China Case Study MRO Electrical Spare Parts

Dragon Sourcing Your Tailored Approach to Emerging Markets

China Case Study MRO Electrical Spare Parts Shanghai 2013

1. Objectives DS Strategic Sourcing Objectives

Context  

Objectives Generating savings, creating momentum and training client resources for low value high consumable products.



 



  

   

© 2013 Dragon Sourcing. All rights reserved.

2

Data collection pack analysis Identify list of potential suppliers in China to include in the RFI / RFQ process by leveraging the web, external databases and various networks of experts Develop the RFI/RFQ – jointly with Client – to include all key supplier qualification criteria (e.g.: financial, technology, manufacturing and services capability, corporate responsibility, quality, etc.) and quotation requirements Sign NDA with suppliers before sending RFI/RFQ Administer the RFI/RFQ process to ensure as high a return rate as possible including quotation, and credentials’ visible outlets from supplier Analyze responses and use balance score card developed together with Client management team to rank and recommend suppliers which Client needs to take through a formal qualification process Jointly develop with Client the audit questionnaire Jointly develop or modify contract contents based on needs (when it is needed).

Carry out audits (when relevant) (either alone or jointly with Client auditors or buyers) of the suppliers that appear attractive and competitive based on the RFI/RFQ process Issue audit reports (when relevant) and rank suppliers based on audit and price competitiveness Choose suppliers for formal bidding Saving analysis and suppliers selection after formal bidding Finalize contract and start engagement

2. Project Timeline Jul

Steps

Who

0

Kick off meeting

Client/DS

1

Data collection pack analysis

Client/DS

2

Identify list of potential suppliers

Client/DS

3

Develop the RFI/RFQ to include all key qualification criteria.

Client/DS

4

Conduct first phone screening to select suppliers to send the including NDA

DS

5

Administer NDA process ton ensure high return rate

DS

6

Administer RFI/RFQ process to ensure as high a return rate as possible

DS

7

Develop balance score card to evaluate suppliers according to RFI/RFQ

Client/DS

8

Based on RFI/RFQ analysis, make recommendations for audit

Client/DS

9

Potential suppliers site meeting

Client/DS

10

Commodity define

Client/DS

11

Saving analysis and supplier selection

Client/DS

12

Supplier audit

13

Finalize contract and start engagement

W1

W2

Aug

W3

W4

W5

W6

W7

Sep

W8

W9

Oct.

W10 W11 W12 W13 W14 W15 W16

Client Client/DS

TODAY Not-started

Š 2013 Dragon Sourcing. All rights reserved.

3

Started

Delayed

Finished

Stakeholders & project team

Steering Committee

3. Demand Analysis: Electrical spare parts total 207 brands worth RMB 9.6M. 30 main brands(RMB 4.7M) were selected for RFQ. 173 brands items number below 5 and 4 brands purchased from manufacturers are not selected for RFQ. M RMB

Electrical spare parts total RMB 9.6M, 6.2% MRO spend

1400 1232 1200

1000

800

600

400

155

200

9.6

4.7

Electrical spare parts

Selected for RFQ

0 Indirect

Š 2013 Dragon Sourcing. All rights reserved.

MRO

4

3. Demand Analysis: RMB 4.7M Spend on top 30 brands with Siemens representing RMB 2.6M or 55% of the spend on the top 30 brands k RMB

Spend per brand

3,000

2,500

2,000

1,500

1,000

500

0

Š 2013 Dragon Sourcing. All rights reserved.

5

4. RFI/RFQ Strategy: Do to the large percentage of spend with Siemens, Siemens and other brands were evaluated separately in RFI/RFQ • Siemens is the main brand used in electrical spare parts, total 232 items and 55% the send • Siemens Strategy: have Siemens recommended 1st grade agents compete for the business • Other Brands: Consulate the spend with 3 MRO Distributors Siemens

Other 29 Brands Items with savings: purchase from recommended new suppliers with fixed price

Existing items unit price below RMB 10k: purchase from Current Supplier with best price Sign contract with suppliers with list price and fixed discount rate

Sign frame contract with 3 suppliers New items/unit price above RMB 10k items: enquire from 3 suppliers, choose the most competitive price and establish material code in master data

© 2013 Dragon Sourcing. All rights reserved.

6

Items with no quote/savings: double check specs and reconfirm with new suppliers, choose the most competitive price

items with unreasonable savings: reconfirm with suppliers compared with Client current price, choose the most competitive price

5. RFI/RFQ Progress

Š 2013 Dragon Sourcing. All rights reserved.

7

6. Supplier Location Analysis

Province

# of suppliers

Shanghai

56

Taiwan

30

Guangdong

18

Jiangsu

Heilongjiang

Jilin Liaoning Xinjiang

12

BEIJING

Neimongu

Gansu

Hebei

Beijing

7

Zhejiang

5

Fujian

5

Tianjin

3

Shanxi

Ningxia Qinghai

Gansu

Xizang

Shaa nxi

Sichuan Sichuan

Shandong

3

Sichuan

1

Hubei

Inner Mongolia

1

Grand Total

141

Zhejiang Jiangxi

Hunan Guizhou Yunan

Guangxi

SHANGHAI

Anhui

CHONGQING

Shandong

Jiangsu

Henan

Fujian

Guangdong

Taiwan

Hong Kong

Client site

7. Scorecard - Non-Siemens Suppliers (1/2)

Supplie score out of 100 by section breakdown

100 90 80 70 60 50 40 30 20 10 0

Average 64

S1

Supplier

Business information Production Quality system Cooperation

S2

S3

S4

S4

S5

S6

S7

S8

S9

S10

S11

S12

S13

S14

S14

S15

S16

S17

S18

S19

S20

S21

Business information

Production

Quality system

Cooperation

Total

30%

35%

30%

5%

100%

1

29

35

30

4

98

2

20

33

30

5

87

3

30

23

30

3

87

4

21

28

30

4

84

5

22

26

30

5

83

6

25

33

15

5

77

7

23

31

12

5

70

8

21

22

23

3

69

9

21

33

11

4

68

10

19

28

15

5

68

11

20

28

15

3

67

12

20

28

15

3

67

13

16

29

15

4

65

14

21

28

11

4

64

15

24

20

15

3

62

16

19

28

11

3

61

17

13

28

12

4

58

18

20

24

11

3

58

19

23

18

12

3

55

20

15

19

15

4

53

21

12

22

12

3

Š 2013 Dragon Sourcing. All rights reserved.

9

49

Current supplier

7. Scorecard –Siemens Suppliers (2/2)

Weight

Business information 30%

Supplier 22

27

25

30

3

85

Supplier 23

25

25

30

3

84

Supplier 24

26

25

15

3

69

Supplier 25

14

19

0

3

36

Production

Quality system

Cooperation

Total

35%

30%

5%

100%

Current supplier

Š 2013 Dragon Sourcing. All rights reserved.

10

8. Saving Analysis: Savings postnatal for Siemens items was up to 16% and other brands was up to 14%

k RMB

Total spend and savings for Siemens spare parts

k RMB

Total spend for 29 brands and savings

3,000 -RMB348k (13%)

2,700

-RMB390k (15%)

-RMB424k (16%)

-RMB96k (4.6%)

2,500

-RMB301k (14.2%)

-RMB308k (14.6%)

2,400 2,000 2,100 1,800

1,500

1,500

1,000

1,200 900

500 600 300 0 Current spend

0 Current spend

Average

Š 2013 Dragon Sourcing. All rights reserved.

2nd Best quote

Best

11

Average

2nd Best quote

Best

• • •

8. Saving Analysis: Total Potential savings combined for 30 brands was 15.6 to 9.7% (RMB 733K to 457K) Total spend for Siemens and 29 brands and savings

5,400

-RMB457k (9.7%)

4,800

-RMB692k (14.7%)

-RMB733k (15.6%)

2nd Best quote

Best

4,200

3,600

3,000

2,400

1,800

1,200

600

0 Current spend

Average

Savings range was calculated base on current price.

Regardless suppliers, we selected the best quote, the 2nd best quote and the average savings quote when actually we get some savings.

Quotations above current Client quotes are not taken into consideration © 2013 Dragon Sourcing. All rights reserved.

12