Procurement Policy

Statement of Policy The policy of KDS Accessories is to obtain the best value for the materials, goods, and services that it purchases from, and to maintain the highest ethical standards in dealing with, its suppliers. Value includes price, quality, and service.

BackgroundPurchased goods and services are KDS Accessories’s largest expense area. Therefore, it is imperative that KDS Accessories use its purchasing leverage to ensure that goods and services are procured at the lowest cost, highest quality, and optimal service, including delivery.

ScopeThis policy covers the procurement of raw material, fixed assets, spare parts, services, etc from local and foreign (import) sources. This policy does not cover procurement of:

1) Refundable deposits to various authorities like BTRC, PDB, etc2) Staff loan3) Customs Duty4) Tax payment5) Insurance 6) Entertainment Expenses7) Employee Travelling Expenses8) Company Payroll (salary, bonus, PF, gratuity, overtime, etc)9) Utility expense (e.g. Gas, Electricity, Water, Telephone etc)

Definitions Approved Supplier: Suppliers that have been selected by Procurement but

for which a Contract is not necessarily in place, and for which a Vendor Master record exists.

Preferred Supplier: Suppliers for which an agreed Contract is in place and for which a Vendor Master exists.

Procurement: The act of procuring, or the person or people procuring, indirect goods and services, and longer to access.

Supplier: Company providing goods and/or services to KDS Accessories

Vendor Master: Supplier record in procurement or legacy ordering system, that contains details such as contact name and address, tax details etc for the supplier.

Purchase Committee:

Standards of Business ConductAll Procurement activities shall be conducted in line with the Standards of Business Conduct of KDS Accessories.

4.0 PESPONSIBILITY AND AUTHORITY

Head of Sourcing is responsible for selection, registration and evaluation of suppliers.

Assigned personnel, Sourcing (Import) – is also Responsible for performance monitoring and evaluation of approved suppliers.

Assigned personnel, Sourcing (Local Purchase & Inventory) – is responsible for purchase and verification of locally purchased items. In absence of Head of Sourcing, he will be responsible for evaluation of approved suppliers of locally purchased items.

5.0 PROCEDURES

5.1 Selection of SuppliersNew suppliers are initially selected based on business history, product quality, business experience, market reputation or reference of other buyers, price & credit facilities, delivery service, etc. for import and local purchase.

Primary information is gathered for selection of a new supplier. Collected information is reviewed and approved by Head of Sourcing for selection. Selection is done by few option(s) such as – Sample testing or buyer

nomination or Top Management’s advice or market reputation or reference of other buyers.

5.2 Registration of Suppliers

Registration of Supplier is maintained in the approved List of Suppliers, for imported items by the assigned personnel of Sourcing [Import] while for local items the list is prepared by the assigned personnel (Local Purchase & Inventory). The list is approved by the Head of Sourcing.

5.3 Evaluation and Analysis of Suppliers Performance

The supplier’s performances are evaluated once in every year for the supplier of imported items. The supply history record is maintained by the assigned personnel of Sourcing [Import] for evaluation.

In case of locally purchased items, the performances are evaluated once a year for some major suppliers and the assigned personnel (Local Purchase & Inventory) maintains the record of evaluation. This evaluation is reviewed by Head of Sourcing if necessary.

5.4 Purchasing

The organization purchases the following types of products and material: Imported items such as raw material, machinery and critical machinery

spare parts Local items such as stationeries, printing materials, mechanical &

electrical items and chemicals.

5.5 Import of Raw Materials

The Sourcing Department (Import) monitors material stock with Inventory and Integrated Planning (IP) Department. After getting material requisition from IP, the Head of Sourcing/ assigned personnel of Sourcing (Import) places the order for the quantity to the nominated or regular suppliers through e-mail /phone /fax (if quality, price & other terms are found acceptable). Sourcing department gets price quotation from suppliers whenever they declare any new price. In some cases, comparative price statement is prepared and Head of Sourcing reviews and approves the quotation to purchase. Performa Invoice (PI) / Indent is collected from the supplier. The PI / Indent is signed by MD / Authorized person for L/C opening / Head of Sourcing for final approval and to open LC for any import. A file is maintained for each LC.

5.6 Import of Critical Machinery Spare Parts

Factory Head / Maintenance personnel informs Head of Sourcing / assigned personnel of Sourcing (Import) for any kind of critical machinery spare parts through e-mail to arrange from abroad. The import is initiated by the same way of import of raw materials. Sometimes, PI or Indent is directly collected by Factory Head / maintenance personnel to establish L/C and to import products.

5.7 purchase of Local ItemsThe minimum and maximum stock levels of accessories have been defined and are monitored by Central Store department on daily basis.In case the stock level is close to minimum level. Central Store department initiates their requisition for purchasing by using the Software. The Software Purchase Requisition is reviewed and approved by DGM. Then the purchase department instructs the Purchase Officer to purchase such items locally.

For the local purchase of major items the Purchase Officer collects quotations verbally / in writing from suppliers. Head of Sourcing reviews the comparative statement of quotations submitted by local suppliers for approval for purchasing local items valued up to BDT 2 lac. For purchasing local items valued above BDT 2 lac, the comparative statements of quotations are reviewed by the purchase committee for approval.

For petty cash, rare items and emergency purchases, quotations may not be obtained. In some cases purchase is done on spot in cash.

Purchase Officer purchases directly or by issuing Purchase Orders (only for the applicable supplier). After receipt of goods in the factory, copy of Purchase Requisition, MRR and Chelan are sent to Accounts department for payment.

5.8 Verification of purchased productsUpon receipt of locally purchased items, the concerned department verifies it. If any item fails to meet required specification, the item is returned to the supplier to get back the required item. The assigned personnel (Local Purchase & Inventory) take’s initiative to do it.

For imported items, the Import department provides Packing List to factory Store / Inventory department against each L/C prior to receiving imported goods at factory. The assigned personnel of Store / Inventory verity goods with the Packing List for quantity and quality at the time of receiving and prepare MRR accordingly. In case of any discrepancy, assigned personnel of Store / Inventory informs import department to take up matter with Supplier for necessary arrangement.

6.0 REFERENCESList of Approved SuppliersPurchase Requisition (In software) for local itemsMaterial Receiving Report (MRR)Supply History and Evaluation RecordL/C files for imported items

Item ClassificationIn general sans there are at list 6 categories of item needed to buy from local market.

1. Stationary item2. Electrical item3. Mechanical item4. Chemical item5. Consumable item6. Others.

Purchase types:

There are two types of purchase are occur in every factory that is1. Cash purchase.2. Credit purchase.

For cash purchase - Only those items are purchase by cash which is more profitable then credit purchase. Credit rate should be higher than cash purchase rate. If both difference rated are higher than interest saving rate then it is must be purchase in cash.

For example:

Item Cash Rate Credit RateInterest Saving

Profit/Loss

X 100 110 5% Loss Tk.5

And all kinds of emergency purchase, slow item, and low quantity item must be purchase in cash.

For credit purchase – Only those items are purchase in credit basis which cash and credit difference rate are lower than interest save rate then it must be purchase in credit.

For example:

Item Cash Rate Credit RateInterest Saving

Profit/Loss

X 100 105 10% Profit Tk.5

Accounts Payment system

Accounts Payment the bills are two-way system.1. Cash Payment for cash purchase.2. Claque Issue for credit purchase.

Note: Payment systems develop by Accounts department by the consul of

Responsibilities

Element Policy DetailProcurement Responsibilities

Procurement is charged with implementing the necessary controls and providing support to the business for all expenditure with third parties, to ensure BAT receives the optimal service levels at the lowest total acquisition cost.

Procurement are responsible for:o The provision of procurement services to all business

units upon request and as agreed by executive committeeso Ensuring compliance with the sourcing and procure-to-

pay processes for all influencible indirect expenditureo Maintaining up-to-date company information on preferred

suppliers and agreed terms and conditions, to ensure the smooth running of the procure-to-pay process

o Production and maintenance of up-to-date supplier, item contract, expenditure and savings information

o Adoption of suppliers and catalogues onto SRM systemo Ensuring Suppliers conform to BAT’s ethical and

environmental standardso Ensuring Standards of business conduct are adhered to

at all times (see section 2.2)

Business Responsibilities

The business is responsible for:o Adhering to the procurement policy in all its procurement

activitieso Providing Procurement visibility to annual Business Unit

objectives, targets and budgets for third party expenditureo Ensuring procurement is involved, with adequate notice,

in the procurement of indirect goods and services, especially with regards to specification, demand management, supplier proposals, supplier selection and ongoing management

Comments

Timeline:

Indirects Procurement will continue to add value to areas of Indirects spend. It will take between 2-5 years for all parts of the SRM spend to have been “touched” by Indirects Procurement.

The compliance process will be through the use of SRM and in particular the use of catalogues to control not only which Suppliers we procure Indirects from but also which items

Procurement Business Management

Element Policy DetailDelegated Authorities

The BAT Korea Policy – Statement of Delegated Authorities, is in accordance with the Global Policy for Delegated authorities. These delegated authorities may be delegated to others following written confirmation of the same by those empowered to do. Any such delegated should be formerly logged with Legal and Audit.

The delegated authority detailed above is the basis for all procurement requisitions and is hard coded in the SRM system to manage the authority to proceed with a purchase of goods and services.

For the purposes of raising Purchase orders and Contracts, the same delegated authority applies. For the avoidance of doubt, this also applies to any sourcing exercises and the subsequent awarding of contracts. A copy of any written authority to act on behalf of a delegated authority must be provided for audit purposes and is deemed as approval to proceed with the awarding of contracts.

Once the above requirements have been satisfied, the following delegated financial authorities apply in with respect to approving

purchases (purchase orders and Contracts) with third parties:

Role Authority: value per Annum

Authority : Value over Contract Term

Budget Owner < KRW 100mn < KRW 200mnIndirect Procurement Manager

< KRW 500mn < KRW 1bn

Board Director unlimited unlimited

The Indirect Procurement Manager may delegate approval authority to Senior Buyers or Buyers as appropriate, and within Indirect Procurement Manager limits.

No member of the Procurement team may enter BAT or any of its companies into a contract (legally binding or otherwise) without prior approval in accordance with the delegated authorities detailed above

Sourcing / Purchases

Element Policy DetailPreferred and Approved Suppliers

All purchases must be made via Preferred Suppliers when a contract is in place for the required good/service

In absence of a Preferred Supplier, an Approved Supplier may be used

Any evidence of more competitive offers, or request for exemption from Preferred or Approved Suppliers, shall be forwarded to Procurement team.

Tender Policy All local purchases above BDT-50,000 must be subject to a formal tender. A minimum of 3 bids must be sought for all tenders.

Tender Policy Exceptions

Supply of Services supervised by the Board or a Committee of the Board

Appointment of financial advisors by the board or audit fees reviewed by the audit committee

Residential leases for ex-pats that are part of salary packages Direct marketing expenditure related to sponsorships & price

promotions In all cases these will still come through Procurement

Supplier Selection

Suppliers will be evaluated against criteria developed for each tender and will be a combination of:o Ability to supply the specified goods/serviceso Total acquisition cost and commercial termso Service levels (including quality standards)o e-Readiness

o Financial stability and riskEnvironment, Safety Guidelines

BAT will adhere to all applicable Environment and Safety regulations and will put the necessary measures in place to ensure supplier compliance to these regulations.

Disposals All disposals are subject to the same Sourcing processes and Delegated Authorities as detailed in and referenced within this Policy.

Sourcing Process Exception

Indirect Procurement must approve all exemptions from the Sourcing Process.

Grievance Procedure

All documentation to suppliers related to sourcing will detail the Grievance Procedure to ensure the highest ethical standards are maintained at all times

Procure-to-Receipt

Element Policy DetailPurchase Order / Contract

Apart from allowed Exceptions listed below, all purchases must be procured by way of a Purchase Order/ Contract, which is generated, approved and sent to the supplier prior to the provision of the required goods or services.

Purchase Orders may only be raised against Preferred approved Purchase Requisitions.

Advance payments to Suppliers should be discouraged and managed out during the sourcing process wherever possible. Where advance payments are unavoidable, then advances should be made through account payee cheque with the approval from Finance & Accounts department as per Financial Authority Matrix. Subsequent invoice issued by supplier must however must reflect the value of the advance payment receipt.

Exception to Purchase Order Policy

The following means of ordering are accepted exceptions to the Purchase Order Policy, for the listed goods and services only:

o Emergency Maintenance, Repair and Operation items upto BDT 100,000 per purchase. Emergency purchases are allowable under this policy only outside of normal working hours and when normal supplier lead times cannot be met. However, Purchase Order to be issued after receiving goods/ services.

o Vehicle Fuel Purchases: All fuel purchases are to be made via the Corporate Fuel Purchase book.

Approval of Purchase Requisition

Approval of all Purchase Requisitions is to be made by Approvers in line with the limits specified in Financial Authority Matrix.

Rejection A Purchase Requisition or Order may be rejected due to incomplete or incorrect information or use of a non-Preferred Supplier (where an

Preferred Supplier is available for the same good or service). This may result in a delay of the order being processed by up to 1 working day.

Receipts No over-receipting of goods/ services is allowable. Changes will be subject to the supplementary requisition process

Returns Goods can only be returned to the Supplier if they are faulty or damaged, or as otherwise agreed with the Supplier. The Supplier must be notified immediately and in any event within 7 days of receipt of the item, of the intended return. Latent defects must be notified with one month

Receipt-to-Pay- Local Purchase

Element Policy DetailInvoices All invoices related to local purchase must be sent to Accounts

Payable (through Dhaka Office in case of Dhaka/Gazipur) at Chittagong Head Office

With the exception of contractual payment like House Rent all payments must be made against a supplier invoice, which is generated and approved prior to payment.

All Invoices related to a Purchase Order or Contract must be matched to the Purchase Order / Contract and Receipt details prior to triggering payment:

o PO Number (copy of PO to be attached to Tax invoice if not available)

o Delivery Chalano Material Receipt Note (MRR) / GRN (Goods Receipt Note)o Item Price (including currency)o Quantityo Date (receipt of goods)o Vendor Nameo Payee Name and the address where the payment should

go.Invoice Variance

It is the Supplier’s obligation to ensure the Invoice matches the Purchase Order and Delivery amounts. Invoices that do not match the Ordered and Received Values are to be returned to Suppliers

Approval Approval of all Invoices is to be made by Approvers in line with the limits specified in Financial Authority Matrix of KDS Accessories.

A match of the values on an approved Purchase Order, Receipt and Invoice is considered an approved payment.

Payment Method

Paper Cheque

In case of Local Purchase a paper cheque is mailed to the vendor’s remittance address or collected by authorized representative of vendor. A remittance advice is included with the cheque. This is a statement that lists each invoice number, date, AIT deducted, VAT deducted and amount that is being paid on that cheque.

Cash Payment

Cash payment is highly discouraged and should be avoided as much as possible. In case of Local Purchase, cash payment above BDT 25,000/- per purchase should be approved by CFO.

Letter of CreditIn case of imported materials payment is settled through acceptance of LC.

Supplier Management

Element Policy DetailSupplier Performance Management

All suppliers with an estimated annual procurement value over BDT -200,000 or total contract value over BDT 200,000 will be subject to a performance review at least once every year by the purchase committee.

The supplier performance review must include:o Ability to supply the specified goods/services (including

contingency management)o Suppliers ability to comply with KDS Accessories terms

and conditions (e.g. Delivery Lead Time, AIT Deduction, VAT Deduction, Credit Period, etc)

o Service levels

Supplier Enlistment

Suppliers with an estimated annual procurement value over BDT- 200,000 should be enlisted with KDS Accessories. All suppliers should be enlisted through approval in Purchase Committee. Before enlistment the purchase committee should evaluate the ability, experience, solvency, succession planning, stability, legality , etc . Purchase Committee will collect the following documents before enlistment of supplier:

1. Trade License2. Bank Solvency Certificate3. Experience Certificate of Doing Business with

other reputed organization4. Proof of more than 02 (two) years’ business

experience in similar field5. Membership of Chamber of Commerce (if

applicable)

6. TIN7. Profile of owners demonstrating capability and

their successor8. Memorandum, Article, Certificate of Incorporation

(if applicable)

Vendor Masters

Absolute control over the Vendor Master File in Procurement Software resides with Procurement

Vendor Masters can only be generated and updated by IT based on approved Request by Head Finance and Head of Sourcing

Vendor Masters will be reviewed on an annual basis. Any Vendor Master that has been inactive for more than 12 months will be deleted or deactivated.

All Vendor Masters should be linked to or synchronized to Accounting Software.