This case study focuses on providing information about promotional supply optimization and procurement transformation. To know more visit: http://www.dragonsourcing.com/china-sourcing-company/

1. CLIENT XXX
Promotional supply optimization;
procurement transformation – Case studies
Dragon Sourcing - 龙 源
Your Tailored Sourcing Approach to China

2. © 2005 Dragon Sourcing. All rights reserved.
2
Case Study – Beverage Company
Background
Client is a major western alcoholic beverage company experiencing significant year-on-year
sales growth in China resulting in ever increasing marketing and promotional budgets. Client was
concerned that the spend with external marketing suppliers was not optimized and that world
class sourcing practices were not being applied
Approach
• Created multi-functional team with representatives from
marketing and DS buyers
• Selected pilot categories to test opportunity associated with
deploying world class sourcing processes (glass and metal
products)
• Drove strategic sourcing process on selected pilot categories:
• Developed list of qualified suppliers for both technology
segments through and RFI process
• Run RFQ process with short listed suppliers to select
preferred partners
• Negotiated final frame contracts agreements
• Reviewed current procurement processes, organization and
systems
Results
• Fundamentally changed sourcing strategy:
• from brand segmentation to technology
segmentation
• from « spot » buying to frame contracts
• from « creative agency » to « direct »
• Negotiated between 40 and 50% cost
reduction on pilot categories
• Changed sourcing processes and organization
• using Procurement Service Provider
• appointing dedicated internal resources

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The scope of the project was about RMB 16 M for glass and stainless items
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Initial Scope
Direct Negotiation
PO Already Placed
Through RFP
glass
steel
Mixed 1.4
Other 1.0
RMB 9.0 M
CR Ice Bucket
CR Tray
CR Glass
CR Jar
per Brand per Technology per Renegotiation
channel
Current Scope
RMB 15.8 M
M RMB
8.0
5.4
1.0
1.4
13.4
Extra products in scope:
- 2nd brand
- More items in scope for
brand 1

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Some products involved

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We followed the following approach over a 3 months period
Spend & needs
analysis
Supply market
analysis
Negotiation
strategy
Strategy execution
Current supplier
analysis
M
O
B
I
L
I
Z
A
T
I
O
N
• Kick off meeting
• Communication to
suppliers
• Specs, volumes,
prices, etc.
• Scope and history
• New supplier
identification
• Tender document
• RFI/RFQ process
• Benchmarking
• Agency vs.
manufacturer
• Technology
segmentation
• Short vs. long term
contract
• Leverage back
opportunities
• Negotiate
• Contract
Overall approach
Assess practices
and procedures
Process and org.
recommendations
Implementation
plan

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We followed a rigorous supplier selection process
• Technology capabilities
• Web Products display
• References
• Internet
• Industrial association
• Chamber of commerce
• Private networks
• etc
• Intend to respond
• Confidentiality Agreement
• Quotations
• Catalogues
• Samples
Initial supplier
list building
Suppliers
selected based on
Suppliers selection
through
RFP Process
Short listing
suppliers for
Final round
Select final
suppliers
1 - 3
selected
Suppliers
• Responses quality
• # of quoted items
• Pricing
• Supplier
assessments
through visits
• Organize face to face meetings
• Request “last and final” quotation
• Communicate with
short listed suppliers on selection
process and criteria and current
competitive positioning
• Analyze final quotes
• Final negotiations and contracting

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The initial supply market scanning generated 300+ suppliers
Glass Suppliers
61%
Steel Suppliers
39%
Initial 300 suppliers:
Glass: 183
Steel: 117
Initial supplier list building
www.alibaba.com.cn
www.google.com
www.made-in-china.com
ww.ywbb.com
www.glassnet.com.cn
www.asiaglass.com.cn
www.glassinfo.com.cn
www.glassbuy.com.cn
www.wjw.cn
cn.easthardware.com
Industrial association
Chamber of commerce
Manual Catalogue
EXAMPLES

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Suppliers selection is based on criteria such as technology capabilities, products
display on web and direct data checking, and update a Dragon Sourcing commodity
map of China per region database for further quick references
300suppliers
Technology
capabilities
Products display
on Web
Data checking by
calling
3
1
1
8
9
3
1
4
3
3
3
11
Commodity 1
Commodity 2
Commodity 1 & 2
-Flat glass vs. hollow
glass,
- Kitchen related items
vs. industry hollow glass
- etc.
Suppliers first screening
Updating Chinese industry
mapping

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Bilingual English - Chinese RFP was compiled jointly by Dragon Sourcing
and client
• Content: approved jointly by
Dragon Sourcing and client
• Technical design: approved by
design department of client
• Legal agreement: approved by
legal department of client
ILLUSTRATIVE

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The RFP process demonstrated that the client’s current sourcing strategy
had not been optimized
Preliminary savings analysis
• All quotation received are below current paid prices
• Considering all Min per item, global savings reaches:
-78%
• Considering all Max per item, global savings reaches:
-16%
• Considering all Average per item, global savings
reaches: -52%
• First ranked supplier quoted all 7 items. Global savings
reaches: -75%
• By Combining supplier ranked 11 and supplier ranked
12, global savings reaches: -32%
• Current supplier quoted all 7 items without the trading
agency.
Global savings reaches: -37%
Special facts
• Machined process glass are usually 30% less than
manual processed. Further investigations have to be
conducted regarding quality and process control
Glass quotation analysis
(12 suppliers quotation)
0.00
10.00
20.00
30.00
40.00
50.00
60.00
A B C D E F G
Items
RMB/unit
Current price Average quoted Max quoted Min Quoted
ILLUSTRATIVE

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Glass suppliers ranking highlights savings opportunities from 40 to 70%
(1): 5 = Very Good; 1 = poor
Price Competitiveness
Suppliers
Quality and
timeliness of
response
# of Items
quoted
Western
company
Savings vs. base line
on quoted items
Ranking
Supplier
Profile
Overall rate
Type of grading 1 to 5 (1) # out 7 Y=1/ N=0 RMB % 1 to 5 (1) 1 to 5 (1) Rate base 100
Weighted 15% 25% 15% 35% 10%
1 Supplier 1 1 1 0 -2 575 000 -74% 5 44
2 Supplier 2 1 1 0 -2 400 000 -69% 5 44
3 Supplier 3 3 4 0 -2 182 600 -33% 3 51
4 Supplier 4 3 4 0 -3 633 300 -55% 4 58
5 Supplier 5 3 7 1 -2 858 900 -36% 3 69
6 Supplier 6 3 4 0 -2 221 100 -34% 3 51
7 Supplier 7 3 7 1 -3 222 150 -40% 4 77
8 Supplier 8 3 4 0 -4 357 520 -66% 5 65
9 Supplier 9 4 4 1 -2 148 260 -33% 3 57
10 Supplier 10 4 7 1 -5 982 230 -75% 5 87
11 Supplier 11 4 1 1 -1 420 000 -41% 4 49
12 Supplier 12 4 3 0 -394 200 -28% 2 42
PRELIM
INARY

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Finally, the program resulted in the client fundamentally changing its
sourcing strategy
Strategy element Current Client strategy Recommendation for the
future
Rationale
Creative agency vs.
manufacturer
• Creative agency • Direct to Manufacturer • Agency not competent in
procurement but in creation
• No incentive to optimized total
ownership costs
• Very high commission fees (over
20%)
• Negative taxes impact
• Direct link with Manufacturer
provides better cost / quality
optimization at design stage
Technology segmentation • Per Brand • Per technology (Glass, steel
wood, leather, etc.)
• Consolidated volume to a reduced
supplier base
Contracting • PO Driven • Annual, frame contracting • Simplify ordering process
• Agree key contractual issues
(payment terms, tools ownership,
etc)
• Provide suppliers with better
visibility into client requirements
• Intellectual property