toothbrush case study

Case Study

Creating Value with an OutsourcedInternational Purchasing Office in China

Dragon Sourcing - 龙源 Your Tailored Sourcing Approach to emerging markets

© 2013 Dragon Sourcing. All rights reserved.2

Agenda

1. Context

2. Sourcing Process

3. Governance Model

4. Results and conclusions


Context

• One of the fastest growing beauty companies in Europe– Around 1.5 billion Euros in annual sales – Approximately 3 million Consultants, 7,900 employees– Product range of approximately 1000 products – Operations in more than 60 countries of which 11 franchisees

• Decided to reduce trader-based purchasing

• Launched a “Direct to manufacture LCC sourcing” initiative with the help of Dragon Sourcing


Agenda

1. Context

2. Sourcing Process

3. Governance Model



For this client we cover the entire sourcing process

Feasibility Analysis Supplier Selection and Contracting Procurement Operations

• Analyse spend category in detail– Specifications and quality

requirements– Volumes– Deadlines

• Analyse supply market and identify potential suppliers

• Pre-qualify potential suppliers through an RFI process

• Manage RFP process with pre-qualified suppliers

• Analyse supplier responses and calculate fully delivered price (logistics, import duties, ADT,..)

• Develop Business case and implementation plan

• Shortlist suppliers based on RFI/RFP process

• Audit shortlisted suppliers

• Select 2-3 suppliers for sample development process

• Manage sample development process

• Conduct final negotiations and select suppliers

• Finalise Contract

• Manage P/O and agree payment terms and details (L/Cs,..)

• Check in process production quality

• Conduct pre-shipment QC

• Arrange logistics

• Manage supplier performance

• Monitor new sourcing opportunities

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Dragon Sourcing service offering covers the end-to-end sourcing process


The first step is to develop a comprehensive understanding of the functional requirements

Product Name Toothbrush Product Picture

Quantity 400K~500K/ year for each color

　

Current DDP price in EURO XXX

Current annual spend in EURO €XXXXXX

Handle Material PP and TPR

Bristles Material Nylon or PBT

Color 6 colors

Packaging PET Blister 1/0-c printed backing card 1/4-c printed inner card

QUOTATION 美元报价（ USD）PRODUCTION LEAD TIME 生产周期 PACKAGING PROPOSAL 包装

FOB based on annual quantityFOB 单价（基于年度订购量）

MOQ 最小订购量

FOB for MOQ or full

container单价 ( 基于最小订购量和整箱 )

FOB port 港口Annual

quantity 年度订购量Carton

dimensions 纸箱尺寸

Number of

pcs/carton 每箱数量

Carton weight 每箱毛重

Quantity in 20"ctr 20 尺柜装箱量

Quantity in 40"ctr 40 尺柜装箱量

Quantity in 40HQ

40 尺高柜装箱量

Client specifications 客户产品的规格

Product Name: Toothbrush产品名称：牙刷

Product size requested产品尺寸

Product Weight产品重量

Product color产品颜色

Handle Material刷柄材质

Bristles Material刷毛材质

Bristle type刷毛类型

Packing requirement of one toothbrush每支牙刷包装规格

Annual Client's required quantity客户需求的数量

Adult toothbrush 1~6


Then, an RFI/RFP process is administered to filter out most capable suppliers

Request For Information 征询单Confidential 保密

To 收件人:Email 电子邮件:Tel number 电话:Mobile 手提电话Fax number 传真:

SUPPLIER NAME 公司名称

Adress 地址- 街道City 城市Province 省Zip code 邮政编码Contact person 联系人Job title 头衔email 电子邮件Phone number 电话Fax number 传真Website 网址

Which year was your company founded?贵司是在哪一年成立的？Ownership所有权Capital in million RMB固定资产（百万人民币）What is the workfloor size (m²)?贵司工厂面积有多少平方米？How many employees do you have?贵司员工总数有多少？Do you have a good English speaker and writer in your factory?(Y/N)贵司是否有可用英语进行书面及口语交流的人员？(是/否)How many years have you been in the PP trolley suitcasebusiness?

PP贵司从事拉杆旅行箱生产有多少年？Do you have an export license ?是否持有进出口许可证 ?

Europe USA Others% of turnover exported to出口占销售百分比

CONTACT DETAILS INFORMATION 联系方式

GENERAL INFORMATION 概况

DRAGON SOURCING 龙源有限公司上海代表处Rachel Yao 姚瑛莹

[email protected] - 6141 3974

021 - 6141 3966159 00 89 89 18

BUSINESS INFORMATION 公司规模

Contact detailinformation

Businessinformation

Productinformation

Price and Logisticsinformation

Product pictures


During the tender process, the suppliers’ willingness to collaborate and to provide complete and accurate information is also assessed

Toothbrush control sheet

Supplier contact information RFQ Sent1st

Follow Up

2nd Follow

Up

Intend to Respond Received RFP Received

Supplier Name City Region Date Date Date Date Remark Equivalent

productFOB US$

NylonFOB US$

PBT FOB PortSample Charge per set

Production Lead Time

Supplier 1 Shenzhen Guangdong 21-Nov N/A N/A 20-Nov

very professional

and spontaneous

20-Nov US$0.075 US$0.074 Shenzhen US$96.00 10 days

Supplier 2 Wenlin Zhejiang 17-Nov 20-Nov 21-Nov 20-Nov

Professional supplier, with a competitive

price; cooperative

20-Nov US$0.085 US$0.085 Ningbo None 10 days

Supplier 3 Shenzhen Guangdong 17-Nov 18-Nov 18-Nov

very professional

and spontaneous

18-Nov US$0.088 US$0.085 Shenzhen None 35 days

Supplier 4 Deqing Zhejiang 17-Nov 20-Nov 22-Novgood

supplier, supportive;

22-Nov US$0.090 US$0.090 Ningbo US$96.00 45 days

Supplier 5 Ruian Zhejiang 17-Nov 20-Nov 21-Nov 20-Nov

Missing information received by

22-Nov

4-Dec US$0.096 US$0.098 Ningbo None 30 days


Then all relevant information is collected to calculate DDP prices

Sup-plier City Region

FOB Price

($)

Volume/carton (dm3)

Weight / carton (kg)

# Cartons / 20-feet

container

Freight, customs,insurance duties ($)

DDP Price

($)

1 Shen zhen

Guang dong

US$0.075 0.041 8kg 695 0.016 0.091

2 Wen lin Zhe jiang US$

0.085 0.041 8kg 695 0.016 0.101

3 Shen zhen

Guang dong

US$0.088 0.041 8kg 695 0.016 0.104

4 De qing Zhe jiang US$

0.090 0.041 8kg 695 0.016 0.106

5 Rui an Zhe jiang US$0.096 0.041 8kg 695 0.016 0.112

Shanghai

SHANGHAI

Gansu

JiangxiZhejiang

BEIJING

Jiangsu

Guangxi

Hunan

Hubei

Ningxia

Shaanxi

Anhui

Fujian

Neimongu

Shanxi Shandong

Sichuan

Yunan

Guizhou

Henan

Jilin

LiaoningHebei

Guangdong

Gansu

HeilongjiangFOB Price (supplier) Freight forwarding, customs & duties

DDP Price

1

2

3

4

5


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






















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Short-listed suppliers are audited to assess long-term partnership opportunities

Audit questionnaire

Audit report

Audit summary

Objectives• Meet top management and sales management teams• Present order details• Refine supplier offer understanding• Understand organisation• Validate manufacturing capabilities• Visit factory and check work conditions

Topics• General Management• Order management• Shipping / packaging• Planning process• Goods flow• Procurement• Purchasing• Production• Quality…


Collected information is shared with customer through detailed audit reports

GENERAL INFORMATIONSUPPLIER NAME Supplier 1

City ShenzhenProvince Guangdong

Zip code 518000Contact person

Job title Sales Manager

Email xxxPhone number 86-755-33333333

Fax number 86-755-33344444

Website xxxBUSINESS INFORMATION

Found Year 1998Ownership Private-owned

Capital in million RMB 200Work floor size (m²) 60,000

Number of employees 500Revenue/Turnover (in million RMB) 2005 120

% Sales of the PP Trolley in total revenues 100%

% Sales exports to western markets 50%Main export markets EU

Customer Reference

Production capacity per month for PP Trolley 400,000 pcs per month

QUALITY & ENVIRONMENT CERTIFICATION

ISO 9001:2000 YES

ISO 14000 N/A

Others N/A

FACTORY PICTURE

　

COMPLIANCE WITH LOCAL LAWChildren labor YES

Working hours YES

Health & Safety YES

Environmental issues YES　


Audit outcome is summarized in a rated profile of each supplier


A closer look on collected samples shows slight feature differences among different suppliers

Supplier Number of samples requested Sample details Similarity with client's toothbrush-

Comments Sample receipt date Number of samples received

Supplier 1 3 See below detailed sheets for sample details

* very similar design* similar size

*similar weight*same handle material*same bristle material

*acceptable quality

August 14, 2012 3 adult


* very similar design* same size

*similar weight*similar handle material*same bristle material

*acceptable quality



*similar design* similar size

*similar weight*different handle material* different bristle material

*less good quality



*similar design* similar size

*different weight*similar handle material* same bristle material

*acceptable quality

August 15, 2012 7 (4 adult, 3 kids)


* different design* similar size

*similar weight*similar handle material* same bristle material

*acceptable quality

August 13, 2012 6 ( 3 adult, 3 kids)

Supplier Toothbrush picture Toothbrush size in cmToothbrush weight in gsm Toothbrush color Handle Material Bristles Material Bristle type Sample quantity Sample delivery date

Supplier 1 18.8cm 17.2g 3 blue pp+tpr BPT BPT 3 August 11, 2012


The final supplier selection relies on the short-listed suppliers’ offers, audits and sample quality

Suppliers’ quotation

Audit summary

Supplier summary

Supplier capabilities

Supplier assesment

Supplier Name

Final Ranking

Supplier 1 1

Supplier 2 4

Supplier 3 2

Supplier 4 5

Supplier 5 3

Samples






















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Overall methodology & 7-step process

Quality is regularly monitored during production and at pre-shipment

• Dragon Sourcing teams are trained to follow a 7-step process to execute Quality inspections

• Sampling and criteria requirements are detailed in a specific document for customer approval

• On-site data are recorded in a specifically designed Excel table

• Inspections are documented in a report submitted to customer

• Action plans are defined in order to improve product quality

Sampling & Criterias

Excel recording tool

Checkitem # Box # \ Marking Inner carton Mug Quantity Mug heigth Mug upper

diameterMug lowerdiameter

Wallthickness Mug weigth Material type Quality

1 OK OK 48 104.3 64.9 3.6 326 OK OK2 OK OK 48 103.4 64.5 4.2 346 OK OK3 OK OK 48 104 64.6 3.9 344 OK OK4 OK OK 48 104.6 64.8 3.8 317 OK OK5 OK OK 48 104.3 57 3.6 308 OK OK6 OK OK 48 104.8 61 3.8 317 OK OK7 OK OK 48 103.7 64.5 3.9 328 OK OK8 OK NO 48 103.8 62 3.9 345 OK OK9 OK OK 48 103.3 64.1 3.1 322 OK OK10 OK OK 48 103.2 63.4 3.7 325 OK OK11 OK OK 48 104.4 64.8 3.9 317 OK OK12 OK OK 48 102.3 64.2 3.2 316 OK OK13 OK OK 48 105.4 63 4 316 MO OK14 OK OK 45 105.6 65 4 322 OK OK15 OK OK 48 106.3 65.6 4.1 357 OK OK16 OK OK 48 103.4 65.5 3.9 311 NO OK17 OK NO 48 104.7 64.1 3.8 300 OK OK18 OK OK 48 104 60 3.8 342 OK OK


Supplier performance is closely monitored and new potential suppliers regularly audited in order to manage the supplier for continuous improvement

Supplier performance management Alternative sourcing opportunities monitoring

Overall performance

Q1 Q2 Q3 Q4

　　 Potential Supplier

1

Potential Supplier

2

Potential Supplier

3

Current Supplier

Price

Prod. 1 26.4 23.8 24.9 24.6

Prod. 2 36.1 33.8 34.9 33.7

Prod. 3 13.4 15.1 12.2 12.8

Prod. 4 40.2 38.1 41.3 38.4

Region Jiangsu Zhejiang Shanghai Shanghai

Turnover (M€) 6 14 8 19

Staff 350 700 430 880

Capabilities 100/day 120/day 75/day 140/day

Sample quality N/A Good N/A Good

Cooperation Good Good Average Good

Potential supplier assessment

Potential Supplier 1 Potential Supplier 2 Potential Supplier 3 Current Supplier

Competitivity Capabilities Motivation


Agenda

1. Context

2. Sourcing Process

3. Governance Model



The China sourcing programme is managed via a series of frequent conference call meetings

Dragon SourcingClient procurement unitBusiness Model• Dragon Sourcing is a service provider

assisting customer in sourcing and procurement activities

• Customer places Purchase Orders directly with selected suppliers and suppliers invoice directly Customer

• Customer pays DS a fixed monthly mgmt fee + evaluates every quarter Dragon Sourcing performance

Communication• Steering Committees weekly (conference

call) to review overall progress on all categories

• Categories follow-up meetings on an ad-hoc basis to review category issues

• Meeting minutes record main decisions, planned actions and project status

DS CEO

DS Account Manager

President

Sourcing Director

BuyerBuyer

BuyerBuyer

BuyerBuyer

Logistics

Buying Analyst

Buying Analyst Vietnam

Buying Analyst

Buying Analyst

Buying Analyst China


Agenda

1. Context

2. Sourcing Process

3. Governance Model



Spend Categories

Hand BagWinter Scarf

Silver Drop NecklaceToothbrush

Twisted Pearl NecklacePerfume Pump

Etc….

The sourcing programme has covered a variety of items

© 2013 Dragon Sourcing. All rights reserved.


In addition to savings, the Client benefits from a range of other benefits from our “Sourcing on Demand” service

• Reduced sourcing risks in terms of:– CSR– Capacity/availability/delivery reliability– Quality

• Total Supply Chain transparency– Sourcing process (RFI, RFP, Audits, QCs,…)– Knowledge about the suppliers (regular visits by client)– Assurance that product is really made to the spec

• Pro-active market intelligence about category opportunities and innovative products in China

• Flexibility to increase/reduce sourcing capacity on Demand

• Window to other asian countries (e.g.: Vietnam, Malaysia,…)