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18/01/20082
Global Sourcing – Strategic importance
KSO sourced products generated €1.3 billion of sales for Kingfisherin 2006/7
€12.8bn total sales
KSO product sales€1.3bn
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What is Kingfisher Sourcing Organisation
An integrated network of worldwide sourcing offices in 9 locations
Principal offices• Hong Kong• Shanghai• New Delhi• Warsaw• Sao Paulo (late 2007)
Satellite offices• Shenzhen• Bangkok• Surabaya• Istanbul
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What is direct sourcing ?
Domestic Purchase
Europe Overseas
Importer Trader
Manufacturer
Manufacturer
+10% to 70%
•Importers can mark-up manufactured cost by between 10% to 70%
•Some importers add value (consolidation, stock holding, design etc)
Direct Sourced Purchase
Opcos KSO
Manufacturer
Manufacturer
•Cost savings range 10% to 70%
•Average cost savings 20% to 25% including logistics on-costs & DC charges
Europe Overseas
OpCo
KSO exists to purchase directly from manufacturers in low cost countries (LCC)to deliver innovative products at advantaged cost prices.
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KSO Senior Management Team
Anthony SutcliffeDirector of Global Sourcing
Linda ShanFinanceManager
Gavin Keane
GM - SH
Christel CostagliHead of Supply
Chain
Mark Atkinson Head of Business
Support
Luc MiroslawHead of Quality
Valery CussenotHead of
Commercial
Jean-Pierre Turlotte
GM - KSEE
Brian NewtonGM – New Markets
Louisa BenchHead of HR
Don CheungHead of Systems
John Prendergast Business Efficiency
Manager
Manoj GuptaGM - Aricia
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KSO Purchases by Opco – 2007/08
Int’l
Brico Depot
Casto Int'lOthers
B&Q
Screwfix
Casto France
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KSO Purchases by Product Category – 2007/08
ElectricalHandtools & Hardware
Heating & Cooling
Lighting
Decorative (incl. Flooring)
ShowroomLeisure
(incl. Building)
Events
Garden Power
Power Tools
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Products supplied – KSO Hong Kong
Electrical LightingAir Treatment
Showroom Decorative Leisure & events
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Why direct source?
4 Key benefits
1 Economic
2 Innovation
3 Operations
4 Vendor relationships
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1 Economic benefits of Direct sourcing
“ You can’t buy cheaper than buying directly from the factory “
Eliminate agents, middle-men, distributors and their profits
But Direct sourcing is no longer just about lower cost price & CPR
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Innovation benefits of Direct Sourcing
Exclusive access to supplier-developed designs
Combine our own designs with low cost manufacturers
Allows us to develop our own exclusive brands (OEBs)Control IP rightsControl economic modelControl supply chain
2
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3 Operational benefits of Direct sourcing
Robust ‘in-the-field’ controls
Factory working & environmental standards
Quality levels
On-time deliveries
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Did you know…..?
In 2006/7, incoming qualityacceptance rates were 99.4% for
direct sourced products delivered to B&Q,versus 98.4% for domestic purchases
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4 Vendor relationship benefits of Direct sourcing
Manufacturers prefer direct relationships with retailers
Exclusive supply agreements
Direct & exclusive access to supplier designs, technologies &innovation
Better trading terms
Deny competitors the benefits of our volumes
Market making innovation – Directly sourced
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Direct sourcing – how does it work ?
Operating model – 3 core functions
Sourcing
QualitySupplyChain
CPR CSR
Packaging
PeopleStructureProcessSystems
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How does it work? - Sourcing
Key interface with OpCo commercial teams
Create the range sourcing brief
Find the products & suppliers
Build the product range – response to brief
Negotiate the commercial terms
Manage the product development timelines
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Did you know….?
KSO supplies more than 15,000
product lines. That’s more products than
an average Brico Depot store !
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How does it work? – Quality Assurance & Control
Create the technical specification
Validate & assess the suppliers and factoriesQuality systemsEthical & Environmental standards
Test & approve products & packaging
Monitor mass production
Quality control inspections & shipment release
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Did you know….?
KSO conducts over 14,000 quality inspections a year.1st time pass rates are 95%
KSO uses around 800 factories worldwide. 100% of these factories have been assessed to the
Kingfisher Code of Conduct standard
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How does it work? – Supply Chain
Create the supply chain briefs
Confirm quantities & orders
Plan & monitor production
Implement supply chain solutions to reduce inventory & costpalletisationconsolidationstore-ready packaging
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Did you know….?
KSO has shipped 50,000 containersin the past 12 months.
Laid end-to-end, the line of containers wouldstretch for 200 miles.
That’s the distance from London to Manchester !
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Strategy - Kingfisher growth in Direct sourcing purchases
150
225
290335
487
569
702
800
0
100
200
300
400
500
600
700
800
2000/1 2001/2 2002/3 2003/4 2004/5 2005/6 2006/7 2007/8
FOB US$m
+
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But…..Opportunities not yet optimised
KSO Sourced COGS
B&Q Casto Brico SFX Total
11.8% 10.4% 4.1% 12.9% 9.2%
Group
We believe that 15%-20% of COGS can be sourced direct generating an estimated annual margin gain of €100m
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Global Sourcing – 3 clear priorities
Combine innovation andlow cost manufacturing
Own design developmentsExpand sourcing coverage1
2Drive volume through commonpurchasing
Product cataloguesPurpose built showrooms
3 Drive efficiency Improve execution & reduce costsVISION Global Sourcing system
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Combine innovation and low cost manufacturing1
OEB powertools
Design model
Kingfisher designsKingfisher specsKSO R&D engineersDirect to manufacturers Current PP range Concept design Engineering 3D design
OEB mobile air-conditioning
Design model
KSO & Kingfisher DesignsManufacturer’s R&D technical capability
Concept Design Engineering 3D Design
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Showroom & decorative
Design model
KSO designsSupplier designsVolcan ‘Style & Trends’ guidelinesPermanent & Global sourcing
B&Q LightingKSO share 25% (vs 17% 06/7)
B&Q Window DécorKSO share 36% (vs 24% 06/7)Sales uplift 51% LFL
Castorama bathroomKSO share 12%
Combine innovation and low cost manufacturing1
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Combine innovation and low cost manufacturing1
Sourcing Coverage extended to Latin America
Agent appointed
Based in Southern Brasil
Operational November 2007- decking tiles- leisure furniture- flooring- ceramic tiles- building materials
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Drive volumes through common purchasing2
We are making our Global developments more visible and accessible acrossthe Group, driving common purchasing
Showroom - Hong Kong
Showroom-Shanghai
KSO Product Catalogues
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Drive efficiency3
VISION system is providing greater visibility and control of developments