Purchasing Policy 2

7/28/2019 Purchasing Policy 2

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PURCHASING POLICY

To establish a policy to ensure that commitments of

Operating Company funds are properly authorized andcontrolled.

SCOPE

This Policy applies to all divisions, subsidiaries and jointventures, which are accounted for under the consolidationor equity method (hereinafter, Operating Company) ofFrito Lay International (FLI).

STATEMENT of POLICY

It is a FLIs policy that procurements will be made to thebest advantage of Frito Lay Company withoutfavoritism. Best advantage is defined as the mostfavorable offer available in the competitive market(need to take into consideration engineered cost structures(non competitive bidding) and product insulation)considering quality, responsiveness to specification,delivery, price, transportation, cost, performanceand payment terms. Therefore, a formal purchasingpolicy must be developed for each Operating Company inorder to conduct our purchasing activities with the bestadvantage.

1.0 Definitions

RequisitionsAuthorizations to procure goods or services.

RequisitioningIdentifying the items, materials, commodities andservices needed.

PurchasingProcuring the items requested

2.0 Objectives

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The Purchasing Policy encompasses three major objectives:

1. To make the most advantageous procurement

decisions possible. To accomplish this objective,the policy provides guidelines for:

The development, review and use of qualified vendor

lists;

The use of competitive quotation procedures; and

The use of different methods of procurement.

2. To provide an effective control mechanismwithin the procurement process by establishing

separate lines of authority for:

Requisitioning;

Purchasing;

Receiving; and

Safeguarding of assets.

Each function/department maintains requisitioningauthority. The department heads are responsible forinitiating requisitions. Requisitioners must ensure thatexpenditure is proper and is either within budget or is anapproved capital appropriation.

3. To provide additional focus to the planning offuture purchasing requirements and identifymethods which can be employed by theOperating Company in order to meet itspurchasing needs at the most favorable prices.

3.0 GENERAL PROCEDURES

ADMINISTRATION

Each Operating company (and region office) shall assign anindividual as the functional manager of the purchasingprocess. This manager will have full responsibility and

authority to administer and control the process ofpurchasing all goods and services for the Operating

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Company, under the provisions of this policy. In smallerOperating Companies, the manager of purchasing may bethe only individual in a functional area empowered tocommit the Operating Company to the purchase of raw and

packaging material and other goods and services. In largerOperating companies, the purchasing manager may need toappoint additional qualified staff who will have authority tomake purchase commitments.

PURCHASING COMMITTEE

Depending upon the size of the Operating Company and the

Companys particular needs, a Purchasing Committee mayneed to be established. A Purchasing Committee shouldhave ultimate responsibility and authority to control thePurchasing function. The Committee should be composed ofrepresentatives from all relevant business functions. (i.e.,Finance, Operations, etc.).

Responsibilities of the Purchasing Committee shouldinclude:

Review of policies (Controller), procedures (Head of

Purchasing) and performance (Head of Operations) ofthe Purchasing Department;

Approval of the Annual Purchasing Plan (Head of

Operations and General Manager);

Review and approval of the Operating Companys

Authorization Limits (jointly Controller and Head ofPurchasing); and

Review and approval of bidding process (Head ofPurchasing, including of quote documentation).

Where an Operating company has determined that aPurchasing Committee is not necessary (e.g., impracticaldue to size of company), the General Manager or Head ofOperations should fulfill the above responsibilities in theabsence of a Purchasing Committee with the assistance ofFinance (CFO/Controller) in developing and assuring policy

compliance.

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ANNUAL PURCHASING PLAN

To achieve the objective of planning future purchasingrequirements and improving methods of meeting the

Operating Companys purchasing needs at the mostfavorable prices, competitive insulation, alignment,technical competency, quality and reliability, the managerof the purchasing function should compile and thePurchasing Committee should review an Annual PurchasingPlan (APP). The plan should identify all major items andservices to be procured during the next year as well asestimates of quantities and cost for each item. (See also,Commodity Buying, below)

SEGREGATION of DUTIES

Proper checks and balances must be established tocontrol purchasing transactions and safeguardingassets. Responsibility for approving purchase orders isassigned to the purchasing function, in accordance with thispolicy. Separate individuals shall have responsibility forthe following duties:

Committing the Operating Company to the purchase

and preparation of the Purchase Order (purchasingfunction);

Receiving goods and verifying amounts and

specifications against shipping documents (receivingdepartment);

Approving vendors invoices: the accounts payable

department must receive a signed receiving

document before a vendor invoice can be approved forpayment;

Disbursing cash: when the vendor invoice is approved

for payment, proper authorization must be obtainedto disburse funds in accordance with the OperatingCompanys cash disbursement policies and procedures(cash disbursement clerk should not be part of thepayable department);

Internal control: the accounting function shall have

responsibility for maintaining proper records forinventories, operating and capital expenditures,

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accounts payable and cash payments, and forconducting periodic audits and physical inventorycounts to verify records;

Maintaining custody of assets: the requisitioner will

have responsibility for maintaining custody of assetsreceived and for verifying the receipt of services.

COMMODITY BUYING

The manager of purchasing should develop detailedprocedures for and closely monitor the purchasing ofcertain ingredient commodities used in the normal courseof the Operating Companys operations. An annual plan

for the procurement of agricultural material shouldalso be developed. The plan should include projections ofthe Operating Companys needs for commodity products,current and prior years market prices and estimates for thefuture prices, and plans for purchasing (i.e., futures and/orforward contracts, spot purchases, storage needs).

This plan should be reviewed quarterly by the PurchasingCommittee to monitor success of the plan in achieving the

purchasing objectives of the Operating Company (seebelow, section 10.0 Post-Audit of Purchasing Transactions)

Participation in commodity trading will be limited toprotective forward buying of commodities to be used in thenormal course of the Operating Companys operations.Trading on a speculative basis for the intent ofgaining windfall profit is prohibited.

Forward BuyingForward buying means the use of trading instruments toenter into agreements to purchase commodities in thefuture at predetermined prices. Trading instrumentsinclude:

Futures ContractsStandardized agreements traded on organized exchanges(e.g., Chicago Board of Trade, Coffee, Sugar and CocoaExchange, Chicago Mercantile Exchange)

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Forward Contracts

Non Standardized agreements between the purchaser andseller that obligate the purchaser to accept delivery and theseller to make delivery of an agreed-upon quantity of a

commodity at a specified future date or during a specifiedfuture period for a specified price.

Protective Forward Buying

The use of trading instruments which provide protection toreduce the Operating Companys exposure to market priceand/or supply fluctuations. To be considered protective, theforward buying must involve commodities that are used inthe normal course of the Operating Companys business.

The quantities to be purchased forward must be reasonable(i.e., cannot be excessive) given the Operating Companysforecasted annual requirements to the commodity.

SHOPPING

Is a procurement method based on comparing pricequotations obtained from several suppliers, usually aminimum of three. Shopping will be used for procurement

of items costing below USD$2.500 per order. Quotations willbe sought from registered vendors. Awards for business willbe made to the supplier offering the lowest price.

REQUEST FOR QUOTATION

Request for quotation are informal solicitation documentsthat are normally used for contract values and commercialterms for goods, works, or services that meet standard

specifications. Such informal quotations are typicallyrequested from local suppliers.

REQUEST FOR PROPOSAL

Request for proposals are generally issued for high-valueservice contracts that require services to be customized tofit unique circumstances. Specifications are often complexand the evaluations of proposals thus take significantly

longer than evaluations of normal bids, Criteria such asdelivery time, availability and quality of on-site support

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services, clarity of technical manuals, ability to understandlocal language and culture, and ability to dispatch skilledpersonnel to a field missions, etc. are likely to bedetermining factors other than price for the award of

contract. Contracts are typically awarded to the offer thatpresents the best value in accordance with the evaluationcriteria.

LIMITED INTERNATIONAL COMPETITIVE BIDDING (LIB)

Limited International Competitive Bidding is typically onlyopen to pre qualified suppliers. This method of bidding ismostly used in emergency or urgent situations where lead

times need to be kept at a minimum and for certaincategories of commodities, e.g. products with short shelflives and/or with specific quality requirements. Submissionof the registrations form will serve as a request for prequalification for potential supplier of items in the abovecategories. Basically, the pre qualifying process requires thesupplier to prove that the/she can meet specificrequirements detailed by the Operating Company.

INTERNATIONAL COMPETITIVE BIDDING

Invitations to bid are issued for high-value contracts thatrequire formal competitive procedures. Invitation to bid isopen a typically advertised on a public access media.Potential suppliers submit bids based on the requirementsoutlined in the Bidding Document and the award is made tothe lowest priced, technically acceptable bidder or bestvalue.

PURCHASING COMMITTEE CONTRACTS REVIEW

In accordance with the Operating Unit financial regulationsand rules, the Contracts Review Committee (CRC) atheadquarters is established to formulate recommendationsto the Executive Director on any contract that OperatingCompany proposes to enter into for a purpose totalingUS$100.000 or more. The Executive Director approves thefinal decision on award of contract.

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E-PROCUREMENT

E-Procurement (Electronic Procurement) is the business-to-business purchase and sale of supplies and services

through the Internet as well as other information andnetworking systems, such as electronic data interchange(SDI) and enterprise resource planning (ERP). E-Procurement web sites allow qualified and registered usersto look for buyers or sellers of goods and services.Depending on the approach, buyers or sellers may specifyprices or invite bids. E-procurement software makes itpossible to automate some buying and selling. Companiesparticipating expect to able to control part inventories more

effectively, reduce purchasing agent overhead and improvemanufacturing cycles.

FUNCTIONAL REVIEW

The manager of purchasing should conduct the appropriatereview of the purchasing function on an annual basis.

CONFLICT of INTEREST

All purchasing personnel are subject to the PepsiCoWorldwide Code of Conduct in the performance of theirduties and shall avoid all conflicts of interest (see, FLIPolicy).

4.0 REQUISITIONING of GOOD and SERVICES

All purchases (greater than $2M) must be initiated by anapproved requisition. Department heads will have therequisitioning authority for his/her function within the limitsestablished by the Operating Company. A standardrequisition form shall be used to provide written notificationto the manager of purchasing that goods or services arerequired. Detailed generic specifications of the itemsneeded should be provided on a timely basis so themanager of purchasing may solicit and evaluatecompetitive quotes from vendor, select a vendor and issue

a Purchase Order.

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5.0 COMPETITIVE QUOTATION / BIDDING PROCESS

In order to ensure that purchases are made at the mostfavorable price and terms, it is preferable that at leastthree, but no less than two, competitive quotations besolicited from vendor. All quotes should be written; oralquotes should be confirmed in writing.

All companies responding to a request for quotation shouldsubmit their best bid. Information to be included with thequotations includes the following:

Purchase of goods and services for $5.000 (to betailored to each specific country) or more requiresbids in writing for a minimum of three suppliers.

Bidding Process

The bidding process will be carried as follows:

Preparation of bid requirement and getting

authorization based on the purchase request;

Mailing bids;

Performing follow-up of non-responsive bids;

Tabulating the results of the bid process;

Filling out the quotation form including all replies witha summary of the financial terms and conditions.

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Vendor name and address;Shipping terms and delivery date:Item number, quantities and price;Warranty / guarantee information;Any unique item specifications;Expiration date of quotation;Payment terms;Signature / title of the representative


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Quotes should be obtained by the purchasing department.The purchasing manager should select one of the bids,taking into consideration factors such as quality of the

product, reliability of the vendor, price, etc. The purchasingmanager should then document the reasons for theselection of a particular quote, giving this as well as otherbids to the purchasing committee for review. ThePurchasing Committee should review and approve the bidselected as well as the bidding process a s whole.

CONTROL OF QUOTATIONS

No one shall disclose a bidders quotation toother bidders.

A deadline date shall be set for receiving quotations

from vendors.

VENDOR SELECTION

Selection of the vendor should be based on the mostfavorable price and terms consistent with quality and on the

vendors ability to perform in a timely manner. Bids within5% of the lowest bid are deemed to be equally competitive.

Factors to consider other than price when consideringcompetitive bids include:

Maintenance of adequate or multiple sources of

supply;

High standards of quality and reliability;

Ability to meet service and delivery dates; Need for specific brands;

Financial stability of the vendor;

Payment terms;

Effect upon relations with customers in the local

business community;

Long term/strategic relationship/partnership;

Ability to simplify and bundle leveraging anothers

company competency more broadly (outsourcing).

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All instances of selection of other than the lowest biddermust adequately justified in writing and maintained in thepurchasing records.

Situations may arise where an operating company functionor location may become dependent on a vendor for aparticular food or service for reasons such as:

Vendor has a long and positive work history with the

Operating Company

Vendor has a working knowledge of the Operating

Companys machinery/equipment or plantspecifications

Vendor is convenient to the location

In these situations, the appropriate Purchasing Officialshould review the purchasing rationale and balance theneeds with the barrier(s) to entry by other suppliers. Actionshould be taken to eliminate the vendor dependency andpromote relationships with other capable suppliers.

If single-sourcing is evaluated to be in the best interest ofthe Operating Company, refer to the paragraphs below.

SINGLE-SOURCING PURCHASING

For certain items, the Operating Company may prefer aparticular vendor. Although alternative sources may exist,one vendor may be preferred because of better terms,service, delivery or special expertise. Al least annually,purchases from single-sourcing suppliers must be reviewed

by the manager of purchasing to ensure the following: thatan acceptable alternative source is not available, that willprovide similar benefits at a lower or equal price, that theprice charged is not excessive in comparison to othervendors, giving consideration to the additional benefitsreceived from the preferred source, and that thetransactions are at arms length. Review by regionalpurchasing for ensuring that a regional supplier would notprovide competition.

SOLE SOURCE PURCHASING

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Certain items may only be available from a single supplier.The manager of purchasing has the responsibility to ensurethat sole-sourcing is to the best advantage of the Operating

Company. An annual review of all sole-source procurementmust be conducted by the manager of purchasing to assessthese relationships and develop a program to seekalternative sources.

WAIVER of OBTAINNING COMPETITIVE QUOTATIONS

Situations will arise where obtaining competitive quotations

is not feasible or practical. Example of these situations areset out below:

Specialized purchasing functions, including:

Law firm services;

Annual audit by public accountants;

Charitable contributions;

Acquisition of real state;

Taxes, dues and subscriptions; Utilities, rent, postage.

The Head of Operations and Chief Operating Officermay waive the requirements for obtainingcompetitive quotations in the following situations:

When it is clear that an item can be obtained from one

source only;

When raw materials are available in the opencommodity market.

Operating personnel may waive competitivequotations under the following circumstanceswithout prior permission:

When purchasing an item(s) for which a bid has been

received for the identical item(s) within the past sixmonths;

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When an emergency requirement exists for an item or

service: (emergency situations should be rare-frequentemergency requests should be monitored by thepurchasing manager to ensure this allowance is no

abused).

When competitive quotations are not obtained, thepurchaser should document, in writing, the followingitems to be maintained with the purchasing records:

Name and signature of the purchaser;

Vendor name and address;

Cost of the purchase; and

Reason for the waiver.

6.0 METHODS OF PROCUREMENT

All purchases must be made via properly prepared andapproved Purchase Orders or written contracts. For CapitalExpenditure refer to CAPEX manual and Accounting forProperty. Plant & Equipment.

Purchase Orders document an agreement by the OperatingCompany and a vendor for the purchase and delivery ofgoods at the specified price and terms. The manager ofpurchasing will be assigned pre-numbered Purchase Ordersand will have responsibility for controlling the receipt andissuance of all Purchase Orders. All Purchase Orders issuedto the manager of purchasing must be numericallyaccounted for. Copies of all issued and canceled forms(marked Void) must be retained on file.

All contracts for the purchase of capital assets or for capitalleases are to be covered by a Capital AppropriationRequest. Contracts are required for real estateacquisitions, building construction, non-standard purchases,long-term commitments or large blanket orders andservices.

Authority to approve Purchase Orders and contracts is

vested in individuals by the manager of purchasing with the

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approval of the General Manager and is subject to thelimits defined in a signing authority Limits Table.

Blanket Purchase Orders may be used for long-

term, indefinite quantity purchases which arenegotiated with a qualified supplier, only when highvolume centralized buying or other advantages offsetthe negotiated price.

Blanket Purchase Orders must all be approved by theGeneral Manager, and should not be issued for periodsin excess of one year or for amounts in excess ofspecified limits. Such arrangements must be reviewed

at least semi-annually by the manager of purchasingwith regard to price, performance, service, quality andother terms.

The guidelines for obtaining competitive quotationsapply to Blanket Purchase Orders.

The Operating Company shall establish review proceduresto ensure that limitations on Purchase Order authority arenot exceeded by the con current placement of severalPurchase Orders below the limit for the same item.Approval for multiyear contracts must be obtained by theRegion.

Any changes to an order must be executed through theissuance of a revised Purchase order. The original Purchaseorder should not be altered. Changes require the same levelof control and approval as the original, the total value beingthe value of the original Purchase Order plus the value ofthe revision.

Under no circumstances will an after-the-factPurchase order be accepted.

Authority limits for requisitioning and approving PurchaseOrders must be established by the manager of purchasing.The limits must be approved by the PurchasingCommittee or its equivalent and the CFO of the

Operating Company.

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7.0 REBATES

All procurement transactions involving rebates fromvendors must be formally documented through a RebateAgreement specifying the rebate amount, time of paymentand entity to be paid. It is the responsibility of theOperating Companys Controller to ensure all rebates areaccrued on a timely basis.

8.0 APPROVED VENDOR LIST

The Purchasing Committee shall establish the relevantcriteria upon which to evaluate vendors; these criteriashould be documented in the Operating Companyspurchasing manual. The extent of a vendor evaluationshould be related directly to the amount and nature of thepurchase. The Committee shall also establish procedures toconduct and document vendor evaluations and approvaldecisions.

The decision for selecting a vendor should be based on abalance of the following:

Price and terms;

Quality and service;

Technological expertise;

Past performance;

Reputation and professionalism;

Financial stability; Convenience;

Related parties;

Innovation;

Productivity;

Alignment;

The purchasing manager will be responsible for conducting

the evaluation and maintaining the necessarydocumentation related to the evaluation. Before a vendor

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may be added to the Approved Vendor List, the PurchasingCommittee must review the records and approve therecommendation.

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Documents

Purchasing Policy 2