Precision Machining Sourcing Case Study

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Precision Machining Sourcing Case Study

Agenda

1.

Sourcing Project Introduction

2.

Sourcing Approach

3.

Conclusions

2

Context Context

DS Approach consists in the following work steps:

Objectives: Market Study to Short List Suppliers to identify high quality capable suppliers of Precision Machining for the full range of 10 families & 100 SKUs of (CNC Lathe machine, CNC Sliding Head Lathe Machine and CNC Milling Machine) of rings and screws.

1.Develop a good understanding of the demand (specs, volumes, material and production technology requirements, testing, etc.).

2.Identify potential suppliers in Brazil and Turkey for the Category by leveraging external databases, internal Dragon Sourcing database, and network of experts.

3.Select suppliers to be included in the RFI/RFQ process by pre-screening via phone calls based on some very simple criteria (to be agreed on with client Infrastructure), e.g.: – capability of making the products (based on very few product key characteristics) – supplier expertise in the selected category – minimum company size and capacity – Key certifications required (ISO, …)

Geographical scope: • Brazil • Turkey

4.Prepare an RFI/RFQ document and get it approved by client prequalifying capabilities of the identified suppliers which typically covers the following topics: – Background and financial information (size, employees, locations,…)

– Client and Export experience information – Quality certification / Social Responsibility – Product / Manufacturing / technology capability – Engineering and tool making capabilities

Deliverables: • RFI / RFQ and Score Card • NDAs for participating suppliers • Supplier profiles • Audit reports

5.Administer the NDAs & RFI/RFQ with the identified suppliers.

6.Analyze responses through a score card process and recommend suppliers for audit phase.

7.Conduct technical audits. Recommend suppliers for samples development.

3

Sourcing products To identify, qualify and shortlist capable and competitive suppliers in Brazil and Turkey for Precision Machining for the full range of 10 families & 100 SKUs of (CNC Lathe machine, CNC Sliding Head Lathe Machine and CNC Milling Machine) of rings and screws.

Agenda

1.

Sourcing Project Introduction

2.

Sourcing Approach

3.

Conclusions

5

Approach & Schedule: Stage 1: Supplier Pre-Qualification No. 1.

2.

3.

4.

Step Demand Analysis

Deliverables

Work with client to define and understand the products and requirements (specs, volumes, materials, production technology requirements)

Supply Analysis

Identify long list of potential suppliers in the selected markets by leveraging B2B Websites, DS Database, Fair catalogues, Chamber of Commerce, Magazines, Network, References.

Telephone Pre-screening

 Project Requirement Questionnaire  Kick-Off Report  Supplier Long List

Selection of suppliers to be included in the RFI/RFP process by telephone pre-screening based on agreed simple criteria (e.g. capability to make the product, willing to do customized fasteners, interest in participating)

 Shortlist for RFI/RFQ

Develop RFI/RFQ

   

Prepare an RFI/RFQ document, with an aligned Balanced Scorecard that has the objective to pre-qualify the competitiveness and capabilities of the suppliers, including: Background, financial, Client and product experience, Quality certification & processes, Social Responsibility, Manufacturing/technology capability, R&D capability

RFI/RFQ Template Balanced Scorecard Introduction Letter NDA

Milestone 1: RFI/RFQ & Scorecard Approved

5.

6.

7.

Administer NDA (optional) Administration and chasing for completion of an NDA with suppliers that have been preselected Conduct RFI/RFQ Administration The RFI/RFQ is translated to the local languages as relevant, and distributed to the relevant suppliers, with telephone follow-up to push for maximum participation.

Analyse RFI/RFQ Responses Analysis of RFI/RFQ responses, estimation of logistics costs, & preparation of a report which profiles & objectively ranks the suppliers by capability and competitiveness, including a recommendation for those to be audited.

Milestone 2: Shortlist for Audit Agreed 6

 Completed NDAs  Control Sheet  Completed RFI/RFQs  RFI/RFQ Report  Supplier Profiles  Proposed Shortlist for Audit

Approach & Schedule Stage 2: Selection & Contracting (Optional Services) No. 7.

Step

Deliverables

Prepare for Audits

Planning the audit schedule, budget, and drafting the Audit Questionnaire that will be used for the supplier selfassessment and on-site audits.

Conduct Audits 8.

9.

Distribution of the Audit Questionnaire to suppliers for their self-assessment (and to get them prepared), followed by onsite audits, with or without client buyers, of all the suppliers. Focus is management, logistics, production & quality.

Analyses Audit Results

Analysis of the audit results, together with RFI/RFQ results, and preparation of a report that ranks the suppliers, including a recommendation for those for sample development.

 Audit Plan  Audit Questionnaire

 Completed Audit Questionnaires  Audit Report  Supplier Audit Profiles  Proposed Shortlist for Sampling

Milestone 3: Shortlist for Sampling Agreed 10.

 Samples  Sample Analysis Reports

Sample Development & Testing Managing the sample development and testing iterations to determine which suppliers can meet the quality.

 Contract(s)

Negotiation & Contracting

11. Conducting final negotiations with the shortlisted suppliers, and facilitating contracting between selected suppliers and client.

Milestone 4: Contracts Secured 7

Sourcing Response: 25 Brazilian Suppliers Identified and 2 RFI/RFQs Received 23 Turkish Suppliers Identified and 4 RFI/RFQs Received

48 48

31 31

14 14

12 12 99

8

77

66

Demand Analysis Overview of the 100 SKUs & 10 Families included in the Precision Machining project for the full range of 10 family's & 100 SKUs of rings and screws.

Total SKUs In Family

Low Annual Volume (Total Units)

Mid Annual Volume (Total Units)

High Annual Volume (Total Units)

RFQ Annual Volume (Total Units)

Total:

100

26,500

55,000

95,000

55,000

Family 1

24

10,000

20,000

40,000

20,000

-

-

Family 2

-

-

-

Family 3

8

3,000

6,000

9,000

6,000

Family 4

2

5,000

10,000

15,000

10,000

Family 5

14

2,000

4,000

6,000

4,000

Family 6

12

2,000

4,000

6,000

4,000

Family 7

12

1,000

2,000

4,000

2,000

Family 8

9

500

1,000

2,000

1,000

Family 9

9

1,000

2,000

3,000

2,000

Family 10

5

1,000

3,000

5,000

3,000

Family 11

5

1,000

3,000

5,000

3,000

9

RFQ Analysis: Summary Graph 6 suppliers quoted based on Total Estimated Annual Spend (Medium Quantity)

Total Estimated Annual Spend (Medium Quantity) 2,500,000

2,173,398

2,000,000

1,425,477 1,500,000

946,984

923,880

1,000,000

685,200 557,080 500,000

Family 1

Family 2

Family 3

Family 4

Family 5

Family 6

10

Family 7

Family 8

Family 9

Family 10

Family 11

NOTE: Supplier 4 only quoted fully for family 1 to 5, and gave a few very high quotes in families 6,7,9 &10.

RFQ Analysis: Summary Table 6 suppliers quoted based on Total Estimated Annual Spend (Medium Quantity)

Supplier 1

Supplier 2

Supplier 3

Supplier 4

Total:

685,200

946,984

923,880

Family 1

159,920

255,872

234,189

Family 2

-

-

-

Family 3

47,968

76,749

71,952

Family 4

79,992

127,987

Family 5

35,919

51,085

Family 6

103,818

107,811

55,874 110,730

39,860

49,825

41,198

Family 8

24,925

25,922

23,173

Family 9

39,900

53,865

45,696

Family 10

77,948

101,932

117,770

Family 11

74,950

95,936

103,310

Supplier 6

557,080

1,425,477

2,173,398

149,274

391,877

531,078

-

119,988

Family 7

Supplier 5

-

43,891

99,954

146,213

69,193

149,985

236,934

28,876

83,122

116,395

78,084

154,294

294,390

31,320

59,021

83,916

38,115

51,242

74,788

99,070

192,733

321,228

181,588

292,932

41,067 115,375

11

-

NOTE: Supplier 4 only quoted fully for family 1 to 5, and gave a few very high quotes in families 6,7,9 &10.

RFQ Analysis: Rank Summary Table 6 suppliers quoted based on Total Estimated Annual Spend (Medium Quantity)

Supplier 1

Supplier 2

Supplier 3

Supplier 4

Supplier 5

Supplier 6

Total:

1

3

2

1

4

5

Family 1

1

3

2

1

4

5

Family 2

-

-

-

-

-

-

Family 3

1

3

2

1

4

5

Family 4

1

3

2

1

4

5

Family 5

1

2

3

1

4

5

Family 6

1

2

3

4

5

Family 7

1

3

2

4

5

Family 8

2

3

1

4

5

Family 9

1

3

2

4

5

Family 10

1

2

3

4

5

Family 11

1

2

3

-

4

5

12

NOTE: Supplier 4 only quoted fully for family 1 to 5, and gave a few very high quotes in families 6,7,9 &10.

RFQ Analysis: Summary Graph per family 6 suppliers quoted based on Total Estimated Annual Spend (Medium Quantity)

13

NOTE: Supplier 4 only quoted fully for family 1 to 5, and gave a few very high quotes in families 6,7,9 &10.

Supplier Scorecard: A supplier scorecard was developed to Shortlist suppliers for Audits Business Information

Weight of criteria

Scoring

Turnover in 2012

45%

1 = <1M, 2 = 1M to 3M, 3 = 3M to 10M, 4 = >10M

Export experience

45%

0 = No, 1 = Yes

Logistic department

10%

0 = No, 1 = Yes & â&#x2030;¤5 people, 2 = >5 people

Capacity & Technology

Weight of criteria

10%

Scoring

Number of employees within the company

20%

1 = <30, 2 = 30 to 100, 3 = 100 to 200, 4 = â&#x2030;Ľ200

Factory size

20%

1 = <1000 m2, 2 = 1K- 2.5K, 3 = 2.5K-5K, 4 = >5K m2

Experience selling products for the medical industry

30%

0 = No, 1 = Yes

Equipment

30%

0 = Not appropriate, 1 = Appropriate

Quality management Does supplier have ISO 9000 or 9001?

Does supplier have any other Quality process certificate?

Does supplier have Laser Marking ASTM F86 process?

Does supplier have Electropolishing ASTMB912 process?

Does supplier have SULFURIC ANODIZE PER MIL A8625E TYPE II CLASS1 process?

Does supplier manage traceability of the products?

Pricing Pricing for the full range

Weight of criteria 20% 10% 10% 10%

0 = No, 1 = Yes 0 = No, 1 = Yes 0 = No, 1 = Yes 0 = No, 1 = Yes

10%

0 = No, 1 = Yes

40% Weight of criteria

0 = No, 1 = Yes

100% Cooperation

Cooperation during RFI process

Scoring

100%

0 = Lowest, 1 = Middle, 2 = First Ranking Scoring 0 = Poor, 1 = Good, 2 = Excellent

Total scoring

Weight of the section

20%

Weight of the section

30%

Scoring

Weight of criteria

Weight of the section

Weight of the section 30% Weight of the section 10% 100%

14

Supplier Scorecard: 3 suppliers were shortlisted for Audits based on the result of the scorecard 100

Supplier Scorecard Score

90 80

Cooperation Pricing

Shortlisted Suppliers

82.3

Quality management Capacity & Technology

10.0

Business Information

70 60

30.0

60.7

60.3

10.0

10.0

59.9

50 40 30

30.0

Gozukara 57.3 Medikal; 0.0

5.0

15.0

15.0

15.0

15.0

18.0

18.0

24.0

11.8

11.8

10.0

5.9

5.5

5.9

47.3

5.0 Gardillo; 0.0

30.0

30.0

8.2

6.4

4.1

5.9

20 10 0

6.4 5.9

Business Information Capacity & Technology Quality management Pricing Cooperation Score:

Supplier 1

Supplier 2

Supplier 3

Supplier 4

Supplier 5

Supplier 6

5.9

5.9

5.5

5.9

4.1

5.9

6.4

11.8

11.8

10.0

8.2

6.4

30.0

18.0

18.0

24.0

30.0

30.0

30.0

15.0

15.0

15.0

15.0

0.0

10.0

10.0

10.0

5.0

0.0

5.0

82.3

60.7

60.3

59.9

57.3

47.3

15

NOTE: Supplier 4 only quoted fully for family 1 to 5, and gave a few very high quotes in families 6,7,9 &10.

Agenda

1.

Introduction

2.

Sourcing Approach

3.

Conclusions

16

Recommendations and Next Steps Findings • • • •

Turkish suppliers could quote the full range of families, are quite competitive, and technically capable.

On the other hand we found a lack of interest and capability in many Brazilian suppliers (refusal to sign the NDA, technical limitations and engagement with other sectors of the economy such as oil & gas, car parts, and electronics).

Unlikely mostly of other industries in Brazil, there are incentives from importing medical devices since import duty is very low (most cases is zero).

With the current exchange rate at BRL 2 to the USD makes Brazil is not easily competitive for exporting.

Recommendations • •

Dragon Sourcing recommend that client/Dragon Sourcing audit the top 3 shortlisted suppliers (All Turkish Suppliers).

Client should also consider an additional audit of Supplier 4 since they appear to be a high potential Brazilian supplier with the best FOB quotes for Families 1, 3, 4, & 5 however they are unable to quote other families completely.

Next Steps 1.

2.

3.

4.

5.

6.

7.

8.

9.

Review RFI/RFQ, Supplier Scorecard, & Supplier profiles Decided witch supplier to Audit & Type of Audits Prepare Audit Documents Send Supplier Audit document for self assessment Plan and conduct Audit Analysis Audit results Select Supplier for Sampling Test Samples (as necessary) Approve Samples and select suppliers for final negotiation

17