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Chapter 1
Introduct
History
The establishing of First Auto Works (FAW) in the Changchun in 1953 was
represented the beginning of Chinese domestic automotive industry started to
launch in 1950s. In 1956, the first Chinese-made vehicle was produced by
FAW. (Femandez & Liu, S 2007)
Later on, in 1971, the total output of Chinas automotive industry was beyond
100,000 units after a decade of development. However, the total annual
output still under 150,000 units in 7 years which meant the growth remained
slow. In the 1970s although the total number of motor vehicle manufacturingfacilities increased to over 50, most of them were small and with low
production. (Gallagher, K 2006)
In 1980s, China also accelerated its cooperation with automotive industries in
other countries, importing technology and establishing joint ventures due to
the highly centralized control of automotive production was replaced by the
marketed-oriented approach under the circumstance of economic reform.
(Harwit, 1995)
Due to the further adjustment of the strategy of Chinese automotive industry,
the development of passenger car industry was recognized as the first priority
during the 1990s. Meanwhile, the number of personal owned vehicles began
to go up because of the ended of control on private purchase for passenger
car. Therefore, government had to enhance the development of automotive
production as the first priority to satisfy the rapid increasing demand. Later
on, due to the joint venture companies occurred, plenty of modern product
design and factories was imported to China by the foreign automakers and
the quality of vehicle produced in China was increased Unprecedented.
Therefore, the Chinese performance regulations were forced by the more
advanced technologies.
By the end of 1999, there were 2,391 automotive enterprises in china. It
contained 136 motorcycle assemblers, 118 Original Equipment Manufacturers
(OEMs) OEMs (Original Equipment Manufacturers), 546 automotive
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remanufacturers, 51 engine manufactures, and 1,540 automotive components
and parts companies. There were totally 1.8 million people were employed by
Chinese automotive sector and 169,000 of them were engineers and
technicians. During 1999, the total assets of automotive sector was RMB
508.7 billion which was $41.1 billion and the total output was RMB 341.1
billion which was $ 41.1 billion. (Zhang, 2004)
1 Current situation of Chinese auto industry
China has been recognized as the worlds largest growth market for
automobile by all over the world. It was mainly displayed in the dramatically
increasing rate for the automobile demand and it seemed like no ceiling for
this increase. This growth also stimulated demand for relative sectors like
automotive parts, services after sale, and products after-care. At current, the
relatively advanced technology which compared with previously enabled
China to produce the full line of automotive products and establish the large
automotive enterprises. The leading edges contained China First Automobile
Group Corp. (FAW), Dongfeng Motor Corp. (DMC) and Shanghai Automotive
Industry (Group) Corp. (SAIC) played a significant role in the Chinese auto
industry.
The total number of Chinese automotive enterprises had been achieved 6,322
compared with 2,391 by the end of 1999 which means three times in the
speed of development within the seven years. The total output value of the
automotive sector had been achieved $ 143 billion in the first three quarters of
2006. Moreover, thanks to the highly growth of annual income, nearly 50
percent of motor vehicles which included cars and trucks had been purchased
by individuals in China. (Domansky, 2006)
Recently, Chinese automobile industry is experiencing the tough time on
account of the countrys macroeconomic adjustment and global financial
crisis. Shang and Zhou (2008) indicated that the imported vehicles cheaper in
Chinese market tended to cheaper because of the depreciation of US dollar.
In addition, auto consumption would be a more expensive option on account
of the rising global oil prices and Chinas fuel tax and it would dampen a batch
of potential automotive buys. (Shangguan, 2008)
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2 Research problems
The Chinese automobile industry has developed dramatically and became
one of the largest national automobile industries within the last 10 years. As a
result of the high number of domestic car brands (more than 40 differentbrands) there is strong competition on the Chinese domestic market. Although
the trends of growing is the positive to Chinese auto industry we can not
ignore that the Chinese auto industry is actually on the stage of immature and
lots of aspects should be optimized. For instance, Chinas production capacity
is very high but the utilization rate is low. The situation of high supply and low
demand causes prices to plummet. Therefore for models that are not selling
well, the investment and depreciation is such a huge cost element that it is
hard to justify keeping the production in the market. All of these circumstances
reflect the weakness points of Chinese auto industry. However, for a
developing country like China this is the only way which must be passed to
the success. In this paper, Toyota production system (TPS) would be the
guidance of theory and combine with specific circumstance of auto industry in
China to find out whether the Toyota production system could optimize
manufacturing process and improve the efficiency and eliminate the waste.
3 Aims and objectivesBase on the current status of Chinese vehicle manufacturing industry, the
quality improvement seems like the main issue to deal with. Moreover, a high
level of quality makes the Chinese vehicle more competitive and takes more
market share in the world vehicle industry.
This paper aims to examine the current situation of Chinese auto industry in
terms of internal and external aspects. An independent automotive producer
which is Chery would be the case to study. Base on the guidance of Toyotamanufacturing system analyze and identify the advantages and disadvantage
would expect to achieve. Moreover, the recommendation of improvement for
Chinese auto industry and future vision would expect to given as well.
This paper would focus on the following objectives:1. Describe and analysis the automotive industry in China
2. Introduce the Chery Auto company and the position in the Chinese
automotive market
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3. Base on the literature review, build up the framework of knowledge about
the lean thinking and Toyota production system
4. Utilize the characteristic analysis to understand the status of Chery and
the main issues involved
5. Some recommendation would expect to be given for improving the
performance of Chery Auto company
6. A future vision for the Chinese automotive industry would expect to draw at
the end of research
4 Research questionsIn order to achieve the research objective some research questions would be
prepared to find the answers in order to establish the framework of theresearch and the answers would be contributed to solve the research
problems. Sort of research questions are listed as follow:
1. What is the current situation of the Chinese automotive industry
2. What is the main gap between Chinese and leading auto producers in the
world and what kind of advantages of Chinese automotive producer obtain
3. In what extent that Chinese automotive producers references the
advanced production system like Toyota Production System and how do
they put the theory into the practice of Chinese automotive industry
4. What are the main problems does Chery has during the manufacturing
process
5. What the main strategy for Chery Auto Company to improve the product
quality and reduce the unnecessary waste.
6. Does Toyota Production System can be utilized to optimize the situation of
Chinese automotive industry
5 Research Methodology
5.1 Data collection method
In order to analysis the circumstance of Chery more comprehensively,
interview with Cherys managers is essential to achieve this goal. The
managers who charge for the marketing and manufacturing would be the
target to interview since those two managers are sophisticated in there are
and understand the circumstance of marketing and manufacturing process of
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Chery very well. Interview would be conducted by the form of face to face and
would least approximately one hour in consideration of their limited time. The
detail of interview would recorded by the digital recorder and the data would
translate from Chinese to English in order to analysis.
Moreover, searching relative information would also be achieved by utilizing
the internet and regarding journal articles.
6 Data analysis methods
The data which collected from the interview would be analyzed by using the
method of characteristic analysis. L.C. Thomas, David B. Edelman, and
Jonathan N. Crook (2002) indicated that the purpose the characteristic
analysis would take each attribute of analysis object and obtain the
comprehensive understanding after analysis. (Thomas, Edelman & Crook
2002)
This method would enable the researcher thoroughly understand the
company which being interviewed.
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Chapter 2
Literature review
2.1 Toyota production systemAlso know as lean production, the Toyota production system (TPS) is an
integrated approach to achieving the efficiencies of mass production with
small production volumes. Developed by Toyota Motor Corporation in the
1950s, TPS is based on the elimination of waste throughout the process of
design and manufacturing, and relies heavily on just-in-time (JIT) production,
the building of quality and productivity into production processes, and the
continuous and incremental improvement of quality (kaizen). This approach toquality management is credited with Toyotas remarkable global success in
the automotive industry during the second half of the twentieth century.
(Shingo & Dillon 1989)
TPS was developed by Taiichi Ono, who was Toyota Motor Corporations chief
production engineer in the Post-Second World War period. This alternative to
mass production was born of necessity immediately following the war, Toyota
faced considerable capital constraints. Unlike the large Western automobile
manufacturers, Toyotas production volumes were small, a few thousand
vehicles per year, compared with 7,000 per day at Ford Motor Companys
River Rouge plant in Detroit. (Moore 2002)
Toyota had neither the financial backing nor the scale of production to
implement the western mass production approaches. Ono recognized the
need to develop flexible production processes that were not dependent on
huge production volumes of individual vehicle models to be economical. TPS
involves great flexibility in terms of both production equipment and workers.
The system focuses on designing processes that create cost reductions
through the elimination of waste. This extends far beyond the machines on
the factory floor, and includes the management of employees, inventory
control, and supply chain management. Both suppliers and customers are
expected to cooperate in the common quest for ever-better quality and
productivity very much in line with the teachings of Deming, TPS is an
integrated system that has three key aspects; jidoka( self-work change), JIT
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(kanban), and standardized work with kaizen. (Bird 2001)
1.
Jidoka refers to self-regulation of the entire process, either automatically or
through human intervention. Preferably machines are designed to detect
problem (such as malfunctions, quality problems, or delays) and to stop the
production line when problems are encountered. When such mechanical
solutions are unavailable, workers have the authority and the responsibility to
stop the production line immediately rather than waiting for supervisory or
managerial authorization. Jidoka permits the clear identification of trouble
spots and prevents poor quality output from being sent to the customer
(internal or external), while reducing the need for inspectors. With jidoka,
quality is constantly being built into production process. (Baudin 2007)
2.
Consistent application of JIT principles throughout the system permits each
customer order to be processed with speed and efficiency not necessarily in
large batches of similar models. Because parts are delivered as needed all
through the system, inventory is reduced, which means that quality problems
are obvious quickly and less floor space is required to store work in process.
3.
In addition, JIT facilitates the customization of finished product, providing
increased customer satisfaction. (Smith 1977)
The purpose behind standardized work and continuous, incremental
improvement of quality is to permit the organization to respond quickly to
changing demand patterns, while eliminating waste throughout the system.
Adhering to rigidly defined standard operating procedures results in less
variation in outcomes, making process outcomes and quality more
predictable. This facilitates the arrangement of production activities into a
single, continuous flow, which involves careful balancing of production
scheduling. Given their direct knowledge regarding the production processes,
employees are empowered to assist in making the processes progress more
smoothly and quickly. (Dennis & Shook 2007)
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2.2 The essence of lean thinking
Womack and Jones (2003) describe lean thinking as the antidote to muda.
Muda is the Japanese word for waste and specifically any human activity that
absorbs resources but creates no value. The essence of lean thinking is the
elimination of muda wherever it exits- within the individual firm but also along
the whole supply chain (Jones & Womack 2003)
2.3 Definition of waste
Waste, or muda, as it is known in the Toyota production system, is defined as
any activity that absorbs resources such as cost or time but adds no value.
Waste can be classified in a couple of different ways. Eliminating wastes is a
basic principle of the lean manufacturing system. To systematically eliminate
waste, detailed concepts must be taught to every member of the organization.
Whether analyzing worker operations, production, or production processes
themselves, two fundamental types of waste must be considered: obvious
waste (Type I) and hidden (Type II). (ReVelle 2002)
Type I: Obvious waste is something that is easily recognizable and can be
eliminated immediately with little or no cost. For example, an operators time
spent cleaning up parts may be absolutely necessary unless arrangements
can be made for parts to arrive ready to use.
Type II: Hidden waste refers to aspects of lean manufacturing that appear to
be absolutely necessary under the current methods of operation, technology,
or policy constraints but could be eliminated if improved methods were
adopted. For example, using X-ray to inspect welds may be needed until
welding technology improves.
Either type of waste can further be classified into seven different categories. It
is the key to recognize and understand these, because equipped with this
knowledge; one could simply walk through the shop floor and find many ways
to eliminate waste immediately.
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2.4 Definition of seven wastes
1. Waste of overproduction;
This waste happens when companies produce finished products or work-in-
process (WIP) for which they do not have customer orders, or they produce
parts faster than required by the downstream process. Companies
overproduce for a variety of reasons. Large-lot production, long machine
setups, and making up for poor quality are some of them. Part of the root
cause of this waste may be the logic of Just in case somebody needs it, an
uneven production schedule, dear of worker idle time, or a misuse of
automation, so that parts are produced unnecessarily to justify a large capital
investment. (Webber & Wallance 2006)
Waste of inventory
Inventory is an accumulation of finished products, WIP, and raw materials at
all stages of the production process. Express inventory is usually a symptom
of many other underlying problems such as defects, production imbalances,
long setups, equipment downtime, and late or defective deliveries from
suppliers. There are major costs associated with excess inventory. (Goldsby &
Martichenko 2005)
First, it hides process problem so people are not motivated to make
improvements.
Second, when processes make excess inventory, these items must be
moved and stored, using up conveyors and forklifts and the time of the
people who run them. This transport adds costs but provides no added
value.
Third, companies pay to carry this extra inventory in terms of floor space,
people to keep track of stores, and other resources such as computer
systems and support personnel.
Fourth, inventory increase lead time and response time to the customer.
Fifth, inventory can lead to handing damage due to excessive transport.
Sixth, items can deteriorate over time and become obsolete due to
changes in technology or customer demand.
Finally, inventory is wasteful in produce it; as long as that inventory staysin the plant or warehouse, the company is not repaid for its investment in
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these resources. As a matter of fact, that is why inventory is carried on the
books as an asset.
Inventory waste affects every production process that depends on a previous
process for parts and materials. The impact of inventory is shown in following
Figure. When a plat has many products and processes, each handling items
in large lots, the cumulative waste and foregone cost savings can be
enormous- it has been estimated at 20 to 40% of a companys revenue. To
eliminate this waste, companies use the pull system to produce those items
in the right amount and at the right time to satisfy customer need. It must be
noted that inventory typically exists for a variety of reasons, and those
underlying causes must be addressed before an attempt is made to reduce
inventory.
Figure1. Impact of inventory
Source: (Webber & Wallance 2006)
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2. Waste of correction
Correcting or repairing a defect in materials or parts adds unnecessary costs
because additional equipment, labor, and material will be needed. Other costs
may be a delay in delivering orders to the customer or having to maintain
excess inventory to make up for quality problems. Severe quality problems
can create lower customer confidence and lead to the loss of future business.
Some of the causes of this waste may be weak process control, poor product
design, deficient equipment maintenance, inadequate measurement systems,
or ineffective worker training. The relationship between this waste and JIT is
not always easily understood. Frequently companies undertake major quality
or lean initiatives as if they are separate efforts. A lean manufacturing system
such as JIT assumes high-quality outputs at all process levels. As a matter of
fact, attempting to implement JIT without improving quality could be
detrimental. (Brue & Howes 2005)
Waste of movement
Any material, people, or information movement that does not directly support
adding value for the customer is a waste. Poor shop layout, poor workplace
organization and housekeeping, wrong work-order information, wrong- located
material, or excessive inspections can lead to this type of waste. (Wilson,
2009)
Waste of motion
Any motion of people or machines that does not add value to the product or
service is a waste. This can lead to operator fatigue or wear on machines and
could sometimes lead to injury. Poor process design, and ineffective human-
machine interface, bad workplace design, or inadequate planning generally
causes this waste. (Scholtes, Joiner &, Streibel 2003)
3. Waste of waiting
This is probably one of the most pervasive areas of waste, especially in the
factory floor process, and it happens when people, equipment, or material
wait for each other or for information. This can happen as a result of poor
quality in upstream operation, a poor or uneven schedule, unreliable
suppliers, or poor equipment reliability. Poor communication is also a frequent
contributor to this waste.A related waste is worker frustration or loss of productivity. Lean
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manufacturing assumes that most people come to work to be productive and
add value. (Kerzner 2006)
7. Waste of overprocessing
Processing efforts or steps that add no value to the product or service from
the customers perspective can lead to this waste. Factors involved can
include redundant approvals, poorly defined customer requirements, and
redundant steps to make up for lack of process quality. Typing a note on good
paper when a quick hand note on scrap paper will do is an example of this.
Inspecting a part surface when the surface will later be machined off is
another example. (Graban 2008)
2.5 Pull-system strategy
The general guideline for the pull-system strategy is to produce only the
necessary items, in the necessary quantity, at the necessary time.
In a pull system, the customer process withdraws the items it needs from the
supplier process and the supplier process produces to replenish only what
has been with draw. Pull systems operate with a minimum of buffers and other
safety valves, while ensuring product quality and providing manufacturing
flexibility. A well-functioning pull system guides workers on how to identify and
eliminate waste, but this strategy must work together with several other lean
manufacturing strategies for the overall system to work. For example
production of parts in small quantities is a key technique for a pull system, but
it also supports the lean strategy of build quality into the process. (Schmitz
2008)
The goal of the pull-system strategy is to provide the flexibility to rapidly
respond to customer demands and eliminate the waste that occurs when
upstream processes produce ahead of the needs of the downstream
customers. This pull strategy must be extended to all production processes
that are linked together within the corporation and eventually to the entire
value chain. Since the entire system must still bear the cost of inventory
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accumulation, this prevents inventory location shifts from production factories
to supplier warehouses. More importantly, lean manufacturing does not
consider inventory reduction as the primary benefit of the pull-system strategy.
Higher quality, increased flexibility, and more efficient space utilization are key
benefits. (Revelle 2002)
Whereas implementation techniques are specific practices and procedures
developed over the years by companies such as Toyota with guidance from
pioneers such as Henry Ford. Techniques used to implement pull-system
strategy will be shown as follow:
2.5.1 KANBAN
In a pull system, the coordination of production and the movement of parts
and components between processes are critical to avoid either excess or
shortages. To achieve this, a system called Kanban usually be utilized many
companies. The meaning of this word is cards or signal in Japanese. These
visual signals are used to control production in the pull system. Kanban
provides the authorization to deliver or produce parts for a process. Pull
system operate by requiring downstream processes (assembly) to withdraw
parts form upstream processes (component production or suppliers) only
when needed, thus signaling upstream processes to produce only what is
necessary (to replace withdrawn parts). (Revelle 2002)
A typical Kanban system uses three main types of Kanban cards:
Move Kanban authorizes a process to get parts from the previous process.
Production Kanban authorizes the previous process to produce more parts.
Supplier Kanban authorizes an outside supplier to deliver more parts.
Examples of different forms of Kanban are shown in following Figure. They all
serve the purpose of communicating requirements between upstream and
downstream processes.
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Figure2. What is Kanban?
Source: (Revelle 2002)
2.5.2 LEVEL SCHEDULE (HEIJUNKA)
Leveling of schedules, or heijunka as it is known in Japanese, refers to
leveling production by both volume and variety. That means if manufacturing
is planning to make 8 widget As followed by batch of 4 widget Bs today, and
tomorrow is planning to build batches of 12 As and 6 Bs, then what they really
should do is to make 2As followed by a B all day long each day rather than
doing 18 As today and 12Bs tomorrow. This is one of the counterintuitive
aspects of lean. This leveling of the schedule accomplishes a steady demand
of resources, shortens the lead time of individual product variations, and helps
level work requirements throughout the supply chain. Without this technique,
pull-system implementation would be extremely difficult, if not impossible.
Once the production volume is firmed up, some variation in production mix
can be achieved through Kanban. A leveled schedule defines the limits of mix
and volume flexibility, and it can be used by suppliers to estimate their own
resource requirements. This permits the lean manufacturing company and its
suppliers to avoid carrying exvess materials, machinery, or manpower to meetpeaks in demand. Limiting variations in production mix and volume from week
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to week is the key in a pull system. This type of mixed leveling (Heijunka) is
carried out with respect to product variations based on models, options, and
other features, which can be accommodated at the final assembly level. The
combination of level schedule and the Kanban system results in tremendous
flexibility on a daily or even hourly basis to vary volume, production sequence,
lot size, and mix within well-defined bounds. (Nicholas & Soni 2006)
2.5.3 TAKT TIME
A key technique to implementing a pull schedule is calculation called takt time.
Takt time is the rate at which each product needs to be completed to meet
customer demand. It is the beat or pulse at which each item leaves the
process. Takt time determines standardized work and load-balancing
requirements and drives many kaizen activities for various upstream
operations. (Baudin 2002)
Takt Time = Available Daily Work Time/Daily Customer Requirements
Example: Available Daily Work Time = 480 Minutes 60 Minutes (Breaks) =
420 Minutes
Daily Customer Requirement = 840 Units
Takt Time = 420/1000=0.5 Minutes
It implies that a product must be produced every 30 seconds. This will set the
pace of whole production line. If several products are being produced in the
assembly process, then takt time must be calculated for each type and then a
repeating smooth pattern of each product type must be scheduled. This
process is known as mixed model sequencing. Cycle time is the amount of
time required for a single unit to be processed. Cycle time must be equal to or
less than the takt time to meet daily customer requirements.
2.5.4 QUICK CHANGEOVER TECHNIQUE
The ability to perform quick changeovers from one part or model to another is
critical to implementing a pull system in a situation where numerous parts and
products are being manufactured. The reason is that rapid changeovers
provide the manufacturing capability to produce in small lot sizes as signaled
by kanban cards and yet maintain high machine and worker utilization. Quickchangeover techniques focus on finding the causes for the equipment to be
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stopped for a changeover and systematically removing those reasons through
teamwork, simplification, standardization, detailed documentation, and
continuous improvement of the changeover process. Typically, changeovers
are the responsibility of the team operating the equipment; however, other
skilled trades and support-engineering personnel must be available when
needed. A well-trained quick changeover team must be able to perform
multiple functions in changeovers without regard to lines of demarcation. This
requires substantial training as well as specific labor contract provisions, if
applicable, on work rules and job classification. (Arai & Sekine 2006)
One hurdle to quick changeover implementation faced by companies on the
lean manufacturing may be that the change necessary to implement quick
changeover is not obvious until a pull strategy is in place. Implementation is
hard to justify on the basis of direct labor savings alone, although it can free
up substantial production capacity. The real benefits of the quick changeover
technique tend to appear in areas such as direct labor, reductions in inventory,
and improved quality and flexibility. Moreover, the benefits of quick
changeovers can often be achieved with little or no capital investment.
(Richard, Mclntosh & Mileham 2001)
2.5.5 SMALL-LOT PRODUCITON
A basic concept of the pull system is that the ideal lot size of parts and
components is equal to one. The reasoning is that if parts are fabricated and
flow together into final assembly and if only one end product at a time is
produced, then only one set of parts and subassembly is needed. This result
in minimum inventory and one piece flow and provides maximum flexibility to
satisfy customers. However, striving toward this ideal must be balanced with
practical considerations of setup and handing costs. Small-lot production also
helps the lean manufacturing quality strategy, because problems surface
faster and must be dealt with immediately because inventory buffers are not
available. . (Urable & Child 1998) ,
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Chapter 3
Overview of Chinese auto industry
3.1 Chinese automotive industry
The automobile business started to face a large gap in terms of technology
and managerial with world standards when many Chinese business followed
the economic adjustment and opened the door to the world in 1978.The
transferring for technology and knowledge in terms of joint ventures between
global enterprises and initial Chinese firms had been traded market access by
the Chinese government
The Chinese automotive industry is treated as the most complex and dynamic
in the world on account of the amazing growth rate of production. In 2000
which is the year prior to WTO access, the automotive production was 2.1
million vehicles in China. After only eight years which was in 2007, production
had been achieved 8.9 million vehicles which were four times as the one in
2000 and it was treated as the feat in Chinese automotive history. In 2007,
China automotive contributed to approximately 42 percent of all growth in
global auto production since the Chinese automotive production grew by 22
percent over 2006, while the production automotive production grew by 5
percent during that year. However, Chinese automotive industry also suffered
by the deepening global recession in 2008 which was displayed in the growth
rate of 20 percent dropped down to approximately zero. At the end of 2008,
Chinese automotive enterprises were seeking governments help in dealing
with dropping demand. In addition, the increasing serious problem regardingthe urban air pollution was contributed by the rapid growth of automotive
production in China. (Hitt , Ireland & Hoskisson, 2008)
3.2 Why Chinese market is appealing
Foreign automakers are attracted to China on account of the high annual
economic growth which was almost 10 percent was the main reason why
foreign automakers infatuated the Chinese automotive market since thecentral planning policy was Abolished by the central government in 1978. The
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growth rate of the passenger car market has also been striking and was
predicted to achieve 7.4 million units in the end of 2010 which representing an
average annual growth of 17 percent to 21 percent. (table) (Pigott 2002)
Table1. Circumstance of automobile production in China
Source: China Automotive Industry Yearbook 2010
China is currently recognized as the forth largest car market and there is also
a lot of space for China automotive industry to expand for the next five to ten
years. The sales of cars was registered approximately four millions in Chinese
market in 2008 which still amount to a growth of nearly 10 percent.
However, some of Chinese automobile makers have not realized what they
have been dreaming about China. The previously circumstance which one
enterprise dominated the whole Chinese automobile industry was gone
forever. Recently, Chinese automotive industry is a highly competitive industry
utilizing advanced technologies and expanding in new locations. The intense
competition in the Chinese automobile industry has forced some automotive
enterprise habitually over-produce and continually cut prices until small or no
profits remain. The intense competition also influenced the foreign
automakers dramatically. Lots of automotive multinational corporations
(MNCs) entered China aimed at exploiting market, made losses because of
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pricing war, and even some enterprises withdrew the auto market at last.
The following table shows the joint venture established by the automobile
MNCs and the Chinese big three automotive producers.
Company Location Shareholders Main Products
FAW-VolkswagenAutomobile Co., Ltd.
ChangchunCity.
FAW, Volkswagen Audi, Jetta
Tianjin Toyota Motor Co., Ltd Wuhan City FAW-Shali,Toyota Vios.
Dongfeng Peugeot CitroenAutomobile Company Ltd.
Wuhan City DFM, PSA France Fukang, Picasso
Shanghai General Motors Corp.,Ltd
Shanghai City SAIC, GM Buick, Sail SRV
Shanghai Volkswagen AutomotiveCo., Ltd.
Shanghai City. SAIC,Volkswagen Polo, Passat
Table2. Joint Ventures Established by the Automobile MNCs and the ChineseBig ThreeSource: China Automotive Industry Yearbook 2007
3.3 Industry structure
The structure of Chinese automotive industry contributed to the development
dramatically. In order to ensure the quality of vehicle is reliable manufactured
by Chinese auto makers, imported advanced knowledge is the essential way
to way to develop the Chinese automotive industry since the technology was
backward. Moreover, development of knowledge and technology by Chinese
auto manufactures as costly in terms of both time and money. There are some
approaches to achieve this goal. Firstly, it could be achieved via acquisitions
and mergers of enterprises outside of domestic, who has mastered the
advanced knowledge and technological skills. In addition, joint ventures
between Chinese and foreign enterprise was also the alternatively way to
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achieve it. However, the joint ventures should be established base on the trust
between the Chinese automakers and foreign enterprises since the core
competitiveness seems like sensitive for every company. Due to a positive
trend of development took place in terms of acquisitions, mergers, and joint
ventures, the government made effort to eliminate the market intervention and
set the relative policy aimed at encouraging these activities. In addition, the
intense market competition also forced companies to be consolidated and the
industry structure was completely different with the previous one. (Lee &
Anderson 2006)
3.4 Definition of independent Chinese automobile manufacturers
(ICAMs)
If the auto manufacturers developed its own domestic brand and all the core
competency contains the technologies needed for Research and
Development (R&D) and manufacturing process were not obtained through
joint venture with foreign companies, it should be recognized as independent
Chinese automotive manufacturer (ICAMs). For example, Geely Automobile
and Chery Automobile should be served as representative of independent
Chinese automotive manufacturers which is ICAMs.
By contrast, the automaker should be served as Non-independent Chinese
Automakers if they just simply referenced the existing models of their foreign
joint venture partners as their owns and put them into the market. For
instance, Beijing Motors, Guangzhou Motors were supported in terms of
brands, relative technologies and product models by their foreign partners.
There are more than 20 enterprises can be revered as ICAMs base on the
definition above. There are two kinds of limitations that ICAMs have to meet.
Most of ICAMs had to transfer their attention to the trucks and SUVs market
since the strict new entry restriction for the passenger vehicle market. In
addition, ICAMs to be served as novice has plenty of weakness in terms of
design, innovation capabilities, advanced engines and system integrations.
(Brandt &, Rawski 2008) ,
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. Figure3. The Sales of Passenger Car by ICAMsSource: Automotive Information 2002-2009, China Automotive Technology &Research Center (CATARC)
The figure 3 above demonstrates that only few of ICAMs have achieved
satisfied scale if the minimum level is supposed as 50,000 units per year.
Furthermore, some of ICAMs annuals sales could be a threat to those of
Sino-foreign (Chinese and foreign) Joint Venture Companies. In another word,
independent in most of cases for ICAMs means, isolated in technology.
Being recognized as the companies on the way to mature, ICAMs had
insufficient resources to be utilized for designing the new models and skills in
manufacturing. Therefore, the gap between ICAMs and Sino-foreign joint
venture enterprises is obvious in terms of qualified technology, facilities,
capital and human resources.
3.5 The Burgeoning Independent Chinese Auto Companies
There are mainly three approaches which enable the new investors join the
party of Chinese automotive industry, which was regarded as the most
profitable industry in China.
1) Due to the circumstance of overcapacity has existed in Chinas motorcycle
industry for a few years, the motorcycle makers like Geely, in Zhejiang
province started to expand to the automotive market to seek the new
opportunities and ways out. The expansion of automotive market provided
the motorcycle companies with new opportunities and ways out. Theexperience of motorcycles manufacturing allowed them to obtain the
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advantage to make transition.
2) New auto companies supported in terms of fund by capitals by other
industries cause those companies have accumulated efficient fund to face
the increasing competition in Chins mature consumer and household
electronics market. With the purpose to explore higher profit margin in
Chinese auto industry a few electronic companies invested and
restructured some weak and small entire automotive and parts companies.
Unfortunately, most of those companies failed to achieve the goal.
3) From production parts into automobile manufacturing like Chery in Anhui
province of China. Those companies normally take advantage of their
experience and better understanding for the auto industry to obtain the
competitive position in the automotive market. On account of the higher
value added of entire automobile than auto parts the initial auto parts
makers normally enter the market in terms of acquisition and restructure to
pursue the profit. (Rogers 2009)
4) The relatively good environment of development for Chinese young auto
manufacturers was provided by the booming domestic auto market and
rapid growth of Chinas economy. They actually been the strong contender
which the large local automakers and foreign company should not be
ignored. and the skyrocketing domestic auto market provided those young
companies with a good surviving environment. So far, many of them have
thrived among the large local automakers, and their foreign partners. To
some extent, the emergence of those young independent Chinese auto
companies in term of performance and operation models represented the
great change in the global automobile industry. Therefore, the independent
Chinese automobile manufacturers also called young tigers by the foreign
media on account of being tiny, intrepid but ambitious. (Baker 2007)
The young tigers are quite unique and took a different way from the joint
ventures and big state-owned companies.
Firstly, they all have their own brands and develop their own product
technologies independently by different ways. They normally developed the
models under own control in form of joint development, R&D outsourcing andreverse engineering and also invested engineers who from the old-style
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stated-owned companies to join their team. For instance, Chery developed
their initial products from reverse engineering in order achieve the cost
saving. After a period of time, their accumulated capital enabled them to
outsource the sophisticated foreign company to make the new product
development. Brilliance Auto, which is the partner of BMW in China, would be
another good example. They actually outsourced and collaborated with
European Design Company to develop their independent division.
Secondly, the price of vehicles which manufactured by them are relatively
cheaper and focus on the lower class of market to meet Chinese consumers
purchasing ability. However, the young tigers like Chery also launched the
higher class of vehicle such as the Oriental Son which is comparable with
Accord of Honda but just its half price. Therefore, the relative low class is
their target market and people who have price-sensitive is the target
consumer for those young tigers. (James 2004)
Recently, more and more global automotive makers started to pay
increasingly attention to those young tigers. The young tigers are obtain
more and more attention in the global auto industry. In particular, the
operation modes of these Chinese young tigers in terms of economy of
scale, technical capability accumulation and brand power tend to influence the
long-term pattern of global automotive industry. They are actually playing a
significant role in optimizing the Chinese auto environment and accelerate the
maturing process of Chinese auto industry.
In the following Chapter, Chery is chosen to be the case for detailed analysis
since it is the representative of independent Chinese auto manufacturers and
full of the characteristics of the Chinese young tigers.
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Chapter 4
Case study: Chery Automobile Company
4.1 Introduction
Chery Motor Co. was established in 1997 in the Wuhu province, which is
undeveloped in China, and it contributed to the local economy dramatically.
In 2001, the first export car to Syria was manufactured by Chery and it was
the first company, which export vehicles from mainland of China. The
company also made efforts to enhance quality of production quality and
develop technology by established a research center. Penty of Japanese
automotive consultants were hired by Chery aimed at assisting Chery in
implementing the lean process and six sigma standard. These efforts enabledChery to be granted ISO/TS 16949:2002 production quality certification,
which is the strictest international production quality certification in 2005.
(Kynge 2007)
In order to improve the exterior design of vehicle, Chery associated with
Bertone and Pininfarina of Italy which are the design consultants to Ferrari
and Lamborghini. Moreover, Chery also collaborated with AVL of Austria to
develop eighteen of brand new engine models which utilized for integration
into new models of vehicles.
The sales and exports of Chery increased rapidly on account of the tax breaks
and booming domestic demand. In 2006, Chery was recognized as the third
largest domestic automotive enterprise contributed by the dramatically
increasing sales figures which were 305,000 units. Moreover, foreign exports
was reached approximately 50,000 units which represented a 178% increase
from the previous year. (Zeng & Williamson 2007)
Cherey also invested in plenty of domestic and oversea production facilities in
order to meet the increasing sales. In 2003, the first Chinese automotive
facility opened in oversea was Chery and it began to launch a series models
in Iran. Between 2005 and 2006, two automotive plants established in Russia
and Malaysia.
However, the road to the foreign automotive market was not flat and it mainly
displayed in the product quality. The vehicles manufactured by Chery have not
obtained the satisfied recognition by the oversea customer in terms of the
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strict requirement on safety and emission standard. The positive thing is,
although a lot of aspects need to be optimized the emergence of Chery has
been drew the attention by the oversea customers. Currently, Chery still
concentrated their export in the markets like Middle East, Latin America.
4.2 Characteristics Analysis
L.C. Thomas, David B. Edelman, and Jonathan N. Crook (2002) indicated that
the purpose the characteristic analysis would take each attribute of analysis
object and obtain the comprehensive understanding after analysis. (Thomas,
Edelman & Crook 2002)
For the Chery, characteristic analysis is expected to be utilized aim at
obtaining the better understanding the circumstance of Chery and finding the
distinction with the other competitors of Chery.
4.2.1 Resources
The resources of Chery can be breaks down into two aspect which are
tangible and intangible.
Tangible
Chery located its headquarter and the main manufacture in Wuhu city, Anhui
province of China. Wuhu is a relatively new developed medium size city in
comparison with Beijing and Shanghai. Moreover, the relatively distant from
the central of China did not create some advantages for Chery. The qualified
and highly educated professionals are hardly to be attracted by the location
but it enabled Chery to employee the low cost labors. (Zhang 2005)
Intangible
The organizational culture of Chery would be the significant intangible
resources. Since the culture is one of the essential part of organization and it
tend to influence employees productivity and motivation.
The highly motivated and strong willed employees not only the assembly line
workers but also the president is the key characteristics of Chery. Under the
goal of producing Chinese domestic vehicles and leading the Chineseindependent automotive industry, the employees full of morale. Another goal
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of Chery is making effort to be the Toyota in the 1950s and Hyundai in the
1970s. This can be also displayed in the slogan of Chery which is Making
Chinese Cars and this is the key reason why those sophisticated engineers
and professionals from FAW, Dongfeng, even oversea automotive enterprise
to join Chery.
On the other hand, Chery had analyze the approach for expanding the new
market cautiously in spit of the ambitious goal owned by Chery. Their first
step is to export small amount of vehicles to the market with the purpose of
trialing the demand. The following step would be establishing assembly plant
and exporting the parts from domestic to the local factory when the sufficient
demand was obtained. The long-term strategy enables Chery to expand their
brand into more developed market in the neighboring regions and it also
demonstrates the organizational culture which is learning by doing. (Hadden
& Robinson 2005)
Previously, the Chinese auto makers had no enough ability to produce the
originally developed vehicle models. The only way for them to manufacture
the vehicle was utilized the models from their partners of joint venture. SAIC
Motor, which is the top 500 in the world and the largest passenger car
manufacturer in China, but there are no self-developed cars manufactured by
it.
In addition, purchasing the core product technologies was the common
method to be utilized by Chinese manufacturing companies without
independent R&D capabilities. For instance, Feng Yun which was the first
passenger car manufactured by Chery was actually a kind of variant of Jetta
III obtained from a Spain auto enterprises. However, Chery launched three
brand new models which are QQ, Oriental Son and Qi Yun and those
models were independently developed claimed by Chery. (www.
Auto.people.com.cn)
There are many disadvantages in form of joint venture. It is true that Chinese
state-owned enterprise used to depend on the skills from the joint venture
partners, and failed to make effort to research and develop independently.
Dongfeng Auto would be the good example to demonstrate this circumstance.Dongfeng Auto lost the managerial control for new product development after
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established joint ventures with Nissan. Moreover, it gradually gave up
independent R&D and especially the engineers in the technical center had
nothing to do since full of the product line was transferred from foreign
partners. In 2001, Chery took this opportunity and invest those engineers to
join the Cherys R&D team. They are the fresh blood for the company since
they had been working together for quite a long time and some of them had
been trained by Citroen in France.
Chery established an innovative relationship with those engineers from
Dongfeng. In order to eliminate those peoples worries regarding if Chery
would created them as Dongfeng did, a new specialized automotive design
and development company named Jia Jing which means the beautiful scene
in Chinese was founded in term of 2/3 share of financial support provided by
Chery and 1/3 share of talent capital provided by engineers. (Wang & Kimble
2010),
The initial development and market penetration was successfully supported
by Jia Jing in terms of the model design. However, there are four phrases
that describe the long-term plan for improving its independent product R&D
capability. The four phases are listed as below:
Phase1: Cooperating with Jia Jing Company to developed 5 models;
Phase2: Jointly developing new products with foreign specialized automotive
and engine design companies, and training engineers of its own through the
cooperation programs;
Phase3: Designing a few low-end models independently in Cherys R&D
center and achieving the capability for a complete new car development
process gradually;
Phase4: Establishing mature R&D capabilities for a full line of passenger
vehicle products which from the low end to the high end, from sedan to SUV
and MPV.
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Figure.4 The strategy of Chery for developing technical capabilities
Source: Annual report of Chery, 2008
Currently, Chery had actually approached at the Phase 2 of its strategy of
technical capability. This can be displayed in kinds of activities which have
been done by Chery such as collaborated with some Japanese design
company to develop brand new vehicles aimed at the U.S. and European auto
markets. In addition, Chery associated with AVL which is the world famous
Austrian engine design enterprise to develop 18 latest engine models aimed
at equipping its full line of passenger cars in the future. Moreover, the size of
those engine models were from 0.8 liter to 4.2 liters and all of them achieved
the Euro IV emission standard. The strategy of referencing skills from different
sources of technology enabled Chery to obtain its bargain power and reduce
the cost for design outsourcing.
It is necessary to point out that the R&D task was not completely outsourcing
to foreign firms by Chery. In fact, the engineers of Chery actually work jointly
with foreign firms and being guided through the training program. It was
served as the efficient approach to improve Cherys own capabilities for new
product development. (piotroski & Tel 2010)
From utilizing all possible resources of technical forces, Chery has released a
few products of which it has independent intellectual property, as shown in the
graph below.
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Figure5. The product line development and life cycle of Chery Automobile
Company.
Source: China Automotive Industry Yearbook 2007
4.2.2 Production Management
To increase production efficiency, lower costs, and improve product quality,
Chery has put many efforts to apply advanced manufacturing management
methods into its production lines.As a new company, it is easier for Chery to incorporate Learn, Six Sigma and
other advanced production management principles than other old state-owned
Chinese automotive firms, like FAW and Dongfeng. Chery implemented the
quality control systems and standards such as ISO9001 and ISO/TSI16949,
from its establishment.
Chery hired an experienced expert from Germany to help manage its general
assembly plant. He once worked in German Volkswagen for 39 years and
FAW Volkswagen for 3 years. In total there are more than 20 foreign experts
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working in the different factories of Chery Automobile Company.
Chery received its ISO/9001 certification in 2001 and its ISO/TSI16949
certification in September of 2002. Then it became the first Chinese
automotive manufacturer with ISO/TSI16949, which is the most advanced and
strictest quality control system in the global automobile industry. Moreover, in
order to improve its production system management, the SAP/ERP system by
IBM was put into use in Chery from 2002. (Baker 2007)
4.2.3 Product Characteristics
Chery started to enter the automotive market of China in 2000, which was
recognized as a bad time since most of international auto manufacturers
expand their joint ventures in China. The competition in Chinese auto market
tended to extent during 2000. However, Chery developed significantly and
performed very well in the following years. It is undoubted that the unique
advantages of Cherys product contributed to its rapid development and it can
be demonstrated in terms of price and product design.
1) Price
The relatively reasonable price is the key factor that lead Cherys product to
be welcomed by consumers especially for those who got price-sensitive and
decided to purchase the first car.
The low production cost would be the main reason to cause the relatively
reasonable price. The following factors have contributed to low costs:
1. Product imitation
At the initial period, the low cost in developing a new product was based on
the imitating existing models from foreign firms. The costs would be
dramatically high if Chery purchased the car models of foreign firms with
royalties paid or develop very component of product in the beginning.
Low margin
The low margins also contributed to the reasonable price. A long time ago, the
Chinese experienced high profits since the monopoly of some joint venture
under the policy of national automotive protection. With the entranced into
WTO by China, an increasing number of joint ventures were established.
However, due to the long time monopoly of several joint venture under theprotection of the national automotive industry policy Chinese auto industry
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obtained high profits. After Chinas entrance into WTO, more and more joint
ventures were set up. The profit margin tended to decreased gradually on
account of the intense competition.
Design for Chinese Consumers
The design of vehicle based on the localized requirement enabled Chery to be
the mainstream auto maker in China. The deeper original design made the
style of vehicle totally different with previous models. It is not hard to find out
by the uniform style of the body design. Actually chery is currently
concentrating on establishing its symbolic design styling like what Toyota and
Hyundai have been achieved. (Bell 2009)
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Chapter 5
Analysis and Findings
Data Analysis
In the following content, the data was all come from the interview with themanager of marketing and manufacturing of Chery and summarized after theinterview.
5.1 Challenges
From the macro view of environment of Chinese automotive industry, the
production capacity is huge unfortunately the utilization rate is relatively
unsatisfied. The circumstance, which high production capacity but low
demand definitely draw the price down. Therefore, for the case of Chery, the
models that did not receive a satisfied result of selling are the tough
challenges in front of Chery since the investment and depreciation are
producing huge cost elements. Moreover, it is also a big challenge that
whether Chery should keep those kinds of models in the market cause theystill meet the requirement of some specific group of consumers
5.2 UncertaintyWe can not doubt that the whole trend of Chinese automotive industry was
overheating in 2004. Central government released series of measures
aimed at cooling down the overheating industry. It mainly restricted the non-
performing loans and controlled the consumers credit for car purchasing
strictly. It was undoubted that the growth of market was dramatically
influenced by the act of government. During that time Cherys market share
started to shrink and loss was definitely made by the decreasing sales.
Although the uncertainty of external environment existed, Chery made effort
to improve the utilization rate of their installed capacity during that time. The
circumstance probably seemed gloomy but they firmly believed that the end of
booming of Chinese automotive market has not come yet. They were kept
improving the quality and design of the product, maintaining the reasonableprice and enhancing the export to the neighboring countries in order to offset
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the loss of the domestic market.
5.3 Psychological Concerns
Foreign auto manufacturers normally realized that the cheap price is the first
priority to pursue by Chinese customers and they do not really care about
what brand it is. It probably true for the relatively lower class of customer
segments cause they are more price-sensitive and brand would not be
considered primarily. However, for the higher class of segments, brand would
be the priority to consider by customers, they would care about the brand
images like Audi, BMW or Mercedes. The psychology of Chinese consumers
is quite distinct with the other regions. The consumer in Germany would prefer
a car with simple, comfortable, reliable and reasonable price to be their first
car. Therefore, base on the special consumer psychology of China, Chery
arrange their product line from top to the bottom to satisfy the various
consumers requirement. For instance, Chery released the lower class vehicle
named QQ which has basic configuration and quite reasonable price.However, the challenge is true that the profit margins for the lower class of
vehicle are very low but Chery still need to participate otherwise the other
competitors would take their market share
5.4 Lean production in the Plants.From the whole perspective of auto manufacturing industries, the principles of
Fordist mass production influenced the Chinese auto makers significantly andit mainly displayed in assembly line production, intense work pace and heavy
workload. Moreover, practices of the lean production, which was well known
as Toyota Production System (TPS) were also completely or partially utilized
by Chinese automotive assembly enterprises. It mainly displayed in just-in-
time (JIT), Quality circles, workers participant program and teamwork sprit.
In the intense competition market, utilizing the of lean production would
enable Chinese auto firms to improve product quality, eliminate the waste,
control the cost and increase the flexibility to obtain the competitive
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advantages in the domestic market even in the oversea.
5.5 TPS in Chery
Toyota Production System (TPS) has been introduced by plenty of Chinese
auto enterprises since 1982. The process of practicing Toyota Production
System was very tough on account of different enterprise structures and
styles between China and Japan. However, Chery insistent making effort to
put this advanced system practice of its realistic circumstance.
With the desire of improving the Toyota Production System applications in
Cherys factories, Chery invested a famous Japanese specialist in production
management from Mitsubishi Japan in 2002. This expert contributed a lot in
training the staff of Chery by utilizing the famous field management in the
automotive industry. Moreover, he also leaded a independent experiment
team aimed at implementing TPS ideas in assembly line of Chery. For
instance, Cherys Oriental Son which released in 2003 was the first project
applied by the TPS in the factory. The implementation of TPS can be
displayed in the following aspects.
5.6 Working hours
By implementing the lean production system, working hours at Cherys
factories are relatively long and compulsory normally occurred. There are
normally two shifts of eight or nine hours each operated on the production
lines and the worker who charge for maintaining and repairing the machine
were expected to work three shifts of eight hours each aimed at ensuring the
keep running of the machine. During the peak period, numbers of plants have
to run two shifts of twelve hours each day of a week.
In fact, the relatively long running time and hard working intensity indeed bring
lots of pressure and influence their physical aspects. It is true that worker
force is extremely crucial for Chery since it has directly relationship with the
productivity and product quality. However, Chery found it extremely hard to
make some change for the circumstance since the intense competition among
the Chinese automotive industry. Huge tension came from kind of military-
style regimentation which similar with Toyotas is the most common topic
Complained by first-line workers.
5.7 Working condition
Working conditions are generally satisfied at the automotive assembly plants
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of Chery. It can be mainly displayed in the clean workshop, brand new
production line and highly automated machine. The flexible installment
equipment enables the workers to choose the most comfortable postures of
working such as the adjustable mobile stations makes workers sit comfortably
to assemble the chassis of the vehicle.
5.8 CPS of CheryCPS represented the Chery Production System which was developed base on
the theory and model of Toyota Production System. It also implied that the
Cherys original culture which is leaning by doing. Chery actually made effort
to optimize their production system based on the CPS, however the lacks of
Toyotas clockwork efficiency and just in time management leaded Chery
failed to implement it efficiently. It would displayed in the time of
manufacturing since Cherys leading time of producing a car was
approximately 120 seconds but those leading edge plants in North American
just need half of that time to assemble. Therefore, the tough task of how to
efficiently implement the clockwork and just in time management would be the
first priority considered by Chery
Working conditions are generally good at the automobile assembly plants.
Workshops are clean and production lines are new and highly automated.
Flexible installment devices are used to help workers choose comfortable
work postures. For example, workers can assemble the chassis as they sit
comfortably on adjustable mobile stations.
5.9 LaborChery actually referenced the dealing with the labor unrest and labor force.
Chery established a kind of multilayered subcontracting system which
enabled them to ensure employment to a core labor fore and experienced
flexibility from lower rungs of the supply network and low-cost inputs. The
distinction was created between permanent and temporary workers in
terms of the former guaranteed employment lifetime. This kind of approach
leaded Chery to enhance the productivity of labor and avoid the layoffs.
5.1.0 TAKT TIME
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In order to measure the time of manufacturing, Chery utilized takt time which
is the significant technique to implementing the pull schedule. Takt time
indicates the rate at which each vehicle should be assembled to satisfy the
demand of customers.
Kate Time = Available Daily Work Time/Customer Requirements
For Chery:
Available Daily Work Time = 480 minutes 60 Minutes (Breaks time) = 420
Minutes
Daily Customer Requirement = 210 Units
Takt Time = 420/210 = 2 Minutes = 120 seconds
From the calculation above they can find that the lead time that Chery
manufacturing a vehicle is 120 seconds which is relatively long. The lack of
implementation of just in time management is the mainly reason.
To sum up, the advanced production systems like lean production have been
partially utilized by Chery but a lot of aspects should be optimized such as
lack of Toyotas clockwork efficiency and just in time management. However, it
should not be doubted that Chery is on the way to higher class of automotive
makers.
5.1.1 Cherys differentiate with competitorsThe significant difference between Chery and those Sino-foreign (China-
foreign) joint ventures is the autonomous brand which allows enterprises to
develop and introduce their new models. Moreover, lack of autonomous
brand also implies that Non-independent Auto manufacturers unable to
obtain the opportunity to foster inner-competitiveness of their own since most
of them just authorized in assembling process. They probably enjoyed the
current circumstance which just concentrated on assembling of foreign
models from imported parts but unfortunately they are far away from
launching their own brands. Therefore, exploring the support from central
government in terms of favorable policy is probably the sole approach that
they have to face the more and more intense competition in Chinese
automotive market. This is why Chery has sufficient stake to compete with
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those Non-independent Auto manufacturers. The figure below indicates that
the result achieved from year 2003 to 2008. It is obvious to find out that the
trend of Cherys development is increasing stable.
Table3. Sales of Top 10 Passenger Vehicle Manufacturing in Chinese Market,2003-2008 (in 1000 Units)
Source: China Automotive Industry Yearbook 2008
5.1.2 Technological capability development
There are a few of reasons enabled Chery develop their technological
capability dramatically.
Organizational Autonomy
Chery has the authority to develop the independent and self-reliance models
of vehicle compared with the other state-owned automotive enterprise which
rely on joint ventures. It also created a lot of space to focus on optimizing the
skills and improving technological capabilities.
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Talent Force
Highly talented engineering forces are the key point to determine the success
or failure or Chery. Without the technological supported from the talent
resources Chery can not obtain the current result in Chinese automotive
industry.
Reverse Engineering
Reverse engineering also another influenced approached utilized by Chery to
develop products in the initial years. Chery actually started them way of
developing own products by imitating Jatta and Daewoo Matiz. However, from
the long-term perspective of development, Chery accumulated their
experience and technological capability from imitating and it also the essential
element to build up their brand images.
Design Outsourcing
The suppliers are playing more and more significant role in the automotive
industry since the deepening specifications of demand. In order to obtain
competitive advantages more and more auto enterprises tend to seek support
from specialized part and technology providers in term of outsourcing. Chery
also outsourced their design tasks to sophisticated design company and it
allowed Chery to draw it attention on integrating and improving production
efficiency.
5.2 Findings
5.2.1 Underdeveloped sales and serviceFrom the whole perspective of original equipment manufacturers (OEMs) of
them did not perform well as Chery did. The current circumstance is highly
unsatisfied by domestic customers in terms of sales and services. The main
reasons contain shortage of support by sufficient technological skill and
deficient dealers and workshops. Consumers normally complained the lack of
support and consultation from the dealers and extremely poor service
provided by the service centers. Moreover, the distance of dealers andservices are relatively long from most of customers. Based on the current
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circumstance seeking the more reliable dealers and improving the service
level would be the efficient way to attract the potential customers and obtain
the confidence for the brands and should be cautiously considered by most of
original equipment manufacturers.
5.2.2 Low brand awarenessAlthough domestic automotive brands improved rapidly, the Chinese
customers were still dramatically impressed by the foreign brands. It implies
hat the domestic brand awareness is quite low by Chinese customers. The
customers product loyalty for domestic brand was relatively low as well. For
instance, there are only 25 percent of the customers would like to choose
Chery if they plan to purchase their next car. This is quite low product loyaltycompared with approximately 80 percent in western countries. This is not only
the tough question for one single enterprise but also the whole Chinese
automotive industry. They have to make effort to eliminate negative images of
product by customers and dedicate in enhancing the product value and
improving the product quality to meet the customers requirement since the
brand images is the essential element that influence the customers product
loyalty.
5.2. 3 Enhancing productivity i
The relatively low productivity of original equipment manufacturers (OEMs)
would directly pull the cost to the higher level. Moreover, the unqualified
plants, high cost of raw materials and unsatisfied components and parts all
lead the productivity inefficient. In addition, lacking of advanced production
and management system would limit them to manufacture efficiently. Someleading edge original equipment manufactures like Chery had introduced the
scientific production system like TPS but it was not completed utilized by most
of the original equipment manufactures. Therefore, productivity improvement
could be achieved by reference the advanced production system more
comprehensively.
5.2.4 Intellectual property protection
Most of Chinese independent auto manufacturer normally lack the sense of
intellectual property protection. Sine the ignoring of importance of international
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trademarks and patents such imitation activities taken by Chinese
independent auto manufacturers would be normally treated as intellectual
piracy. It is not hard to find out the significance of intellectual property
protection in the case of Geely. Toyota sued Geely Merries because the logo
of Geely Merries was extremely similar with the one of Toyota. Finally, Toyota
lost a lawsuit against the Geely Merries for copying the Toyota brand logo.
Although Toyota failed to lawsuit, this issue should be a lesson for every
single Chinese independent auto manufacture that intellectual property is
critical in terms of brand logo and patent.
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Chapter 6
Conclusion
The first Chinese-made vehicle launched by First Auto Works (FAW) started
the history of Chinese automotive manufacturing. With the development of
several decades it has been recognized the worlds largest growth market in
the world. Although experiencing the tough time in terms of the financial crisis,
there are still lots of potential space for expanding. It is undoubted that the
quality of vehicle produced by China still relatively unsatisfied. Some
advanced system like Toyota Manufacturing system would be the choice for
them to improve the product quality.
Toyota Production System is well known as lean production is an integrated
approach to obtaining the efficiencies of mass production with small
production volumes. By implementing lean production, wastes would be
expected to eliminate in terms of overproduction, inventory correlation and
waiting. Pull-system strategy is the essential element for lean production. It
can be achieved supported by KanBan, Level Schedule, quick changover
technique and small-lot production.
Chery is the representative of Chinese independent manufacturers. It can be
displayed in the technical capability, extensive resource, and independent
developing authorities. The reasonable price and relatively reliable quality is
the reasons welcomed by Chinese domestic customers.
Currently, Chery had partially implemented the lean production system which
already made some change for the manufacturing process. How to implement
the lean production system more comprehensively and associated with the
realistic circumstance of the company should be the questions to be
considered by Chery.
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Chapter 7
Recommendation
Establish the sustainable Business Model in the Value Chain
Chinese automobile companies are quite unique and different in their
business model and vertical integration, as well as in product portfolio, public
relations and impacts. It is significant to identify the business model,
environmental impact and social performance of Chinese automobile
company as well s its involvement and influence over suppliers and business
model by Chinese automobile companies:
Research & Development Life Cycle Assessment (LCA), ergonomic, health
and safety issues, involvement of suppliers selection of materials.
Suppliers Production Management System should be optimized including
clean production and lean production.
Logistics Transportation/distribution system for materials and products,
employees commuting & business travel and follow-up of impact.
Marketing and Sales Communication of environmental and safety issues.
Service and Maintenance Services provided to customers, related to vehicle
and mobility, including the approach to customer relationship management
such as safety and eco-driving training, recall process and complaint
management.
End-of-life of Product Taking back systems to be utilized for reuse,
recycling, recovery, and proper disposal of vehicles (components, parts).
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Chapter 8Future of Chinese automotive industry
Future market
There are mainly three potential opportunities enable the Chinese
independent auto manufacturers to expand in the future auto market.
Firstly, the stable growth of Chinese economy would create lots of chances for
Chinese independent auto manufactures. With the increasingly growth ofGDP per capita of China, the capacity of Chinese still tremendous and the
sales of vehicle tend to increase. The steady growth of GDP per capita of
China also implies that the consumer would have sufficient power in terms of
income to purchase the vehicle. Although the future market is brilliant, the
good results would be achieved base on the improvement both for the
technological skills and the service involved. Dedicating in the developing
core competency, enhancing the technology for manufacturing and improving
the productivity would ensure the quality of product and obtain the competitive
advantages among the competitors. Moreover, providing the reliable and
satisfied services would increase the customers product loyalty.
Secondly, the development of infrastructure in China also tends to influence
the performance of Chinese independent auto manufacturers. With the
development of Chinese urbanization, the infrastructure tends to optimized in
terms of high way between the urban and rural and the multiple overpasses. It
all increases the possibility of utilizing the vehicle than ever. The increasing
number of gas station and parking space also contribute to the expansion for
the Chinese independent auto manufacturers.
In addition, plenty of serious problem in terms of air pollution have been
raised because of increasing number of vehicle. Moreover, the increasing
demand for oil leads to the oil supply intension. Therefore, producing the
efficient and economic vehicle like hybrid would create more sales and profits
in the future.
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