Participants
to see list of participants please  click here

Agenda
2.15 - 2.30 pm Registration
2.30 - 2.45 pm Introduction (chairman)
2.45 - 3.30 pm first presentation “lessons learned from DSM”              
                        (Mr. Jimmy Yu, Jinling DSM Resins Co., Ltd.)
3.30 - 3.45 pm coffee break
3.45 - 4.30 pm second presentation “lessons learned from BSH”
                        (Mrs. Stella Huang, Bosch and Siemens Home Appliance Group)                      

                        (to see presentation please  click here)
4.30 - 5.00 pm roundtable discussion     
                

Meeting Minutes

      I. Presentation on SUPPLIER EVALUATION IN PRACTICE (DSM)

      1. Short introduction about DSM (company presentation)

        Starting in 1902 as a state Dutch coal producing enterprise DSM (“Dutch State Mines”) has constantly been adapting to a changing environment, taking new advantages and elaborating its products and activities. Using the ammonia contained in the coke oven gas DSM started producing fertilizers. As the use of coal began to decline DSM changed its focus and started to produce chemical products (petrochemicals). Privatized in 1989 various performance materials and life science products were added to the range of products. Producing nowadays mainly biomaterials and biologics, DSM is providing products for the pharmaceutical and the food industries as well as performance materials for the automotive and transport industries and the electrics and electronics sector.
         The enterprise’s technological competences involve mechanical engineering, chemical engineering, polymer technology, material science, fine chemicals, and biotechnology. Attaching importance to a solid balance sheet and an investment effort for research and development (5% of the sales), DSM today has 22 000 employees in 200 locations worldwide.
         Jinling DSM Resins Co., Ltd. emerged as a joint venture between DSM and SINOPEC in order to provide the Asian market.

        2. Purchasing cycle and each point’s main action

       The purchasing cycle can be divided into upstream and downstream activities.
The upstream processes start with an assessment of the future needs. For the determination of the future production plan which serves to anticipate this needs a market analysis as well as the current production portfolio are taken into account. Hereupon the situation of all potential suppliers is checked.
The possibility of a relationship between firm and supplier, especially if the latter has already been furnishing commodities before, is considered and a risk assessment is carried out. The information gained by that will be used for the supplier selection. The upstream processes will eventually result in the conclusion of contracts with the chosen suppliers.
The method underlying the upstream activities is called Strategic Sourcing Methodology. It can be described as divided into three parts, starting with research activities (concerning the industrial potential and possibilities of the firm, the customers’ requirements and the availability of commodities) which provide the basis of the production strategy. The development of the latter will be followed by an implementation plan, which will then serve as the starting point for the negotiation with the suppliers. The suppliers with which the firm negotiates are chosen with the aid of the Supplier Selection Process which provides methods for both circumstances the search for a new supplier and the choice between those with which already cooperation existed.
       The downstream process starts with the accomplishment of the contract, the firm gives the order and the supplier delivers. The firm will then use the delivered goods in the production process and the payment will be carried out. The production process is followed by an evaluation. For this purpose a Supplier Performance Evaluation is carried out. The resulting information will be used for the future quality management in order to guaranty a continuous improvement of the product’s quality.

        3. New supplier approval process (supplier selection)

        The selection amongst existing suppliers is very simple whilst the search for a new supplier can cause more problems. A list of potential suppliers needs to be prepared, and information concerning each of those suppliers needs to be collected. The potential supplier needs to fill in a questionnaire which will provide basic data about its activities. Along with this self-evaluation they often have to submit additional documents, providing further information. If the results of this first request are satisfying, samples will be carried out. The sample process is in most cases followed by field visits and three more files (“Supplier Evaluation Principle”, “Supplier Evaluation Report”, “Questions to Supplier”) need to be completed. If the potential supplier has so far not been rejected, a trial order will be arranged and the final product examined. If the result is satisfying the new supplier is approved.

         4. Supplier performance report introduction (supplier evaluation)

           For the Supplier Performance Evaluation the suppliers are divided into two groups: A (ranked every year) and B (ranked every 1,5 years). The articles are also grouped. As for each of these groups the importance of those items for the firm’s value-added process as well as the supply situation varies, the contracts the firm will try to negotiate in each case also differ.
The Leverage Items are directly involved in the firm’s value-added process which means that a high profit can be gained with their use. As the supply risk for those items is low, the firm will negotiate new contracts for each planning period, i.e. the suppliers are interchangeable.
The Strategic Items are also determining for the firm’s profit but as the supply situation is quite unstable, the firm will try to cooperate with suppliers in the form of partnership in order to minimize the risk.
Non-critical Items have a low impact on the firm’s profit and in addition to that the supply situation is stable so that the firm can search for the most efficient supplier among several for each purchase.
Bottleneck-Items are little important for the firm’s prosperity, but are still required so that the supply situation should be as stable as possible.
A risk assessment is carried out for each item. In this assessment the supply situation (how many approved and potential supplier do exist?), the supply chain, the production process itself (price, quality, procedure) is evaluated (secured, acceptable, vulnerable, critical). The described process shall help the firm to identify potential risks in advance and to point out which sort of contract or relation with a potential supplier is desirable in order to avoid shortcomings. Thus a supplier performance report always concerns one supplier and a precise item, i.e. a supplier will get several evaluation reports in case that he delivers several different products to the firm (also one supplier might be considered as an A supplier for one item, and as a B supplier for other). The supplier evaluation is a scoring system evaluating the suppliers competitiveness, delivery, SHE (safety, health and environment), sales support and technical support. An A supplier must get a minimum score for each category, a B supplier at least has to reach 3,5. In order to evaluate each of those five competences with a certain score, DSM has elaborated specific questions answered either by the supplier or the evaluator. The score for each competence is drawn in a cross thus providing a sort of overview of the supplier’s performance.

        5. Questions and answers

Q: “The scoring system seems to be complicated science and it relies on quite a complex questionnaire. How do you avoid that somebody (deliberate or not) fills in the false data?”
A: “There is a system to crosscheck the answers.”

Q: “Did it ever occur that somebody filled in the wrong data on purpose (for example because he has been paid to do so by a supplier)?”
A: “We never had this type of problem, but it is right that this risk exists.”

Q: “Competitiveness is one of your criteria, but how do you actually score it?”
A: “Mainly we compare the product’s price with the common market price and take in account the product’s quality or additional advantages /uses the product provides.”

Q: “Will the feedback be given to the supplier? What are the consequences?”
A: “The report as well as the scoring will be sent to the supplier. A discussion might follow in order to give the supplier some ideas for its own improvement. Possible is also an agreement for changing (the firm will conclude more contracts with the supplier provided that improvements are carried out.”

Q: “Is there a rewarding system (Best supplier of the year/ bonus…)?”
A: “Not yet, but it is a good idea since this way data can be used for several purposes.”

          II. Presentation on SUPPLIER EVALUATION IN PRACTICE (BSH)

      1. Who we are (presentation of BSH and the IPO)

           BSH (Bosch and Siemens Home Appliance Group) emerged as a joint venture in 1967. In total there are 14 brands involved (Bosh and Siemens are only the biggest). Three of the 44 factories are located in China (Nanjing, Wuxi, Suzhou).       
          The IPO’s (International Purchasing Office) main task is to find the qualified suppliers who can fulfil the factory’s needs (purchase) and also to deliver the products to customers in the whole world (sale).

      2. BSH IPO’s working process

        The work of the BSH IPO will start with the identification of the existing suppliers and a search for information. The aim is to accumulate some general information concerning the supplier’s situation (is the supplier well-established/ well-known? Does he seem to be professional?). The main sources used are internet search engines, the yellow pages, newspapers or trade fairs. The information given by the supplier himself concerning his business will also be checked and judged.        
        The second step is a first phone call which shall give the IPO a feeling whether the supplier is worth going on or not.

        As a third step the IPO will request some more information. The potential supplier will have to provide data and documents about his core business. If he meets the economic, technical and quality constraints he will be added to the preferred database and a RFQ (request for quotation) will be issued. This specialized request will also present the BSH’s precise situation and needs.        
       All suppliers to which a RFQ has been sent will be quick scanned. During a factory visit the IPO will try to ask as many questions as possible in order to get an impression of the production situation. The factory visit will be followed by a supplier potential analysis and a supplier audit.        
       Once these measures are carried out the IPO is able to identify the suppliers which are qualified for a potential cooperation. Samples  will be carried out in order to guarantee an improvement of the product’s quality, and optimization of the production and logistic processes and a cost reduction. The IPO will always view a supplier as a long term cooperation partner and rather try to help him to improve (so that he will be able to meet the BSH needs) than just reject him.

        3. Supplier evaluation

        The supplier evaluation process can be described as divided into three parts: the quick scan, the supplier potential analysis and the audit. Before the factory visit (Quick Scan) all information the supplier has given so far will be re-evaluated (Is it likely to be correct? Is it precise? What more questions need to be asked?). During an introduction both parts (BSH and the potential supplier) will introduce and have the chance to ask each other question. Afterwards the IPO team will visit the factory in order to have a look at the production and working process. Subsequently to the visit the team will report on it, filling in a standardised questionnaire.
The team tries to ask as many questions as possible, not only to the managers, but also little and easy questions to usual workers in order to find out something about their working attitude and environment. No notes are taken during the visit as this would prevent the team from paying attention to details which might be inconspicuous but important. Subsequently to the visit a standard assessment questionnaire will be filled in by the team.        
       The Supplier Potential Analysis provides information concerning the company’s management (background, targets, operations, strategies), the quality of the working equipment (technical quality of the equipment, machines, but also the IT system), the technical potential of the supplier (capacity of production, transportation, logistics, human resources, his knowledge and his price and cost potential.
       During the Supplier Audit the hard criteria (quality, cost, technology, delivery performance) as well as the soft aspects (management commitment, supplier’s engineering capability) will be reviewed again. Possible solutions for emerging problems will be discussed.
       However there is a number of problems which typically emerge during the cooperation with Chinese suppliers.

       4. Backup for supplier development

        BSH views suppliers as cooperation partners and therefore wants to give the supplier the chance to improve. If he fails to meet the demands of a certain department, the IPO will encourage him to improve or to apply to supply another division of the enterprise.
        In addition to that during the audit one has to be sure that the questions one asks are really understood by the supplier in the right way so that he has the chance to give the according answers, the supplier must be convinced of the need and the chance to improve and the IPO should encourage him regularly to do so.

      5. Questions and answers

Q: “Are there other IPO offices?”
A: “One in Russia and one in Eastern Europe. Instead of establishing an IPO one could also engage an external firm specialised on supplier evaluation. This solution above all seems to be adequate for small enterprises

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