to adjust forecast Stock zone Select stock zone to adjust forecast (AA-ZZ) F/C method Blank or Select FC method (90 – 99) ABC cls volume Blank or Select ABC class volume (A–J) ABC cls manual Blank or Select ABC class manual (A-J) Item responsible Blank Manuf Planner Blank Sales-Planner Blank Acquisition code 2 3 Select 2=Buy parts; 3=distributed parts Update function 1 1=adjust forecast by +/- %

2= add specified +/- qty to forecast 4=delete manual forecast

Man adj value Value to adjust (+ or -). -10 = reduce by 10%

10) MPS100: Copy from Forecast Description From To Remarks Warehouse VN1 VN1 Always VN1 Item no 000000 999999 Period 1109 1209 Select period in YYMM to copy forecast.

Current period to next 12 periods or more. F/C method 90 93 Select FC method (90 – 98)

* Must not select “99” (zero forecast period). To MDS version 1 Always 1

Back to Planning Concept

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13.4 SMI Strategy

13.4.1 Preparation • Prepare Purchase Agreement Supplier Managed Inv. • Select eligible parts and prepare attachment to a.m. agreement (PN, description, supplier PN, agree-

ment price, annual demand, common/non-common part etc.). • Standard format for updating manufacturer name in “Suppl item desc” (PPS040).

13.4.2 Implementation • Both parties to sign the contract and agree about the start date • Delete all outstanding back-to-back POs after start date is determined. • Place an order-on-call for all parts • Change planning parameters (M2) as follows: Planning Policy RL Parts with planning policy RL will not be included in IQS (supplier

performance evaluation). F/C method 9x According to ABC class setting. Forecast will be calculated to trigger

the next POP. Safety stock method 1 Set to automatic, always use method 1 for xyz classification. Safety stock value 60 Always set to 60 daily consumption. Safety stock qty Calculat-

ed Automatically calculated during monthly forecast cycle

Order qty days 20, 40 or 65

According to ABC class setting.

ABC cls contrib.. J Default setting.

Standard Format: • Brandxxxxx“ON CALL“ (where x = space) • All entries in upper case

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13.4.3 Replenishment Quantity Formula Formula to calculate replenishment quantity:

• The minimum replenishment qty will cover min 5 months and max replenishment qty to cover 7 months of average consumption.

• Usually, supplier is allowed to deliver replenishment when Min Replenish Qty < 0 and is allowed to de-liver up to Max Replenish Qty.

• Previously, supplier can deliver when our Min Replenish Qty is just 1 piece short from our safety stock, which, for example, can be 50kpcs. As we have minimum 5 months of stock, we can avoid immediate delivery from supplier for such items. We will call for replenishment only when our min replenishment qty is less than half of our 3-months safety stock, thereby reducing the frequency of deliveries to our store as replenishment is consolidated.

• SMI Replenishment formula:

13.4.4 Part is removed from SMI Update the planning parameters (M2): Planning Policy

RM

Safety stock method

2 Set to automatic.

Safety stock qty Calculated Movex program will re-calculate in the next monthly cycle.

Safety stock value XX According to ABC class setting, updated via PPP052.

Formula Annual usage Annual demand (M2) Actual Stock on hand Stock on hand (M2) Min Stock Qty Integer (Annual Usage / 52) * 0 Max Stock Qty Integer (Annual Usage / 52) * 8 Demand wk 1-8 Reservation till end of yyyymmdd (8 weeks from system date) Min Replenish Qty Stock on-hand – Safety Stock (3 months) + Demand (8 wks) -

min stk qty (0) Max Replenish Qty Stock on-hand – Safety stock (3 months) + Demand (8 wks) -

Max stock qty (8 wks) Bal PO Qty Balance PO Qty PO Coverage in months Bal PO Qty / (Annual Usage / 52)*4 Projected Stock and PO Coverage in months

(Bal PO Qty + Actual stk OH - Max Stk Qty + Demand wk 1-4)/ (Annual Usage/52*4)

Min replenishment quantity = StockOH Less (SafetyStk + Demand + min stock qty) (~5 months) (3 months) (8 weeks) (zero) Max replemishment quantity = StockOH Less (SafetyStk + Demand + max stock qty) (~7 months) (3 months) (8 weeks) (8 weeks)

If absolute value of Min Replenish Qty < 0.5 of Safety Stock, supplier do not replenish. => Min Replenish Qty and Max Replenish Qty will be set to zero. If absolute value of Min Replenish Qty > 0.5 of Safety Stock, supplier deliver qty between Min Re-plenish Qty and Max Replenish Qty, rounding up to SPQ qty.

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13.5 Product Cancellation This process serve as guidelines to the handling of phase-out raw materials due to Product Cancellation (document number: PDN-9999).

13.5.1 Scope It covers all the finished products that are manufactured in MF1, BT1and VN1. Scrapping of phase out materials should include both raw materials and sub-assemblies.

13.5.2 Responsibilities SCM-MF1: Central Responsibility for controlling phase-out raw material – Soh Say Tee.

13.5.3 Workflow Upon receiving PDN-9999, follow below steps:

Workflow step Explanation Responsible

Database: Structure Analy-sis _v3.04

§ Run “Structure Analysis” database. (refer to 5.1, 5.2, 5.3 for details). § To load all products listed in PDN into the database Structure Analy-

sis_v3.04. § To run the BoM explosion analysis § Remark: after completing the analyses – don’t close the database!

SCM MF1

Database: Control of phase-out mate-rials for Product Cancellation

§ Run “Product EOL – control of raw materials” query. (see details in 5.1, 5.2,

5.3). § Press the “Result” button (macro-query) § Enter the current production warehouse of the products (è MF1 or BT1 or

VN1) § Export the result into spreadsheet for further analysis.

SCM MF1

Analysis in xls

§ Only exclusive factor >0.5 are extracted in the report for analysis. § Calculate total stock qty in all locations (MF1, BT1, VN1), and potential scrap

cost (total stock value). § No action needed for phase-in products, it will be taken by the product trans-

fer process.

SCM MF1

Information to affected buyers (both MF1, VN1)

§ Inform buyers of product cancellation. § Give appropriate instructions to buyers – to update planning parameters,

safety stock, or proposed a last buy qty. (see details in 5.3)

SCM MF1

Information to Product Manag-er

§ Request for last orders to use excess materials if possible. § Inform PM of potential material scrap cost if value exceeded S$20k. § Check if possible to claim scrap cost to customer, if cancellation is initiated

by customer.

SCM MF1

Submit excess materials for scrap.

§ After the Product Cancellation due date, do a final check (use Structure Anal-

ysis v3.4) if there is any usage of the phase out parts in all other locations. § Submit excess materials (including sub-assemblies) for scrap if not where

SCM MF1

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use in all other locations. § Inform buyers to change M1 and M2 status to 80, 90.

13.5.4 Usage of databases For every material preparation analysis, two databases are necessary: 1. Strukturanalyse_v3.04

• to explode the BoMs of all transferred products • to add the BoM usage per product

2. “Product EOL - control of raw materials” database • to add all MMS002 data for further analysis • to calculate stock quantity and stock value.

3. Path in Y drive: Y:\50-Operations\20-Materials\30-Purchasing\Navigator-Folder\Product Transfer Work-Flow\Database: Note:

• in case if you change the location of the databases or the name of the databases then you have to link the tables one more time – pls refer to the last step in this sequence to learn how to link tables

• the max qty of products analysed with the exclusive analysis is 243, as there is a limitation of col-umns in MS Access

• you can only analyse products which are produced at the same location (e.g. run the analysis twice if PCBA production location is different form endproduct production location)

4. One time set-up (to link tables)

• this step is a one-time step only resp. every time when you copy the databases in another folder • As the database Product transfer - material preparation refers to some tables from the database

Strukturanalyse_v3.05, the following four tables have to be linked • Go to database Product transfer - material preparation, press right mouse button and open the

Linked Table Manger

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• Select the following four tables in below selection table

• Press Ok and choose the directory where the database Strukturanalyse_v3.04 is stored and con-firm.

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5. Detail steps of running the database

a. Open both databases b. Load all products into the Strukturanalyse_v3.04 and explode all BoMs

• To enter all products to be transferred under the part “Exclusive Item Analysis”. • Press ‘Update’. • Select facility = “MF. BT1, VN1” • Start analysis (be aware of a long run time)

Attention: once the query is completed don’t close the database

c. Go to database Product EOL – raw material control database Press the “show result” macro button.

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d. Instructions to be given to buyers:

• Format (see below). • If Product phase-out without last-call: switch off planning parameters, set safety stock=0, do not

place further orders. • If product phase-out with last-call option: set S/S=0, continue buy to cover only for real demand. • For items with exclusive factor >0.5 but <1.0, check % of reduction in usage and proposed a new

S/S of about 1 month of the reduced usage. • No action needed for phase-in products, as it will be taken by product transfer process.

PN Description Buyer Exclusive Factor

Ave Price S$ MF1 Stock BT1 Stock

Zxx Stock

Total Stock

Potential Scrap Cost

Proposed Last Order

Proposed S/S

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