Case study-Sourcing strategy for hospitality services

Hospitality Case study
June 2010
Dragon Sourcing - 龙源
Your Tailored Sourcing Approach to Asia

© 2010 Dragon Sourcing. All rights reserved. 2
Agenda
A. Context and Products
B. Sourcing Strategy
C. Results & Conclusions
2© 2010 Dragon Sourcing. All rights reserved.

Context
• Major European hotel and restaurant company
– 1,900 sites
– in 35 countries
– 33,000 employees
– €200 million profit before tax in 2009
• Interested in identifying and qualifying new potential competitive suppliers in China, Vietnam
and India specialised in the manufacturing of duvet cover in cotton and polyester, light fittings
for hotel, carpets in wool and cotton and crockery in porcelain.
• Selected Dragon Sourcing as Procurement Service Provider responsible for managing the
supplier sourcing and qualification process

Products included in the project scope were the following
Duvet cover
(80% Cotton, 20% Polyester)
4
Light Fittings
(for bathroom, bedroom and corridor)
Carpet
(100% Nylon & 80%Wool- 20% Nylon)
Crockery
(White Porcelain)

Agenda

• 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 RFQ process with pre-
qualified suppliers
• Analyse supplier responses and
calculate fully delivered price
(FOB price, logistics, import
duties, ADT,..)
• Shortlist suppliers based on
RFI/RFQ process
• Select 2-3 suppliers/product for
sample development process
• Manage sample development
process
• Audit shortlisted suppliers
• Make a report of audited suppliers
• Build supplier profiles
• Finalise supplier selection
© 2010 Dragon Sourcing. All rights reserved.
Dragon Sourcing coverered the end-to-end sourcing process
Supplier Identification and
pre-qualification
Similar samples
acquisition
Supplier audits
Keyactivities

© 2010 Dragon Sourcing. All rights reserved. 7© 2010 Dragon Sourcing. All rights reserved.
Supplier Identification and
pre-qualification
Similar samples
acquisition
Supplier audits
Keyactivities
Dragon Sourcing service offering covers the end-to-end sourcing process
requirements
– Volumes
– Deadlines
qualified suppliers
duties, ADT,..)
RFI/RFQ process
• Select 2-3 suppliers for sample
development process
process
• Develop Business case and
implementation plan

The first step was to develop a comprehensive understanding of the product
requirements, for example duvet cover
Product Name Duvet Cover
Picture
Specification
Composition: 80% Cotton, 20% Polyester (pre-mixed in the yarn)
Fabric: 220 threads per inch count
Pattern: “Bar Code” white fabric, woven patterned both sides
Style: Bag Style cover, open ended
Yarn: 40/40 Yarn
Hem depth of 4.8cm on each duvet cover size
Quality Requirements
Minimum shelf life of 156 washes
Not more than 30% of rebut per year
Good durability and strength of the product
Annual Quantity
Single - 155 x 224cm – 9,500 pieces
Double- 255 x 246cm – 75,000 pieces
King - 275 x 246cm – 27,00 pieces

119
95
59
3136
8
50
17
15
14
6
2
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
170
180
190
200
Number of suppliers
identified
Number of RFI/RFQ sent Number of ITR received Number of RFI/ RFQ
received
Numberofsuppliers
China India Vietnam
Around 200 suppliers were identified and 41 went through the full pre-
qualification process
9
Shanghai
193
159
Main reasons to not
send RFI:
- Telephone screening
- No answer to phone
- No good contact
59
41
Main reason to not attend the tender
-Vietnamese suppliers not familiar
with the composition
-- Indian suppliers are producing
100% cotton only
- Chinese suppliers are not familiar
with the mix

An RFI/RFQ process was administered to filter out the most capable suppliers
Product Name Quantity
Gross weight per
carton(in kg)
Total No.of
set/20'container
Total No.of
set/40'container
Product Size
Sample Charge in
US$
EXW US$ price per set
FOB US$ price per
set
FOB port Delivery Time Payment Term
产品名需求量毛重/箱（公斤） 20尺柜的装箱量 40尺柜的装箱量产品尺寸样品费(美元) 出厂美元单价(一套)
FOB 美元单价(一
套)
FOB港口交货时间付款条件
Set 1:
Set 2:
Set 3:
Logistics Information 物流信息
Set of 3 PP
trolley suitcases
PP聚丙烯手推旅
行箱3件套
9000套（3
件套）
Duvet
Cover
Product Name Quantity Material Size Color Accessory Packaging Carton Size (L×W×H)
产品名需求量材料尺寸颜色附件包装纸板箱尺寸
General Information概述
Duvet
cover
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 suitcase
business?
贵司从事PP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
% ofturnover 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
yingying.yao@dragonsourcing.com
021 - 6141 3974
021 - 6141 3966
159 00 89 89 18
BUSINESS INFORMATION 公司规模
Contact
detail
information
Business
information
Logistics
information
Product and
Price
Information
80%
Cotton,
20%
Polyester
Single - 155
x 224cm
Double- 255
x 246cm
King - 275
x 246cm
111k
7
c
m
6
.
5
c
m

0%
5%
10%
15%
20%
25%
30%
35%
1. Business
Information
2. Production
capacity
3. Logistic 4. Quality
management
5. Quality
Equipment
6. Corporate
responsibility
1111
The RFI responses have been analyzed using a scorecard allowing to rank
suppliers
in percentage
1. Business
Information
2. Production
capacity
3. Logistic
4. Quality
management
5. Quality
Equipment
6. Corporate
responsibility
Total Total / 10
Country Name 100% 100% 100% 100% 100% 100% 100% 10.00
China Supplier (1) 92% 88% 100% 84% 91% 100% 91% 9.07
China Supplier (2) 82% 82% 100% 84% 91% 100% 87% 8.71
China Supplier (3) 82% 82% 100% 62% 91% 100% 82% 8.23
China Supplier (4) 63% 82% 100% 49% 100% 100% 77% 7.71
China Supplier (5) 66% 82% 100% 44% 100% 100% 77% 7.65
India Supplier (6) 66% 53% 50% 95% 100% 100% 72% 7.12
China Supplier (7) 131% 59% 0% 78% 73% 100% 71% 7.04
China Supplier (8) 82% 45% 50% 60% 73% 100% 62% 6.21
India Supplier (9) 55% 47% 100% 38% 73% 100% 61% 5.70
India Supplier (10) 0% 16% 0% 0% 0% 0% 57% 5.28

© 2010 Dragon Sourcing. All rights reserved. 12© 2010 Dragon Sourcing. All rights reserved. 12
Then all relevant information was collected to prepare a DDP
quotation
Supplier
Duvet Cover
FOB unit price
in USD
Transportation
costs
DDP in USD
Supplier 1 8.00 0.30 8.30
Supplier 2 8.50 0.30 8.80
Supplier 3 9.00 0.40 9.40
Supplier 4 9.50 0.50 10.00
Supplier 5 10.00 0.60 10.60
Supplier 6 10.50 0.25 10.75
Supplier 7 11.00 0.30 11.30
Supplier 8 11.50 0.30 11.80
Current DDP price 10.00
Shanghai
Gansu
Jiangxi
Zhejiang
Jiangsu
Guangxi
Hunan
Ningxia
Shaanxi
Anhui
Fujian
Neimongu
Shanxi
Yunan
Guizhou
Jilin
Liaoning
Gansu
Heilongjiang
Sichuan
Hubei
Henan
Hebei
Tianjin
Shandong
Guangdong

0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
1.90
2.00
supplier(1)supplier(2)supplier(3)supplier(4)supplier(5)supplier(6)supplier(7)supplier(8)supplier(9)supplier(10)supplier(11)supplier(12)supplier(13)supplier(14)supplier(15)supplier(16)supplier(17)supplier(18)supplier(19)supplier(20)
GrandTotalinkGBP
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
Score/10
FOB Transport Scoring
© 2010 Dragon Sourcing. All rights reserved.
Finally, suppliers’ quotation were compared to target prices to identify those
worth keeping in the process and estimate potential savings
6 suppliers are not competitive
compared to current price
Current DDP Price

Feasibility Analysis
Similar samples
acquisition
Procurement Operations
Keyactivities
Dragon Sourcing covered the end-to-end sourcing process
requirements
– Volumes
– Deadlines
qualified suppliers
duties, ADT,..)
RFI/RFQ process
development process
process
implementation plan

Due to the specificity of the fabric required, samples had to be customized to
client requirements and produced in large scale
Supplier Name
RFI Score /
10
MOQ of double size
duvet covers
MOQ lead time Sample cost FOB (USD)
Sample cost DDP
(USD)
Supplier (2) 8.71 3,000 pieces 75 days
Unit price: $13.00
Total cost: $39,000
Unit price: $16.00
Total cost: $48,00
Unit price: $13.50
Total cost: $20,250
Unit price: $17.00
Total cost: $25,50
Unit price: $ 14.50
Total cost: $ 21,750
Unit price: $18.90
Total cost: $28,35
Unit price: $15.00
Total cost: $45,000
Unit price: $18.80
Total cost: $56,40
Unit price: $25.00
Total cost: $37,500
Unit price: $29.00
Total cost: $43,50

The RFI/RFQ and “identical sample” process resulted in a short-list of
potential new qualified suppliers
Qualification of suppliers through RFI/RFQ
Pre-qualified
suppliers Potential new
qualified
suppliers
Potential suppliers
RFI/RFQ
process Sampling
process
Supplier Name RFI Score / 10 Sample cost DDP (USD)
Supplier (2) 8.71
Unit price: $16.00
Total cost: $48,00
Supplier (10) 7.96
Unit price: $17.00
Total cost: $25,500
Supplier (5) 7.86
Unit price: $18.90
Total cost: $28,350
Supplier (11) 7.71
Unit price: $18.80
Total cost: $56,400
Supplier (13) 7.66
Unit price: $29.00
Total cost: $43,500
Supplier Region RFI Sent
1st follow
up
2nd follow
up
Information
received
Supplier
qualified
1 Vietnam √ √ √ √
3 Vietnam √ √ √ × ×
4 Vietnam √ √ √ √ √
5 Vietnam √ √ √ × ×

Feasibility Analysis
Supplier Selection
and Contracting
Supplier audits
Keyactivities
Dragon Sourcing service offering covers the end-to-end sourcing process
requirements
– Volumes
– Deadlines
qualified suppliers
duties, ADT,..)
RFI/RFQ process
development process
process
implementation plan

Short-listed suppliers were audited to finalise the qualification process
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 was shared with the customer through detailed
audit reports
GENERAL INFORMATION
SUPPLIER NAME DS China Ltd
Manufacturer or distributor Manufacturer
Main products Duvet cover
City Here
Province there
Contact person Mr.Yue
Job title Manager of Export Dept.
Email yu@qq.com
Phone number 86- xxx- xxxx
Cell phone No. 86- xxx- xxxx
Fax number 86- xxx- xxxx
Website www.dragonsourcing.com
BUSINESS INFORMATION
Found Year 1996
Ownership Private
Capital (in million RMB) 9 million
Work floor size (m²) 15,000
Number of employees 200
Revenue/Turnover 2009 (in million RMB) 30 million
% Sales exports to western markets 15 %
Main export markets Western Europe
Customer Reference n/a
COMPLIANCE WITH LOCAL LAW
Children labor YES
Health & Safety YES
Environmental issues YES
QUALITY & ENVIRONMENT CERTIFICATION
ISO 9000 YES
ISO 14000 YES
Number of washes per duvet cover life test YES
Seam strength (durability and strength) test YES
Other quality certificates BSI-OHSAS18001
% of QC people in the company 1.5%
PRODUCTION
Experience in duvet cover (year) 20
Experience in the product of fabric: 80%
Cotton, 20% Polyester
YES
Experience in the product of fabric: 60% Cotton,
40% Polyester
YES
Experience in the product of fabric: 50% Cotton,
50% Polyester
YES
Total maximum production capacity (pcs/ year) n/a

The final supplier selection relies on the short-listed suppliers’ offers, audits and
sample quality
Suppliers’ quotation
Samples
Audit summary
Supplier
summary
Supplier
capabilities
Supplier
assessment
Supplier
Name
Final
Ranking
Supplier 1 1
Supplier 2 4
Supplier 3 2
Supplier 4 5
Supplier 5 3

Agenda

The whole process resulted in significant savings opportunities for 3 of the 4
categories
23
Crockery Duvet Cover
Carpets Light Fittings
9 SKU
Potential Savings: HIGH
-35% DDP
Supplier Quality: GOOD/AV.
Good to Satisfactory suppliers
based on RFI scorecard
Knowledge:
Crockery is an easy category to
outsource directly in China
Potential Savings: LOW
-1 % DDP
Supplier Quality: GOOD
Satisfactory suppliers based on
RFI scorecard
Knowledge:
Asia are not advantage on
machine stuffed carpets.
Middle-East countries may be
more competent
Potential Savings: medium
-16% DDP
Supplier Quality: GOOD/AV.
Good suppliers based on RFI
scorecard and visit
Knowledge:
Requested fabric need longest
production lead-time
Potential Savings: High
-25%
Supplier Quality: AVERAGE
Average suppliers based on RFI
scorecard. Can only produce a
subset of SKUs.
Knowledge:
Supplier can replicate current
production

Case study-Sourcing strategy for hospitality services

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