Non Merchandise Case study for Apparel Retailer
Nov 2010
Dragon Sourcing - 龙 源 Your Tailored Sourcing Approach to LCC sourcing
© 2010 Dragon Sourcing. All rights reserved.2
Agenda
A. Context and Products
B. Sourcing Strategy
C. Results & Conclusions
2© 2010 Dragon Sourcing. All rights reserved.
© 2010 Dragon Sourcing. All rights reserved.3
Context
• American retailer group with:– SD 2 billion revenue (Jan 2009)– 935 stores- 2010– 50 stores coming in 2011
• Interested in identifying and qualifying new potential competitive suppliers in China, specialized in the manufacturing of shopping bags, wood flooring, fixture, furniture and leaflet printing
• Selected Dragon Sourcing as Procurement Service Provider responsible for managing the supplier sourcing and qualification process
3© 2010 Dragon Sourcing. All rights reserved.
© 2010 Dragon Sourcing. All rights reserved.4
Products included in the project scope were the following
Printing leaflet(100% recycled paper )
4
Shopping BagBag: Bleached Kraft white paper
Handle: White paper twisted
Wooden Flooring(Red Oak without stain)
Chair and half(Fabric : Pollock # 10275 -16 Havana Dune)
© 2010 Dragon Sourcing. All rights reserved.5
Agenda
A. Context and Products
B. Sourcing Strategy
C. Results & Conclusions
5© 2010 Dragon Sourcing. All rights reserved.
© 2010 Dragon Sourcing. All rights reserved.
• Shortlist suppliers based on RFI/RFP process
• Audit shortlisted suppliers
• Select 2-3 suppliers for sample development process
Conduct final negotiations and select suppliers
• Finalise Contract
• Analyse spend category in detail– Specifications and quality
requirements– Volumes– Deadlines
• Analyse supply market and identify potential suppliers
• Pre-qualify potential suppliers through an RFI process
• Manage RFP process with pre-qualified suppliers
• Analyse supplier responses and calculate fully delivered price (logistics, import duties,..)
• Develop Business case and implementation plan
Dragon Sourcing covered the end-to-end sourcing process
Feasibility Analysis Supplier Selection and Contracting Procurement Operations
• Manage P/O and agree payment terms and details (L/Cs,..)
• Check in process production quality
• Conduct pre-shipment QC
• Arrange logistics
• Manage supplier performance
• Monitor new sourcing opportunities
Key
act
iviti
es
© 2010 Dragon Sourcing. All rights reserved.
• Manage P/O and agree payment terms and details (L/Cs,..)
• Check in process production quality
• Conduct pre-shipment QC
• Arrange logistics
• Manage supplier performance
• Monitor new sourcing opportunities
• Shortlist suppliers based on RFI/RFP process
• Audit shortlisted suppliers
• Select 2-3 suppliers for sample development process
• Manage sample development process
• Conduct final negotiations and select suppliers
• Finalise Contract
• Analyse spend category in detail– Specifications and quality
requirements– Volumes– Deadlines
• Analyse supply market and identify potential suppliers
• Pre-qualify potential suppliers through an RFI process
• Manage RFP process with pre-qualified suppliers
• Analyse supplier responses and calculate fully delivered price (logistics, import duties, ADT,..)
• Develop Business case and implementation plan
© 2010 Dragon Sourcing. All rights reserved.
Feasibility Analysis Supplier Selection and Contracting Procurement Operations
Key
act
iviti
es
Dragon Sourcing service offering covers the end-to-end sourcing process
© 2010 Dragon Sourcing. All rights reserved.8
The first step was to develop a comprehensive understanding of the product requirements, for example wood flooring
Product Name Wood Flooring
Picture
Material Red Oak without stain
Requirements
Thickness : 0.5 inchWidth : 5-inch Length : 12-42rlConstruction : engineered 5 ply hardwood core micro bevel edge square ends
© 2010 Dragon Sourcing. All rights reserved.999
Around 132 suppliers were identified and 12 went through the full pre-qualification process
9
Shanghai
Main reasons to not send RFI:
- Supplier has no capability
- Raw material not qualified
Main reason to not attend the tender:
Cannot meet client’s specs requirement
© 2010 Dragon Sourcing. All rights reserved.10
© 2010 Dragon Sourcing. All rights reserved.
An RFI/RFQ process was administered to filter out the most capable suppliers
Product Name Quantity Gross weight percarton(in kg)
Total No.ofset/20'container
Total No.ofset/40'container
Product Size Sample Charge inUS$
EXW US$ price per set FOB US$ price perset
FOB port Delivery Time Payment Term
产品名 需求量 /毛重 箱(公斤) 20尺柜的装箱量 40尺柜的装箱量 产品尺寸 ( )样品费 美元 ( )出厂美元单价 一套FOB 美元单价(一套)
FOB港口 交货时间 付款条件
Set 1:
Set 2:
Set 3:
Logistics Information 物流信息
Set of 3 PPtrolley suitcasesPP聚丙烯手推旅行箱3件套
9000套(3件套)
Wood Flooring
Product Name Quantity Material Size Color Accessory Packaging Carton Size (L×W×H)
产品名 需求量 材料 尺寸 颜色 附件 包装 纸板箱尺寸
General Information 概述
Wood floorin
g
Logisticsinformation
Product and Price
Information
Red Oak without stain111k
DRAGON SOURCING 龙源有限公司上海代表处To 收件人 :
Email 电子邮件 : Tel number 电话 :
Mobile 手提电话 Fax number 传真 :
COMPANY INFORMATION 公司信息Company Name 公司名称
Address 地址 Town 城市
Province 省份 Company Website 公司网址
CONTACT INFORMATION 公司信息Contact Person 联系人
Title 职位 Email 电子邮件地址
Tel 电话 Fax 传真
Mobile phone 手机 Alternative Contact 其他联系人
Title 职位 Email 电子邮件地址
Tel 电话 BUSINESS INFORMATION 业务概况
Is your company a manufacturer, distributor, or agent ?贵司是工厂,还是分销商,或代理? What date was your company founded?贵司是在哪一年成立的?
How much is your registration capital (RMB)?注册资本多少 ?(人民币 ) What is your turnover in million RMB ?销售收入(百万人民币)
2009 2008
Contact detail
information
Business information
15%
30%
25%
20%
10% Busi ness I nf ormat i on
Product i on capaci ty
Qual i t y management
Qual i t y Equi pment
Corporateresponsi bi l i t y
© 2010 Dragon Sourcing. All rights reserved.111111
The RFI responses have been analyzed using a scorecard allowing to rank suppliers
1. Business Information
2. Production Capacity
3. Quality management
4. Quality equipment
5. Corporate responsibility Total
Supplier 1 94% 100% 76% 100% 93% 93%
Supplier 2 68% 95% 76% 100% 93% 86%
Supplier 3 51% 100% 76% 89% 93% 81%
Supplier 4 62% 95% 52% 89% 93% 77%
Supplier 5 40% 100% 48% 100% 93% 75%
Supplier 6 51% 95% 48% 89% 93% 74%
Supplier 7 40% 76% 62% 100% 93% 72%
Supplier 8 40% 95% 38% 78% 93% 67%
Supplier 9 40% 71% 14% 56% 86% 50%
© 2010 Dragon Sourcing. All rights reserved.12
© 2010 Dragon Sourcing. All rights reserved.12
Then all relevant information was collected to prepare a DDP quotation
Shanghai
Gansu
JiangxiZhejiang
Jiangsu
Guangxi
Hunan
Ningxia
Shaanxi
Anhui
Fujian
Neimongu
Shanxi
Yunan
Guizhou
Jilin
Liaoning
Gansu
Heilongjiang
Sichuan Hubei
Henan
Hebei
Tianjin
Shandong
Guangdong
Supplier
Wooden flooring
FOB price/Sqmeter (USD)
Transportation cost ($/m2)
Taxes($/m2)
DDP price (USD/m2)
Supplier 1 20 1.7 0.3 22
Supplier 2 28 1.7 0.3 30
Supplier 3 19 1.7 0.3 21
Supplier 4 24 1.7 0.3 26
Supplier 5 26 1.7 0.3 28
Supplier 6 25 1.7 0.3 27
Supplier 7 30 1.7 0.3 32
Supplier 8 24 1.7 0.3 26
Supplier 9 20 1.7 0.3 22
© 2010 Dragon Sourcing. All rights reserved.
13© 2010 Dragon Sourcing. All rights reserved.
Finally, suppliers’ quotation were compared to target prices to identify those worth keeping in the process and estimate potential savings
Potential savings DDP Price
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
Supplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5 Supplier 6 Supplier 7 Supplier 8 Supplier 9
Target price from client
Chosen for sample testing
© 2010 Dragon Sourcing. All rights reserved.
• Shortlist suppliers based on RFI/RFP process
• Audit shortlisted suppliers
• Select 2-3 suppliers for sample development process
• Manage sample development process
• Conduct final negotiations and select suppliers
• Finalise Contract
• Manage P/O and agree payment terms and details (L/Cs,..)
• Check in process production quality
• Conduct pre-shipment QC
• Arrange logistics
• Manage supplier performance
• Monitor new sourcing opportunities
• Analyse spend category in detail– Specifications and quality
requirements– Volumes– Deadlines
• Analyse supply market and identify potential suppliers
• Pre-qualify potential suppliers through an RFI process
• Manage RFP process with pre-qualified suppliers
• Analyse supplier responses and calculate fully delivered price (logistics, import duties, ADT,..)
• Develop Business case and implementation plan
© 2010 Dragon Sourcing. All rights reserved.
Feasibility Analysis Supplier Selection and Contracting Procurement Operations
Key
act
iviti
es
Dragon Sourcing service offering covers the end-to-end sourcing process
© 2010 Dragon Sourcing. All rights reserved.15
The RFI/RFQ and “identical sample” process resulted in a short-list ofpotential new qualified suppliers
Qualification of suppliers through RFI/RFQ
15© 2010 Dragon Sourcing. All rights reserved.
Supplier Region RFI Sent 1st follow up
2nd follow up
Information received
Supplier qualified
1 China √ √ √ √ √2 China √ √ √ √ √3 China √ √ √ √ √ 4 China √ √ √ √ √5 China √ √ √ √ 6 China √ √ √ √7 China √ √ √ √ 8 China √ √ √ √ 9 China √ √ √ √ 10 China √ √ √ 11 China √ √
Pre-qualified suppliers
Potential new qualified suppliers
Potential suppliers
RFI/RFQprocess Sampling
process
Analysis of offers and samples
Supplier RFI score Remark Picture
Supplier 1 93% Too white
Supplier 2 86% White to yellow
Supplier 3 74% White to yellow
© 2010 Dragon Sourcing. All rights reserved.16
© 2010 Dragon Sourcing. All rights reserved.
Short-listed suppliers were audited to finalize the qualification process
Audit questionnaire
Audit report
Audit summary
Objectives• Meet top management and sales management teams• Present order details• Refine supplier offer understanding• Understand organisation• Validate manufacturing capabilities• Visit factory and check work conditions
Topics• General Management• Order management• Shipping / packaging• Planning process• Goods flow• Procurement• Purchasing• Production• Quality…
Collected information was shared with the customer through detailed audit reports
GENERAL INFORMATION
SUPPLIER NAME DS China Ltd
Manufacturer or distributor Manufacturer
Main products Wooden flooring
City Here
Province there
Contact person Mr.Yue
Job title Manager of Export Dept.
Email [email protected]
Phone number 86- xxx- xxxx
Cell phone No. 86- xxx- xxxxFax number 86- xxx- xxxxWebsite www.dragonsourcing.com
BUSINESS INFORMATIONFound Year 1996Ownership Private
Capital (in million RMB) 9 million
Work floor size (m²) 15,000
Number of employees 200
Revenue/Turnover 2009 (in million RMB) 30 million
% Sales exports to western markets 15 %
Main export markets Western Europe
Customer Reference n/a
PRODUCTION
Experience in fixture production (year) 5 years
Able to produce the fixture composed of glass, wood, metal, aluminium, plastics and melamine, acrylic
YES
Able to produce exactly all requested fixture included in this RFQ YES
Have experience with retailers located in USA YES
have catalogue/brochure that shows previous projects NO
QUALITY & ENVIRONMENT CERTIFICATION
Quality control equipment in house YES
ISO 9000 NO
ISO 14000 NO
Other quality certificates NO
% of QC people in the company 2%
COMPLIANCE WITH LOCAL LAW
Child labor YES
Health & Safety YES
Environmental Issues YES
© 2010 Dragon Sourcing. All rights reserved.18
© 2010 Dragon Sourcing. All rights reserved.1818
Collected information is shared with customer through detailed audit reports
FACTORY PICTURES
© 2010 Dragon Sourcing. All rights reserved.19
© 2009 Dragon Sourcing. All rights reserved.
The final supplier selection relied on the short-listed suppliers’ offers, audits and sample quality
Suppliers’ quotation
Samples
Audit summary
Supplier summary
Supplier capabilities
Supplier assessment
Supplier Name
Final Ranking
Supplier 1 1
Supplier 2 4
Supplier 3 2
Supplier 4 5
Supplier 5 3
© 2010 Dragon Sourcing. All rights reserved.20
Agenda
A. Context and Products
B. Sourcing Strategy
C. Results & Conclusions
20© 2010 Dragon Sourcing. All rights reserved.
The whole process resulted in significant savings opportunities for all 4 categories
21
Wooden Flooring Chair and half
Printing Shopping Bag
Potential Savings: VERY HIGH -42% DDP
Supplier Quality: GOODSatisfactory suppliers based on RFI scorecard
Knowledge:LA state has the highest certificate requirements
Potential Savings: HIGH-37 % DDP
Supplier Quality: GOODSatisfactory suppliers based on RFI scorecard
Knowledge: By delivery by sea instead of air, saving double and lead-time increase of only 4 days
Potential Savings: HIGH -40% DDP
Supplier Quality: GOODSatisfactory suppliers based on RFI scorecard
Knowledge: Requested fabric need longest production lead-time
Potential Savings: HIGH-20% DDP
Supplier Quality: GOODSatisfactory suppliers based on RFI scorecard
Knowledge: Supplier can replicate current production