General Logistic StandardFAW-Volkswagen Co. Ltd.Logistics DepartmentApplies to all domestic first-tier suppliers supplying FAW-Volkswagen Co. Ltd. with manufacturing parts and materialsVersion: Jan. 2006ContentsForeword (3)1. General Principles (4)2. Goods Supply Methods (4)3. Settlements (5)4. Geographical Location of Suppliers (5)5. Logistic Solutions (5)6. Transport Requirements (6)7. Transit Warehouse Requirements (6)8. Packaging Requirements (7)9. Part Requirement Planning (9)10. Goods Demand Information Systems (10)11. Fines (11)12. Changes in Technology (11)13. Working Hours (12)14. Contacts (12)15. Emergency Planning (12)16. Safe Management (12)17. Logistic Cost Quotations (13)Appendix 1 Investment & Running Costs for Goods Supply Information Systems (13)Appendix 2 Organizational Structure & Logistic Contact Persons of FAW-Volkswagen’s Logistics Department (15)Appendix 3 Part Cost Definition (17)ForewordThis “General Logistic Standard” was compiled based on the requirements of FAW-Volkswagen’s Logistics Department and actual and existing circumstances arising from day-to-day work, with the aim of clarifying logistic requirements before a new part is designated, enabling pre-selected suppliers to produce more accurate logistic quotations, and providing a foundation and guarantee for the future implementation of logistic requirements during batch goods supply. When a new part is processed, the FAW-Volkswagen Logistics Department will carry out further confirmation and adjustments according to the logistic standard decided during part designation.During day-to-day goods supply and operations, all suppliers must abide by the specific logistic requirem ents of the “General Logistic Standard” and any other of FAW-Volkswagen's written suggestions, and perform all the duties and obligations stipulated in the contract between the supplier and FAW-Volkswagen, avoiding all non-compliant behavior, and thus improve the operation efficiency and control capabilities of the whole logistic cycle.FAW-Volkswagen reserves the right of final interpretation of the "Standard.” With the development of FAW-Volkswagen and the new requirements of relevant laws and regulations, the Company will update and promptly re-release this document.1. General Principles1.1. Pre-selected suppliers must organize and plan their logistic process based on FAW-Volkswagen's logistic requirements, and in turn complete the quotation according to this process, making sure that each logistic cost is made clear in FAW-Volkswagen’s quotation form. 1.2. During the goods supply process, the supplier must not only abide by the logistic requirements described in the “Standard”, but also abide by other logistic standards and requirements stipulated by FAW-Volkswagen not emphasized or mentioned by the “Standard.”1.3. If, during the goods supply process, there are changes to the quotation and/or mode of operation, the supplier must obtain the approval and agreement of the FAW-Volkswagen Logistics Department before these become effective, otherwise the supplier must take the responsibility for any consequences that arise from these changes.2. Goods Supply MethodsIn principle, parts supplied to FAW-Volkswagen's designated sites can reach their destination via three methods:2.1. Kanban Goods Supply: The supplier delivers goods to FAW-Volkswagen's logistic entranceaccording to the goods demand sent by FAW-Volkswagen via electronic Kanban (or telephone).2.2. Just In Time (JIT) Goods Supply: The supplier delivers goods to FAW-Volkswagen’s logistic entranceaccording to the car manufacturing sequence. Whenever necessary, internal JIT production must be carried out according to FAW-Volkswagen's requirements.2.3. Requirement Planning Goods Supply: The supplier (outside Changchun) supplies goods to a specified transit warehouse (the parts remain the property of the supplier) according to the goods arrival time and quantities required in the Part Requirement Plan, and are then sent from the transit warehouse to FAW-Volkswagen’s logistic entrancevia Kanban or JIT methods.Pre-selected suppliers can obtain relevant information from FAW-Volkswagen’s Contracting-Out New Parts document.3. Settlements3.1. Parts Supplied Via Kanban: FAW-Volkswagen will make settlements according to the number of parts registered in its logistic entry system as having entered the warehouse.3.2. Parts Supplied Via JIT: FAW-Volkswagen will make settlements according to the number of parts at point CP7 , after cars have come off the assembly line.4. Geographical Location of SuppliersIn order to ensure that a supplier can dispatch goods to FAW-Volkswagen upon receipt of its goods demand within the controlled time, suppliers should be located near the Company (suppliers located near the transit warehouse would also fulfill this requirement).4.1. Kanban Parts: After receiving FAW-Volkswagen’s goods demand notice, goods must be delivered to the Company’s logistic entrance within 2 hours.4.2. JIT Parts: Ideally, the supplier will be located within a 5 km radius of FAW-Volkswagen. The limit is 25 km.5. Logistic Solutions5.1. After pre-selected suppliers sign a Test Manufacture Agreement (TMA) with FAW-Volkswagen, they should immediately get in contact with the Logistic Planning Section of the Logistics Department and decide upon a “Part Supply Logistic Solution,” seeking final confirmation with the Logistic Planning Section.The “Part Supply Logistic Solution” includes transport, tra nsit warehouse, packaging, etc solutions required for parts to deliver from the supplier to FAW-Volkswagen’s entrance.5.2. Before the batch goods supply, the supplier must make preparations according to the “Part Supply Logistic Solution.” If for any reas on something cannot be completed according to plan, the supplier must contact the Logistic Planning Section in advance.5.3. The supplier must rigorously execute the logistic solution; if any changes are required, the supplier must contact the Logistic Planning Section in advance and, having obtained its approval, carry out the changes.6. Transport RequirementsWhen transporting parts, in addition to abiding by Chinese laws, regulations and industry standards, the supplier must also pay attention to the following:6.1. The vehicle used to transport the parts must be of a van-type with a sealed hold and convenient for loading and unloading. The vehicle must also be in good condition and all equipment (fastenings, fire prevention equipment, etc) must be in full working order. During transport, containers and racks should be appropriately fixed down.6.2. Vehicles that enter FAW-Volkswagen must fulfill the Company’s requirements.6.3. Drivers and delivery men must be well-trained, ensuring that suppliers are contacted swiftly during transportation.6.4. Chemicals, oils & lubricants and dangerous articles must be transported in special vehicles, while the transport of easily flammable and explosive chemicals must be approved by the Public Security Department, and transported according to the requirements of Chinese regulations, also taking the necessary safety measures (i.e. warning signs in clear view).6.5. In order to enhance core competitiveness by lowering part transport costs, FAW-Volkswagen may entrust the one carrier to transport the goods of more than one supplier:6.5.1. If the part transport cost of a supplier can be optimized, FAW-Volkswagen will organize joint transportation, pay the carrier, and deduct the relevant amount from the part cost it owes the suppliers. Moreover, in any subsequent quotations, the supplier will not have to include transport costs. FAW-Volkswagen will notify the implementation of this measure at a later date;6.5.2. If the part transport cost cannot be optimized, the supplier must make its own transport arrangements.7. Transit Warehouse Requirements7.1. Currently, FAW-Volkswagen has designated two localized transit warehouses in Changchun; for FAW-Volkswagen’s Car Plant 1 and Car Plant 2 respectively:A. Transit Warehouse of Factory 1: Volkswagen Logistics Changchun Co. Ltd., abbreviatedto LILA1B. Transit Warehouse of Factory 2: FAW International Logistics Center, abbreviated to LILA27.2. In principle, FAW-Volkswagen requires suppliers outside Changchun to store their parts at LILA1 or LILA2; depending on the supplier’s region, the following time appl ies for transit warehouse storage:7.3. The exact storage time for each part must be confirmed with the Material Disposition Section of the Logistics Department.7.4. If the usage time of the smallest capacity package of a part exceeds the above stipulated time, it should be used as the standard time for that particular part.7.5. Parts must be sent and stored in the corresponding transit warehouse depending on the car and machinery types produced respectively at the two factories. Parts required by both factories should be dealt with according to the Logistic Solution determined with the Logistic Planning Section.7.6. In order to facilitate unified management, FAW-Volkswagen does not encourage suppliers to set up their own transit warehouse in Changchun; moreover the supplier is fully responsible for any inconveniences or increased expense that such a move might entail.7.7. For parts stored at LILA1:7.7.1. Currently, it is the supplier that pays for storage costs at LILA1;7.7.2. In order to enhance core competitiveness by lowering part storage costs, FAW-Volkswagen plans to directly pay for LILA1 storage costs and then deduct the relevant amount from the part costs it owes the suppliers. Moreover, in any subsequent quotations, the supplier will not have to include part storage costs. FAW-Volkswagen will notify the implementation of this measure at a later date;7.8. For parts stored at LILA2: FAW-Volkswagen directly pays for LILA2 storage costs; quotations should not include part storage costs.8. Packaging Requirements8.1. In principle, when parts that are due to be sent directly from supplier to FAW-Volkswagen leave the factory, they are packaged in re-usable logistic equipment (plastic containers, metal containersand racks); when parts that are due to go through the transit warehouse leave the factory, they are packaged in disposable packaging (paper packaging). These parts are then re-packaged into re-usable logistic equipment at the transit warehouse, before being sent to FAW-Volkswagen's logistic entrance. All packaging must conform to quality, safety and environmental-friendly requirements, and the exact packaging solution of each part must be determined with the Logistic Planning Section, ensuring that all preparations are completed within its time requirements.8.2. Manufacture and maintenance:8.2.1. Re-usable logistic boxManufacturing standards and quantities are determined by the Logistic Planning Section, meaning that the supplier should only manufacture or purchase this equipment from the box-manufacturers designated by FAW-Volkswagen; however the price of this equipment should be negotiated independently. At the same time, the supplier must carry out maintenance, updating, cleaning and the processing of signs according to FAW-Volkswagen's requirements;8.2.1.1. Logistic equipment in common-use(1.1) From supplier directly to FAW-Volkswagen’s entrance: All equipment is to beprovided by the supplier;(1.2) From supplier to transit warehouse: All equipment is to be provided by the supplier;(1.3) From LILA1 to FAW-Volkswagen’s entrance: Equipment used during transport is tobe provided by the supplier;From LILA2 to FAW-Volkswagen’s entrance: E quipment used during transport is to be provided by FAW-Volkswagen;8.2.1.2. Special Logistic Equipment(2.1) From supplier directly to FAW-Volkswagen’s entrance: All equipment is to beprovided by the supplier;(2.2) From supplier to transit warehouse: All equipment is to be provided by the supplier;(2.3) From LILA1 to FAW-Volkswagen’s entrance: All equipment is to be provided by thesupplier;From LILA2 to FAW-Volkswagen’s entrance: Equipment used during transport is to be provided by FAW-Volkswagen;8.2.2. Disposable packaging: The supplier must manufacture or purchase this according to therequirements of FAW-Volkswagen's Logistic Planning Section.8.3. Equipment depreciation: Metal equipment depreciation is calculated on a 6 year basis, while plastic equipment depreciation is calculated on a 3 year basis.8.4. Equipment maintenance: In principle, equipment maintenance should be carried out at FAW-Volkswagen-designated logistic equipment suppliers; if the supplier carries out maintenance independently, this must still be done in accordance with FAW-Volkswagen’s equipment standards.8.4.1. From supplier directly to FAW-Volkswagen’s entrance: All equipment is to be maintained by the supplier;8.4.2. From supplier to transit warehouse: All equipment is to be maintained by the supplier;8.4.3. From LILA1 to FAW-Volkswagen’s entrance: Equipment used during transport is to be maintained by the supplier;8.4.4. From LILA2 to FAW-Volkswagen’s entrance: Equipment used during transport is to be maintained by FAW-Volkswagen;8.4.5. When responsibility for damaged equipment is indisputable, whoever is responsible will carry out the repair.8.5. Package signs: the supplier must place signs on packages according to the requirements of FAW-Volkswagen’s Logistic Pl anning Section, and ensure that signs are correct, in good condition, and in clear view; after empty equipment is returned, suppliers must promptly process old signs to ensure the traceability of parts.8.6. Return of empty equipment: the supplier and transit warehouse should promptly return empty equipment according to the requirements of FAW-Volkswagen’s Logistic Planning Section.9. Part Requirement Planning9.1. The supplier should organize and arrange its own production and material preparation work according to FAW-Volkswagen’s Part Requirement Plan.9.2. Outside suppliers must supply goods to a designated transit warehouse according to the goods arrival time and quantity stipulated in the Part Requirement Plan.9.3. The supplier must apply for a free email address from FAW-Volkswagen’s Supply Department; when batch goods supply status has been achieved, FAW-Volkswagen will send the PartRequirement Plan to this address.9.4. The supplier should ensure that the email account is checked regularly every FAW-Volkswagen working day and that messages and notices from the Company are acted upon; if a problem with the email account arises, the supplier should immediately contact FAW-Volkswagen; if the Company does not receive any feedback from the supplier, it will assume that everything is proceeding according to plan.9.5. FAW-Volkswagen’s Part Requirement Planning:9.5.1. Net Requirement Planning: the SAP System provides Rolling Requirement Plans for parts. The goods demand plan, sent weekly, includes 26 weeks of weekly part requirements. Whenever necessary, the detailed goods demand, sent daily, includes 4 weeks of daily requirements.9.5.2. Supplementary Planning: In the event of part shortage, wrong-delivery, damage, etc, additional plans (as agreed earlier) must be carried out via telephone, fax or email.9.6. The supplier must possess efficient planning capabilities, and have sufficient stock to satisfy requirements besides those of FAW-Volkswagen.10. Goods Demand Information Systems10.1. Kanban parts10.1.1. The supplier must establish an R/3 System connection with FAW-Volkswagen, which the Company’s logistic entry will use to send an Electronic Kanban containing goods demand information. The supplier will carry out the goods supply by connecting to the R/3 System and printing a bar-coded Goods Supply Form;10.1.2. Each year the supplier must pay an information service charge to FAW-Volkswagen, see appendix 1.10.2. JIT parts10.2.1. The supplier must purchase the FIS System provided by FAW-Volkswagen. JIT goods supply will be carried out according to the part requirement messages sent by the FIS System based on the CP5A manufacturing sequence;10.2.2. Via a computer system, the supplier receives, respectively, the assembly sequence plan guidelines sent by body shop point R100 (car bodies are online) or a later-stage information pointand the assembly sequence plan guidelines sent by point M100 (CP5A). JIT production or back-up preparations are carried out according to the assembly sequence plan guidelines;10.2.3. The supplier must pay FAW-Volkswagen for the equipment essential for JIT, and also pay an information service charge, see appendix 1.10.3. FAW-Volkswagen’s Company Management Services and Logistics Departments will be jointly responsible for the management of the Logistics Information System (hardware and software). Should a problem with the goods supply system arise, the supplier should promptly report to FAW-Volkswagen.11. Fines11.1. If, because of a problem with the supplier (late goods supply, batch production quality falls short of the mark, etc), FAW-Volkswagen has to halt production, the Production Control Section of the Logistics Department will notify the supplier of the need for improvement and give out a fine according to the standards stipulated by the relevant department. Currently the fine is set at: 150 RMB/min.11.2. If the supplier violates any of FAW-Volkswagen’s relevant regulations and causes the Company’s logistic operations to incur additional costs, the Company’s relevant de partment will calculate these and ask the supplier to provide compensation.12. Changes in Technology12.1. If the technology of a part changes, the supplier should determine the time for production preparations according to accurate drawings, and notify FAW-Volkswagen’s Procurement Department the production time of the new part, as well as completing production preparations within the stipulated time.12.2. Via the Procurement Department, the Pre-series Management Section of the Logistics Department will i ssue the supplier with a “Technology Change Timetable", the supplier must then provide the goods according to the technology change implementation time.13. Working HoursThe supplier must arrange its working hours (shift changes, rest days, holidays, meetings, production capacity fluctuations, etc) according to FAW-Volkswagen’s production calendar and specific circumstances, and complete goods delivery within the requirements of FAW-Volkswagen's goods delivery windows.14. Contacts14.1. In order to efficiently carry out goods delivery and other relevant business, the supplier must designate a contact person for each section of the Logistics Department, and ensure that these can be contacted at all time during FAW-Volkswagen's working hours.14.2. As soon as there is a contact person or contact details change, the relevant section of FAW-Volkswagen should be immediately notified and the relevant information passed on.14.3. For the contact person and contact details of each section of FAW-Volkswagen’s Logist ics Department, see appendix 2; after a part TMA has been signed between the supplier and FAW-Volkswagen, the relevant person in charge of the Logistic Planning Section must be immediately contacted in order to decide upon the logistic solutions and other relevant logistic matters.15. Emergency PlanningThe supplier must carefully consider all the factors that may affect the normal operation of all the cycles of the logistic process, and on the basis of this stipulate an effective emergency plan to safeguard FAW-Volkswagen’s production. Whenever necessary, the emergency plan must be approved by FAW-Volkswagen.16. Safe ManagementThe supplier must ensure its compliance with Chinese and local laws and regulations, safety regulations, Identificatio n Technology regulations, FAW-Volkswagen safety regulations, etc, and ensure that day-to-day operations conform to these.17. Logistic Cost QuotationsFAW-Volkswagen employs an A-B split-cost method to carry out new part cost enquiries; for the definition of part costs see appendix 3. Before making a logistic cost quotation, the supplier must first carefully read the present standard and all of its appendices; otherwise it will be responsible for any consequences arising from mismanagement.Appendix 1 Investment & Running Costs for Goods Supply Information SystemsI. Hardware for Electronic Kanban Goods Demand System1) One network password card (6 month waiting period, FAW-Volkswagen to order on behalfof supplier)2) One personal computer (20,000 RMB, to be paid by supplier to FAW-Volkswagen)3) One printer (Model no. HP2000 or above, to be purchased independently by supplier)4) Kanban printing paper (4 sheets per document, to be purchased independently bysupplier)5) Annual service charge (3,000 RMB, to be paid by supplier to FAW-Volkswagen)II. One-off investment & annual costs for JIT goods supply factoriesAppendix 2 Organizational Structure & Logistic Contact Persons of FAW-Volkswagen’s Logistics DepartmentI. Organizational structure of FAW-Volkswagen's Logistics DepartmentII. FAW-Volkswagen's logistic contact personsAppendix 3 Part Cost DefinitionI. A-B cost definitionTransport Costs - A, Direct delivery to FAW-Volkswagen’s entrance: Transport from supplier to FAW-Volkswagen’s entranceB, Via transit warehouse: Transport from supplier to transit warehouse(Including the return of empty equipment)Storage Costs - A, Direct delivery to FAW-Volkswagen's entrance: No storage costsB, Via transit warehouse: Storage in transit warehouse and delivery of parts toproduction line (transport, hand-over and return of empty containers) Equipment Costs - Including re-usable equipment depreciation and maintenanceSorting Costs: Costs specially incurred during part sorting. Including sorting equipment, information equipment, workers, dimensions, etcPlease Note:1. The logistic cost of JIT parts includes points 1-4, while the logistic cost of non-JITparts includes points 1-3;2. If a supplier builds or rents its own warehouse in Changchun, it must still pay forstorage costs.。
