Policy & Procedural Guidelines for Local POS Sourcing

Agenda

• Local sourcing guidelines• High risk items• Checklist• Standards & Policy documents

Local Sourcing GuidelinesIf sourcing POS items locally, please ensure the following

requirements are fulfilled.• If the value of the order is the equivalent of US$25,000

or higher, 3 competitive bids must be obtained. Suppliers need to be provided with a fully specified RFQ to ensure a level playing field. If a supplier returns a quote which deviates from the RFQ spec & it’s attractive, then all other suppliers must be given an opportunity to quote on the same deviation before placing a PO.

• The exception to the above policy is if you pitch a category on an annual basis (for example cardboard display stands). You use the previous year’s collective volume & put that out to 3 competitive quotes for an annual contract.

Local Sourcing Guidelines• All goods must be compliant to a minimum of

CE standards. It is the responsibility of the supplier to know what these are for any given item.

• If sourcing via an agency who in turn is sourcing from China, ensure that the factory has been 3rd party Social Audited (SGS etc.) within the last 2 years. See appendix for Social Audit conditions. All goods must be 3rd party inspected and passed as compliant, as well audited against AQL’s (see high risk items) if appropriate, before shipping.

Local Sourcing Guidelines• For any item sourced from the Far East, ensure that

the Agency or Supplier that you’re working with has company representation in that country. If not they should be eliminated as a potential supplier. It’s critical that a company rep oversees the process and is visiting the factory during production. Without oversight, and particular on a brand like Jack Daniel’s, a factory could continue production beyond the required volume, change material’s etc.

• Ensure that the factory securing the business doesn’t then ‘out source’ the job to a non-compliant factory – a common trick to hit price points..

Local Sourcing Guidelines• Sometimes multiple factories are required for

tight time lines, it’s imperative that this is known up front & that any factory used is compliant.

• Ensure that we own the IP (Intellectual Property) of any item being produced & also that we do not infringe any other brands IP.

• All goods must be branded & items that could be re-purposed for competitor brands by unscrupulous operators, need to be permanently marked Property of Brown-Forman Corporation, this can be in a discreet position.

Local Sourcing Guidelines• Responsibility messaging– All items must have the relevant brand

responsibility message, in a font size like we mean it, not in a font size so small to suggest we’re just ticking a box..

– The exceptions are items too small for the message to be legible

Local Sourcing Guidelines• Responsibility messaging

Local Sourcing Guidelines• Trade mark registration– All items must have the relevant brand trade mark

registration details– This detail does not need to as visible as RM

messaging– For a repeated item the year of registration does

not change, unless the copy is modified

High Risk ItemsHip Flasks should only be sourced centrally due to the strict process

involved, together with the effort that was required to get this in place. Time should not to be spent replicating this at a local level.

However, if due to extenuating circumstance you have no option but to source flasks locally, then the attached Hip Flask specification document must be followed. In short it requires a minimum spec of stainless steel, that flasks are passivated (process described in document) and that both pre production and post production flasks (via a 3rd party quality agency) are sent to LVL QA for testing.

QA conduct leak, discoloration and sensory tests. Flasks can only be produced after pre production test results and only shipped after post production test results. The supplier is also required to provide Metals Content Certification to ensure lead & cadmium content compliance.

Control poor passivation no passivation

Flask Checklist

Were all central sourcing options exhausted before sourcing locally?

Was the Flask QA document strictly followed by the supplier?

Were pre-production flasks tested in LVL before production commenced?

Was production validated by a 3rd party quality provider, with post-production samples sent to LVL for testing, prior to shipment?

Has the supplier provided Metals Content Certification?

High Risk Items• Any Stainless steel item that comes into contact with the product for

prolonged periods must be passivated. Metals Content Certification is also required

• Any metal item that comes in contact with the skin (key rings, necklaces, bracelets, buckles etc.) must have Metals Contents Certification.

• Whiskey stones – it’s strongly recommended that whiskey stones are not used for promotional or gift pack purposes. These are very expensive, somewhat gimmicky and somewhat limited in functionality. The tolerance on stainless steel stones is so fine between acceptable and completely unacceptable and rock stones cannot be branded and therefore would require a branded draw string bag, as it’s against policy to provide unbranded items. If after this you still wish to pursue whiskey stones, ensure the attached Whiskey Stone Policy is adhered to, including minimum size criteria

High Risk Items• Glassware – with the huge array of proprietary glassware

available, it’s likely that most needs can be met centrally. If however there’s a local need for a brand of glass not ranged, then please ensure the attached BF Glassware Specification is adhered to.

• Anti-Flammable material – ensure that no item, such as a fabric banner roll, is produced from lower cost flammable material.

• Candle holders – if producing candle holders the top of the flame needs to be concealed at least 5cm below the rim of the glass.

• Lanyards – ensure that lanyards have a behind the neck safety clip on the strap

• USB sticks – ensure they are tested as virus free

High Risk Items• AQL’s – for any high value or high risk item you

need to establish AQL’s (accepted quality levels) that are agreed up front with the supplier and are audited against by a 3rd party prior to shipment.

High Risk Items• AQL’s are defined as Critical Faults (can cause

harm or result in malfunction of item), Major faults and Minor faults. The military standard is generally accepted in terms of percentages.– Critical fault – 1%– Major fault – 2%– Minor fault – 4%

High Risk Items• You then need to describe what constitutes a

critical/major/minor fault for each item (see glassware example).

• For glassware the same percentages (tighter than the military standard) and descriptions agreed with our preferred supplier (H&S) need to be used if using a different supplier.

Road testing

• Besides all the technical tests, policies & procedures, try to ‘road test’ as many items as practical

• For example, it’s amazing how many features you’ll improve, or even eliminate, if you take a back pack or a trolley bag on a road trip during the sampling process!

• Is the item fit for ‘real world’ purpose?• Will it deliver the desired consumer reaction?

Items Not to Source Locally• If a central proprietary item is available then that is the default

position. A very compelling argument is required to deviate to ‘off the shelf’ industry items instead. This position is supported by all brand leaders.

• Chiller machines, freezers, fridges and any other high cost electrical item requiring testing & QA qualification

Items not to source at all• Anything re-purposed from our bottles• Meat branding irons• Squier Fender & Epiphone/Gibson guitars

– Specific request from Fender not to use this guitar as they target youth with this brand

– Epiphone/Gibson will no longer associate with spirit brands• Decals

– No control where they get placed

Balancing the Variables• A friendly word of advice – don’t be tempted

to extend reach and/or frequency by chasing cheap price points, because it usually means compromising on quality of material used, standards/compliance or process. Anyone can do cheap, but how many can do quality and compliance at the same time?

• Our brands need to be supported by premium and compliant material and it’s the responsibility of anyone sourcing POSM to ensure this.

Why, what could possible go wrong..

• Recall of SoCo chiller machines across Europe 8 years ago due to non compliance..

• Recall of FV glasses from 19 countries 6 years ago, due to annealing issues…

• UK Licensee fined $23k for putting non-passivated & non tested flasks into Sainsbury’s..

• Media outrage over JD meat branding iron• Infected USB sticks corrupting consumers computers• Numerous IP infringement scares

Checklist Have 3 competitive quotes for orders above $25,000 been

obtained? If sourced from the far east, does the supplier have in market

representation? Is the factory Export Certified & has a 3rd party Social Audit

been passed within the last 2 years? Have all local market compliance conditions been met? Have AQL’s been established on high value & high risk items? Is production 3rd party certified & audited to AQL’s before

shipping? Do we own the IP, & conversely not infringing someone

else's? Is the Sales Promotion team involved in the process?

Gift Pack Checklist Do we own the design? Has the premium passed all required compliance

tests? Has the packaging passed all required tests?

TransportationCompression (strength)Heat & HumidityPrint finish (scuff testing)

Have Legal approved the final print design/copy?Has the relevant European Brand Director signed off

on the concept?

Appendix

• Glassware AQL’s• Glassware Tests• Stainless Steel Flask Specifications• Whiskey Stones Specifications• Social Audit Assessment Checklist

AQL’s for production and decoration of BF Brands glasswareThe AQL’s for production of glassware is as follows:

• Critical faults 0.25% • Major faults 1.00%• Minor faults 4.00% • The AQL ‘s have been split into 3 categories, Critical/Major/Minor faults, and the description of each category is as follows: • Critical faults: Glass shards Sharp rims

CracksAny defect that has the potential to harm

• Major faults: Flared out rim

Molten rim Air bubbles bigger than 2mm in diameter

Press rings Positioning of base embossing Indentation in base Washboarding Sunken bottomMore than 4 small (-2mm) air bubbles

• Minor faults: Small marks on base Small scratches Small air bubbles (1-4) Dirty moulds The AQL’s for the decoration of glassware is as follows: • Critical faults 0.25% • Major faults 1.00%• Minor faults 4.00% • The AQL ‘s have been split into 3 categories, Critical/Major/Minor faults, and the description of each category is as follows: • Critical faults: Missing colour/colours

Decoration that doesn’t pass the scratch test • Major faults: Positioning of decoration on a 360 axis (max. tolerance 3mm)

Ink spot/blob larger than 5mmPartially not printed (missing piece is bigger than 4mm)

• Minor faults: Positioning of decoration on a 360 axis (less than 3mm)Ink spot/blob smaller than 5mmPartially not printed (missing piece is smaller than 4mm)

From every 2,000 pcs produced a random check of 125pcs will be carried out and should the AQL not be achieved then the 2,000 pcs will be quarantined and every glass will be checked with the substandard glasses being rejected and destroyed.

Glassware testsAnnealing Test Procedure1. One container each from both outside(left & right)and center rows of the lehr shall be selected every hour, thoroughly cooled and examined. The scratch test needs to be conducted on these glasses (sratch

test is as stated below). 2. Testing shall be performed in accordance with ASTM Method C 148, Polariscopic Examination of Glass Containers. 3. Determine that polariscope is properly illuminated, that is, all 5 bulbs are working. Replace expired bulbs with clear 60-watt bulbs. 4. Each sample container should be examined in polariscope to determine location of maximum retardation (color). Number of standard discs required to match or exceed retardation should be determined.

Apparent temper number is number of AGR Strain Discs required to exceed greatest retardation noted. 5. Real temper number is determined according to formula which factors bottom thickness of glass container. Real Temper = Apparent Temper X 0.160

Actual Thickness in inches Thickness is value measured at maximum color or retardation.Measuring exact thickness of each container tested is impractical. One method of compensating is to adopt bottom thickness standards for different types and thickness of ware.

6. Maximum acceptable Real Temper value is 3 (see chart below). Grade 3 is “considerable strain” and if found, Scratch Test must be passed. Scratch Test follows. SCRATCH TESTPurpose: Annealing determination on glass on which it is hard to determine annealing with polariscope, such as colored glass, or hard to confirm poor annealing.WEAR SAFETY GLASSES AND GLOVES. EXPECT GLASSES TO SHATTER ABRUPTLY AT ANY TIME.Procedure: Using a 120 grit abrasive stone scribe, lightly scratch container around inside heel-bottom. Hold bottom of glass away from body when scribing as bottle may shatter. Scratch should continue completely around heel-

bottom with uniform depth. Failure is defined as fracture extending 0.5” length circumferentially and depth of at least 33% of glass wall thickness. If sample fails within 60 minutes, annealing is unsatisfactory. Should the selected glasses fail the above tests then the production needs to be quarantined and more extensive tests need to take place. This means that a selection of 1glass per 100glasses will be tested to the above

procedures. If the above actions have not rectified the problem then every glass will be checked with the substandard glasses being rejected and destroyed. Thermal Shock Test Specification Glasses must meet requirements for thermal shock test performed as listed below. • Procedure• ASTM C 149-86e (Standard method of thermal shock test on glass containers) to be conducted by supplier or outside lab on an as needed basis. • • Test Requirements• Glass placed in 145o Fahrenheit hot water bath and held for 5 minutes + 10 seconds and transferred within not more than one minute or less than 15 seconds into cold water bath of 70 o Fahrenheit for 30 seconds,

removed and checked. • • If breakage occurs, recheck six glasses from each defective cavity. If breakage again occurs, all glasses from nonconforming cavities, including glasses from those cavities produced in the period from previous

thermal shock test, must be scrapped. Thermal shock tests must be continuously repeated until corrections are made and glasses pass test. • • Frequency of routine tests by manufacturer. • • Minimum of once per shift on each mould• • One glass received by Brown-Forman exhibiting thermal shock weakness below test requirement will be cause for nonconformance of entire load or lot.

Glassware Tests - Annealing

Stainless Steel Flask Specifications These specifications are to be used for Brown-Forman branded flasks manufactured for promotional use. These specifications have been developed to insure that the spirits will remain at their optimal flavor levels

as well as insuring that the product is safe and meets all local regulations. Metal Composition: Flask body, mouthpiece, top plate and bottom plate should be made of 304 Stainless Steel or higher grade. They must also meet any additional requirements of the local market where they are going to be sold. Solder: Lead-free Alloy which meets the local requirements for use in the manufacture of food containers. The alloy should have a 97% Tin-3% Silver or a 96% Tin-4% Silver composition. Solder fluxes should be water-

soluble. Assembly: Once flasks are assembled they must be stoppered (closed) during the grinding and polishing steps to avoid grinding debris and polishing compounds entering the flask.The cap must be with a machined thread, no plastic inlay threads are to be used. Passivation: Perform a short pressurized 5% nitric acid rinse to the inside of the inverted flask. Rinse should take 10 to 15 seconds at 95 degrees C. Nitric acid solution can be made by mixing 5ml nitric acid (69.8% assay) into

100 ml warm water. Wait 5 minutes before proceeding to next step.It is recommended that the factory runs trials to develop their own proprietary passivation process, resulting in passing the discoloration tests as conducted by Brown Forman. In order to do this the factory will

need to test with Jack Daniel’s Tennessee Whiskey. The whiskey used for testing can only be used once & then must be discarded. Rinsing/Drying:Flask should be rinsed with potable water. After rinsing the flask, place opened mouth into a clean hot box long enough to remove moisture residue without heat damaging the flasks. Coding:Individual Production runs should be identifiable through the use of a production code engraved at the bottom of the container. This code should provide enough information to initiate a product recall, if such a

step became necessary. Code should include the production date, plant produced in, line run on, and specific licensee/manufacturer identification (either actual name or initials). Legal Guidelines:The following trademark line must be engraved on the bottom of the flask for the appropriate brand.  (year product created) Brand  Packaging:Flasks must be packed in such a way to prevent the introduction of particles or other debris. A card insert must be included in the package that provides the consumer with the following information: wash before use, do not keep alcohol stored in the flask for longer than 3 days Testing: The manufacturer must assure that the flasks have been evaluated and meet all legal requirements that apply to food-contact articles. A testing certificate must be supplied to Brown-Forman Quality Assurance

from an approved laboratory indicating that the flask has passed all tests for lead (ASTM C738-94) and cadmium, CONEG and any other legal requirements that are in effect in the countries where the flasks will be distributed. Items to be included on the certificate are the manufacturer’s name, item description, production date, composition of each part of the item being tested and quantity of samples submitted for testing.

Pre-Production Testing: Flasks must also pass sensory and package integrity testing conducted in Brown-Forman laboratories in order to be deemed acceptable for use. The sensory testing will include a panel of consumers who taste the

spirit stored in the flask over a number of days. We look for flavor differences and color differences. If there are significant differences, the flask fails. In addition, we will conduct a test to ensure that the product not leak and will perform as intended. For this test we fill the flask with Jack Daniel’s up to the neck, but not completely to the brim. The flasks are laid on their side & heated to 43 degrees C for 3 full days.

Stainless Steel Flask Specifications

Post-Production Testing As a result of on-going quality issues, we have now also introduced post-production testing. Upon completion of the production run the supplier will engage a 3rd

party quality agency (SGS or similar). The agency will be responsible for validating the production run has been completed as per the Purchase Order quantity, will randomly select one third of the required number of samples from early production, one third from mid production & one third from late production. Samples will be sent to Louisville for the same testing. Only upon successful post-production test results can the supplier ship product from the factory.

In the case of failed post-production tests for discoloration of product then the flasks must be repassivated & retested. If due to leakage then the AQL statistical

number must be tested with samples pulled randomly from early, mid & late production. Check with QA as to what number need to be tested & what the result needs to be in order to pass the production run.

Samples and information required for testing The Flask Manufacturer must supply the following: § Certificate from SGS or another Brown-Forman approved laboratory showing that samples have been tested for compliance with local regulations. Results must

be available and acceptable in order for Brown-Forman to do further testing. § Sensory Testing: Sample size will depend on actual volume and type of item being tested. Enough samples are required to provide a volume equivalent of

700mls in order to conduct sensory testing. Total samples required 3oz – 184oz – 126oz - 10 Submit flask samples to:Quality Assurance Department 502-774-7930Brown-Forman Beverages 502-774-6069 fax850 Dixie HighwayLouisville, KY 40210

Whiskey Stones Specification• Whiskey stones must be made of an inert GRAS (Generally recognized as Safe) material that will not leach

any chemicals, odors, color or flavor to the product that comes in contact with the stones. • Whiskey Stone cubes must meet the minimum size requirement 22mm or 7/8” on the length of each side.

 • Whiskey Stones must not discolor a bourbon product after soaking for 8 hours in an open glass. (Bourbons 

are aged in new charred oak barrels and would have the highest level of tannins which can discolor in the presence of iron).

• Packaging must include any required responsibility statements regarding alcohol consumption by minors. • Required Disclaimer: Packaging must include the following warnings: WARNING: CHOKING HAZARD – Small parts. Stones are considered a choking hazard for children under age 3. Stones 

can cause damage or break glassware or other fragile materials.   To avoid burns, do not allow heated stones to make direct skin contact.  Product may discolor if in contact with the whiskey stones over 8 hours.

Social AuditAssessment Checklist1. Child/Young Labour2. Forced Labour3. Health & Safety4. Freedom of Association5. Discrimination6. Disciplinary Practices7. Regular Employment8. Working Hours9. Compensation10.Legal Production Entity11.Legal Exporting Entity

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