Raw Material Procurement Process 672h39

Preliminary & Tentative – for discussion purposes only

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RAW MATERIAL PROCUREMENT PROCESS Policy/Guiding principles

1. Vendors should be identified at the sample development stage itself

2. A cross functional team should guide product selection. (this could be a policy for design department also…) 3. Reliance on any one vendor especially for large and/ or recurring orders should be avoided. For recurring orders, at least three reliable sources and for other orders at least two sources should be developed. 4. Financial targets should be based on prices that competitors (especially vertically integrated mills) are able to manufacture/ source at. 5. Firm orders should be placed only after confirmation of sample by the buyer. 6. Service level agreements should be entered with vendors especially for large and/ or recurring orders. 7. Innovative schemes to reduce procurement cost should be identified and implemented. E.g. financing the supplier by leveraging the company’s availability to raise low cost finance, utilising supplier expertise in product development. 8. Order approval procedure should be based on the value of order (to ensure management by exception).

9. A time action plan for monitoring timely receipt of material of required quality should be prepared and automated . 10. Purchase order cycle times for smaller orders should be kept to a minimum.

11. Process Objectives

To ensure, raw material availability 12. of required quality, 13. in a timely manner 14. at competitive prices for sample development and order fulfilment (both make to order and direct sales model).

CSF’s

KPI’s Linked to CSF’s

A. Co ordination with Sales, design and / or buyer representatives for clear understanding of raw material requirements in of quality, time plan

Process [A to D] 15. Streamlining of procurement process i.e. elimination of non value added activities Financial 16. Targeted Vs. Actual Cost reduction [C]

Preliminary & Tentative – for discussion purposes only

and pricing limits. B. Raw material order monitoring and control C. Vendor management process D. Elimination of non – value added activities from vendor interaction process.

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17. Quantum of procurement from intermediaries vis a vis direct sourcing 18. Instances of delays in sourcing vis a vis timelines committed in contract review [B, D]. 19. Instances of not updating factory and logistics of changes in RM delivery schedule [B}. 20. No. of instances of return of fabric to suppliers [B] 21. Non moving inventory (attributable to procurement problems) [A,B] 22. Rejections/ Wastage on of fabric defects [A,B, C, D] 23. Stock outs [A,B, C, D] 24. Loss of production time/ overtime (attributable to procurement problems) [A,B, C, D]

E. Back up plan for delays in procurement

Customer 25. Potential orders lost on of high raw material prices (to be ascertained based on customer and benchmarking of conversion cost with market rates) [A] 26. Delay in shipments and instances of air-freight (attributable to procurement problems) [A, B, D] 27. Delays and other problems in sample development (attributable to procurement problems) [A,C]

Risks Which Threaten Objectives

Management Responses Linked to Risks

F. Mismatch between buyers requirements and ordered RM specifications.

H. Sourcing at higher prices

Policy/ Process 28. Sourcing policy/ guidelines (e.g. SLAs with suppliers, information exchange programmes) [A, B, C, D, E] 29. Detailed Product specification sheet [A] 30. Contract review mechanism [A] 31. Sample approval by buyers [A] 32. Alternate vendors for each significant order [B] 33. Vendor management process (market intelligence studies etc,) [A, B, C, D] 34. Strong internal control system and internal audits (e.g. job rotation) [C,F]

I. Error of judgement on price forecasts

People 35. A dedicated sourcing team [A, B, C, D, E].

J. Quality problems

Technology

G. Delays in procurement on of unforeseen problems at vendor’s end.

(by managing structure,

policy/ process, people and technology front)

Preliminary & Tentative – for discussion purposes only

K. Excessive centralisation of power/ control in sourcing department

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36. Automation of contract review mechanism [A} 37. Automated time action charts and other exception reports {B,C] 38. Validation and other systemic controls [A, B}