ThreeSixty Sourcing Supplier Manual

www.threesixtysourcing.com

Table Of Contents INTRODUCTION 1. SOURCING PROCESS ................................................................ ..4 1.1 Supplier Sourcing & Selection………………………………… ……….4 1.2 Supplier Souring Guideline………… ……… ………………… ……….4 2 QUOTATION ............................................................................. ..5 2.1 Request for Quotation ................................................. 5 2.2 Non-disclosure Agreement ........................................... 6 2.3 Intellectual Property Rights.......................................... 6 2.4 Quotation .................................................................. 7 3 PURCHASE ORDERS .................................................................... 8 3.1 Purchase Order Overview ............................................ 8 3.2 PO Terms and Conditions ............................................ 8 3.3 PO Release ................................................................ 9 4 PRODUCT DEVELOPMENT ........................................................... 10 4.1 Overview ................................................................. 10 4.2 Timeline .................................................................. 10 4.3 Product Approval ...................................................... 10 4.3.1 Product Specifications ............................................... 10 4.3.2 Tooling.................................................................... 11 4.3.3 Samples .................................................................. 11 4.3.4 Product Testing ........................................................ 11 4.4 Pilot Run ................................................................. 12 5 QUALITY .................................................................................. 13 5.1 Quality Assurance..................................................... 13 5.1.1 Overview ................................................................. 13 5.1.2 Supplier Assessment ................................................. 13 5.1.2.1 Supplier Assessment Overview ................................... 13 5.1.2.2 Codes of Conduct ..................................................... 14 5.1.2.3 Cost of Assessment .................................................. 14 5.1.2.4 Pre-assessment Documents ....................................... 14 5.1.2.5 Assessment Process.................................................. 15 5.1.2.6 Assessment Result ................................................... 16 5.1.2.7 Ongoing Re-assessment ............................................ 16 5.1.3 Signed Sample Policy ................................................ 16 5.1.4 Inspection ............................................................... 17 5.1.5 Classification of Defects ............................................ 18 5.1.6 Acceptable Quality Level (“AQL”) and Sampling ............ 19 5.1.7 Selected Testing Standards ....................................... 20 5.1.8 Use of Subcontractors ............................................... 20 5.1.9 Quality Feedback ...................................................... 21 5.2 QC INSPECTION ....................................................... 21 5.2.1 Inspection Criteria .................................................... 21 5.2.2 Inspection Arrangement ............................................ 21 5.2.2.1 In-line inspection ..................................................... 21 5.2.2.2 Initial Inspection ...................................................... 21

5.2.2.3 During-Production Inspection ..................................... 22 5.2.2.4 Final Random Inspection ........................................... 22 5.2.3 Inspection dispositions .............................................. 23 5.2.4 Local Delivery Inspection ........................................... 23 5.2.5 Third Party Inspections ............................................. 23 5.2.6 Customer inspection for Direct Import (“DI”) orders ..... 24 5.2.7 Non-Compliance Charges .......................................... 24 6 LOGISTICS............................................................................... 25 6.1 Overview ................................................................. 25 6.2 Booking .................................................................. 25 6.2.1 Booking Arrangement ............................................... 25 6.2.1 Advance Shipping Notice (“ASN”) ............................... 26 6.2.2 Normal and Direct Import Order document flow ........... 26 6.3 Documentation ........................................................ 26 6.3.1 Introduction ............................................................ 26 6.3.2 Timing of submission of documents ............................ 27 6.3.3 Required documentation ........................................... 27 6.3.3.1 Document submission form ....................................... 27 6.3.3.2 Commercial invoice .................................................. 27 6.3.3.3 Packing List ............................................................. 28 6.3.3.4 Bill of lading ............................................................ 28 6.3.3.5 Any other relevant documents ................................... 28 7 PAYMENT ................................................................................. 29 7.1 Payment mechanics .................................................. 29 7.2 Beneficiary of Payment ............................................. 29 7.3 Payment Terms and Letter of Credit ........................... 29 7.4 New Suppliers .......................................................... 30 7.5 Documentary Requirements....................................... 30 7.6 Deductions / Claims .................................................. 30

A. About this Supplier Manual ThreeSixty Sourcing (“ThreeSixty”) provides its North American and European customers an unparalleled sourcing solution for consumer and commercial hard goods manufactured in Asia. Our supplier network is one of our greatest assets. We are continually seeking to add capable manufacturers to our network of suppliers, whether for existing or newly-developing product categories. We expect our suppliers to share our vision and work together in partnership to grow our business together. This Supplier Manual provides definitive standards and guidelines for helping suppliers develop and supply products to our customers in line with the requirements of ThreeSixty. It covers all aspects of our relationship including quotation, purchase orders, product development, quality, logistics, payments and ethical and environmental standards. The instructions in this Manual should be consistently complied with in order to avoid unnecessary costs and delays. Confidentiality This manual and its contents remain the property of ThreeSixty and must be regarded as confidential. The contents must not be disclosed to any other party either in part or in total without the prior written consent from ThreeSixty. Suppliers must take adequate steps to ensure the confidentiality of this manual is maintained and only disclose the contents of it to those persons in its employ or its directors on a need-to-know basis. Suppliers are required to return the manual to ThreeSixty upon request.

B. About ThreeSixty ThreeSixty provides the world’s best product sourcing solution for consumer and commercial hard goods manufactured in Asia with a full, 360° circle of service to our customers:

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a) Services: ThreeSixty has company offices in Hong Kong, Guangzhou, Shanghai, Ningbo, Shenzhen and Vietnam, and a network of independent suppliers throughout China and Asia. As a major global sourcing operation, we have over 20 years of experience in hard goods product sourcing for customers in North America and Europe. ThreeSixty serves as the “Asia office” for our customers, who typically rely exclusively on ThreeSixty for 100% of their product sourcing needs. Dedicated ThreeSixty professionals are organized onto account teams servicing the needs of each of these customers to ensure clear communication throughout the supply chain. b) ThreeSixty’s Product Categories ThreeSixty’s customers boast well-recognized brands and leading market shares in their respective business segments. This leads to significant ThreeSixty volume across most of the categories in which we make purchases. Some of the fields we currently supply include:  Aquarium products

 Kitchenware

 Art supplies

 Knives

 Audio equipment  Automotive accessories

 Luggage  Office stationary

 Bathroom accessories

 Outdoor signage

 Bathroom scales

 Pet supplies

 Camping equipment

 Picture frames

Children’s books

 Promotional items

Cookware

 Plush and animated plush

Corrugated displays  Digital audio

 School and office equipment  Seasonal decoration

Digital photography

 Sporting goods

Display racks

Tools

 Flashlights

 Toys

Giftware

 Watches

 Greeting cards

 Water purification & treatment

 Home appliances  Household cleaning

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C. ThreeSixty Core Process Virtually all products sourced by ThreeSixty will follow a consistent process, from initial quoting of a product through the final payment. To facilitate suppliers’ understanding of our process, we have divided it into six steps, as shown in the graphic below: Chapter 1 Quotation Account Team & Sourcing Team

Chapter 2

Chapter 3

Chapter 4

Chapter 5

Chapter 6

Purchase Orders

Product Development

Quality

Logistics

Payment

Account Team

Account Team & QA Team

Quality Control Team

Shipping Team

Finance Team

As the graphic suggests, suppliers will interface with different parts of ThreeSixty during the process. Much of suppliers’ interaction will be with our Account Team, but quality assurance and control, for example, are overseen by independent teams within our company. The chart below explains which functions fall under our Account Teams: Customer

Sourcing

Product Development

Operations

Quality

Support

Supplier

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1

Sourcing Process

1.1

Supplier Sourcing & Selection a. Shop-Around event used regularly & for key projects to ensure absolute competitive costs, typically conducted in multiple locations: Guangzhou, Shanghai and Ningbo; b. ThreeSixty also has extensive records detailing thousands of supplier quoting and PO interactions, suppliers key statistics including past pricing, delivery and quality; c. Suppliers shall comply with Section 1502 of the Dodd-Frank Wall Street Reform & Consumer Protection Act (the “Act”), which prohibits sourcing tantalum, tin, gold & tungsten (“Conflict Minerals”) from the Democratic Republic of Congo or adjoining countries. Every supplier is required to disclose to ThreeSixty if they are using Conflict Minerals and provide country of origin documentation for all materials upon request. All suppliers will need to sign a Conflict Minerals Certificate of Compliance as a condition of doing business. d. Every supplier must provide a complete Bill of Materials (BOM) for every product supplied to ThreeSixty. ThreeSixty will provide a BOM template for completion by supplier.

1.2

Sourcing Process Guideline : Fair and respectful: Suppliers are partners and are treated fairly and with respect at any time. Transparent: The levers, approaches and tactics used during negotiation, the commitments made, the compromises accepted need to be clearly communicated. Documented: The terms agreed during negotiations are confirmed in written.

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2

QUOTATION This section covers ThreeSixty’s Quotation process and requirements.

2.1

Request for Quotation Suppliers will receive our Request for Quotation (“RFQ”) from ThreeSixty Sourcing/Account Team either by e-mail or fax depending on the supplier’s preference. For e-mail, the RFQ will be in Adobe Acrobat (.pdf) file format. In some cases, product samples will also be delivered to suppliers for reference. All reference samples must be returned to ThreeSixty upon request after quoting process. ThreeSixty will determine whether to allow suppliers to disassemble the sample on a case-by-case basis. In each RFQ, key information of the item to be quoted will be listed: a. For each quotation        

RFQ number and version number ThreeSixty’s contact person and contact details Remarks for version changes, if any Need by date for Quotation Validity for quotation Delivery term (FOB or Local Delivery) Payment terms Additional information to be attached, if any (e.g. artwork, technical specification, etc)

b. For each item           

Item description Packing requirements Quantities of master carton, inner box or inner poly-bag Specific test required, if any Number of samples requested, if any Needed by date of those samples, if any Target ship date, if any Unit of measurement (“UOM”) Target price, if any Required quantities Product photo or diagram

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2.2

Non-disclosure Agreement In obtaining quotes from Suppliers, ThreeSixty from time to time may provide confidential information to Suppliers. As a condition to having access to the confidential information, Suppliers are required to enter a NonDisclosure Agreement with ThreeSixty. Under the Agreement, Suppliers agree that they will not in whole or in part, directly or indirectly, in any manner whatsoever, without the prior consent of ThreeSixty first had and obtained:  



2.3

disclose, sell, part with or otherwise permit the use of the confidential information to or by any third parties; exhibit, advertise, show or in any other manner whatsoever permit, authorize or cause the confidential information to be exhibited, advertised or shown in any trade show, magazines, newspapers and newsletters, the internet or websites, catalogues, showrooms or warehouses or otherwise; use, copy, with or without variation, or otherwise convert the confidential information for the Suppliers’ or their representatives’ own purposes or benefit.

Intellectual Property Rights Intellectual Property Rights are important to ThreeSixty and our customers. Intellectual Property Rights include: patents, patentable rights, copyright, registered and unregistered design rights, trade marks, trade names, rights in know-how and confidential information and all other intellectual and industrial property and similar rights existing under the laws of any country and all pending applications for and right to apply for or register the same. In the T&C, ThreeSixty’s suppliers acknowledge that ThreeSixty and/or its customers are the lawful owners of certain trade/service names or marks (the “Marks”) to be provided by ThreeSixty and/or its customers in respect of the products. Suppliers are authorized to use the Marks on the products and their packaging only as specified by ThreeSixty and/or its customers for purposes of the manufacture of the products in accordance with the PO only. Suppliers shall have no right to assign, license, display, market, advertise or use the Marks or any image thereof for any other purpose nor shall supplier have any right or interest in the Marks. Suppliers further acknowledge that ThreeSixty and/or its customers shall retain all intellectual property rights relating to the products, including any enhancements. Suppliers shall assign all such rights to ThreeSixty and/or its customers on demand.

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2.4

Quotation Suppliers are required to check all information of the RFQ in detail and understand the requirements. Suppliers must submit the quotation to the contact person stated in the RFQ either by e-mail or fax. The following information must be provided:          

RFQ number Supplier details Factory name and factory location FOB price in USD for each requested quantity (if it is a quota item, please submit quote with quota) Delivery terms - Port of loading; or - Local Delivery Minimum order quantity Tooling charges in USD, if any Tooling lead time, if any Production lead time Packing Reference - Quantities of master carton, inner box or inner poly-bag - Inner and outer dimensions and volume in cubic meters (CBM) - Net weight and gross weight

Suppliers should clearly state on their quotation when quotation was submitted under a different standard due to manufacturing process or material supply from the market. ThreeSixty Sourcing/Account Team will evaluate quotations and make recommendations to our customers based on multiple factors including price, expected quality and delivery, terms of purchase, supplier capabilities, and past supplier performance and cooperation. Simultaneously, supplier assessment may also be arranged by ThreeSixty (see Section 5.1.2).

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3

PURCHASE ORDERS 3.1

Purchase Order Overview If a supplier quotation is accepted by our customer, that customer will forward a Purchase Order to ThreeSixty. ThreeSixty’s Operations Team will typically send an e-mail or fax to the selected supplier with order details. Suppliers are required to check all information in detail and ensure they can meet the requirements. After this clarification process, the supplier will receive an official Purchase Order (“PO”) from ThreeSixty.

3.2

PO Terms & Conditions The PO and the PO General Terms and Conditions (“T&C”) form the agreement between ThreeSixty and suppliers. Any PO’s placed with suppliers by ThreeSixty are bound by all the terms and conditions contained therein. Each PO is subject to ThreeSixty receiving a copy of the PO and T&C signed by the supplier within seven days from the PO date, failing which the PO shall cease to have any force and effect (unless otherwise agreed by ThreeSixty in writing). The T&C is a detailed contract between the supplier and ThreeSixty that governs the transaction represented by the PO. The T&C will prevail in the event of any conflict between the T&C and this Manual. Suppliers are advised to review the T&C detail. In case of a revised PO, no additional T&C will be sent. The T&C previously sent with the original PO (bearing the same PO number) will apply to the revised PO and be binding on the supplier. For those regular suppliers who prefer to sign the PO General Terms & Conditions as a Master Manufacturing Agreement instead of having to sign every time as and when a PO is placed, please refer the agreement. With this executed agreement, all orders are bound by the terms contained in the agreement. Thereafter, the supplier is required to sign the PO only. Remarks:a. Suppliers shall comply with the Conflict Minerals Act, which prohibits sourcing tantalum, tin, gold & tungsten from the Democratic Republic of Congo or adjoining countries. Every supplier is required to disclose to ThreeSixty if they are using Conflict Minerals and provide country of origin documentation for all materials upon request. All suppliers will need to sign a Conflict Minerals Certificate of Compliance as a condition of doing business. b. Every supplier must provide a complete BOM for every product supplied to ThreeSixty. ThreeSixty will provide a BOM template for completion by supplier. 8 Threesixty Sourcing 16-10-2015

c. The purchase order will confirm a supplier’s obligation to meet all target market regulatory compliance obligations relevant to the product supplied. These obligations include but are not limited to , the requirements of the Consumer Products Safety Improvement Act, the Federal Hazardous Substances Act, California Proposition 65, and the Conflict Minerals Act. Every supplier must provide a complete BOM for every product supplied to ThreeSixty. ThreeSixty will provide a BOM template for completion by supplier.

3.3

PO Release PO Release is a document used to instruct suppliers when and how to ship the orders. It also delivers the required information that needs to be shown on the Bill of Lading and/or on the Forwarder Cargo Receipt as per our customers’ instructions. No shipments may be made without a valid PO Release. For each PO, ThreeSixty’s Operations Team will e-mail or fax the PO Release to the supplier upon receiving the customer’s shipment information. Suppliers are required to check all information in detail and ensure they understand and can meet the requirements. PO Release should be signed back to ThreeSixty within seven days upon receipt. Below is the key information which will be shown in the PO Release.     

Ship Quantity Consignee Forwarder Delivery Term Port of Discharge

   

Shipping Deadline Ship To Notify Party Transportation Mode

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4

PRODUCT DEVELOPMENT 4.1

Overview ThreeSixty customers each have unique requirements and timelines for product development. This section provides suppliers with general product development guidelines but does not replace the need for effective communication regarding specific requirements and timelines with our individual Account Teams.

4.2

Timeline The time required for product development can vary greatly depending on product nature and our customers’ requirements. To avoid delays and potential confusion, suppliers should submit samples and other relevant documents as early as possible in the development process. Suppliers must maintain a product development timeline showing critical milestones leading to the first shipment date. The timeline should be constantly reviewed and updated. Suppliers are responsible for immediately notifying ThreeSixty of any changes that may affect the target shipment date.

4.3

Product Approval 4.3.1 Product Specifications Suppliers are required to review all relevant specifications and drawings and/or any reference sample provided by ThreeSixty and its customers prior to developing a product design. Particular consideration should be given to: 

the manufacturing capability (equipment, personnel, quality systems) required to produce the product according to the specifications and drawings including the dimension tolerances; and



any mandatory standards required of the product by the country of import and customers (such as UL, FCC, FDA, ASTM, EMC, CE).

Suppliers should provide a technical specification as part of the approval process for each product. In addition, suppliers must provide ThreeSixty with a detailed Bill of Materials upon request. Product specifications production.

must

be

agreed

with

ThreeSixty

before

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4.3.2 Tooling For products that require fabrication of tooling, suppliers should provide ThreeSixty with a tooling plan, which should include:       

Tool material, Tool life, Tool drawings, Number of molds and number of cavities per mold, Description of the product component for each cavity, Run rate and cycle time, and Fabrication time-line for first shot approval.

Where required, tooling drawings should be submitted to ThreeSixty for approval prior to fabrication. ThreeSixty will require first-shot samples. A first article report detailing the actual dimensions measured according to the parts’ drawings may also be required upon request. Generally any mold or tooling specifically made for manufacturing of the products is sole property of ThreeSixty and/or its customers and is to be used for purpose of manufacturing the products subject to the relevant PO only. Suppliers shall label the mold or tooling with ownership of ThreeSixty and/or its customers in designated ThreeSixty format. Suppliers should contact ThreeSixty for specific instructions and arrangements.

4.3.3 Samples For new products, suppliers are required to provide ThreeSixty with a prototype (i.e., mock-up sample) for design approval. Suppliers are required to forward the final version samples or print proofs for printed products to ThreeSixty for approval prior to production. Suppliers should proceed with production only after receipt of written approval from ThreeSixty. All development and approval samples should be provided free of charge to ThreeSixty including courier cost.

4.3.4 Product Testing Before a new product starts production, suppliers are responsible for submitting samples to independent laboratories for any tests which have been specified and to provide passing test reports to ThreeSixty. For electronics and electrical products, suppliers are required t o have the product tested for vibration according to ISTA requirement and forward the report to ThreeSixty for review.

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Pre-production testing must be scheduled such that the product shipment dates will not be delayed. Beyond pre-production testing, the appropriate intervals for third-party product review shall be established at the sole discretion of the customer in conjunction with the applicable regulations and laws of the destination country. As a prudent buyer, ThreeSixty only recognizes testing results from internationally-recognized parties, e.g. ITS, SGS, BV, TUV Rheinland and Reliance. ThreeSixty always reserves the right to pull products directly from the production line and send units to third-party labs for confirmation testing at the supplier’s cost. Under some circumstances, the end customer may require testing be performed at a designated laboratory. Please feel free to contact our account team for further details.

4.4

Pilot Run The purpose of a pilot run is to ensure that the factory’s manufacturing system can produce products in accordance with applicable specifications and requirements. For products other than repeat items, it is a best practice that suppliers plan a Pilot Run before mass production. During the pilot run, suppliers should use the actual production line, equipment and personnel intended to be used for mass production. Suppliers should provide ThreeSixty five working days notice to ensure ThreeSixty personnel will be available to attend the pilot run.

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5

QUALITY 5.1 Quality Assurance 5.1.1 Overview ThreeSixty believes that good product quality is the result of a good manufacturing process that includes:    

the use of proper materials, the use of proper equipment, specific work instructions and check-points, and trained personnel.

Working together with our suppliers, we will strive to ensure that products shipped:     

serve their intended functions, are cosmetically appealing to consumers, comply with the relevant legal requirements, are safe to use, and are of the quality and specification required by our customers.

Our goal is to consistently meet or exceed customers’ expectations.

5.1.2 Supplier Assessment 5.1.2.1 Supplier Assessment Overview To provide ThreeSixty with the greatest possible confidence that products supplied will meet specifications and comply with all relevant regulations, ThreeSixty will conduct supplier assessment, at the beginning of ThreeSixty business relationship or at any stage where assessment or reassessment becomes necessary to maintain or regain confidence. There are three types of assessment:  Preliminary assessment (usually called section A assessment) – an assessment aims at obtaining supplier’s profile. Formal assessment (usually called section A + B assessment) – an assessment that covers supplier profile, social compliance and quality assurance process. One of the above assessments is usually arranged at the initial stage of our business relationship or as early as after a supplier submitting quotation to ThreeSixty. The purpose of the assessment is to ensure that the supplier is legally registered, and it meets basic legislative requirements on social compliance. At the end of the formal assessment, a grade will be concluded to represent supplier’s overall achievement compared to ThreeSixty’s standards.

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 Assessment to supplier’s Code of Conduct compliance against a standard set by ThreeSixty’s end customer (for example, a US retailer). If a ThreeSixty’s end customer demands specific standard on Code of Conduct, ThreeSixty’s assessment team will conduct the assessment on their behalf. Our assessor will benchmark status of the supplier when comparing to the standard, and most importantly, to find out what needs to be further improved in order to meet the requirements. At the end of the assessment, detailed corrective action recommendations will be made by ThreeSixty’s assessor, commitment from the supplier on when these actions are to be completed will need to be obtained.  Most of our suppliers find our Code of Code (“COC”) assessment to be very beneficial as this helps them gain more competitive advantages (i.e. meet more buyer’s needs) at a minimal or even no cost.

5.1.2.2 Codes of Conduct As a matter of principle, ThreeSixty requires that suppliers comply with all local laws, regulations and environmental requirements and meet ThreeSixty’s Code of Conduct. ThreeSixty’s or its end customers may have addition requirements of which ThreeSixty will notify suppliers as appropriate.

5.1.2.3 Cost of Assessment Unless under special circumstances, ThreeSixty’s initial assessment services are free of charge to suppliers.

5.1.2.4 Pre-assessment Documents To ensure a smooth and effective assessment process, ThreeSixty requires that suppliers prepare the following documents prior to the assessment:  A “Booking Form” will be sent from ThreeSixty’s assessment team; the form should be completed and returned to ThreeSixty.  For section A+B assessment, supplier should prepare documents according to the attached “Document List for Section A+B Assessment”.  For assessment on Code of Conduct, supplier should prepare documents according to the attached “Document List for COC Assessment” .

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5.1.2.5 Assessment Process To initiate the Supplier Assessment Process, ThreeSixty will contact the supplier to indicate the type of assessment required and coordinate the delivery of the pre-assessment documents discussed above. ThreeSixty’s assessor will arrange and run an opening meeting with senior staff of the supplier. To ensure that information is shared efficiently and effectively, it is essential for following staffs to be available at the opening meeting:  Supplier’s business manager involved in the ThreeSixty business relationship,  Factory manager,  QA/QC manager, and  HR/Personnel manager. For the duration of the assessment project, the supplier should provide a guide, whose function will be to assist the assessor in obtaining answers from appropriate sources. The guide should have sufficient knowledge of the safety and quality systems and an understanding of management policies and administrative, HR and operational procedures. ThreeSixty’s assessor will visit all relevant departments and assess documents and systems used. Interviews with relevant staff will be conducted where appropriate. Findings will be recorded on ThreeSixty’s assessment check list. ThreeSixty’s assessor will need a private room to summarize all findings and to write up assessment report. A closing meeting will be held to present the findings of the assessment to the staff who participated in the opening meeting. For COC assessment, ThreeSixty assessor will make recommendations for corrective actions, and the supplier should commit to a specific timetable for implementation of corrective actions. If the corrective action is critical to the acceptance of the final assessment done by ThreeSixty’s end customer, ThreeSixty’s assessor will conduct follow up assessment(s) to ensure timetable is strictly adhered to. To support our suppliers, ThreeSixty’s assessor will generally participate in the final assessment conducted by the end customer’s assessment team.

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5.1.2.6 Assessment Result ThreeSixty’s assessor will determine a grade to reflect a supplier’s capabilities as compared to ThreeSixty’s standard. One of the following grades will be given: Class I - Supplier meets all class II requirements below and either their Quality and Environmental System has been accredited by international accreditation bodies, or supplier has complied with ThreeSixty’s end customer’s specific requirements Class II - Supplier meets all class III requirements below and has established and effectively implemented written Quality and Environmental Systems. Class III - Supplier meets fundamental requirements reflecting ThreeSixty’s standards including:  legally registered,  cleanliness & safety, and  does not violate the basic social compliance principles. Pending Probation - Supplier needs to take corrective actions immediately, with re-assessment needed upon completion of corrective actions.

5.1.2.7 Ongoing Re-assessment To ensure consistent compliance to ThreeSixty’s standards, we reserve the right to re-assess the suppliers from time to time. It is expected that a re-assessment will be conducted at least once per 18 months.

5.1.3 Signed Sample Policy As an integral part of our quality standard for individual products, approved samples signed by ThreeSixty’s customer “Signed Samples” will be required prior to commencing production for each new product. This is to ensure that our customer, ThreeSixty and our supplier have a common understanding of the expected form, fit, function, and quality level of every product being produced. The Signed Sample represents the minimum quality standard required of the product. Prior to commencing production of products, suppliers must provide ThreeSixty with four production-version samples, complete with packaging. If approved, the samples will be signed by ThreeSixty and distributed as follows:    

one one one one

to to to to

supplier as reference for production, our inspection team as reference for inspection, ThreeSixty’s customer as reference standard, and be retained by ThreeSixty as reference standard.

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A tag will be attached to the sample, along with an authorized signature on the sample itself.

For products that may have color variation due to the nature of the manufacturing process (such as printing and ceramics kilning), signed samples should include a range of acceptable color variations or highand low-limit color samples. Recognizing that their quality will deteriorate with time (with the effects of humidity, temperature and light), Signed Samples are only valid for twelve months from the original signature date. Beyond this period of time, new samples must be prepared and re-distributed.

5.1.4 Inspection It is each supplier’s responsibility to ensure that every single piece of product shipped meets the applicable quality standard. To assist in suppliers’ meeting this responsibility, ThreeSixty also frequently inspects products to help monitor their quality. Four types of inspections may be performed, as detailed in Section 5.2:    

Initial, In-line, During production (“Dupro”), and Final.

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Inspection done by ThreeSixty’s quality team is part of the quality process that ThreeSixty employs to minimize quality risks. ThreeSixty’s inspection does not relieve supplier’s responsibility of fulfilling contractual agreements made between various parties. According to the contractual agreement, ThreeSixty’s suppliers are responsible for ensuring that products meet the required specifications, regardless of whether inspection has been performed by ThreeSixty.

5.1.5 Classification of Defects ThreeSixty and our customers believe it is important to itemize potential defects and categorize them according to severity. Defects are classified in four categories: Safety or Critical Defects, Functional Defects, Major Defects, and Minor Defects. 

Safety or Critical Defect A safety or critical defect is one which under normal conditions of product use would create a safety hazard for the user, or cause the product to fail to meet the specified requirement for product safety. One such defect may constitute a basis for rejection of the entire lot. A broken needle in a cut-and-sewn product would be categorized as a safety and critical defect, as would be sharp metal burrs on a die-cast product. Faulty electrical appliances and products, electronic items, and other products where safety is compromised also fall under this category of defect. Examples include incorrect electrical markings, high current leakage from accessible parts and electrical insulation missing or improperly installed.



Functional Defect A functional defect is one which under normal conditions of use would result in the reduction of electrical or mechanical performance, thus rendering the unit unsaleable to any customer. Example includes a loose socket in a portable lamp. A functional defect may render a product or product function inoperable. A stereo that does not function at all or has excessive hum and buzz would be classified in this category of defect, as it would be a pop-up book that does not “pop up” when opened. A functional defect would also exist if accessory parts essential for operation are missing.

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

Major Defect A major defect encompasses several types of potential flaws. It would include a defect which may result in a reduction in electrical or mechanical performance. An example would be the protective cover on an electric bench grinder wobbling while running. A major defect is one which under normal conditions of use renders the unit unsaleable to a discriminating customer. An example would be a missing operating manual for a product. An aesthetic defect which renders the unit unsaleable to a discriminating customer would also be classified in this category of defect. Examples include severely damaged packaging, incorrect brand name, water marks on packaging or product, dirty or dusty product, or incorrect color on printed products.



Minor Defect A minor defect is one that results in a deviation from specifications but would seldom be objectionable to a customer. Examples include non-permanent finger marks which can be easily removed, a paper label in a product placed in an inverted position, or slight dirt on secondary surfaces such as the side and back of a photoframe. The General Inspection Criteria lists the inspection points and classifications of different types of commonly found defects. Specific Inspection Criteria may also be designed for specific products and would be used in conjunction with the General Inspection Criteria.

5.1.6 Acceptable Quality Level (“AQL”) and Sampling During an inspection, specific quantities of samples are drawn randomly from the completed production based on the internationallyrecognized Standard Sampling Method ANSI/ASQC Z1.4, Single Sampling Plan. Unless otherwise specified, the AQL standard utilized by ThreeSixty is:    

0 for safety or critical defects 1.5 for functional defects 2.5 for major defects + functional defects 4.0 for minor defects

Level 2 Single Sampling is applied. It is important that suppliers prepare sufficient packaging materials (including blister packs, etc.) for re-packaging inspection samples. If a Final Inspection fails or is incomplete, a re-inspection will be necessary, utilizing Level 2 Single Tightened sampling. At a minimum, the number of cartons to be opened for sampling is the square root of the total number of cartons in the lot to be inspected (e.g. 10 cartons will be opened for sampling from a shipment totaling 100 cartons). Cartons will be randomly selected from various locations 19 Threesixty Sourcing 16-10-2015

among the batch of products being inspected (including top, bottom, front, back, and middle). To maximize the efficiency of the inspection process, we expect suppliers to provide assistance in pulling cartons and unpacking and repacking samples.

5.1.7 Selected Testing Standards Specific quality standards will be applied to specific products. However, certain standards are commonly applied to all products as appropriate: Drop test – To assure that products are not damaged during shipment our standard final inspection includes a shipment carton drop test. The ISTA 1a standard is used. Details can be referred to in the General Inspection Criteria, section 10. It is important that the supplier assures proper packaging so that it will meet this standard. Failure to do so will lead to a failed inspection. Moisture content test: 

Natural products (wood, bamboo, rattan, wicker) – These will be tested for moisture content during inspection. A mini Ligno (Lignomat) moisture meter will be used to determine the moisture content; the current standard ranges from 8% to 14%. It is important that the supplier assures proper kilning of the product so that it will meet our standards.



Paper products (books, planner, etc.) – These will be tested for moisture content during inspection. A mini Ligno (Lignomat) moisture meter will be used to determine the moisture content. The current maximum humidity standard is 12%. It is important that the supplier assures proper drying of the product so that it will meet this standard.

Bar code test – Bar codes on the product and packaging will be tested with a bar code scanner during inspection. It is important that the supplier assures the scannability, the correct number and the format of bar codes used.

5.1.8 Use of Subcontractors Where subcontract factories ThreeSixty, suppliers must:

are

used

to

produce products

for



Identify and understand the physical subcontractor manufacturing sites,



Notify ThreeSixty in advance with detailed address, including business license of the manufacturing site or sites to facilitate inspection,



Obtain approval from ThreeSixty for each individual subcontractor prior to use, and 20 Threesixty Sourcing 16-10-2015



Inspect all subcontractors’ shipments at the subcontractors’ factories to ensure conformance to quality standards prior to any ThreeSixty inspection.

Suppliers should regularly visit the subcontract manufacturing sites to ensure they adhere to our Code of Conduct, to monitor product quality and to ensure production status is consistent with the committed timeline.

5.1.9 Quality Feedback It is important that ThreeSixty and our suppliers communicate closely on quality issues. A standard Corrective Action Request (“CAR”) form is used in the event of major quality issues to facilitate record keeping, follow-ups and future traceability. On receipt of the CAR, suppliers should respond within two working days along with a preliminary action plan for current production, as well as a description of the likely cause of the problem. Within five working days suppliers should provide a detailed cause analysis and corrective action plan (“CAP”) based on all known facts relevant to the problem.

5.2

QC INSPECTION 5.2.1 Inspection Criteria At the time of negotiating a purchase order, specific product standards should be agreed between the supplier and ThreeSixty. It is strongly recommended that such standards are then reflected in objective inspection criteria which both the supplier and ThreeSixty will subsequently utilize to determine shipment quality.

5.2.2

Inspection Arrangement At discretion of ThreeSixty, four types of inspection may be arranged depending on particulars of the situation:

5.2.2.1 In-line inspection In line inspection will be performed when ThreeSixty’s customer and account team need tight monitoring on production. ThreeSixty’s inspectors will perform production process monitoring as well as inspection on parts and final product.

5.2.2.2 Initial Inspection Initial inspection may be performed when 10% of shipment quantity has been produced. Inspection may cover not only final product, but also parts as well.

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5.2.2.3

During-Production Inspection

During-Production Inspection (“Dupro”) will be performed when at least 50% of the shipment quantity has been completed. As with Initial inspections, our inspection may cover not only final product, but also parts and components.

5.2.2.4

Final Random Inspection

Final Inspection will be performed when 100% of the shipment quantity has been produced, with at least 80% packed into the final shipping cartons. ThreeSixty’s order coordinator will coordinate inspection arrangement with the supplier. In some cases, Container Loading Supervision may be arranged in addition to the above inspections. Each supplier is required to e-mail or fax the “Inspection Requisition Form” (IRF) no fewer than three working days in advance of the inspection date to ThreeSixty’s Shenzhen office to allow proper scheduling of inspection. Any cancellation of inspection must be made at least 24 hours prior to the scheduled inspection date via e-mail or fax to ThreeSixty’s Shenzhen office or a “Missed Inspection Penalty” will be charged to the supplier to reimburse ThreeSixty for the cost of sending ThreeSixty’s inspectors for the scheduled inspection. At the end of each inspection, it is common that ThreeSixty’s inspectors will send shipment or defective samples back to ThreeSixty offices for future reference or for proper judgment. It is expected that suppliers will facilitate logistic arrangements for the timely forwarding of these samples to appropriate ThreeSixty offices.

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5.2.3

Inspection dispositions After the inspection, one of the below three dispositions will be concluded: Accept – it means that problems found during our inspection, which is conducted on the basis of randomly drawn samples, are within our tolerance level. Reject - it means that problems found during our inspection, which is conducted on the basis of randomly drawn samples, are beyond our tolerance level. Suppliers are not allowed to enter subsequent shipping process. Suppliers should wait for further instructions from ThreeSixty account team, which may include possible re-work on defective goods at the cost of the supplier. Pending - it means that at least one discrepancy was found during our inspection, it will lead further clarification (s). Suppliers are not allowed to enter subsequent shipping process. Suppliers should wait for further instructions from ThreeSixty account team, which may include possible re-work on discrepancy at the cost of the supplier. At the end of the inspection, ThreeSixty inspector will ask supplier’s representative to sign on the inspection report. This will help ensure a clear understanding of the findings and hence proper follow-up action. Should our inspector discover that the presented quantity does not meet with our minimum requirement specified under 5.1.6, an “Abnormal Inspection Report” will be issued.

5.2.4

Local Delivery Inspection Should the goods passed our final inspection, procedures will be the same as the above under “Accept” of 5.2.3. If the disposition is either “Rejected” or “Pending” and that no re-work will be carried out due to request of urgent delivery, or no inspection was carried out prior to the delivery, a “Notice of Deferred Inspection” will be issued, payment will be on-hold until final inspection at assembler reveals satisfactory result, under such circumstances a “Notice of Payment for Previous Deferred Inspection” will be issued.

5.2.5

Third Party Inspections Under certain circumstances, ThreeSixty may appoint a third-party to conduct inspection. In this event, suppliers will be given prior notification of this arrangement. It is expected that the third party agent will be treated the same way as if they were from ThreeSixty’s own inspection team. Unless otherwise agreed, ThreeSixty will pay for expenses of the third party.

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5.2.6

Customer inspection for Direct Import (“DI”) orders DI orders are those orders that shipments are made directly to ThreeSixty’s end customers e.g. Wal-Mart, Dollar General, etc. For DI orders, ThreeSixty’s end customer may conduct inspection(s) by appointing either their own inspectors, or a third party company, ThreeSixty will notify supplier in advance of the arrangement. Supplier shall provide assistance to ThreeSixty to ensure that such inspection is conducted smoothly. Such assistance may include possible direct liaison with our customer on inspection arrangement. Should the inspection disposition unsatisfactory, supplier is requested to put on hold all subsequent processes and to wait for further instructions. For DI orders, costs incurred due to the unsatisfactory inspection result will be charged to the supplier.

5.2.7

Non-Compliance Charges For each missed inspection, a Missed Inspection Penalty of US$150 plus costs of accommodation and air travel will be billed at costs will be charged to the Supplier. If products must be re-inspected after a failed final inspection, ThreeSixty will charge a re-inspection fee at the same rate as a Missed Inspection Penalty. Suppliers can avoid these costs by ensuring that products meet quality requirements at the time of inspection. The above rates may be changed from time to time. Under special circumstances where a rejected or pending shipment does not need to be re-worked prior to the release, an “Inspection Approval Document” will be issued. Without our approval, if shipment is released without our “Accept” final inspection, a “Notice of Unauthorized Shipment” will be issued, payment will be held until products are fully examined by the end customer with satisfactory result, all cost incurred will be charged to the supplier. The final inspection fee is US$25 per trip.

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6

LOGISTICS 6.1

Overview It is critical that suppliers deliver products on time and in full quantity to customer-designated freight forwarders including carriers. Suppliers should fully comply with ThreeSixty logistics requirements as described below at all times. ThreeSixty will seek to recover from suppliers compensation for any costs resulting from non-compliance.

6.2

Booking Suppliers are responsible for the booking of ocean and/or air shipment with ThreeSixty customer’s assigned forwarders or carriers. In order to avoid errors on bookings, suppliers are required to fax the booking to our shipping team for verification before providing comprehensive details of shipping containers to forwarders or carriers. Suppliers must be aware of all requirements, including US customs, impacting the required timing for bookings.

6.2.1 Booking Arrangement Suppliers are required to send bookings to the customer’s assigned appointed forwarders/carriers 14 days (or 7 days for air shipment) prior to on board date to arrange space and equipment with assigned forwarder/carriers. All bookings must contain the following information:              

shipper (as supplier shown on PO), contact person and telephone number and fax number of supplier, consignee, notify party and Ship To (refer to PO Release), customer PO number (refer to PO Release), item description (refer to PO Release), gross weight and measurement, quantity – piece count per item, port of discharge, final destination, ship mark, freight terms – collect or prepaid, container number and size of container, if for Full Container Load only, letter of credit number (if applicable), and any other information pertaining to regional or commodity-specific requirements (for example: confirmation of solid wood packing materials used, visa).

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6.2.2 Advance Shipping Notice (“ASN”) Suppliers have to e-mail or fax the ASN Booking to our Order Coordinator and Shipping Team within one working day after request for the booking with the assigned forwarder / carrier. Suppliers need to inform us if there is any amendment or cancellation of booking.

6.2.3 Normal and Direct Import Order document flow There are two types of ThreeSixty orders, namely Normal and Direct Import (“DI”) Order. The document flow is summarized as follows:

All DI Customers have their own procedures documented in their shipping manuals. Generally suppliers must not provide their invoices and packing lists to end customer’s assigned forwarder/carrier directly for DI orders. Please familiarize yourself with the materials and contact ThreeSixty shipping team for specific details and procedures.

6.3 Documentation 6.3.1 Introduction Accurate and on-time documentation is of paramount importance the product delivery at the destination and crucial to the completion the production and sales process. If a complete and accurate set documents is not available when the products arrive at the port discharge, it will cause late delivery to our ThreeSixty customers.

to of of of

Suppliers are required to prepare the complete set of documents in English. It is their primary responsibility to ensure the accuracy and timely submission of the documents to ThreeSixty. ThreeSixty Shipping team will verify its accuracy.

26 Threesixty Sourcing 16-10-2015

6.3.2 Timing of submission of documents Suppliers are required to submit the shipping documents in complete and accurate fashion not later than the timelines as stipulated below:

Description On-board date Suppliers to send a faxed copy of a full set of documents to ThreeSixty for verification Suppliers to send four full sets of original documents to ThreeSixty

Schedule (working day) Day 0 Day 2 Day 5

A late document penalty of US$500 may be imposed on suppliers if the above timelines could not be met for each late submission of documents.

6.3.3 Required documentation Suppliers are required to submit a complete full set of documents to ThreeSixty timely. A complete full set of documents include:     

Document Submission Form (one original copy), Commercial Invoice (four original copies), Packing List (four original copies), Billing of lading or similar document (3 original copies), and any other relevant documents.

6.3.3.1 Document submission form A document submission form is a covering letter that lists out the documents submitted by a supplier.

6.3.3.2 Commercial invoice A commercial invoice must contain:           

name and address of supplier (as supplier shown on PO), name and address of ThreeSixty Sourcing HK Ltd (please also refer to the name of purchaser on PO), invoice date and number, complete full description of each product as well as quantity shipped, accurate invoice amount and total invoice amount in US dollars, cost breakdown of multiple commodity items (for watch/clock, a cost breakdown of components must be provided), terms of Sale (i.e., FOB, C&F, etc.), payment Term, specific country of origin, ThreeSixty’s Customer PO number and PO Release number, specific statement if “This shipment contains no solid wood packing materials” in case of no wood,

27 Threesixty Sourcing 16-10-2015

 

no duplication of invoice number, and signatures from supplier together with their company stamp.

6.3.3.3 Packing List A packing list contains:  supplier name and address (as supplier shown on PO),  supplier invoice number,  number of cartons, PO Release number, ThreeSixty’s customer PO number, description, gross weight per carton, dimension per carton, number and size of container, if for full container load only,  specific country of origin,  specific statement if “This shipment contains no solid wood packing materials” in case of no wood,  quantities shown in accordance with the quantities actually delivered and in accordance with the quantities shown on the commercial invoice,  quantities shown in accordance with the quantities loaded into the container and in accordance with the quantities shown on the commercial invoice,  signatures from supplier together with their company stamp, and  the packing list must agree with the commercial invoice in all aspects. For quota merchandise, the packing list must show the net/net weight breakdown for each unit or piece. In case of a part of a set, the packing list must show the net/net weight breakdown for each unit or piece (for the top and bottom) separately. This is mandatory for U.S. Customs’ purposes.

6.3.3.4 Bill of lading Bill of lading is issued by the nominated freight forwarder/carrier. Upon receipt of the booking from supplier, ThreeSixty shipping team will advise the supplier if any one of the following documents is applicable:    

Sea waybill Forwarder’s Cargo Receipt Express Bill Air Waybill

6.3.3.5 Any other relevant documents Suppliers are also required to submit additional documents as listed in our Document Submission Form. Please check with ThreeSixty shipping team for specific applicable requirements.

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7

PAYMENT 7.1

Payment mechanics Payment will normally be arranged on Tuesday of each week. In the case of a public holiday falling on Tuesday, payment will be arranged on the following business day. In normal cases, invoices will be denominated in US Dollars, and payment will be arranged in US Dollars.

7.2

Beneficiary of Payment Suppliers receiving our purchases orders are obligated to submit invoices using their own letterhead. Under no circumstances are third party invoices acceptable. Normally, the payment beneficiary will be identical to the supplier receiving our purchase orders. Suppliers authorizing us to remit payment to import and export companies should state clearly on their invoices the relevant remittance information. A separate letter from that designated import and export companies confirming their acceptance of the payment arrangement is required. No remittance to personal accounts is allowed.

7.3

Payment Terms and Letter of Credit Generally ThreeSixty transacts businesses with suppliers on “open account” terms, meaning the products and the relevant documents are sent by the supplier before ThreeSixty makes payment within a certain period thereafter. Suppliers should quote at open terms. Single payment terms will be applied across all purchase orders. Suppliers are requested to confirm and sign for agreed upon payment terms. Payment terms as stated on our purchase orders will be “x” days after receipt of documents. Due dates for supplier invoices are counted from the date of receipt of a full set of original documents. Under rare circumstances and with prior approval from ThreeSixty, suppliers may request that ThreeSixty utilize a Letter of Credit (“LC”) for a particular transaction. Letter of Credit will be issued 30 days prior to shipment. A supplier should first contact our Account Executive, after receiving our shipment schedules, for LC issuance. All bank charges related to opening, amendment, and cancellation of Letter of Credit will be for the account of the supplier. The amount will be approximately 0.4375% of the issued, amendment or cancelled amount, subject to prevailing rates being applied by our bank. In subsequent draws, Suppliers are responsible for bank fee charged by issuing bank for 29 Threesixty Sourcing 16-10-2015

documents examination fee, handling commission, telex charges, etc. totaling around US$180 for each draw. When there is discrepancy in presented documents, an additional US$75 will be charged by issuing bank for each draw. In submission of documents to bank for drawing on a Letter of Credit, an inspection certificate is required. The certificate will only be issued after our Quality Control team has performed our inspection with an acceptable result. The inspection certificate will be dispatched by our shipping department to supplier via courier upon receipt of faxed copy of invoice, packing list and bill of lading. The inspection certificate is issued for LC drawdown purposes only, and it does not imply that goods are free from defects. The certificate cannot be applied as defense for any future quality claim or in any legal proceedings.

7.4

New Suppliers All new suppliers are required to provide information to allow ThreeSixty to complete a “Supplier Pay Site Form” before purchase orders can be placed. The following documents are required to provide for our records:   

7.5

Business Registration, Certificate of Corporation (for Hong Kong suppliers), Business License, Certificate of Import and Export Right (for overseas suppliers), and Business License of a subcontracted factory (if any).

Documentary Requirements For all shipments pertaining to issued purchases orders, invoices, together with shipping documents, should be directed to shipping department for verification. Invoices billing for miscellaneous charges, such as sample charges, testing charges, etc. should be sent to AE Team directly.

7.6

Deductions / Claims Debit notes are issued to suppliers for all claims including those relating to quality, late shipment, late document submission and missing inspections. Supporting documents, if any, will be provided for your reference. The debited amounts will be deducted from subsequent settlements.

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