Nutrition Product Manufacturers Sourcing in Indonesia Case Study by john williams

Dragon Sourcing Your Tailored Approach to Emerging Markets

Nutrition Product Manufacturers Sourcing in Indonesia - Case Study

April 11th, 2019

Objectives and approach DS Approach consists in the following work steps in 2 separate phases:

Context

0. Understand MUI Halal Requirement and organization

Objectives: • Dragon Sourcing to carry sourcing services for the nutrition products manufactures with MUI Halal certificate

Phase 1: Shortlisting Potential Suppliers 1. Collect detailed information about the nature of the products required (suppliers capabilities required, specifications, volumes, MUI Halal certificate, production technology requirements) 2. Identify long list of suppliers in the selected markets by leveraging B2B Websites, DS Database, Fair catalogues, Chamber of Commerce, Magazines, Network, References 3. Carry out a phone pre-screening of the suppliers based on 4-5 screening criteria per category (e.g.: capability to make the product, min size, having Halal certificate quality certification, existing MUI Halal products, industry experiences, get the MUI Halal product list that are on Indonesian market)

Categories: • Fish oil and Krill Oil softgels • Fiber tablet to replace Fiber and Herb

Geographical scope: • Indonesia all main islands: Greater Sunda Islands: Java, Sumatra, Kalimantan, Sulawesi, Bali, Maluku, Western New Guinea (Papau)

Phase 2: Recommending Producers for auditing based on RFI 4. Develop the RFI template - jointly with Client - to include all key supplier qualification criteria (e.g.: financial, technology, corporate responsibility, quality certification, MOQ, client references…) and quotation requirements

Deliverables: Phase1: Shortlisting Potential Suppliers • Suppliers list to be included in Phase 2

5. Administer the RFI - the RFI is translated to the local languages as relevant, and distributed to the relevant suppliers, with telephone follow-up to push for maximum participation

Phase 2: Recommending suppliers for auditing based on RFI/RFQ • RFI Report • Score Card • Company Profiles • Recommended supplier list

6. Analyze of RFI responses based on qualitative criteria and preparation of a report which profiles & objectively ranks the suppliers by capability and competitiveness, including a recommendation for those to be audited 7. Carry out pre-audits of recommended suppliers jointly with Client (Optional)

The project is scheduled for a 5 working weeks period for Phase 1 and 7 weeks for phase 2. A weekly progress report will be sent every Friday. At the end of W2, if no suppliers were identified for a specific category, adding a new category should be considered. At the end of step 3 Client can decide or not to continue with Dragon Sourcing for Phase 2. Steps

W10

W11

W12

Auditing

0. Understand MUI Halal Requirement and organization Phase 1: Shortlisting Potential Suppliers 1. Demand Analysis Suppliers list to be included in Phase 2

2. Supply Market Analysis

3. Telephone Pre-screening RFI template Approved

Phase 2: Recommending suppliers for auditing based on RFI/RFQ 4. Develop RFI template

Shortlist for recommended Audit

5. Conduct RFI Administration 6. Develop the Score card and Analyze RFI Responses 7. Suppliers Auditing (optional)

Not Started

In Progress

Finished

Millstones

Phase 0 – Halal Certification by MUI (1/6) •

MUI stands for Majelis Ulama Indonesia

•

MUI Halal certificate is a written fatwa / official statement from Indonesian Ulama Council (Majelis Ulama Indonesia/MUI) which stated that the products are in accordance with the Islamic Syariat. Companies wishing to register halal certification with LPPOM MUI, including processing industries (food, medicine, cosmetics), slaughterhouses (RPH), restaurants, catering, kitchens, etc. must meet the halal certification requirements contained in HAS 23000 documents.

•

HAS 23000 is a document that contains LPPOM MUI halal certification requirements. HAS 23000 consists of two parts, namely – Part I of Halal Certification Requirements: Criteria Halal Assurance System (HAS 23000: 1) and

– Part (II) of the Halal Certification Requirements: Policies and Procedures (HAS 23000: 2). •

Objective of Certification: MUI Halal certification for food products, medicines, cosmetics and other products made to assure the halal status, so as to reassure consumers in the inner consume

•

There are no specific rules and regulations pertaining to the establishment of Halal certification bodies, the discretion of whether or not to accept products certified by the bodies is set to the consumers and the consuming countries. Different countries have their own criteria and procedures for issuing Halal certificates.

Main differences with other Muslim countries such as Malaysia and Brunei Dar El Salam •

There are three bases used in establishing halal: Syariah base (Islamic foundation), Scientific base (scientific foundation), and Cultural base (cultural background aspects).

•

Some products that have been certified halal by Jakim (Kemajuan Islam Malaysia), can not enter Indonesia as must be certified halal by MUI (Halal Indonesia). Conversely, some Indonesian products that have been certified halal by MUI if they want to enter Malaysia must also be halal certified by Jakim.

Phase 0 – Halal Certification by MUI (2/6) MUI Halal Certification Requirements

MUI Halal Certification Procedure Understanding halal certification requirements and following Halal Assurance System (HAS) Training

Applying and Registering for halal certificate (upload data)

Implementing Halal Assurance System

Monitoring preaudit and payment of contract for halal certification process

Performing audit

• • • • • • • • •

Performing postaudit monitoring

Approximate length of the MUL Halal Certification process • • • •

Preparing Halal Certification Document

Submission of audit schedule

Receiving halal certificate

Product list Document of Ingredient list. List of slaughterers (specific for slaughter house), Product matrix SJH (Sistem Jaminan Halal = Halal Guarantee System) Manual Flow Process Diagram Address list of production facilities, Evidence of Halal policy socialization, Evidence of internal training and internal audit evidence

•

Process of uploading until pre-audit: 20 days Process of completing the pre-audit to the audit: 15 days Audit process until the fatwa commission meeting: 15 days Process of fatwa commission meeting until the issuance of halal certificate: 25 days Total certification time: 75 days

MUI Halal Certification Validity & Renewal

• •

Halal certificate obtained is valid for two (2) years Renewal is 3 months before the validity

Phase 0 â&#x20AC;&#x201C; Halal Certification by MUI (3/6) There are 34 Halal Certifier Bodies approved by LPPOM MUI from 19 country, contain 29 bodies approved for (cattle) slaughtering category, 29 bodies approved for raw material category, 14 bodies approved for flavor category. The MUI decree regarding list of approved foreign halal certification body is effective for 2 (two) years as of the date it is stipulated and it will be monitored and evaluated once a year. List of Approved Foreign Halal Certification Bodies

List of Approved Foreign Halal Certification Bodies Sl. No

Name of Halal Certification Bodies

Majelis Ugama Islam Singapore (MUIS)

Jabatan Kemajuan Islam Malaysia (JAKIM)

Bahagian Kawalan Makanan Halal Jabatan Hal Ehwal Syariah

Country

Expiry Status

Sl. No

Singapore

2020/06/08

Malaysia Brunei Darussalam

2020/06/08

Muslim Professional Japan Association (MPJA)

Japan

2019/06/06

The Japan Moslem Association (JMA)

Japan

2020/09/28

Taiwan Halal Integrity Development Association (THIDA)

Taiwan

2020/09/27

Jamiat Ulama Halal Foundation

India

Country

Expiry Status

Jamiat Ulama I-Hind Halal Trust

India

2020/06/08

Asia Pacific Halal Council Co Ltd (APHC)

Hong Kong

2019/10/02

The Central Islamic Council of Thailand (CICOT)

Thailand

2020/09/27

Halal Certification Agency (HCA)

Vietnam

2019/05/26

Halal Development Institute of the Phillipines (HDIP)

Philippines

2019/05/26

Halal Accreditation Council (Guarantee) Limited

Sri Lanka

2019/05/26

The Islamic Coordinating Council of Victoria (ICCV)

Australia

2020/06/08

Supreme Islamic Council of Halal Meat in Australia Inc. (SICHMA)

Australia

2018/07/28

2020/06/08

2020/06/08 6

Name of Halal Certification Bodies

Phase 0 â&#x20AC;&#x201C; Halal Certification by MUI (4/6) List of Approved Foreign Halal Certification Bodies Sl. No

Country

Expiry Status

Australian Halal Development & Accreditation (AHDAA)

Australia

2019/08/31

Global halal Trade Center Pty Ltd (GHTC Pty.Ltd)

Australia

Western Australian Halal Authority (WAHA)

Australia

Australian Halal Authority & Advisers (AHAA)

Global Australian Halal Certification (GAHC)

Australia

Asia Pasific Halal Service New Zealand, Pty 2011 Limited (APHSNZ-Pty 2011 ltd)

New Zealand

New Zealand Islamic Development Trust (NZIDT)

New Zealand

Name of Halal Certification Bodies

Australia

List of Approved Foreign Halal Certification Bodies Sl. No

Country

Expiry Status

The Federation of Islamic Association of New Zealand, Inc (FIANZ)

New Zealand

2019/10/02

2020/08/07

Halal Food Council of Europe (HFCE)

Belgium

2020/09/28

2020/08/08

The Muslim Religious Union of Poland (MRU)

Poland

2020/06/08

Halal Quality Control (HQC)

Netherlands , Germany

2020/06/08

2020/09/18

Instituto Halal De Junta Islamica (Halal Institute of Spain)

Spain

2020/09/28

2020/06/08

World Halal Authority (WHA)

Italy

2019/05/26

Total Quality Halal Correct Certification (TQHCC)

Netherlands , Germany

2019/06/06

HALAL CONTROL

Germany

2018/08/02

2020/09/12

2020/09/27 7

Name of Halal Certification Bodies

Phase 0 – Halal Certification by MUI (5/6) List of Approved Foreign Halal Certification Bodies

List of Approved Foreign Halal Certification Bodies Sl. No 31

Name of Halal Certification Bodies

Halal Certification Europe (HCE)

Country England

Expiry Status

Halal Food Authority (HFA) – UK

Halal Feed and Food Inspection Authority (HFFIA)

Netherlands

Halal Certification Services (HCS)

Switzerland

2020/09/27

Eurasia Halal Services Centre

Turkey

2019/10/02

HAFSA Halal Certification and Food Imp&Exp Ltd

Turkey

2019/06/08

Islamic Foundation of Ireland (IFI)

Ireland

2020/09/11

Name of Halal Certification Bodies

Country

Expiry Status

Islamic Services of America (ISA)

USA

2020/09/27

Halal Transaction of Omaha

USA

2020/06/08

The Islamic Food and Nutrition Council of America (IFANCA)

USA

2020/06/08

Halal Food Council USA (HFC USA)

USA

2020/09/27

American Halal Foundation (AHF)

USA

2020/09/27

Federation of Muslims Associations in Brazil (FAMBRAS)

Brazil

2020/09/12

Islamic Dissemination Centre for Latin America (CDIAL) Brazil

Brazil

2018/10/28

National Independent Halal Trust (NIHT)

South Africa

2019/05/26

2020/09/27

Sl. No

2019/05/26

2018/07/18

Phase 0 â&#x20AC;&#x201C; Halal Certification by MUI (6/6) MUI certification bodies local addresses in Indonesia Address 2

Address 1

Secretary LPPOM MUI Gedung Majelis Ulama Indonesia Jl. Proklamasi No. 51 Menteng Jakarta

Global Halal Centre Jl. Pemuda No 5 - Bogor 16161

Does the certification body has any tie up with the government?

Yes

If MUI has tie up with government, then is it central government or state government?

State Government (Ministry Of Religion)

Are the categories in focus required to be certified using the same process? Fish oil and Krill Oil soft gels

Yes

Fiber tablet to replace Fiber and Herb

Yes

Vanilla powdered meal replacement

Yes

Demand Analysis

Category

Product Name

Fill Amount per bottle

Current Annual Qty. Paid Unit Shelf Life (12 mos forecast Price & as of 4.23.18) Currency

xxx

Fish Oil

90 softgels

24 months

xxx

Krill Oil

30 softgels

24 months

xxx

FIBER & HERB TABLETS

180 tablets 24 months

Formula No.

Unit

Packing

xxx

Bottles

120CC VITAMIN PACKER BOTTLE

xxx

Bottles

50CC VITAMIN PACKER BOTTLE

xxx

Bottles

275CC VITAMIN PACKER BOTTLE

Remark

Fish oil and Krill oil softgels

Fiber tablets to replace Fiber and Herb

P.S. Suppliers have existing formulas ready for private label is what Client want.

krill oil is quite difficult to find, so any alternative Omega-3 is welcome.

3 2

Fish Oil Fish Oil

Omega-33 Omega Krill Oil Krill Oil

No. of suppliers has been called No. of suppliers passed phone screening No. of suppliers included in RFI process No. of RFI received

Fiber tablets Fiber Tablet

No. of RFI received

No. of suppliers included in RFI process

No. of suppliers passed phone screening

No. of suppliers has been called

No. of suppliers identified

No. of RFI received

No. of suppliers included in RFI process

No. of suppliers passed phone screening

No. of suppliers has been called

No. of suppliers identified

No. of RFI received

1 2

No. of suppliers included in RFI process

1 2

No. of suppliers passed phone screening

No. of suppliers has been called

No. of suppliers identified

# of suppliers

Nutrition Product Manufacturers Sourcing in Indonesia - Progress Review Nutrition Product Manufacturers Sourcing in Indonesia - Project Progress Review

15 3

Bali island

Sumatra island

Java island

Location on Map of suppliers identified 64 suppliers are identified in Indonesia so far, 61 in Java, 2 in Sumatra, 1 in Bali.

Sumatera

Kalimantan

Sulawesi

Fish Oil supplier

Maluku

Western New Guinea (Papua)

Jakarta

Krill Oil supplier

35 Omega-3 supplier

Java 15

Fiber Tablets supplier

Product

Bali

# of suppliers identified in total

Population for reference

Java

Sumatra

Bali

Kalimantan

Sulawesi

Maluku

Western New Guinea (Papau)

141 Million

50 Million

4 Million

19 Million

17 Million

2 Million

4 Million

Fish Oil

Krill Oil

Omega-3

Fiber Tablets

# of suppliers in total

Phone Screening Criteria No.

Phone Screening Questions

Screening Criteria

Are you able to supply below products? Are you producing in-house or outsourcing from other suppliers? 1 * Fish Oil * Krill Oil (or Omega-3) * Fiber Tablets Do you have MUI Halal certificate for Fish oil / Krill oil (Omega-3) / Fiber tablets ? 2 When was the certificate given, when it’ll be expired?

Are above products BPOM certified? Do they have BPOM registration number? (Badan Pengawas Obat dan Makanan)

Are above products (fish oil, krill oil, fiber tablet) ready for private label ?

Are you reviewing new legislation and other requirements, i.e. GMP’s, on a regular basis?

• Suppliers currently producing any of the three products is OK. • Will keep the traders.

• Must have MUI Halal certificate available. • Get the information for receiving date and expiry date of supplier MUI Halal certificate. • Manufacturer must be BPOM certified. • Products must have registration number with BPOM. • Must have existing formulas for private label, which can be labelled and sell under client brand. • If suppliers don’t have existing formulas, only can produce according to client request, they will be excluded as it’ll take much longer time to launch the products.

GMP is preferred, but do not exclude supplier if they don’t have GMP.

Phone Screening – Rejection Reason Analysis So far, 53 suppliers failed phone screening with below reasons… Phone screening rejection reason analysis

15% 34% 21%

30% Rejection reasons

Java

Sumatra

Bali

Total

Percentage

34%

30%

21%

Supplier don't have existing formulas ready for private label.

Supplier can not supply any of the requested products in requested form: fish oil softgel / Krill oil Softgel / Omega-3 softgel / Fiber tablets.

Supplier only sell in their own brand, not willing to do private label.

Supplier don't have MUI halal certificate.

15%

Total

100%

1 2

RFI Scorecard â&#x20AC;&#x201C; Weight per section

Company Background Production Capability 10%

15%

10%

R&D Capability 15%

Quality Control Management

Certifications / Registrations / License / Inspections

15% 15%

Regulatory

15%

Sourcing Cooperation Willingness

Section

weight %

Max. Point

Company Background

15%

Production Capability

15%

R&D Capability

15%

Quality Control Management

15%

Certifications / Registrations / License / Inspections

15%

Regulatory

10%

Sourcing

10%

Cooperation Willingness In total

100%

100

RFI Scorecard Sum up Fish Oil / Omega-3 / Fiber Tablets â&#x20AC;&#x201C; Supplier RFI Scorecard Sum up 110

100%

88%

100 90

78%

90%

78%

78% 73%

RFI Score

70%

80%

Cooperation Willingness

60%

Sourcing Regulatory

50%

Certifications / Registrations / License / Inspections Quality Control Management

40%

R&D Capability Production Capability

30%

Company Background % of completion

20%

10%

10 0

Supplier 1

Supplier 2

Supplier 3

Supplier 4

Supplier 5

RFI Score per section (out of 100) Production Capability - Score out of 100

Company Background - Score out of 100 100 90 80 70 60 50 40 30 20 10 0

100 90 80 70 60 50 40 30 20 10 0

64 49

40 31

Supplier 1

Supplier 2

Supplier 3

Supplier 4

Supplier 5

100 90 80 70 60 50 40 30 20 10 0

79 51

Supplier 2

Supplier 3

Supplier 4

Supplier 2

Supplier 3

Supplier 4

Supplier 5

Quality Control Management - Score out of 100

Supplier 1

79 68

Supplier 1

R&D Capability - Score out of 100 100 90 80 70 60 50 40 30 20 10 0

Supplier 5

76 64

Supplier 1

Supplier 2

Supplier 3

Supplier 4

Supplier 5

RFI Score per section (out of 100) Certifications / Registrations / License / Inspections - Score out of 100

Regulatory - Score out of 100

100 80

120 79

100

20 0

Supplier 1

Supplier 2

Supplier 3

Supplier 4

supplier 1

Supplier 5

100 90 80 70 60 50 40 30 20 10 0

100 80 80 60 50

40 20 20

0 Supplier 1

Supplier 2

Supplier 3

Supplier 4

supplier 2

supplier 3

supplier 4

supplier 5

Cooperation Willingness - Score out of 100

Sourcing - Score out of 100

Supplier 5

80 70

Supplier 1

Supplier 2

Supplier 3

Supplier 4

Supplier 5

Supplier Company Profile - Example