HO CHI MINH UNIVERSITY OF TECHNOLOGY

OFFICE FOR INTERNATIONAL STUDY PROGRAM

FACULTY OF MECHANICAL ENGINEERING

DEPARTMENT OF INDUSTRIAL SYSTEM ENGINEERING



TERM PROJECT

PROCUREMENT MANAGEMENT

KHANH GIA COMPANY PROCUREMENT ANALYSIS

Instructor: Assc. PhD. Phan Thị Mai Hà

TEAM 01 – CC01

Team members Student’s ID

Lê Hoàng Phúc An 2152367
Trần Quang Khải 2153450
Nguyễn Hữu Thịnh 2152297

HO CHI MINH CITY – 2023

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ACKNOWLEDGEMENT

Logistics and Supply Chain Management majors would be well-served to take a

course in Procurement Management. Procurement Management is a relevant and
applicable field of study because it enlightens us about the inner workings of operations
and purchasing, as well as the connection between procurement and other departments,
and enhances our ability to spot issues that arise in this area. By analyzing the data in
this way, we can identify the issues and implement solutions that will make businesses'
purchasing procedures more economical and efficient.

Ho Chi Minh University of Technology has provided us with a wonderful

opportunity to learn about and explore this fascinating field. In particular, Ms. Phan Thi
Mai Ha, who instructs us in person on the topic of Procurement Management, provides
us with all the resources we need to successfully complete the report. Additionally, we
appreciate the help from everyone at Khanh Gia Company Limited's headquarters.

We recognize that the report will inevitably lead to some confusion, but we
welcome feedback from instructors and peers. This will allow everyone to gain a more
in-depth understanding of the topic for their own benefit.

Ho Chi Minh, April 2023

Sincerely
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PREFACE

There is a strong correlation between the purchasing process and the efficiency of
the business as a whole. In light of this, we have decided to evaluate the purchasing
procedures at Khanh Gia Company Limited, identify any issues that need fixing, and
offer suggestions for how to boost the company's bottom line through strategic
purchasing process.

Khanh Gia Company Limited has been a supplier of materials, equipment, and
technical services to the oil and gas industry (including onshore/offshore), marine, and
power plant industries, etc. With more than two decades of experience and competitive
abilities such as high quality, reasonable price, and on-time delivery, Khanh Gia Co.,
Ltd. has amassed a wealth of knowledge and established a solid reputation and brand
name among its domestic and international clients and business associates.

In this report, we just focus on 3 main products that KGC offers. The first one is
the anchor chain, mainly about how KGC purchases steel from steel suppliers to produce
chains and outsourcing strategy when they need anchors from foreign suppliers to meet
customer demand. The second one is diving equipment. We will describe how KGC
purchases with a global sourcing strategy as a trading company. Similarity with diving
equipment is floating & submarine hose.

We have identified a number of issues that need to be addressed as we begin to

analyze the background of the company to understand how it works. Next, we will
concentrate on KGC’s purchasing decisions & business strategy, legal aspects when
purchasing. In addition, we evaluate material management by using IBM/SPSS
Statistics 2020 to identify the needs. We also use POM/QM to handle inventory
management. We then evaluate how Khanh Gia can select suppliers and how they can
evaluate the suppliers’ performance. Finally, we will analyze 2 most essential strategies
that KGC currently uses. These are strategic outsourcing and global sourcing strategy.

At last, we propose answers to these issues' disadvantages and limitations.

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TABLE OF CONTENTS

TABLE OF FIGURES ..................................................................................................1

TABLE OF TABLES ....................................................................................................2

CHAPTER 1: INTRODUCTION ................................................................................3

1.1. The aim of the report ......................................................................................3

1.2. About the contents...........................................................................................3

1.3. Data collection method ...................................................................................4

CHAPTER 2: PROCUREMENT ANALYSIS FOR KHANH GIA COMPANY ...5

2.1. General view ....................................................................................................5

2.2. Purchasing Decisions & Business Strategy ...................................................9

2.3. Legal Aspects of Purchasing ........................................................................14

2.4. Material Management ..................................................................................18

2.5. Inventory Management .................................................................................26

2.6. Purchasing Procedures and Systems Contracting ......................................31

2.7. Supplier Selection and Evaluation ...............................................................34

2.8. Strategic Outsourcing ...................................................................................42

2.9. Global Sourcing ............................................................................................48

CHAPTER 3: RECOMMENDATIONS & CONCLUSION ...................................51

3.1. Obstacles with the Procurement Analysis ....................................................51

3.2. Suggestion for Improvement ........................................................................51

3.3. Conclusion.....................................................................................................52

REFERENCES ............................................................................................................53
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TABLE OF FIGURES

Figure 1. Some of services that KGC supplies ................................................................6

Figure 2. Some of services that KGC supplies ................................................................7

Figure 3. Some of services that KGC supplies ................................................................7

Figure 4. KGC’s company motif .....................................................................................8

Figure 5. KGC's purchasing strategy .............................................................................10

Figure 6. Electronic contract of KGC............................................................................17

Figure 7. Length in anchor chain that KGC sold in 2021 & 2022 ................................23

Figure 8. Inputting the data into software .....................................................................24

Figure 9. Inputting the data into software .....................................................................24

Figure 10. Result of forecasting anchor chain demand of customer .............................25

Figure 11. Service level of 3 leading products that KGC offers ...................................26

Figure 12. Summary of Company Products Statistics ...................................................28

Figure 13. Model in POM/QM for reorder point/safety stock ......................................29

Figure 14. Inputting the data into the software.............................................................30

Figure 15. Result of safety stock/reorder point of type 1 ..............................................30

Figure 16. Result of safety stock/reorder point of type 2 ..............................................30

Figure 17. Result of safety stock/reorder point of type 3 ..............................................30

Figure 18. KGC’s purchase order lifecycle ...................................................................32

Figure 19. Purchasing procedure in our study ...............................................................34

Figure 20. The selecting suppliers process of KGC ......................................................35

Figure 21. The hidden cost of KGC’s Outsourcing strategy .........................................45

Figure 22. Element when Outsourcing of KGC ............................................................47

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TABLE OF TABLES

Table 1. Overview of Khanh Gia Company (KGC) ........................................................5

Table 2. Materials Demand Determination ...................................................................18

Table 3. ABC analysis of anchor chains’ types .............................................................27

Table 4. Scoring rubric for suppliers’ selection of KGC ..............................................36

Table 5. KGC’s supplier introduction ...........................................................................37

Table 6. Scoring performance when evaluating suppliers in trial run...........................40

Table 7. Determination of suppliers’ categories from KGC .........................................41

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CHAPTER 1: INTRODUCTION

1.1. The aim of the report

After finishing the Procurement Management course, we have a strong foundation

about the procurement process in all businesses. Procurement process is an important
part of every business which plays an important role in other businesses' activities. A
business may face bankruptcy if the cost for producing products is higher than the profit
that company gains, and purchasing area can help the business to minimize the cost of
materials, machines and other things. Also, the reduced cost from the purchasing
activities will go directly to the company’s profit after all, so that purchasing strategy is
the backbone of the whole company.

All important parts of the purchasing process will be presented in this course from
purchasing decision & business strategy, material management, inventory management,
purchasing procedures, supplier selection & evaluation to strategic outsourcing, global
sourcing. In order to consolidate our knowledge about this course, we chose a real-world
firm and applied our learned knowledge to know how the company operates. In this
report we used the numbers from the research, purchasing process and analysis data
collection of the company called Khanh Gia Company. Based on this information, we
can indicate the advantages and disadvantages of this company’s purchasing process as
well as find out the better strategy in order to improve the company’s system.

1.2. About the contents

In this report, we used the number that we got when we analyzed Khanh Gia
Company’s operation and purchasing process. They purchase and sell machines,
equipment and other technical parts.

Beside the Heading, Preface, Table of Contents, Conclusion and References, the
report also include 3 more chapters:

Chapter 1: Introduction

Chapter 2: Procurement Analysis of Khanh Gia Company

Chapter 3: Our team’s recommendations for company and conclusion.

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1.3. Data collection method

By using Interview method and actual data directly from the company:

- Ask for information and interview directly with directors and employees of
Khanh Gia company about legal documents, forms of purchase, ordering and receiving
method, payment method, business strategy, etc. After observing how they respond to
issues in real-life situations, we may draw conclusions about both the things the
company does well to advance its operations and certain areas we strongly believe need
improvement if they aim to advance further in the future.

- To accurately depict Khanh Gia company buying and selling operation, data is
obtained straight from monthly/yearly financial statements or reports.

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CHAPTER 2: PROCUREMENT ANALYSIS FOR KHANH GIA COMPANY

2.1. General view

Table 1. Overview of Khanh Gia Company (KGC)

Aspects Information

Business Công Ty TNHH Khánh Gia

Establishment (Founded in 2004 Khanh Gia Co.,Ltd (KGC))

Director Mr. Luong Van Chi

Tax code 3500655296

Contact number (+84) 254 3593668

Location 40D7 Phan Ke Binh, Ward 9, Vung Tau City, Vietnam

Main Business Supplying materials and equipment to serve the Oil and Gas
Industry

Business time Monday – Friday (from 7h30 to 17h)

Product categories Diving equipment (main product)

Wire Rope & Lifting Products (Floating & Submarine hose)

(main product)

Marine – Offshore (Anchor chain) (main product)

Slickline – Wireline Tools

Survey

Underwater Pan & Tilts

Service Onshore and offshore included designed, installation Testing

& Commissioning the Electrical System

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Provision of overhaul maintenance service activities for

engines/Pumps/Valves/Compressors…

Installation of industrial electrical cabinets, installation of

security cameras, maintenance and repair services of
equipment,... on marine works.

Khanh Gia company does not produce a complete product by itself, they sell a
complete product based on what they have received from their suppliers. (as a
manufacturing company). In addition, Khanh Gia company also imports goods and then
resells them to end-customers. (as a trading company)

Figure 1. Some of services that KGC supplies

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Figure 2. Some of services that KGC supplies

Figure 3. Some of services that KGC supplies

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The company organize its operation based on real-life company motif:

Director

Vice Director

Human Resource Accounting & Commerce &

Purchasing Service Logistics Department
Department
Department Department

Figure 4. KGC’s company motif

By looking at that, we can clearly see that the Director will be the one who is
responsible for the operation of the company, the legal and the strategic problems. On
the other side, the Vice Director is the one who solves problems that arise. The main
function of the Human Resource department is to advise and support the Board of
Directors in all matters related to the organization and management of personnel,
administrative management, as well as legal issues, media activities and public relations.
Moreover, the Accounting Department missions are to Complete financial and
accounting related tasks according to State regulations; complete, accurate and timely
accounting of capital and debt; accounting for revenues and expenditures and business
performance according to company policies; prepare financial and business plans by
month, quarter and year; give comments to the Board of Directors on the direction,
inspection, management and supervision of the observance of the internal financial
regimes of the company and the State. The Purchasing Department, on the other hand,
is the one who is responsible for purchasing decisions, strategy and purchasing
procedures of the company. Nevertheless, the main job of the commerce & service
department is to undertake all the work related to administrative processes and
procedures; manage and supervise the work of employees in the company; and provide
legal advice to the Board of Directors when needed. Finally, the Logistics Department
is responsible for overseeing the movement of goods, from transportation, distribution
to storage. They are responsible for planning, analyzing budgets, handling and solving
problems with goods, transportation, and warehousing.

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Recruitment policy: according to the needs of each period of the company.

Salary policy: according to revenue.

Mottos of KGC to communicate with customers

The motto is used to address the difficulties of managing the supply chain and
meeting consumer demands. Khanh Gia often use different mottos to communicate their
value proposition to customers.

1. Speed: This is one of the strengths of Khanh Gia company when it is

compared to the competitors. Khanh Gia ensures prompt and rapid delivery due to their
motto “Fast delivery guaranteed”.

2. Reliability: It is also important to the company. Khanh Gia uses the motto
“Dependable service you can trust” to communicate their commitment to delivering
high quality products and services consistently. Therefore, customers will continue to
rely on and purchase them.

3. Cost tradeoff: Khanh Gia optimize costs to reduce product and service
prices in order to attract consumers. The company makes a commitment to providing
customers with the best value for their money.

2.2. Purchasing Decisions & Business Strategy

2.2.1. Reality method

 Purchasing Decisions:

KGC works as a trading company as well as manufacturing company, which

means that not only they supply finished goods to the end-customer, but they also
produce based on component parts they receive from the supplier. On the other hand,
they do not provide their products to other retailers, they just produce to end-customers.

Working as a trading company, KGC supplies materials for the end-user by

competitive bid, which means that they have to compete with other companies to have
an official bid with customers. This leads to a result that depending on the demand of
customers at different periods, KGC will import goods with the right quantity, right

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product, right customer at the right time, in the right place and condition and especially
at the right cost.

Working as a manufacturing company, KGC produces anchor chains after

purchasing steel from the supplier. In this way, KGC needs to determine how much steel
they have to offer each month by forecasting.

 Strategic Purchasing:

Khanh Gia is an enterprise that imports high-quality marine and offshore

equipment and produces anchor chains to sell to domestic enterprises. With a
challenging and competitive market, Khanh Gia has an effective procurement strategy
to ensure supply and optimize the purchasing process, while creating value for
customers.

The steps listed below will be used to implement KGC's purchasing process:

Figure 5. KGC's purchasing process

1) First is to identify the need: KGC focuses on producing anchor chains so
that the purchasing team will purchase steel based on the criteria from the company:
quantity, quality of steel and also they will prioritize purchasing steel that customers
order frequently. With other products, the purchasing team will be based on the
customers’ demand for example technical requirements, quality, price, etc.
2) Second is supplier selection. KGC will gather information of the supplier's
product quality, warranty policy, and after-sales services through a variety of ways such
as social media, report of purchasing, review from their customers, etc. Then, KGC will
evaluate that the supplier can satisfy all criteria from stage 1. KGC will use the supplier
selection’s criteria that include authenticity, price and time delivery in order to filter out
potential suppliers. Then, the purchasing team will have a meeting with each supplier to
discuss the contract. Finally, KGC will purchase their product 2 to 3 times to ensure that
the supplier can deliver the right quality product on time or not so that they may make
a decision on whether to engage in a long-term cooperation.

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3) Third is placing orders. KGC will place the order based on customer’s
demand. For the anchor chain, KGC will have 1 more step that the customer service
team will check the inventory in order to make the E-contract, due to all suppliers of
KGC are international companies so E-contract will be faster and more effective and
time saving.
4) Next stage is receiving orders. The customer service team will receive the
product and check if they arrive in time or not.
5) The following stage is checking the order. The technical team will check
the quality of the product. If it does not meet the technical requirements that order will
be returned.
6) And lastly is making payment. Because most of the KGC suppliers are
international suppliers. So, KGC pays via bank transfer.

 Product and service positioning strategy:

Product and service positioning strategy is a marketing strategy used to position a

company's product or service in the minds of customers. It refers to the way a company
positions its product or service in relation to competing products or services.

The product positioning strategy can play an important role in creating value for
customers, increasing the competitiveness of the product, and helping businesses
increase sales.

Here are some way KGC apply it:

1. Researching competitors: technical team of KGC will analyze

competitor’s products, price and quality in order to help KGC produce better products.
2. Analyzing the market: The sales team of KGC will analyze the market to
understand customer needs and provide which product is the best. Also, they analyze
the trend of the market so that KGC can produce the products that meet customers’
requirements.

 Business strategy:

Because Cai Mep - Thi Vai Port is the cradle for the shipping industry - logistics.
Due to the fact that every year, many ships from various sizes dock in this port.

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Understanding that, KGC has invested heavily in the steel chain manufacturing industry
as an optimal business strategy of the company. They work as a manufacturing company
and their competitive strategy is Cost Leadership strategy. This means that the
company tries to be the lowest-cost manufacturer in the industry. And the company
decides this strategy is the most important one in leading the company to success.

Other special products such as diving equipment and floating & submarine hose
have a long life-span because they need to meet the international requirements of
quality. Due to this reason, when the company currently uses Competitive pricing
strategy in this field, it gains little profit for the company than the above mentioned
strategy.

 Competitive Priorities:

Because KGC has chosen product Cost Leadership strategy as their most essential
competitive strategy so their competitive priorities are:

1) Cost minimization: Because the primary purpose of cost leadership is to

minimize the cost, KGC is trying to reduce the cost of production, distribution and also
marketing.

2) Efficient operation: The technical team, once a month, will evaluate the
system in order to reduce the waste time so that it maximizes productivity in producing
anchor chains. In real-life, the company uses IEES GPRO to track and find the redundant
operation and then they try to optimize the motion of employees to maximize their
productivity.

3) Standardized products and services: KGC is trying to standardize the

entire process from produce to sell products. The technical team will evaluate the whole
system, then create a criteria table and send it to each department in the company.

4) Tight cost controls: The technical team in KGC has researched and
established a production cost control system in order to manage electricity used,
optimally the use of steel to manufacture anchor chains.

 Supply chain strategy:

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The logistics department in KGC has evaluated the level of risk in the environment
of the supply chain relationships based on the supply chain strategy. If these connections
are made evident, KGC can quickly and profitably make decisions that will increase
earnings and foster profitable business relationships. status in the marketplace.

The supply chain strategy of KGC involved 4 phases to identify the supply chain
relationship:

1) Evaluate the current system: The logistics department will evaluate the
supply chain system and base on the criteria of the company.

2) The purchasing team can create questionnaires, interview or conduct

collect information about KGC’s partners.

3) Classification and analysis of all partners in order to differentiate their role

in the supply chain system.

4) The last phase is interpretation. In this phase, KGC develops some

solutions to improve the supply chain system and also decide if they can continue work
with their partner or not.

2.2.2. Evaluation and Proposed Solution

For purchasing decisions: By using this method, KGC's purchasing decision-

making process appears to be well-structured and complex, with multiple factors that
need to be considered. Making effective purchasing decisions is crucial to the success
of a company. Ultimately, the goal of purchasing decisions is to acquire the right goods
and services, at the right time, and at the right price, in order to support the company's
operational objectives and overall success.

For Strategic Purchasing: By implementing a strategic purchasing approach, the

company can achieve significant cost saving by negotiating better prices with suppliers,
optimizing inventory levels, and improving supplier performance.

For Product and service positioning strategy: By this way, KGC can understand
what their customers want and what criteria they should focus on to meet customers’
demand.

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For Business strategy: Despite the fact that the company uses Competitive
pricing strategy, Cost Leadership strategy is still the most important strategy that the
company strictly follows, since it gains higher profit to the company.

For Competitive Priorities: By following these priorities, KGC has reduced the
cost for producing anchor chains. It helps the KGC optimize their resources so that they
bring the maximum profit to the company.

For Supply chain strategy: KGC's supply chain strategy involves evaluating the
current system, analyzing partners' roles and developing solutions to improve the
system. The strategy is well-structured and effective in fostering profitable relationships
and enhancing the company's position in the marketplace.

=> Since, the purchasing decision and business strategy of the company are
exceptional, we cannot propose any solutions to the company.

2.3. Legal Aspects of Purchasing

 Purchasing Agent

Purchasing department will be responsible for purchasing-ordering. They will

check the debt (30 days) and then bring the order back to the purchasing manager. The
purchasing manager will then check the actual inventory. If the goods are available and
not limited by the debt, the information will be transferred to the warehouse and shipped
and delivered.

Moreover, whenever customers order specific products (such as diving equipment

and floating & submarine hose), the company will then contact the supplier abroad and
then transport the products directly to the end-user who ordered.

Execution of Contracts and Purchase Orders

In order to avoid future disputes, the content of the business procurement contract
should consist of the following contents:

Subject: It is necessary for Khanh Gia to specify the parties' information such as:
business name, head office address, name and position of the legal representative, ID
number (or passport number) of the legal representative, corporate tax identification
number, etc.
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Legal rights and obligations: The obligations prior to, during, and following the
performance of the contract as well as the precise time of termination must be made
clear by the parties (KGC and suppliers).

Terms of binding liability: The parties can draft appropriate terms, such as Khanh
Gia's supplier liability for non-payment, or liability, in advance so that they can
anticipate the circumstances that the other party might use to avoid performing the
contract. It is the supplier's obligation to keep the contract's subject matter intact.

Term of Contract: Contract performance period: The contract must expressly

state the time at which the contract commences to be in force and ends, as well as the
duration of the warranty, maintenance, and exchange provisions.

Dispute settlement terms: Disputes can be brought to a competent Court or

Commercial Arbitration for settlement (VIAC).

Statements and commitments: A clause stating that the suppliers must confirm
and agree to the debts of the business should be included in the contract. By doing this,
disputes and risks for KGC are reduced.

 Term of a contract
Khanh Gia Company currently has some criteria in a contract that need to follow:
Quantity

Regarding the quantity of purchased goods, after being calculated and aggregated
into orders by the sales staff, the purchasing manager will check again to include in the
contract. Responsibility for the quantity of goods will rest with the chief accountant.

=> Using trial-run to determine whether we can cooperate with the suppliers
or not.

Quality

The steel supplier will deliver and inspect goods at KGC warehouses. The other
products will be transferred directly to the end-users. Quality problems will be fully
guaranteed from suppliers, KGC will not bear any responsibility for damaged goods
during previous delivery.

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Within 7 days, if there is a mistake, compare the goods, the quality is not
guaranteed, transfer it to the warranty department.

=> In case the quality is not guaranteed, the supplier will be notified to make
an exchange/warranty according to the provisions of the contract.

Price & Credit Terms

Price:

After applying all trade discounts, the price of goods will rise. But in some special
cases, price escalation clauses are used in a contract, due to the instability of delivery
cost.

Trade discount:

The purchasing team will meet the suppliers to get some discount. This requires a
good relationship between the KGC and the suppliers so with the new supplier it is quite
difficult to have any trade discount.

Tax:

- Foreign partners: Import tax, VAT, environment tax

- Domestic partner: VAT

Delivery Terms

Steel suppliers deliver goods at the warehouse, import and export goods when
there is an order. As KGC prioritizes fast delivery times and high quality assurance,
delivery time is a strict requirement that suppliers must follow.

Other special products will be transported directly to end-users.

Some constraints between sellers and buyers:

+ Must have commercial contract

+ The higher the sales, the higher the chances of getting a discount

+ Agree on the terms and strictly comply with the signed contract

Electronic Contracts and Signatures

Forms of contract creation (paper, electronic), types of signatures, seals.

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Figure 6. Electronic contract of KGC

Purchasing with Ethics

To comply with commitments, legal regulations, programs must be agreed by both

parties and win-win situations.

Offers
Purchasing agents receive numerous offers on a daily basis and must be able to
identify complete legitimate offers. The three necessary components of an offer are:

● Intent to make an offer

● Communication of the offer intent
● Identification of the specific subject matter

Sometime, the offers can be:

● The offer may lapse

● The offer may be rejected

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● The offer may be revoked

● The offer may be accepted

When the offer is lapse, rejected or revoked the KGC purchasing department will
make a new offer with some adjustments to fit with the partner's request.

Counteroffers
A counteroffer is a new proposal made by the recipient of an initial offer,
suggesting terms, price, or other conditions that they desire, different from those
proposed in the initial offer. Counteroffers are often used in the negotiation process
between two parties to reach a mutual agreement. With KGC this part is handled by the
purchasing team. There are some steps to do a counteroffer:

1. Evaluate the offer. This will help the company know which part of the
offer is not suitable with its goal and need to change or accept it with some conditions.

2. Make a new proposal which includes the requests and conditions KGC
want to achieve and also the reason for it.

3. Decision. If both buyer and seller accept the offer, they can sign a contract
and start implementing the agreement. If both parties cannot have the same goal, the
company will consider whether or not to work with the partners.

=> By using this, KGC can ensure that the terms of the contract are in
accordance with the requirements of the company and do not cause any
disadvantages to the company. At the same time, it can help the company choose
the most suitable supplier with the cheapest price.

2.4. Material Management

2.4.1. Reality method

The products that KGC offers consist of 3 main materials: diving equipment,
anchor chain and floating & submarine hose. While anchor chain is the product that
KGC manufactures, others are the products that KGC imports from the foreign countries
and then sells for customers in Vietnam.

Table 2. Materials Demand Determination

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No. Material Type Import Sell Description

Air Diving Control

Panels

$15,622 $26,557

AMCOM III Three-

Driver
$2,469 $4,197

Khanh Gia is
- Buckleys determined to own
BathyCorrometer 11 different types
of diving
$5,810 $9,877 equipment with
Diving
1 different functions,
equipment
which allow
customers more
opportunities in oil
and gas
- Complete HD exploitation.
Camera Console
System
$4,752 $8,078

- Connection of
underwater electricity
$2,445 $4,156

- Cygnus Underwater $4,052 $6,888

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- Deck
Decompression
Chamber
$4,742 $8,061

- Driver/ Bell Data

Management System
$4,750 $8,075

- Drivers Apparel

$200 $340

- Diving Helmet

$4000 $6800

$2,500 $4,250
- ROV Parts

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Anchor Chain

The Offshore
Mooring Chain
Type 1 (22-59mm): used for offshore
This anchor chain is structures, drilling
mainly used for the ships and FPSO
$105 $178
ship with the DWT is and anchor chain
Anchor Handymax (30001- for ship industry is
Chain – 50000 DWT). manufactured in
2 Offshore the optimal
Type 2 (60-99mm):
Mooring production
For the bigger ships,
Chain environment and
for example Panamax
perfect quality and
(50001-80000 DWT), $128 $217
products are
which their running
pursued through
area is rivers and near
comprehensive
the coasts.
testing and
Type 3 (100-136mm): inspection.
And for the ship with
the DWT from 80001
to 199000 DWT, we $174 $295
have to use this type
of anchor chain due to
size and length.

Floating single Khánh Gia’s

carcass hoses $1000/m $1700/m floating and
submarine oil
Floating hoses offers hoses
and solutions for the
3 offshore transport
Submarine Floating double
Hose of crude oil and
carcass hoses
$2085/m $3540/m petroleum products
up to 50%
aromatics on
marine docks,

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Submarine single ships and barges in

carcass normal pressure for
$220/m $375/m
terminals
worldwide. Hoses
are qualified
according to
OCIMF 2009,
widely used in
CALM System,
Submarine double SALM System,
carcass $480/m $820/m MBM System,
Tandem Mooring
System. The
working pressure
can be 15bar in
extreme operating
conditions.

Material Availability

KGC needs to ensure a consistent supply of raw materials for seamless production.
Material availability analysis is essential to identify potential bottlenecks, supply chain
risks, and ensure a stable manufacturing process. Here is an analysis of the key materials
used by the company:

Anchor chains are primarily made of high-quality steel, such as carbon steel and
alloy steel. These types of steel are known for their strength, durability, and corrosion
resistance.

● Steel sources: Today, there are many developed businesses providing

domestic steel like Hoa Phat, Van Loi, Viet Nhat. Therefore, it will be very simple for
KGC to acquire steel and the shipping costs will be lower than when importing foreign
steel.
● Availability: Global steel production has been consistently increasing,
indicating a stable supply. However, factors such as government regulations, trade
policies, and geopolitical tensions can impact steel prices and availability.

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● Market dynamics: Steel is a commodity, and its prices can be volatile.

KGC closely monitors price fluctuations and hedges their risks through long-term
contracts, futures contracts, or other financial instruments.

2.4.2. Evaluation and Proposed Solution

KGC do not allow us to know the software for forecasting the demand of
material, so we suggest using IBM/SPSS Statistics 2020 to do this.

As we mentioned before, we just need to forecast the demand for steel because
KGC produces anchor chains. Based on the data collected from the previous month,
using IBM/SPSS software to forecast the demand for the following month.

Figure 7. Length in anchor chain that KGC sold in 2021 & 2022
We aim to forecast the weight of steel we need to install to produce per month in
2022. We use IBM/SPSS Statistics 2020 to solve this problem.

First, we input the data from the sheet into the software:

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Figure 8. Inputting the data into software

Figure 9. Inputting the data into software

Choose Analyze -> Forecasting -> Create Model -> Expert Modeler -> Define
Dates -> Apply -> OK

Then, we will have this forecasting for weight of steel:

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Figure 10. Result of forecasting anchor chain demand of customer

=> This leads to the result that KGC can forecast the demand of steel for each
month.

For material availability:

Recommendations:

To ensure material availability, KGC must:

● Diversify steel suppliers to minimize supply chain risks.

● Monitor steel prices, and hedge risks through long-term contracts or
financial instruments.
● Establish long-term contracts with suppliers for critical components.
● Invest in research and development to explore alternative materials and
manufacturing processes that can improve product performance and reduce dependency
on volatile raw materials.

By conducting a thorough material availability analysis and implementing these

recommendations, KGC can ensure a stable and efficient production process.

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2.5. Inventory Management

2.5.1. Reality method

Service Level

Figure 11. Service level of 3 leading products that KGC offers

As can be seen, with the exception of the anchor chains, the service level of the
remaining materials is 100 per cent due to the fact that they are special products with
extremely high unit costs. Therefore, KGC only imports diving equipment and floating
submarine hose in response to customer demand.

Nowadays, the company currently uses ERP to help them implement resource
planning by integrating all the processes needed to run their companies with a single
system. An ERP software system can also integrate planning, purchasing inventory,
sales, marketing, finance, HR, etc. However, the company is not willing to share their
ERP system to our group, so it is impossible for us to analyze the strengths as well as
the weaknesses when using this system. Therefore, we suggest using ABC analysis to

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deal with the inventory, and using POM/QM to determine the reorder point/ safety stock
of the company.

2.5.2. Evaluation and Proposed Solution

Using ABC ANALYSIS

Table 3. ABC analysis of anchor chains’ types

Item Annual Unit cost Annual Annual Percentage Category

Demand expenditure Cumulative expenditure

BBB Chain 2078 7,600,000 15,792,800,000 15,792,800,000 34 A

(type 1)

Stud Link 1236 6,800,000 8,404,800,000 24,197,600,000 52.08 A

Chain (type 3)

Grade 70 847 9,000,000 7,623,000,000 31,820,600,000 68.49 A

Chain (type 2)

Stainless 573 12,000,000 6,876,000,000 38,696,600,000 83.29 A

Chain (type 3)

High Test 783 5,000,000 3,195,000,000 41,891,600,000 91.71 B

Chain (type 2)

Proof Coil 939 4,100,000 3,849,900,000 45,741,500,000 100 C

Chain (type 1)

Since, we cannot get access to the ERP of the company, so it’s hard to evaluate
whether this is good enough or not. Therefore, we suggest using ABC analysis for each
type of chain to determine which will provide the greatest benefit for the company. The
total revenue of anchor chains over a year is approximately 45 billion VND. We can
readily calculate the types of chains based on the company’s annual expenditure. Khanh
Gia company can gain lots of benefits by using this technique, in more detail:

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- The company can regularly check and control each item, and especially strictly
control those items in group A. The establishment of accurate reports on group A must
be done regularly to ensure safety. in production.

- The capital sources used to purchase group A products need to be more than
those of group C, so there should be proper investment priority in group A governance.

- Thanks to the ABC analysis technique, the level of warehouse staff is constantly
increasing, because they regularly perform inspection and control cycles for each group
of goods.

Using POM/QM software to determine Reorder point/Safety Stock (Normal

Distribution) function:

Figure 12. Summary of Company Products Statistics

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Figure 13. Model in POM/QM for reorder point/safety stock

Need, we need to input the data to POM/QM:

- (Monthly) demand: mean

- (Monthly) Demand std dev: standard deviation
- Service level: input the data above in the service level
- Lead time: Due to the fact that we have a total 8 days of processing time then
plus 7 days of ordering and delivering, in sum up, we have 15 days of lead time
- Lead time std dev = 0

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Figure 14. Inputting the data into the software

Figure 15. Result of safety stock/reorder point of type 1

Figure 16. Result of safety stock/reorder point of type 2

Figure 17. Result of safety stock/reorder point of type 3

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=> In conclusion, safety stock (in kg) represents the weight that we need to
stock to protect against unexpected fluctuations in demand or supply chain
disruptions. For example, for type1, the safety stock is 1527.73 kg, which means
that the company needs to keep on hand extra 1527.73 kg steel in inventory.

Reorder point (in kg) represents the level at which our stock needs to be
replenished. For example, for type1, the reorder point is 16475.68 kg, which means
that when the inventory level reaches 16475.68 kg, the company knows that it is
time to reorder more inventory to maintain a sufficient stock level.

=> To sum up, these suggestions are just based on our team knowledge, so it’s quite
hard to conclude that it can be useful for the company, since we are not allowed to
gain access with the real software that KGC currently uses.

2.6. Purchasing Procedures and Systems Contracting

2.6.1. Reality method

The Purchasing Policy of KGC

Khanh Gia company currently uses purchasing corporate policy considers the
following objectives:

1. Spend corporate funds wisely.

2. Operate in a professional manner.
3. Purchase the right materials in the right quantities, at the right time and
price, from the right source.
4. Practice the highest level of ethical standards to ensure confidence among
all parties.

Purchasing Procedures

The Purchasing Procedure, is a set of guidelines or rules that define how a

company's procurement process should be carried out. It typically includes the policies
and procedures that the purchasing department and staff must follow to ensure that the
procurement process is carried out effectively and efficiently.

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Today, KGC currently uses this type of purchasing procedure whenever they
establish guidelines and rules for the procurement process, ensuring compliance,
improving efficiency, maintaining consistency, and managing risk.

Khanh Gia company now uses this type of purchasing order lifecycle to apply in
real-life situations:

Figure 18. KGC’s purchase order lifecycle

1) Purchase order creation: The first step of KGC’s purchase order life cycle
is creating a purchase order, which is converted to a purchase order when approved and
authorized. In the case of multiple line items, each item will be transferred to a new
purchase order.
2) Budget check and requests for proposal (RFP): Once the procurement
team creates the purchase request, the finance team carries out a budget check, and if
there is an existing purchase contract, the purchase order is sent to the vendor.
3) Vendor qualification and selection: After receiving commercial quotes
from suppliers, the purchasing team will compare the KGC’s requirements with the

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vendor proposal. To arrive at a unified vendor selection decision, the procurement team
will conduct a thorough investigation and also seek input from all stakeholders.
4) Negotiation and PO (Purchase order) dispatch

Once a vendor is selected, it is time for KGC to make contract negotiation. This is
the time when suppliers and buyers discuss and address issues that will forge a better
business relationship. Typically, purchasing negotiations will cover the following items:

● Time constraints

● Delivery expectations

● Quality benchmark

● Payment terms

● Potential liabilities and risks

● Confidentiality of purchase

● Dispute resolutions

● Change in requirements (if any)

5) Delivery and quality check

Vendors usually send an advance shipment notice to the purchasing team once the
order is shipped. This notice includes shipping date, shipping agency details, tracking
number, a copy of purchase order (PO) and invoice, etc. After receiving the
product/service, the purchasing team checks the packaging slip and PO information and
acknowledges the receipt. Then, the technical team performs a standard quality check
and sends the result to the purchasing team to notify the vendor or reject products in
case of damage or defect in the delivered item.

6) PO Matching and Closure

In this step, three important purchasing documents - the purchase requisition,

purchase order, and vendor invoice are lined up and evaluated to ensure no discrepancies
and accuracy information. Discrepancies need to be addressed according to the dispute
resolutions mentioned in the purchasing contract.

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2.6.2. Evaluation and Proposed Solution

We would like to compare the purchasing procedures in the company with the
purchasing procedures that we have learned in class.

Purchasing Procedure in our study:

Figure 19. Purchasing procedure in our study

As we mentioned above, the company already have had 6-step of purchasing
procedure, which contains all the information of 8-step that we have learned in class.
However, the company has the budget check & request for proposals after creating an
order, the company also has the negotiation and purchase order dispatch. Therefore,
purchasing procedure of the company is more applicable to up-to-date business.

We cannot propose any solutions to the company, since it is reasonable and still
successful.

2.7. Supplier Selection and Evaluation

2.7.1. Reality method

1. Suppliers must be carefully evaluated

• In today’s competitive environment, progressive firms must be able to produce

quality products at reasonable prices. Product quality is a direct result of the production
workforce and the suppliers.

• Buying firms select suppliers based on their capabilities, and not purely on the
competitive process. The current trend in sourcing is to reduce the supplier base.

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• In order to select suppliers who continually outperform the competition, suppliers

must be carefully analyzed and evaluated.

2. Supplier Relationship Management of KGC’s company

KGC provides collaborative relationships because in collaboration, the two

organizations truly realize the benefits of working together to optimize outcomes for
both organizations. The two firms work together to develop a strategy to deliver a high-
quality product or service on time and under budget.

3. KGC begins with some sort of ranking or categorization of potential

suppliers.

After that, KGC needs to specify the category of suppliers. There are 3 different
types of categories such as: strategic suppliers, preferred suppliers, transactional
suppliers according to their level of importance to the business.

The KGC’s process when selecting suppliers:

Figure 20. The selecting suppliers process of KGC

Identify feasible suppliers
In order to evaluate the best suppliers, managers will have to gather information
regarding the supplier’s product quality, warranty policy, and after-sales services. To
ensure the accuracy, they will need to conduct further research.

Scoring rubric for all suppliers:

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Table 4. Scoring rubric for suppliers’ selection of KGC

Criteria 4 - Excellent 3 - Good 2 - Average 1 - Poor Weight

Operation - Instant - Quick - Slow - Very slow 0.05

process adaptation to the adaptation to the adaptation to adaptation to
market change market change the market the market
change change
- All departments - 80%
link and share departments link - 50% - <50%
information with and share departments departments
each other information with link and share link and share
each other information information
- Workflow is
with each with each other
fully defined - 80% of
other
workflow is fully - <50% of
defined - 50% of workflow is
workflow is fully defined
fully defined

Certification - Have - Have only - Have only Have none of 0.05

international and international national two
national certificate in certificate in
certificate in quality quality
quality

Quality - 100% meet the - 80% meet the - 50% meet - <50% meet 0.5
quality deserves quality deserves the quality the quality
the price the price deserves the deserves the
price price

Shipping - Very short lead - Short lead time - Long lead - Very long 0.2
method & time time lead time
- Average
Delivery time
- Means of shipping cost - High - Very high
transport comply shipping cost shipping cost
with all safety
rules
- Low shipping
cost
- Packaging is

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proper

Discount & - Have quantity - Quick customer - Slow - No quantity 0.1

Supporting discount support customer discount
policies support
- Really quick - Very slow
customer support customer
support

Documents - Clear procedure - Fast document - Not clear - Not clear 0.1
processing speed procedure procedure
- Very fast
document - Slow
processing speed document
processing
speed

KGC then determines all feasible suppliers who can support them based on the
scoring rubrics:

Table 5. KGC’s supplier introduction

Product Supplier

Diving equipment Flexomarine

Aquamaster

Aquatech

Steel to make anchor chain Hoa Phat

Van Loi

Viet Nhat

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Floating and Submarine Advanced Marine

Hose
Armon

Baytech

Building relationships with the suppliers:

- In today's increasingly competitive market, the connection between the enterprise

and the suppliers is critical to improving operational efficiency.

- Regularly organize meetings to exchange information with each other, new

improvements in the operation process.

- When facing difficult problems during operation, the two parties must actively
communicate with each other to find the root cause and come up with appropriate
measures to solve.

2.7.2. Evaluation & Proposed Solution

There are some criteria for supplier evaluation:

- Process-based evaluation
- Performance-based evaluation
Khanh Gia company currently uses both of these criteria to check whether the
suppliers are working effectively or not.

+ For process-based evaluation:

- KGC uses an assessment of the supplier’s production or service process.
- Operation process will be considered
- Certification
+ For performance-based evaluation:
- KGC evaluates based on objective measures of performance.
- Quality
- Shipping method & delivery time
- Discount & supporting policies
- Sale of goods documents
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Review Categories

The most important attributes of KGC are:

* high quality

* on-time delivery

Technology and innovation are also important in order to stay ahead of or at pace
with competition and help keep the buying firm at the top of their field.

Multiple Sourcing

The major advantages when KGC uses multiple sourcing strategy is: mitigating
risk of supply chain disruptions, competitive pricing, diversification, innovation and
flexibility.

=> Khanh Gia company strategy is to have multiple sourcing.

Grade & Hurdle

- For grade: The KGC’s supplier performances in the past are kept on record and
the suppliers receive a “report card” as to how well they are doing compared to other
suppliers. The most common attributes are quality, price, and delivery.

- For hurdle: suppliers of KGC are required to “jump” over higher and higher
hurdles to win the buyer’s business.

Meeting:
Representatives of both sides will meet in order to negotiate and discuss the prices,
ordering methods, procedures and forms of payment, etc. of the contract, so that they
can have the final agreement.

After that, the sale and purchase contract will be signed.

Trial run
Then to identify the long-term cooperation in the future, KGC has to have the Trial
run steps. In this step, KGC will purchase with the partner from 2 to 3 times. Based on
whether the partner delivers on time and right quality products or not, they may make a
decision on whether to engage in a long-term cooperation.

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Test again to identify whether we choose supplier right or not.

Three general types of supplier evaluation systems in use today are:

– Categorical method

– Cost-ratio method

– Linear averaging method

KGC is currently using the linear averaging method to determine the best
supplier for each different types of products which they sell (using in trial run).

For example, let’s take a trial run of diving equipment to be the model of a trial
run.

*For diving equipment:

Table 6. Scoring performance when evaluating suppliers in trial run

Flexomarine Aquamaster Aquatech

Quality (Weight = 50)

Acceptable lots (no damage 52 35 24

found, quality deserves price)

Total lots received 58 40 30

Quality rating 89.6 87.4 80.0

Service (Weight = 35)

On-time deliveries (in 50 35 25

accordance with the contract)

Total lots received 58 40 30

Service rating 86.2 87.4 83.3

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Price ( Weight = 15)

Lowest price $250 $250 $250

Price submitted $250 $255 $255

Price rating 100 98.0 98.0

Total 89.97 88.99 83.86

=> Flexomarine is the strategic supplier for diving equipment

Calculate almost the same in trial run to have the conclusion that Hoa Phat and
Baytech will be the strategic suppliers for steel and floating & submarine, respectively.

To sum up, we have the table for suppliers’ categories:

Table 7. Determination of suppliers’ categories from KGC

Suppliers Categories

Flexomarine Strategic supplier

Aquamaster Preferred supplier

Hoa Phat Strategic supplier

Van Loi Preferred supplier

Baytech Strategic supplier

Advanced Marine Preferred supplier

Ways to build strong supplier relationships:

1. Always be proactive: Addressing incidents, challenges, and problems as

they happen reduces the severity of contingencies. Early discussion and action builds
trust in the eyes of suppliers.

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2. Establish roles and responsibilities: Key performance is a combination of

ability, motivation, and clarity in the role of each position. Both the supplier and the
buyer must understand their own and parties’ roles, and how both sides work together
to leverage value and achieve beneficial outcomes.
3. Behave honestly to build trust: Gaining trust through ethics and honesty
will help two parties go together in the long run and develop more relationships.
4. Support suppliers: Always proactively keep your suppliers informed of
your needs and timings. Suppliers are not always ready to handle emergency situations.
You should always proactively anticipate your needs, giving your suppliers more time
to prepare for what you want.
5. Offer preferential values: Strong business relationships often happen
when both parties are able to deliver value. Instead of just looking at how suppliers can
help you, consider the value you bring to them.
6. For strategic supplier relationships, KGC must require careful
management. The company should create supplier profiles for each strategic supplier,
including key management, an overview of the company, SWOT analysis, Porter’s five
key financial figures, current contracts, “owners” of the relationship, and an
organization chart.

2.8. Strategic Outsourcing

In the past, KGC produced a complete anchor chain but failed to lead the anchor
chain production because their customers were not satisfied with the quality of the
anchor that KGC provided. Consequently, KGC is currently using an outsourcing
strategy in their business. They produce anchor chains from steel they got from
suppliers, but they outsource anchors from another foreign company in order to meet
customer requirements. They are now focusing on their most important task, which is
producing chains.

Here are some reasons that KGC needs to outsource:

1. Cost Minimization
2. Refocus Organization to Core
3. Improvement in Operating

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4. Increased Market Share and Revenue

Since KGC is now focusing on producing anchor chains and outsource anchors in
order to develop as the leading industry in producing complete anchor chains.

Strengths when KGC using outsourcing strategy:

- High specialization: Outsource companies often focus on only one area and
develop the best capabilities in that area. Therefore, qualifications and experience will
bring the best results to the business than internal employees. KGC when outsourcing
can focus on other more important tasks such as producing chains, working as trading
company.

- Minimizing operating costs: KGC recognizes that outsourcing costs less than
training and supporting internal staff since outsourced companies already have
necessary resources and equipment, and there are no additional expenses like salaries,
insurance, and bonuses.

- Access to modern technology: Technology-driven businesses require frequent

updates and access to the latest technology, but investing in new technology can be
costly. Outsourcing allows KGC to access technology through external resources
without significant expenses.

- Improve labor efficiency: External resources can save KGC’s time, improve
productivity, and enhance internal employee security. Working in parallel allows for
focused attention on important tasks and helps KGC stay on schedule.

- Saving workspace: Outsourcing allows KGC to avoid equipping external

resources with additional space or equipment since outsourced companies operate
independently. This is especially beneficial for KGC, due to their small area, that can
choose to outsource instead of hiring more internal staff and arranging workspaces.

- Ensure efficient operation: The contract between KGC and the outsource
company requires both parties to ensure the correct implementation of the agreements.
In which, the hired company must complete the assigned work on time and with the
quality of the work, if it is wrong, it must compensate according to the contract.

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Therefore, businesses can feel more secure because the outside units will not want to
lose the compensation but will try to ensure the best job completion.

Weaknesses when KGC using outsourcing strategy:

- Security issues: Confidential information is the problem that KGC is most

worried about when choosing the outsource form. Although it has committed not to use
and disclose business information, it is still not fully guaranteed whether the hired
company will quietly use or sell information to its competitors.

- Responsibility: in fact, not all companies are responsible and try to do their job
well. Some outsource companies do not perform the work on time assigned or work
irresponsibly affecting the progress and quality of the business. Therefore, KGC needs
to be careful in choosing a company when deciding to outsource.

- Quality: in the process of transferring work from the enterprise to the outsourced
unit, in some cases the outsourcing company does not fully understand the purpose and
content of the work. This leads to improper performance of the work according to the
requirements of KGC, causing the quality of work to be reduced.

- Cost of hiring: although outsourcing usually has a lower cost than in-house doing
the work. But in some cases the hired company incurs extra costs in the process. If the
contract between the two parties is not tight, the lessee may have to pay many
unexpected costs. Therefore, in real life, KGC highly focused on contract negotiation
between the two parties.

The Hidden cost of KGC’s Outsourcing strategy

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Figure 21. The hidden cost of KGC’s Outsourcing strategy

● Quality cost: KGC needs a proper machine to detect quality failures by external
sources. Preventative cost and appraisal cost will be considered.

● Supplier relationship management: KGC needs to consider:

 Labor expense of purchasing personnel: the cost KGC pays for employees
who are responsible for managing relationships with outsourcing providers,
negotiating contracts, and ensuring that the provider is meeting the company's
needs.

 Travel cost: refers to the expenses that Khanh Gia company incur when
their employees or representatives need to travel to the location of the outsourcing
provider or to a third-party location where the outsourced work is being performed.

 IT infrastructure and management cost refers to the expenses that KGC

company incur related to maintaining its information technology (IT)
infrastructure and managing the outsourcing provider's access to that
infrastructure.

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 Supplier development programs cost refers to the expenses that KGC

incur related to improving the capabilities and performance of its outsourcing
providers. (e.g. training and performance evaluation systems)

● Internal coordination: Internal coordination is a hidden cost of outsourcing that

refers to the time and effort KGC needs to invest in coordinating with the outsourced
provider. This can include ensuring access to necessary information and resources,
coordinating schedules, and monitoring performance. Poor coordination can lead to
delays, errors, and additional costs.

● Implementation of External Sourcing Model: KGC also needs to clarify costs

associated with the transition resulting from switching source.

● Service Design and Development: Service design and development is a hidden

cost of outsourcing that refers to the time and resources KGC needs to invest in
designing and developing a service with the outsourced provider. This can include
clarifying specifications, providing training, and monitoring progress. Poor
management of service design and development can lead to delays, quality issues, and
additional costs.

● Governmental and Political Related Expenses: Costs involved with ensuring

compliance with governmental laws, regulations, and even local business customs.

● Supply Chain Risk Management: Risk can be defined as a measure of the

probability and severity of adverse effects. Four iterative phases:

➢ Risk assessment.

➢ Risk mitigation.

➢ Risk monitoring.

➢ Contingency planning.

➢ Some specific costs include insurance, dedicated risk management

personnel, financial hedging, and operations hedging.

● Miscellaneous Financial Consideration: KGC needs to pay for legal and

regulatory compliance costs, foreign exchange and currency conversion costs,

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taxes and duties, insurance costs, and other miscellaneous expenses related to
managing the outsourcing relationship.

Element of Outsourcing

Figure 22. Element when Outsourcing of KGC

1. Strategic Evaluation: The first step of KGC when outsourcing is to
understand the strategic importance (value) of the activity or system. Standardized
processes, commoditized products, etc. Buying firms must make decisions as part of a
comprehensive sourcing strategy.

2. Financial Outsourcing: Outsourcing decisions are required to make short

and long-term financial sense. However, outsourcing benefits are not mutually exclusive
and independent constructs, but rather significantly interrelated.

3. Supplier Selection & Contract Development: The very important part of

KGC’s element when making outsourcing because, when choosing wrong supplier
selection can lead to many bad effects, eventually lost customers.

4. Transition to external sourcing model: refers to the process of moving

from an in-house model of providing a particular service or performing a specific task
to an external sourcing model, where the service or task is provided by a third-party
outsourcing provider. KGC said that the transition process of them is complex and time-

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consuming, however, it is important to carefully plan and manage the process to ensure
that the outsourcing project is successful.

2.9. Global Sourcing

Global Sourcing strategy of KGC

Global sourcing is when companies purchase goods and services from suppliers in
different countries to get the best quality products at the lowest cost. It helps companies
access a wider variety of goods and services and take advantage of cost differences
between regions.

Global sourcing the diving equipment in KGC:

Due to the high technical requirements related to the safety of divers as well as the
high accuracy requirements, KGC decided to use global sourcing for diving equipment
to be able to meet the above requirements.

Reasons why KGC uses global sourcing strategy in purchasing diving

equipment:

1. Cost reduction: Global sourcing helps KGC to reduce the cost of

purchasing high-tech machines needed for the production of diving equipment with high
accuracy, by purchasing it from suppliers worldwide.

2. Diversification of supply sources: KGC uses global sourcing to diversify

their supply sources and minimize risks. Especially at the moment, when the world
situation is relatively unstable, diversifying the supply helps KGC have many options
as well as solutions when a certain supply has a problem.

3. Market expansion: KGC also uses global sourcing to expand their market
and reach customers in different countries. This can help the company increase their
revenue and diversify their customer base.

4. Increased productivity and efficiency: KGC uses global sourcing to

increase productivity and efficiency by sourcing some production processes to partners
in foreign countries, while improving production processes and increasing productivity.

Advantages when KGC using global sourcing:

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Global sourcing has many advantages:

1. Cost reduction: Global sourcing provides cost savings for KGC by

sourcing from countries with lower labor costs or taxes, leading to reduced production
costs and increased profit margins.

2. Improve innovation: Global sourcing can stimulate innovation and

creativity by exposing KGC to novel ideas, technologies, and business approaches from
different cultures and countries.

3. Access to new markets: Global sourcing enables KGC to expand their

customer base and access new markets, facilitating business growth and expansion.

4. Improved quality: Global sourcing may improve product quality by

enabling KGC to source materials or services from suppliers with better technology or
specialized expertise.

5. Access to high-quality products and services: Global sourcing can provide

KGC access to suppliers with specialized skills or expertise, or with high-quality
materials or products that may not be available domestically.

Disadvantages when KGC using global sourcing:

Despite its advantages, global sourcing may pose certain disadvantages to KGC if
not managed properly. Some of these disadvantages include:

1. Quality control issues: It can be difficult for KGC to ensure consistent

quality across different suppliers and countries, which can lead to product defects or
customer dissatisfaction.
2. Supply chain disruptions: Global sourcing can increase the risk of KGC’s
supply chain disruptions due to factors such as natural disasters, political instability, or
changes in trade policies.
3. Intellectual property risks: Working with suppliers in countries with
weaker intellectual property laws, KGC may be faced with the increasing risk of
intellectual property theft or infringement.
4. Transportation costs: Shipping and transportation costs can add to the
overall cost of sourcing materials or products of KGC from different countries.

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5. Legal and regulatory compliance: Working with suppliers in different

countries can present challenges for KGC in terms of complying with local laws and
regulations.
6. Ethical considerations: Sourcing from countries with lower labor
standards or environmental regulations can raise ethical concerns and damage a KGC's
reputation. So KGC needs to consider carefully before choosing suppliers to work with.

Cost of Global sourcing for diving equipment and floating & submarine hose:

The cost of global sourcing also the same with domestic sourcing, the most
difference is foreign costs includes:

1. Custom cost: KGC will pay for the cost which may vary depending on the
country of cooperation. The purchasing team will email the Department of Vietnam
Customs to inquire about the cost.
2. Duty charge: To minimize the impact of duty charges in global sourcing,
KGC's purchasing team looks for countries with lower duty rates. This allows them to
reduce the total cost of goods and maximize the value of their sourcing activities.

=> Considering the impact of costs like duty charges and custom cost is
essential in global sourcing. By doing so, KGC can minimize the cost of importing
silent equipment from abroad.

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CHAPTER 3: RECOMMENDATIONS & CONCLUSION

3.1. Obstacles with the Procurement Analysis

- The first problem is that when we conduct information by interviewing the

company, it is impossible for us to know exactly which software that the company
currently uses since they just allow us to know a vague way to do forecasting. Based on
that, it is quite infeasible for us to evaluate the performance of the company when using
these unknown softwares. Therefore, we give 2 ways to predict in the report by using
IBM/SPSS Statistics 2020 and POM/QM, however, they are not only still naive but they
also do not consider the uncertainties factor of the company.

- The second problem is that while conducting the research of company

procurement’s expenditure, there was no official procedure for E-Procurement and EDI.
The predominant method of purchasing products and materials involves in-person
meetings as well as communicating with partners via email which waste a lot of time to
get response from the suppliers and also increase the paperwork. Furthermore, KGC
also needs more costs for meeting and discussing with suppliers, which is really
unnecessary in the current information technology era.

- The final problem is that KGC is heavily reliant on a few key suppliers for
components. There may be delays, stockouts, or complete shutdowns in production if
one or more of the company’s major suppliers experiences a disruption in their
operations. The supply chain can break down as a result of this. Moreover, the quality
issues may occur if the key suppliers are not able to provide high-quality goods or
services consistently, it can affect the company’s products or services. This will harm
the company’s reputation and lead to customer dissatisfaction.

3.2. Suggestion for Improvement

- It is clear that it is highly-essential to have a strong software, which can adapt to

very high demand of the company for forecast accuracy. Consequently, we suggest
instead of using IBM/SPSS Statistics 2020 and POM/QM, the company can use
“Streamline”, which is the most powerful forecasting software. It can give us 99+%
inventory availability, up to 99% forecast accuracy, up to 98% reduction in stockouts,

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1-5 percentage points margin improvement, etc. So, KGC can consider utilizing this
software platform since we do not know which program they are currently using.

- KGC necessitates an EDI and E-procurement department in order to boost their

competitiveness and eliminate wasteful costs associated with the purchase of raw
materials. This new department within the business will be in responsibility for finding
suitable, distant vendors and placing orders on their websites. Developing supplier
selection criteria in this area, such as trustworthiness, delivery time, and price, is also
significant at the same time. With the new department, KGC can improve their operation
process, have a new potential supplier with cheaper price and higher quality and also
reduce the processing time.

- To enhance customer satisfaction, addressing the third problem is also crucial.

Diversifying the company’s supply chain is one of the most effective ways to reduce its
reliance on a small number of key suppliers. This may involve working with additional
suppliers, investigating alternatives sources for raw materials or components, or even
investing in-house production capabilities. At the same time, KGC needs to make an
adjustment for procurement practices. This includes negotiating better contract terms,
exploring new sourcing options and investing in technology or data analysis to better
manage its supply chain and the quality of goods.

3.3. Conclusion

- After having studied the Procurement Analysis of Khanh Gia Company, our team
can have a better understanding of what we have learned from theory that can contribute
to the Procurement Process of KGC from purchasing decisions, business strategy,
material management, inventory management to purchasing procedures, systems
contracting, supplier selection, strategic outsourcing, global sourcing.
- Along with comprehending and being more perceptive in reality, we also offer
some suggestions for the business to enhance their performance in the market. Although
it may not be the most effective solution for the company, we strongly believe that by
researching and evaluating what the company currently applies, our team can have
practical experience, which can advantage our future careers and at least can bring lots
of valuable lessons to our team.

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REFERENCES

1. Caroline Booth (2010). Strategic Procurement: Organizing Suppliers and

Supply Chains for Competitive Advantage.

2. Derek Gallimore (2022). Inside Outsourcing: How Remote Work,

Offshoring & Global Employment is Changing the World.

3. Phan Thi Mai Ha (2023). Procurement Management Lecture. Ho Chi

Minh University of Technology.

4. Jonathan O'Brien (2016). Negotiation for Procurement Professionals: A

Proven Approach that Puts the Buyer in Control.

5. M.V. Jooste, C. de W. Van Schoor (2012). A framework for the

implementation of E-procurement.

6. Kenneth Lysons, Brian Farrington (2016). Procurement and Supply Chain

Management.

7. Pol Antràs, Elhanan Helpman (2004). Global Sourcing.

8. Quentin W. Fleming (2003). Project Procurement Management.

9. Ulrich Weigel, Marco Ruecker (2017). The Strategic Procurement

Practice Guide: Know-how, Tools and Techniques for Global Buyers.

10. William C. Benton (2018). Purchasing and Supply Chain Management

(Third edition).

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