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Purchasing, procurement, supply management

Dr. William Ho

By utilizing all the knowledge learnt from the class, we will show you a standard for Louis Vuittons supplier choosing process in this paper.

Mingfeng SHAO, Shengqiang WU, SAMSON PACKIARAJ, S.HARI HARA MADAN.

CATALOGUE SECTION 1- INTTODUCTION -----------------------------------------3 Company background Business case SECTION 2- PROPOSED FRAMEWORK----------------------------Internal customer Customers requirement Evaluation criteria SECTION 3- INTEGRATED QFD-AHP Rank of ICs QFD1-Ranking of CRs QFD2-Ranking of ECs QFD3-Ranking of Supplyers SECTION 4- RESULT ANALYSIS SECTION 5- RECOMMENDATION/FUTURE WORK Recommendations Potential benefits and drawback of methodology

SECTION 6- Source & Appendices Information resource Group work schedule

SECTION 1 INTRODUCTION

For the analysis of purchasing, procurement and supply management, we selected Louis vuitton which is one of Well-known Luxury Company as our object. Louis Vuitton was founded in 1854, now part of French luxury goods specifically produced high-level group of Moet Hennessy Louis Vuitton.

Company background

Business case For this academic report, we focus on the purchasing of Louis Vuittons packaging, and our main objective is to find the most suitable suppliers.

With the development of economic, peoples demand of luxury product was increased. Especially when Louis Vuitton found the increasingly consumption demands of many emerging countries (such as China). Louis vuitton has to elaborate their requirement to suppliers.

Louis Vuitton is the most succeed and mature Luxury Company, Louis Vuittons product should satisfied customers need of: luxury, exclusive, innovative, fashion, high quality. Obviously the packaging of Louis Vuittons product should match all requirements of Louis Vuittons needs. It needs a certain load-bearing capacity (according to its size and specifications), waterproofing, delicate, can be recycled and so on.

SECTION 2- PROPOSED FRAMEWORK

Methodology:

In order to select out the best suppliers for the company of Louis Vuitton, we will apply the following methods to do the research and analyses:

(1) First step, we will identify the internal customers in the company of Louis

Vuitton. (2) Then we develop the customers requirements and classify them according to each internal customer we identified. (3) Finally, we will make evaluating criteria depending on all customers requirements.

Step 1: Internal Customers (IC)

Purchasing department Purchasing department is to search the different potential suppliers for the company, including raw material supplier, accessory supplier, packaging supplier and so on. Purchasing department need to choose the most suitable suppliers based on the companys need, situation and background. In addition, to keep a good relationship with suppliers and to negotiate with them when necessary is also the mission of purchasing department.

R&D department R&D department is responsible for the devisal of new application with the stock of knowledge. In the case of Louis Vuitton, they focus more on updating, innovating the design of the hand bag and packaging. So suppliers should have a sensitive sens of fashion and innovation in order to offer the company satisfied packing material in different period which can well integrate the products.

Marketing department Marketing department is in charge of identifying the demand and preference of customer in different markets according to the study of each market. It communicates the analysis result and collected consumer information to different departments in order to well choose the supplier and well adjust the final product or final launching

plan before the release of product or the project implementation.

Financial department Financial department manages the analysis of the offers(especially the price) from different suppliers and the supervision on the budget of each department including the purchasing department.

Logistic department Logistic department takes charge of the transportation and inventory of raw material and goods.

Step 2: Customers requirement (CR)

Innovation The packaging of Louis Vuitton should match with its products, the sense of luxury and elegance, so the innovative design and the varied material for packaging is needed. Especially, for a company of luxury good, the packaging is not just a container, it is more like a secondary advertisement towards the customers to leave them a great impression of the product to publicize the designing concept of our brand.

Quality Quality is the considerable factor to ensure the continuous improvement of TQM. Although a strict selection of supplier will increase prevention cost, it helps to guarantee the quality, get better satisfaction, decrease the total quality cost as well.

Price In order to avoid meeting the limit of budget, we take price as a requiring factor into consideration. We integrate both price and quality to compare the cost-performance of potential suppliers.

Reliability of supplier Reliability of supplier is a benchmark helping us to determine which suppliers deserve our trust and to what extent we can rely on them. Meanwhile, to keep a long-term good relationship with reliable suppliers can get us many priorities, like lower price, free stock, reduction of transporting fee , better capacity of contract fulfillment, more reliable early supplier involvement and so on. For the hand bag packaging, as we choose Make to stock mode to handle our purchasing process, we need reliable suppliers.

Delivery Delivery means the suppliers logistic system, we need our suppliers distribute on time and delivered with accurate number. Whats more, the reverse logistics system also plays a necessary role for the before and after procurement.

CSR CSR means the Corporate Social Responsibility. For the good image and long-term development of our company, we demand our suppliers to pursuit CSR as well.

Financial status As Louis Vuitton is one of the worlds biggest company, so we need suppliers with great financial capability, which have the ability to accept big amount order and can satisfy our large demand.

Brand image Suppliers brand image is also for the good image and long-term development of our company.

Flexibility Since Louis Vuitton is a really big company for luxury goods, the range of its

production scale is changeable; it varies from 500 to 5,000,000 (for example the limited edition design). Similarly, the demand of packaging changes too. So the suppliers of Louis Vuitton should have the flexibility for both fabrication and storage to cater with its different demands.

Standards & regulations In order to avoid risks, dispute and certain big issues, Our suppliers should obey relevant industry standard and follow the regulation made by our company which concerns patent, design, intellectual property.

Step 3: Evaluating criteria (EC)

Investment on R&D Investment on R&D is a standard to measure the suppliers capability for innovation, it includes the research funds for new packaging material, new design and the relationship with relevant design and technical institution.

Capability test Capability test is the best way to know whether the quality of packaging can meet our demands or not. Our company will focus on middle and high class level customer, the material can influence the brand image. So, we pay attention to all aspects of packaging capability.

Percentage of defects (6 sigma status) Percentage of defects indicates the proportion of defect products; we can use this to evaluate the general quality of the packaging. In this case, we ask the suppliers to control its defect number under 3.4 per million products in its producing process.

Unit price, pricing terms, exchange rates These three factors can help us identify the final cost of the hand bag packaging. We

can rank different suppliers unit price to compare their price advantage. We can consider suppliers discount and reduction policies in pricing term and we should think of exchange rates effect when we choose foreign suppliers.

Financial stability We should monitor suppliers financial stability in order to identify whether this supplier is in healthy financial condition. A supplier with stable financial situation can avoid many inconveniences and risks in production, transportation and negotiation

Problem solving process It shows the suppliers capacity and efficiency when facing emergencies, we demand our suppliers to have standard process to actualize a quick answer and solutions in urgent cases.

Production capacity Production capacity shows suppliers general ability of production, it is a standard to decide whether a supplier can meet our demands of production in terms of quantity. We consider that a supplier with strong production capacity is more reliable than others, especially when we need a large amount of packaging in a limited time.

Reputation The reason why we choose reputation as a criteria is that reputation can reflect a suppliers reliability and quality in some extent. A supplier with good reputation is more competitive and will be more suitable for a long-term cooperation and long-term development.

Capacity of contract fulfillment According to suppliers cooperation performance record with other companies we can evaluate our suppliers capacity of contract fulfillment.

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Delivery lead time Delivery lead time is an important criteria to check out a suppliers service quality. Because a distribution delay for packaging may cause problem for product launching and transportation.

Reverse Logistics In this case, reverse logistics just concerns defects or wrong goods backward transportation, it is also a measurement to evaluate a suppliers logistic capacity.

Track & Trace It means tracing,recording and monitoring a good from its origin to destination (customer). Its an effective way to identify a suppliers defect rate and quality of product.

Environmental, ethical performance Environmental, ethical performance is to identify suppliersbrand image and reputation; it is criteria to choose suppliers for a companys long-term development.

ISO/IEC 17025 ISO/IEC 17025 is an international standard for products packaging aiming to the development of a Quality management system that provides for continual improvement, emphasizing defect prevention and the reduction of variation and waste in the supply chain.

SECTION 3- INTEGRATED QFD-AHP

Methodology Our main approach of both Quality Function deployment and Analytic Hierarchy process in order to identify the most criteria for the suppliers selection and to finally choose the best supplier from the list. Three QFDs will be developed :1. The first one will achieve the rank for customers requirements.

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2. Next we will get rank for evaluating criteria. 3. The third step is that will gain a rank for potential suppliers. Step 1:We rank Internal customers importance

Step 2 : We identify all the related CRs of each and every department, and then give a ranking of these CRs impact on each and every department. For example :purchasing department shown below. Quality Reliabilty Of suppliers 0.550 0.596 0.183 0.110 0.199 0.040 Pric e 0.42 9 0.42 9 0.08 Delive ry 0.519 0.148 0.222 S&R 0.43 8 0.18 8 0.18 Priority 0.506 0.229 0.129 Weighted Sum 5.513 5.980 5.302

Quality Reliabilty Of suppliers Price

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Delivery S&R

0.079 0.079

0.099 0.066

6 0.02 9 0.02 9

0.074 0.037

8 0.12 5 0.06 3

0.081 0.055

5.195 5.219

Step 3:We do a relationship matrix which relates each IC and each CR. Ranking of CRs impact.

Max 5.442

CR0.082

HOQ 2
Priorty

Internal Customer Requirements

Innovation Price Quality Flexibility Reliability Of Suppliers Delivery S&R CSR 0.039 0.005 4 8th

Internal Customers

Purchasing R&D Marketing Financial Logistics

0.470 0.235 0.139 0.105 0.051

Importance Rating of Internal Customers Requirements Ranking

0.50 6 0.29 5 0.41 5 0.12 0 0.04 8 0.37 9

0.05 5 0.05 6

0.22 9 0.53 9 0.09 8 0.27 2 0.30 9 0.15 0.11 0 0.17 9

0.12 9 0.26 8 0.60 8 0.16 2

0.08 1

0.14 1 0.04 6

0.14

0.05

0.50 3 0.06 4

1st

7th

4th

3rd

6th

2nd

5th

QFD 2: Step 1 :- We have already got the ranking of CRs impact on the basis of QFD 1. Step 2 :- Acc to each and every Customer requirements, we identify all the related ECs of this CR and ranking these Ecs impact on this CR . We take quality as an example here.

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Percenta ge of defects

ISO/IEC 17025

Capability test

Reputati on

Percentage of defects ISO/IEC 17025 Capability test Reputation Unit price, pricing terms, exchange rates Investment on R&D Amax 6.54

0.422 0.211 0.106 0.141 0.060 0.060

0.499 0.249 0.083 0.083 0.036 0.050

0.454 0.341 0.114 0.038 0.038 0.016

0.288 0.288 0.288 0.096 0.019 0.019

Unit price, pricing terms, exchang e rates 0.300 0.300 0.129 0.214 0.043 0.014

Investm ent on R&D

Priorit y

Weight ed Sum

0.250 0.179 0.250 0.179 0.107 0.036

0.369 0.261 0.162 0.125 0.050 0.033

6.761 6.772 6.772 6.429 6.360 6.144 6.540

CI 0.108

CR 0.087

Step 3:- We do a relationship matrix I.e the relationship of each CR and each EC which generates the output of QFD 2 Ranking of ECs importance.
HOQ 3
defectsPercentage of Capability test ISO/IEC 17025 Reputation Unit price, pricing terms, exchange rates Criteria Priorit y

Ranking of evaluating criterias

Capacity of contract fullifillment Problem Solving process 0.095 0.750 0.09 6 0.464 0.152 0.750 0.230 0.250 0.215 0.250 0.043 0.011 15th Investment on R&D Production capability Lead Time 0.66 5 0.04 3 10t h Financial Stability 0.080 6th

Quality S&R Innovatio n Reliabilty of Suppliers Flexibility Price Delivery CSR

0.379 0.046 0.140 0.150 0.050 0.162 0.064 0.005

0.36 9 0.28 2

0.26 1 0.44 2

0.16 2 0.14 4

0.12 5

0.050

0.033

0.06 5

0.415

0.060

Importance rating of evaluating criteria Ranking

0.15 3 1st

0.11 9 3rd

0.06 8 9th

0.07 2 7th 5th

0.086

0.127 2nd

0.070 8th

0.098 4th

QFD3
Step 1

RANKING OF SUPPLIERS
4 Potential packaging suppliers

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In this step, we use online sources, supplier catalogs and trade directories to find out 4 potential suppliers.

Pormus Printing Co.,Ltd

Pormus Group, established in 1993, No. of employees: 100+, Pormus is an integrated global positioning commercial printing, packaging and supply chain solution center, which is all its clients creative design creative creative organization. Specialize in printing and paper-related products, such as hardcover, paperback books, catalogs, directories, DM, hand bags and all paper products.

Offer marketing Communications Direct Mailing Fax./SMS/Email broadcast Database

Management Call Center Translation Design and Advertising Publishing Children Books Comics CD-ROM, CD, DVD Books Distribution Print Solutions PRIMEDIA Services Books Printing All kinds of Paper Printing Packaging Fulfillment, Delivery & Distribution Kitting & Assembly Fulfillment Print Distribution Mailing Service , provide one-stop

from idea to finished product and after-sales service.

Leading global paper sack supplier Segezha Packaging provides integrated paper sack and filling solutions to five key sectors: Building materials, Human food, Chemicals & minerals, Agri-products and Waste & Recycling.

Operate thirteen manufacturing plants in Europe and Russia producing in excess of 1.2bn sacks per year. In each of our markets, have a strong local commitment based on sales and service offices in 24 countries. Total of 1,500 employees working in factories and sales offices in 24 countries.

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International Paper Company (IP)

A global leader in paper and packaging products, International Paper can partner with company to create solutions in any industry, anywhere they are needed. In operations with more than 40 countries, sells its products in more than 120 countries.

International Paper, founded in 1898, is currently the world's largest paper and forest products company, is the nation's only four listed companies has a long history of one of its global headquarters in Memphis, Tennessee, USA. International Paper Asian headquarters in Hong Kong was established in 1990, and in China, Japan, Korea, Thailand, Singapore, India has a production and sales base. It is reported that International Paper in 2004 global sales of $ 26 billion in sales in the Asia Pacific region of which approximately $ 2.5 billion. "America's favorite company" was again named "Fortune" magazine as forest and paper products industry first. Meanwhile, the company in the country more than 300 "corporate social responsibility" of the survey in the former 8-bit high score.

AMB group
AMB group is committed to providing customers total packaging needs.
Supported by a strong and experienced team of packaging professional. Understand customers' requirements, provide high quality services and technical supports, and partner with customer every step of the way to maximize customer return.

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AMB understand the importance of their customers' satisfaction to their products. Therefore, provide professional advice on tailor-made products design from our elite technical support team, precise production and quality controls, well-planned delivery and after sales services to achieve maximum customers' satisfaction.

Good relationship and long-term cooperate with customer like: ROBUST, IBM,
PHILIPS, Coca-cola, HP etc. Step 3:Acc to top 10 Ecs, we evaluate every suppliers performance on each EC, then we get a relationship matrix that generates the output .

HOQ 3 Evaluating Supplier

Evaluating Criteria Percentage of defects Investment on R&D ISO/EC17025 Production capability Unit price,Pricing terms, Exchange terms Financial stability Reputation Capacity of contract fulfillment Importance 8 7 6 5 4 3 2 1 103 3 rd 155 1 st 82 4 th 131 2 nd 3 1 Promp us 3 Internation al paper AMB group 3 1 3 3 3 Segez ha

3 3

3 3

3 3 3

1 1

SECTION 4- RESULT ANALYSIS

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In this section, we have reviewed our internal customer and evaluation criteria to evaluate the performance of suppliers. We have selected 8main requirements in this analysis as quality, price, reliability, innovation, delivery, flexibility, standards& regulation and CSR. First of all, as the result of HOQ1, quality reaches the most important share (###). Concerning all the aspects about quality control, this requirement defines the standard of product. Secondly, price is in the second place. This requirement gives company a measurable parameter to compare the cost and value of suppliers. Thirdly, reliability is in the third place, its cover many part as: the capacity of production, reliability on contract fulfillment etc. This requirement decided whether the company could or not cooperates with suppliers for long-term. Fourthly, innovation is the part that could measure the competitiveness and durability of a company. Fifthly, delivery is relying on the support of logistic department and purchasing department. It has 3 evaluating criteria. Sixthly, flexibility is in sixth place, it mainly determines the range of order the suppliers could accept. This is important for the company who need a specific order. Finally, standards& regulation and CSR are ranked in the last two places. The S&R focus on the formalizing of management and the production process. The CSR is about the image of a company. Based on these 8 requirements, we select 15 evaluating criteria, than we choose 8 most important criteria, we have done the QFD2 to get the relationship between CRs and ECs. Finally, the top 8 ECs have been well decided: 1 2..3..4.5..67..8..

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After carefully selection, calculation and analysis in section 2 and 3, we finally chose the best 2 packaging suppliers. The result as following: 1st International paper 2nd SEGEZHA packaging. According the HOQ3 which involves the top 8 evaluating criteria for choosing suppliers, International paper is in domination. 2nd place SEGEZHA packaging

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SECTION 5 RECOMMENDATION/ FUTURE WORK

Recommendation for Louis Vuitton:

We suggested Louis Vuitton choose two suppliers which is cooperate with International paper and Segezha packaging. The main supplier is International paper which can provide 70% orders, and second supplier could supply 30% orders.

International paper (IP) is a mature packaging company which has a great experience for offer customers all needs of packaging and ancillary services; furthermore this company has a good reputation and gets a great customer evaluation. We recommended Louis Vuitton regards IP as first suppliers.

In order to avoid risks, and better competition we suggested that Louis Vuitton can keep a long-term cooperation with International paper (IP) and also their second supplier Segezha packaging company which can satisfied customer good quality products and elastic demands.

Potential benefits and drawback of methodology: Benefits: this framework combines different requirements of each department within the company and also considerate the internal and external customers requirements. It can rationalize the process of purchasing for the whole company. Compare all the factors to other ones by several times, its make the result more reliable and accurate.

The tightly logical and connection of each steps in this methodology, especially the 3 QFDs analysis.

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Drawbacks: this methodology approach perfect, but it was too subjective, if add site visit evaluation and actual contact supplier part could be better.

SECTION 6 SOURCE & APPENDICES

Information resource:
http://www.ambgroup.net/edgjs.htm http://www.bisenet.com/wiki/?doc-view-814 http://en.wikipedia.org/wiki/ISO_9001 http://en.wikipedia.org/wiki/ISO_9000 http://en.wikipedia.org/wiki/ISO/IEC_17025 http://www.google.com/ www.baidu.com http://www.internationalpaper.com/US/EN/index.html http://www.segezha-packaging.com/Newsinfo.88.aspx http://www.tradekey.com/profile_view/uid/147701/Pormus-printing-Co-Ltd.htm

Group work schedule: Type of meeting Team 8 Sub-group work Team 8 Sub-group work Team 8 Sub-group work Team 8 Team 8 Team 8 Team 8 Team 8 Dates Monday 12th sept Monday 12th sept Tuesday 13th sept Wednesday 14th sept Saturday 17th sept Monday 19th sept Wednesday 21st sept Friday 23rd sept Saturday 24th sept Sunday 25th sept Sunday 25th sept Length 30 minutes 2h 1h 2h 3h 2h 2h 6h 10h 3h 3h Object Choosing company Research information Assign tasks Analysis case Analysis case Review Write report Write report Write report Finish report Make PPT

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