Case Study-Sourcing of cosmetic products in China

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Delivering sustainable sourcing value from emerging markets

Cosmetics Sourcing Case Study Shanghai, June 2016

Agenda

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1.

Introduction

2.

Sourcing Approach

3.

Results

2

Context Background Client is a leading fashion garment group in Oceania and international market with more than 1500 stores globally, aim to provide the latest fashion products with right value to their customers, this client assigned DS as the sourcing agency in China for their accessories sourcing. One brand under this group assigned DS to source the cosmetics in 2015 and 2016.

Scope This scope is to conduct sourcing across 7 different categories across a number global markets to secure competitive suppliers Categories: 1.Body Spray Mist & Body Balm 2.Lip Balm & Lip Stick 3.Contour Kit & Blusher Creme 4.Body Bronzer & Sea Salt Spray 5.Brow Kits & Sponge Make Up Applicators &Faux Eyelashes 6.Face Mask & Hair Mask 7.Nail Art Accessory & Nail Wraps &Nail Polish & Nail Buffer Deliverables: RFQ Recommended suppliers factory photos

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Categories - Body Spray Mist & Body Balm

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Category - Lip Balm & Lip Stick

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Category – Contour Kit & Blusher Creme

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Category – Body Bronzer & Sea Salt Spray

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Category – Brow Kits & Sponge Make Up Applicators &Faux Eyelashes

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1. Category – Face Mask & Hair Mask

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Category – Nail Art Accessory & Nail Wraps &Nail Polish & Nail Buffer

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Agenda

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1.

Introduction

2.

Sourcing Approach

3.

Results

11

Approach – Phase 1 Phase 1: Supplier Pre-Qualification No. Step Deliverables Demand Analysis  Project Requirement 1.

Work with client to define and understand the products and requirements (specs, volumes, materials, Questionnaire production technology requirements)  Kick-Off Report Supply Analysis 2.

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

Telephone Pre-screening Selection of suppliers to be included in the RFI/RFP process by telephone pre-screening based on 3.  Shortlist for RFI/RFQ agreed simple criteria (e.g. capability to make the product, minimum company size, interest in participating) Develop RFI/RFQ  RFI/RFQ Template Prepare an RFI/RFQ document, with an aligned Balanced Scorecard that has the objective to pre Balanced Scorecard 4. qualify the competitiveness and capabilities of the suppliers, including: Background, financial, Client  Introduction Letter and product experience, Quality certification & processes, Social Responsibility,  NDA Manufacturing/technology capability, R&D capability Milestone 1: RFI/RFQ & Scorecard Approved Conduct RFI/RFQ Administration  Control Sheet 5.

The RFI/RFQ is translated to the local languages as relevant, and distributed to the relevant suppliers,  Completed RFI/RFQs with telephone follow-up to push for maximum participation.

Analyze RFI/RFQ Responses  RFI/RFQ Report Analysis of RFI/RFQ responses, estimation of logistics costs, and preparation of a report which profiles  Supplier Profiles 6. & objectively ranks the suppliers by capability and competitiveness, including a recommendation for  Proposed Shortlist for those to be audited.

Audit Milestone 2: Shortlist for Audit Agreed © 2015 Dragon Sourcing. All rights reserved.

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Approach – Phase 2 Phase 2: Selection & Contracting No. Step Prepare for Audits 7.

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

Conduct Audits Distribution of the Audit Questionnaire to suppliers for their self-assessment (and to get them 8. prepared), followed by onsite audits, with or without XXX buyers, of all the suppliers. Focus is management, logistics, production & quality.

9.

Analyse 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.

Milestone 3: Shortlist for Sampling Agreed Sample Development & Testing 10. Managing the sample development and testing iterations to determine which suppliers can meet the quality.

Negotiation & Contracting 11. Conducting final negotiations with the shortlisted suppliers, and facilitating contracting between selected suppliers and XXX. Milestone 4: Contracts Secured

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Deliverables • Audit Plan • Audit Questionnaire  Completed Audit Questionnaires  Audit Report  Supplier Audit Profiles  Proposed Shortlist for Sampling  Samples  Sample Analysis Reports  Contract(s)

Not started In process

Schedule

Steps

6 - Oct.

13 - Oct.

20 - Oct.

27 - Oct.

3 - Nov.

10 - Nov.

17 - Nov.

Done Delay

24 - Nov.

1. Demand Analysis

2. Supplier Identification

3. Telephone pre-screening

4. Develop RFI/RFQ

5. Administer RFI/RFQ

1

6. Analyze RFI/RFQ Responses

RFI/RFQ Approved

2 Shortlist for Audit/Samples Agreed

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The first step for demand analysis was to develop a comprehensive understanding of the requirements

EXAMPLE ITEM BOD Y SPR AY MIST

L IP BAL M

L IPSTIC K

4 colour x 4 smells

Product name Article No. Current price Target price Market Order Quantity

BODY SPRAY MIST 566037 N/A N/A China 1000pcs per fragrance X 4 = 8000PCS

Full test reports on cosmetic items:

C ON TOU R KIT

Test Requirement N AIL PAIN T

1. Toxicologically; 2. Heavy metals; 3. Microbial (if required); 4. Preservative Efficacy (if required); 5. MSDS (Material safety data sheet) is always supplied by the factory as this is their list of ingredients.

FAU X EYEL ASH ES

BL U SH ER -C R ÈME

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Remark

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Classified as Dangerous Goods, so is to be shipped ex shanghai due to separate vessel required.

Then an extensive supplier data base is built leveraging multiple sources of information Sources of Information - China Company and contact information

Website name

No.

Product category

Supplier name

1

BODY SPRAY MIST

Supplier 1

2

BODY SPRAY MIST

Supplier 2

3

BODY SPRAY MIST

Supplier 3

4

BODY SPRAY MIST

Supplier 4

5

BODY SPRAY MIST

Supplier 5

Province

City

Website

Source

Contact Person

Email

Telephone

Mobile

Remark B2B for all over www.alibaba.com the world Alibaba www.globalsources. B2B for all over Global Sources com the world www.gongchang.co B2B for all over the world Gongchang m B2B for all over www1.tradekey.com the world Tradekey B2B for all over ECVV www.ecvv.com the world B2B for all over EC21 www.ec21.com the world B2B for all over Hellotrade www.hellotrade.com the world Trade Asia www.etradeasia.com B2B for Asia www.asianproducts.

Asian Products com B2B for Asia www.made-inBSB for China made in china china.com Alibaba China china.alibaba.com Baidu

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websites

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www.baidu.com

BSB for China TOP 1 source engine in China

After building a supplier long list, a telephone pre-screening process is carried out to select the suppliers to be included in the RFI/RFQ process

No.

Pre-screening question for case 2

Importance

1

•

Do you manufacturer for cosmetics, what’s the range?

Must have

2

•

Do you have certificates of GMPC, ISO22716?

Must have

3

•

Do you have experience export to EU, USA, Australia, etc.

Must have

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After completing the phone pre-screening process, we administer the RFQ process Contact Information Inquiry

RFQ Chart: EXAMPLE -Key commercial terms -Key certificates -Key questions for order: MOQ, color/packaging customization -Etc.

Request for information - Contact Information 信息征询 - 联系信息 I. COMPANY INFORMATION 公司信息 1-1 1-2 1-3 1-4

Company Name 公司名称 Factory Address 工厂地址 Town 城市

Quotation date报 Validty 报

Province 省份

CONTACT INFORMATION 联系信息

1-6 1-7 1-8 1-9

有效期：

Client's Payment Term: 客户付款条

Company Website 公司网址

1-5

日期：

Country of Origin 产地国 Port of Loading 装运港

Contact Person 联系人 Title 职位 Email 电子邮 地址 Tel 电话 Fax 传真

Do you have ISO 22716 certificate? (Y/N) Do you have GMPC? (Y/N)

1-10 Mobile phone 手机 Quot at ion

1-11 English Contact Person 英语联系人 1-12 Title 职位 1-13 Email 电子邮 地址 1-14 Tel 电话 1-15 Fax 传真 1-16 Mobile phone 手机

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报 Produc t Name

Ref erenc e pic t ures / des igns

Qt y .

Tes t ing requirement

FOB pric e

Remark Suppier Helmet Phot o 工厂报

产品照片

(USD) FOB 美金

Full t es t report s on c os met ic it ems : 1000pcs per BOD Y SPR AY MIST

4 colour x 4 smells

fragrance X 4 = 8000PCS

1. Toxicologially; 2. Heavy metals; 3. Microbial (if required);

1000pcs per flavour X 4 = 8000PCS

L IP BAL M

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Classified as Dangerous Goods, so is to be shipped ex shanghai due to separate vessel required.

格

MOQ (Pc s ) 最小起订量

Is it possible to produce it

Produc t ion

with Cotton On Packaging

Lead t ime

with the MOQ. (Y/N)

(day s )

MOQ的数量能够做Cotton

生产交期

On 自己品牌的包装

天

During the RFQ process, an RFQ control sheet is used to follow up the whole process Company and contact information

RFI/RFQ Process follow up RFI/RFQ sent

Product category

Supplier name

1

BODY SPRAY MIST

Supplier 1

2

BODY SPRAY MIST

Supplier 2

3

BODY SPRAY MIST

Supplier 3

4

BODY SPRAY MIST

Supplier 4

5

BODY SPRAY MIST

Supplier 5

No.

Intend to respond

Province

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Y/N

Date

Y/N

Last call follow up

If no, reason

Date

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Comment

RFQ received

Y/N

Date

If no, reason

Remark

Short-listed suppliers were succesfully audited leading to orders being placed and significant savings being achieved For audit process: All the new supplier for this client will fill-out the full set of pre-audit documents, and the ethical team of this client will evaluate the new suppliers based on the documents and decide if a) to approve directly for an initial order, or b) to do the on-spot audit, or c) reject The pre-audit documents including: 1.PRE AUDIT (SELF ASSESSMENT) 2.VENDOR FORM 3.SUBCON FORM (MUST DISCLOSE ALL STAGES OF PRODUCTION) 4.EXTERNAL AUDIT COMPLETED IN LAST 12 MONTHS 5.CAPS REPORT RELATING TO CORRECTIVE ACTIONS IDENTIFIED IN EXTERNAL AUDIT 6.BUYERS FACTORY CHECKLIST (IF COMPLETED BY COG TEAM) 7.FACTORY PICTURES (taken in last 14 days)

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