Guest Post by Mr. Neeraj Tiwari (Manufacturing Director) Fiat, China on:     Is there Something we can Learn from China's Supply Chain Strategies?

25/10/2020

Tacit Knowledge: A Viewpoint | Time to Read: 2.5 minutes 

Mr. Neeraj Tiwari (Manufacturing Director at FCA Fiat Chrysler Automobiles JV, China) is a seasoned subject matter expert in the Operations and Supply Chain function with a rich experience running over 30 years in the automobile industry.

Starting his career as an Industrial Engineer with the Tatas (in fact Voltas was under the Tatagroup back then) in 1989 through to 1994. Concepts of productivity, time studies and union discussions had just started picking up. The need for high volume production as well as balancing it with quality were a key focal area. Naturally it was a time when machine and labour productivity were both accelerating and debottlenecking the labour issues was important to the functioning of operations. It's then that he worked upon a couple of projects on the same and witnessed robotic productivity to increase by 2-3 times. Critical manual operations transitioned to automation. With the traction of globalization, many joint ventures began in the Indian automobile scene. With Honda's interest to bring their culture of kaizens, coupled with the personal know-how in productivity Neeraj moved to Honda and claims it did great wonders for his career. Witnessed the practical applications of the terms of continuous improvement and found the way of working to be indeed very systematic, he understood the importance of teamwork and productivity furthermore. Soon the TVS group started bringing the quality circle initiatives, ISO 9000 and QMS protocols started around the same time to ensure standardisation. In the years of 1994-97 Neeraj moved from two wheelers to the four wheelers division and also moved (in 1996) to Mitsubishi which happened to have a joint venture with Hindustan Motors. The aspects of manufacturing essential products: powertrains, engines and setting the process by answering the key questions of "how to make a plant lean", allowed Neeraj to witness the landscape of the Indian automobile industry transition with global concepts implemented from Japan, South Korea etc. Involved in Business Process Re-engineering (earlier known as manufacturing system re-engineering) caused a lot of movement of machinery, people, de-centralisations of engine plants etc. De-centralisation became a key strategic move and increased the speed of decision-making. Everything began getting de-centralised inclusive of HR, after sales markets, quality apart from production of power trains and gearboxes. Cellular manufacturing just started and processes got a mega-push. People started understanding the product, the need for process and its adherence. Soon the decisions were supported and takt time, response times changed. Direct manpower were reduced by 30% while indirect manpower by 15%; machines were made redundant. Ultimately 5S became easier to implement and this is when new customers: such as Ford, Eicher Motors started flowing in. Measuring became important and KPIs were introduced.

Neeraj claims that all this was not possible without people. While process is key, people ought to be sensitised and sensitive to it as well. Once that happens, ownership begins naturally. He also thinks these applications of 5S to a business' functioning, balance sheet is a powerful tool towards clearing it up and making it lean. And that frugal manufacturing doesn't imply frugal thinking. Least cost of processes, 0 defects etc. should be talked. Once conversations are initiated and struck, action follows suit.

With him having witnessed History during the globalisation of the Indian automobile and radical shifts in this sector, Done And Done seeks out insights and views on the present day supply chains and the areas that could and should witness a sea-change in the near future. with China having taken centre-stage thanks to the pandemic Done And Done probed to understand the supply chains in China, and given major dependencies of global supply chains on China; Done And Done thought if there is something worthy of learning from their operational activities. The Founder's association with Neeraj goes back to as a student and teacher's around 5 years back, and Neeraj was more than happy to don the hat once more. After all when in doubt who does one turn to? An expert in the domain of course! So read on to learn more on some easy to adopt strategic changes to better your supply chain or if you are considering entering a new market into China-then this snippet is a pearl of wisdom under your belt!

Note: Views represented are of the guest author, Done and Done may not necessarily endorse the same 


As a keen student of World Class Manufacturing (WCM) one always considers technology transfer coupled with continuous improvement pivotal to the world's business leadership. Product supply-chains begin way before the source to consumer stage. It starts at the product design and engineering stage. This is one stage that the Chinese supply chains have capitalized upon at a strategic and Government legislation cum policy level. The most glaring strategy by China is the global companies' transfer technology for high-tech purchases and build local Intellectual Property(IP). What's that you ask me? Read further to learn more.

China never bought technology in general without demanding transfer of technology. It would say - it will buy this jet engine from General Electric, the next generation of jet engine should have 15% of Chinese headquartered IP. That IP is part of the system, if not it would rather buy engines from a competitor instead. And, they would play one company against the other. All these companies, in order to get market share, would be ready. Thus China never bought anything from the US without insisting that they want a percentage of the IP in the product in three years, thereby introducing a state of competition to enter the Chinese market altogether. The IP must be from a China headquartered company.

Contrasting this scenario to the Indian context, within the last 25 years, India would have bought maybe close to USD1,000 billion worth of high technology, but have got no transfer of technology.

The multinational companies approached China and India very differently. They see India as a large market for their products, while China was seen as a manufacturing base for supply to the rest of the world. This also explains the large difference in foreign direct investment (FDI) flow into the two countries.

Let's go back decades and understand the foundation which China started building up.

While India focused on IT. China focused on Manufacturing. In the initial years China had 90% manufacturing units exporting back globally. During those initial years the entire focus in China was on contract manufacturing, less than 10% of the products were for China's local consumption.

More importantly, China began heavy investment in infrastructure. This was a key policy decision as it provided employment to millions of people improving their economic status and purchasing power, which was the essential ingredient for industrial progress.

According to one estimate, India's average investment in infrastructure in the first 50 years after Independence was 3% of the GDP when it required an investment of over 6.5%. China, on the other hand, invested nearly 9% of GDP in infrastructure when it could have done with a 6.5% investment.

China always set aside political, social, and ideological differences in the interest of getting investment, technology, and export channels

China focused very well on land, labour, capital and judicial reforms.

Shall keep Land and Judicial reforms out of the scope for this article.

Let's talk about Labour, the flexibility of recruitment and retrenchment has government consent.

Most of the automobile manufacturers have dormitories in their premises. These dormitories are very well equipped and convenient and can house 70% of the operators/staff.

The communist party itself is the union. Mostly managers and operators are the members of this union. Driven by ideology of the party a high level of discipline is evident. It's not the cost of the labour that matters but in fact the key high productivity is of supreme importance.

Technical schools and colleges have a very close training tie up with industry and good interface.

Capital employed in plant and machinery is on the higher side. Initial cost (IC) may be higher but sure life cycle cost (LCC) is well taken care of. The impetus is on high volumes and best in class equipment. Ease of equipment serviceability, low down time and high accuracy aids business targets in a big way.

The cost of logistics has a big impact on supply chain because of Indian's predominant use of the road transport for moving vehicles. Logistics costs as a per cent of sales are at least 30% higher in India as compared to China and other large automotive markets. We have many inefficiencies embedded. Issues like poor road conditions and restrictions on trucks entering the city during the day are affecting the supply chain's performance.

In Europe and China, the inland waterways are used to transport automobiles. With regards to railways, there is a short supply of specialised wagons (ordinary passenger coaches converted into car carriers) to transport vehicles, forcing manufacturers to use roads. Owing to the excellent infrastructure the delivery time in China is a world's benchmark (25% faster. This leads also to many initiatives of Green procurement (movement reduction, sustainability and flexibility-as against to the miniscule steps undertaken in India) due to localization inclusive of the vendor parks. Amongst the top business houses itself we can find courier service providers, clearly justifying the penetration and standardization of logistics deliveries towards last miles.

Indian government is adopting the right strategy to invest and improve in the infrastructure.

The key link of the supply chain is the supplier. Key to China's supply chain success is synchronizing the understanding of all customer-supplier "Rules of Engagement" from the outset. If you engage a Chinese supplier assuming its management intuitively understands how suppliers and customers interact in the West, you are taking a big risk.

For that reason, a formal supply contract that memorializes the full range of engagement rules with suppliers and minimizes the potential for innocent mismatches of expectation is a necessity. Indeed, the importance of contracts cannot be overstated. Keep in mind that from the Chinese perspective, "If it's not in writing, it didn't happen!" and "If it's not in writing, it's not important!" Given most of Indian businesses function on-call and on relationship, there is a dearth of formal agreements and adherence to it. Updating it is another ball-game altogether.

Another key to success is refining your company's routine supplier management processes to suit in China. These processes work effectively in the West, but they are almost certainly sub-optimized for use in China. A high-profile Western toy company damaged its reputation-perhaps irreparably-by mismanaging its Chinese suppliers. After over 20 years of seemingly problem-free imports of high-quality toys, this company relaxed or lost its supplier quality-assurance discipline, and suppliers began to use lead paint, which failed to meet Western consumer-safety standards. The toy company suffered financial losses and damaged its reputation with consumers, and its Chief Executive Officer (CEO) was forced to admit publicly that the problem was not with the Chinese suppliers, but came from failures in the company's own documentation, designs, and management processes.

Thus a key learning for firms trying to emulate the Chinese supply chain management would require them to duplicate the technology absorption, disciplined workforce and above all focus on lifecycle costs ensuring the best equipment is rendered for manufacturing use. This streamlined with the infrastructural investment and Government buy-in, is a recipe to ensure supply chain success.

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