Supplier Delivery Concept

Description and specifications

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Purpose ................................................................................ XX General concept .................................................................... XX Definitions ............................................................................ XX 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 Call-off lead time Purchase order ............................................................................. XX Call-off order ................................................................................ XX suppliers products ....................................................................... XX SKF product family ....................................................................... XX SKF affiliate ................................................................................... XX SKF production frequency .......................................................... XX SKF average lot size ..................................................................... XX Calendar days ............................................................................... XX

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3.10 Working days ................................................................................ XX 3.11 Flexibility factor............................................................................. XX 3.12 Replenishment lead time ............................................................ XX 3.13 Service factor................................................................................ XX 3.14 supplier stock location ................................................................. XX 3.15 SKF production channel .............................................................. XX 3.16 Supply channel profile document .............................................. XX 4 4 Supply Modes ....................................................................... XX 4.1 4.1 4.1 4.1 5 5 6 6 7 7 8 8 Supply mode A.............................................................................. XX Supply mode B ............................................................................. XX Supply mode C ............................................................................. XX Exceptions ..................................................................................... XX

Means of communication ....................................................... XX General requirements and conditions ..................................... XX Invoicing process ................................................................... XX Benefits to SKF suppliers ....................................................... XX

1 Purpose
This document is intended to provide SKF suppliers with concepts, key processes and general requirements and conditions of the SDC (Supplier Delivery Concept) programme. The SDC programme has been designed and developed by SKF to support SKFs collaborative sourcing transformation. SKF recognises that suppliers are an essential part of SKF future development and success to create and deliver customer value. This will provide SKF and its partners profitable growth thanks to an integrated demand driven supply network. A major part of the demand chain is the relationship to our suppliers and how we can achieve together an outstanding and sustainable collaboration to cover the need to streamline our processes, to improve the flow of Information and products and thus to avoid redundancies. In other words, the SDC programme target is to enable SKF to respond faster to customer demand with increased service and optimised inventories throughout the complete demand chain.

2 General concept
The SKF Supplier Delivery Concept is the focus set on defining a supply mode per product supplied to SKF. The supply mode shall indicate the products preferences towards SKF. SKF gives visibility to the products supplied to SKF via the Web Supply Manager (WSM) tool. In the tool it is possible to follow the supply behaviour for a specific product towards SKF. WSM is the common way of communicating with SKF.

3 Definitions
3.1 Call-off lead time
Call-off lead time is the lead time from the time when a call-off order is sent from the SKF factory until the call-off order reaches the SKF factory. This lead time shall never exceed 3 working days.

3.2 Purchase order

Purchase order means both any traditional orders and any call-off order of products issued by SKF or an SKF affiliate from suppliers agreed stock location.

3.3 Call-off order

A call-off order is a withdrawn quantity of suppliers product at a certain period of time from suppliers agreed stock location. A call-off order might also be a partial quantity which is taken from an original purchase order, the sum of quantities of such call-off orders corresponding to the original purchase order quantity. Usually the call-order number is a sub-line of the original purchase order. Split call-offer orders are mostly used with the supply mode B and C. Regarding supply mode A, the call-off order is created during the goods receiving process, when suppliers physically deliver products in the SKF affiliates channel buffers. For supply mode A it can also be that the stock is located near the SKF channel inside the SKF factory. In those cases the call-off will be done when products are picked from the stock and used in the production.

3.4 Suppliers products

Suppliers products mean any and all products listed in the supply channel profile document, and supplied by a supplier based on purchase orders and/or call-off orders placed during the term of the agreement.

3.5 SKF product family

That is the SKF product manufactured from suppliers raw material or semi-finished components and/or assembled from suppliers finished components. A same raw material, semifinished component or finished component can be used to manufacture or assemble several SKF product families, either within an SKF production channel, or within an SKF affiliate or within several SKF affiliates.

3.6 SKF affiliate

Shall mean each company belonging to the SKF Group from time to time placing a purchase or call-off order.

3.7 SKF production frequency

It is the number of times an SKF product family is manufactured or assembled during a year.

3.8 SKF average lot size

It is the annual forecasted quantity for an SKF product family divided by the SKF production frequency for that specific SKF product family.

3.9 Calendar days

Calendar days are used to calculate the replenishment lead time. By convention, there are 360 days in a year.

3.10 Working days

Working days are by convention the number of days that the SKF factory is active in production. This parameter is steered in the SKF production system on factory level. Call-off leadtime on SKF factory level is steered with this parameter.

3.11 Flexibility factor

Flexibility factor is a value equal or greater than 1, which is used in the replenishment lead time calculation. A large flexibility factor value would allow to manufacture or assemble an SKF product family well in advance compared to the theoretical time for a new SKF product family lot launch, while a value equal or near 1, would mean that the supplier replenishment lead time is very close to the theoretical time for a new SKF product family lot launch. The standard value in SKF is a flexibility factor of 2.

3.12 Replenishment lead time

The replenishment lead time is defined at SKF product family level, by the following formula: [Calendar days/(SKF production frequency flexibility factor)]. This is a calculated lead time when the supplier needs to refill the stock of suppliers product when supply mode B is used. It has to be noted that the replenishment lead time has no correlation with the suppliers product lead time for manufacturing, administration and transportation to the suppliers agreed stock location

3.13 Service factor

Service factor is the value that defines the grade of service that the item has. The service factor should secure that it is possible to call off and produce the max lot size proposed by the SKF production system. A normal value of the service factor is 1,25.

3.14 Supplier stock location

SKF or an SKF affiliate agree with the supplier where suppliers stock shall be located suppliers stock may be located either: At an SKF affiliate premises dedicated warehouse In a warehouse agreed by SKF and the supplier near the SKF affiliate In a warehouse agreed by SKF and the supplier to a central location provided that the call-off delivery time does not exceed three working days (see working day definition). At suppliers premises, when appropriate, if the call-off delivery time does not exceed three working days.

3.15 SKF production channel

The flow of material inside an SKF factory is structured in parallel production channels, from the first to the last operation in a number of parallel flows. There are important differences of production patterns between different SKF production channels. For example, there are channels producing only one finished SKF product family, therefore in continuous production, and there are channels producing many different product families, with different patterns, such as production frequencies (number of resetting per year). A production channel can be seen as an organisational entity with dedicated finished products assortment, dedicated people and dedicated machines. By extension, a supplier may also be dedicated to a production channel in order to form an integrated flow from the supplier through out the SKF production channel and the deliveries to the SKF customers. The SKF production channel is the core in the SKF supply chain, meaning that there is a network of suppliers and customer per each individual SKF production channel.

3.16 Supply channel profile document

There is a network of suppliers to each SKF production channel. Suppliers make available products for delivery to the SKF production channels which will be manufactured or assembled. Therefore, the SKF production channel specific patterns also apply to suppliers who are integrated to this SKF production channel. These patterns are listed into one document called the Supply Channel Profile. There is one Supply Channel Profile per supplier and SKF production channel. When a supplier makes available products for delivery to several SKF production channels, there will be also one supply channel profile per SKF production channel. There is Supply Channel Profile (empty) document available in enclosure 1. The Supply Channel Profile document and its updates form part of the Global Supply Agreement and must be dated, signed and archived by both parties. Supply Channel Profile extraction per channel /supplier available from WSM.

4 Supply modes
SKFs SDC offers three different delivery models for the suppliers. These models are called supply modes. supplier products availability and deliveries to the SKF affiliates/SKF production channels should be done in accordance with the principles and rules of these Supply Modes. One supply mode has to be selected for the availability and delivery of the product for which the supplier has the supply responsibility. In cases where the supplier has the supply responsibility for several products used in one and the same SKF production channel, the selected supply mode shall be identical When the supplier has the supply responsibility of a product used in several production phannels, supply mode B shall apply.

Supply mode A
Supply mode A is to be used when the supplier products are individually continuously consumed. The supplier has the full responsibility to make the products always available in a buffer stock within a minimum and maximum level, as agreed in the Supply Channel Profile. No Purchase or release orders are sent to the supplier to replenish inventory. The suppliers obligation is to use the visibility tools provided by the SKF affiliate to maintain proper inventory levels. The maximum level indicates the upper level of the buffer stock. It should be avoided to fill the buffer stock above the maximum level. The minimum level indicates the lowest possible level of the buffer stock. If the actual or planned buffer stock is below the minimum level, the buffer stock status will be coded stock-out. No stock-out is allowed. In case when stocksout nevertheless occur, the supplier shall make all possible efforts to refill the buffer stock above the minimum level. To avoid a stock-out, there is an early warning level, which is a certain buffer stock level which indicates when a refill reaction must be executed by the supplier. The maximum, early warning and minimum levels are set together with supplier and the SKF affiliate. The supply mode A is commonly called Vendor Managed Inventory (VMI). The supplier can be the owner of the VMI stock. The physical location where the supplier will stock products is to be agreed with the SKF affiliate using the supplier products should be preferably within the SKF affiliate premises or nearby. In brief, supply mode A is a collaborative effort with each party responsible for specific processes and functions. This includes monitoring stock levels and adhering to shipping requirements and on time deliveries. There will be a Rolling Supply Schedule (RSS) sent to the supplier, giving the supplier information about forecast. The RSS shall be seen as information and not an order.

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Supply mode B
Supply mode B is to be used when the supplier products are consumed in high and medium and low frequencies per year. The supplier agrees to carry a service stock, with an agreed service level, which is replenished in accordance with the forecast information given by the concerned SKF affiliate. SKF and the supplier agree on the replenishment lead time to refill the stock up to the service stock Level. The supplier is the owner of the service stock. The physical location where the supplier will stock products is to be agreed with the SKF affiliate using the supplier products. From this Stock Service location, the SKF affiliate will withdraw the supplier products through call-off orders, when needed in its production channels. The call-off order lead time, between the call-off order date and the physical delivery in the SKF affiliate production channels, shall not exceed three working days. There will be a RSS sent to the supplier, giving the supplier information about forecast. The RSS shall be seen as information and not an order.

Supply mode C
Supply mode C is to be applied when the supplier lead time does not exceed three working days which is then the standard lead time, reported in the Supply Channel Profile. Only calloff orders from the supplier premises and Rolling Supply Schedule (RSS) are used. Supply mode C is also to be applied when the supplier products are used in the SKF Channels from time to time, or even in one off transaction. The SKF affiliate will place purchase orders according to the supplier standard lead time which has been agreed in the Supply Channel Profile, when supplier products are used from time to time, or according to the agreed quoted lead time when the supplier product is consumed in one shot period. When forecast information is given to a supplier, the supplier will give feedback to the SKF affiliate to the volume forecast provided by the SKF affiliate. Such feedback shall be given as soon as possible, but no later than the day after the day when the forecast was submitted (Saturdays, Sundays and national holidays excluded). suppliers deliveries are made in accordance with the SKF affiliate purchase order requested date or, if different, in accordance with the agreed SKF affiliate purchase order acknowledged date. The physical delivery is to be made in the agreed stock location. There will be a RSS sent to the supplier, giving the supplier information about forecast. The RSS shall be seen as information and not an order.

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Exceptions
1 In cases where an SKF affiliate has not implemented yet any supply mode supported by a Supply Channel Profile but desires to implement, the Parties undertake to negotiate in good faith, and to use all reasonable efforts to reach agreement on supply mode selection and Supply Channel Profile content. In those cases when SKF production channels are not implemented, the principles and rules for supply mode C shall apply for such SKF affiliate or production channels. 2 When a supplier product is intended to several SKF product families belonging to one SKF affiliate, the supply mode to be applied shall be the supply mode B, when appropriate; The supplier stock location is agreed between the supplier and the SKF affiliate. 3 When a supplier product is intended to several SKF product families belonging to several SKF affiliates, the supply mode to be applied shall be supply mode B. The supplier stock location is agreed by the supplier and the SKF commodity manager responsible of the Global Supply Agreement (GSA). 4 When a supplier has the supply responsibility for several products having different consumption frequency patterns, the supply mode and the Stock location shall preferably be unique.

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5 Means of communication
WSM, web EDI
WSM, Web Supply Manager, also called Web EDI is the common communication tool. In WSM it is possible on SKF Factory/SKF Channel/SKF product/supplier/supplier product level to see what set-up is used. By set-up it is meant supply mode A, B or C. All products need to have a defined supply mode from SKF. By defining the supply mode the set-up is done from WSM. Depending of which supply mode is chosen different parameters needs to be set in WSM from SKF side. In WSM it is possible to extract the Supply Channel Profile per supplier, in PDF or Excel format. WSM then steers the SKF affiliate, the supplier and logistics provider regarding all parameters used in the Supply Channel Profile in the daily work. For details in the set-up and training in WSM please see separate presentation or contact SKF. A link to WSM is available on www.skf.com. It is possible to connect WSM on supplier and/or Logistic side to an external system. Contact SKF for more information.

Traditional EDI
In cases when traditional EDI is already implemented between a supplier and the SKF affiliate a solution shall be realized that puts WSM on top of the traditional EDI connection. All features described in the concept must be covered in the set-up. Contact Demand Chain for set-up suggestions. Since traditional EDI doesnt support supply mode A, B and C traditional EDI shall not be used as a standalone connection.

Other communication
All commercial activities remain the responsibility of SKF Commodity Managers.

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6 General requirements and conditions

Deliveries of products shall be made in accordance with the applied supply mode, specified for each suppliers product in the relevant Supply Channel Profile document. During a Contract period, SKF may require, and suppliers may recommend changes to the products and/or the product Specifications. Suppliers shall promptly undertake to perform any changes required by SKF as soon as the parties have agreed on the changes in writing. Unless otherwise set forth in the relevant Supply Channel Profile, delivery terms shall be DDP and shall apply to all deliveries. All risks and responsibilities remain in accordance with the latest Incoterms guidelines (Incoterms 2000). For supply mode C, delivery times shall be in accordance with the lead-times and conditions specified in the Supply Channel Profile document respectively. Suppliers shall reserve and/or maintain sufficient capacity to be able to deliver to the SKF affiliates its demand of products in accordance with the SKF Supplier Delivery Concept, in both peak and down time market conditions and shall ensure the availability and the timely deliveries of the products with the precision as measured according to the SKF supplier performance systems. SKF has in case of serious and repetitive missing stock availability and/or delivery delay, provided that the delay is not a result of an action taken by SKF, the right to cancel all purchase orders and/or delete the product(s) concerned from the assortment of this Agreement without any right for Suppliers to claim any alternative volume or economical compensation. In case of current and/or anticipated serious delays, after prior approval by SKF, the supplier has the responsibility to immediately find SKF approved alternative sources at suppliers expenses. Alternatively, the SKF affiliate may at its sole decision employ a third Party supplier to supply the agreed products at the risk and at the reasonable expense of the supplier. Transfer of title occurs when goods shipped from suppliers stock location to the SKF affiliates or other point agreed upon by the supplier and the SKF affiliate as described in the Supply Channel Profile document. The supplier is responsible to manage its inventory using the online tools provided by the SDC programme. The supplier is expected to frequently and appropriately view its products inventory regardless of alert triggers, and will be held accountable for late or missed replenishment resulting from lack of inventory management.

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 In case of phase out concern the SKF affiliate will give the supplier a minimum of ninety (90) days last batch notice. If for any reason the supplier has already in stock a product quantity exceeding the last batch quantity, the supplier will inform the concerned SKF affiliate, within 5 days after the notice received, the portion of quantity exceeding the last batch quantity. In return the SKF affiliate will either extend the quantity of the last batch by the exceeding portion of quantity, or will place a very last batch order corresponding to the exceeding portion of quantity and at a delivery date not later then six months after the delivery date of the initial last batch delivery date. The SKF affiliate will have no liability if ever the exceeding portion of quantity is greater then the delivered quantity over the last twelve months divided by the number of the concerned SKF affiliate orders. For any product managed under supply mode A or B, the supplier is entitled to invoice the SKF affiliate if no call off made during the last six months provided that the quantity in stock does not exceed the maximum Supply Channel Profile quantity level. For any product managed under supply mode C there should not be any stock when this supply mode is applied. The parties agree that the Global Supply Agreement and/or the SKF General Conditions of Purchase will govern the deliveries under the SDC programme. When suppliers products are located in a SKF affiliate premise: The SKF affiliate shall appropriately store suppliers products, identified as the property of supplier and keep same separate from other goods. Cost of storing such as unloading, loading, heating etc. will be born by the SKF affiliate as well as the related Insurance cost. The supplier may audit physical inventories upon request. Such inventory audit shall take place at a time and date acceptable by the relevant SKF affiliate and in a manner which shall not interfere with the SKF affiliate operation or business. The SKF affiliate bears the risk of loss and damages of the Suppliers goods after the risk of loss and damages has passed from the Suppliers to the SKF affiliate. The SKF affiliate will ensure that goods will be called off from the stock location on a first in first out (FIFO) basis. In addition to the remedies specified above, the remedies and sanctions set forth in the SKF General Conditions of Purchase shall apply, should the supplier fail to complain with the above.

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6 Benefits to suppliers
A supplier may benefit the following result by applying supply modes A and B: The ability to gain supply market share within the SKF Group for requirements on a per production channel or factory basis, in addition to making a favorable trend for a long term profitable growth. The ability to better plan its own production and sales based on well established SKF forecast and item consumption usage levels, thus increasing efficiency. Information transparency through a web based high visibility system. SKF recognition of suppliers differentiation from competition. Faster turns on receivables due to high consumption frequencies.

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 SKF is a registered trademark of the SKF Group SKF Group 2008 The contents of this publication are the copyright of the publisher and may not be reproduced (even extracts) unless permission is granted. Every care has been taken to ensure the accuracy of the information contained in this publication but no liability can be accepted for any loss or damage whether direct, indirect or consequential arising out of the use of the information contained herein. Publication 6683 EN April 2008 Printed in Sweden on environmentally friendly paper.