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SHANGHAI INTERIOR AUTOMOTIVE DOOR

SYSTEM: RUNNING A MANUFACTURING


OPERATION IN CHINA
Shanghai interior had 30% of Chinas automotive spare parts market and revenues were
progressing by 20% between 2007 and 2009. Even thou, Shanghai interior had many
operational issues and failed at reaching its profits and first time quality rate (FTQ) targets.
Factors behind the failure:
The FQT indicator is a tool that shows the number of pieces that were rejected in production
process. As the percentage of piece per million (ppm) was high, it means that more
production is deficient and which leads higher production costs.
The first problem was the large gap between the FTQ targeted and the one reached in the
period 2007/2009.
Shanghai Interior has to face several quality issues. By converting its sourcing in order to
control costs, 80% of its suppliers were from China: 2/3 of suppliers from western provinces
and 1/3 from eastern ones.
But westerners were misunderstanding quality requirements and were not resourceful in
solving problems plus the fact that they lacked project management skills which leaded to
many problems related to delivering in time according to the company requirements.
In addition to that, Shanghai Interiors didnt have all the measurement equipments required
to check quality of product output of suppliers. Even for the measurement equipment it
possessed, calibration of such equipment was both difficult and costly.
In a second hand, there were many problems in machines maintenance because of
unqualified hand labor. Shanghai Interior was relying on Chinas cheap labor; most of the
production process was based on many manual processes which leaded to mistakes and
unstable product performance. As a consequence, some deficiencies in products were
noticed by customers after the deliver.
Another factor was that Shanghai Interior was neglecting environmental issues such as
weather changes that are likely to affect production during the planning stage.
Shanghai Interior had too many weaknesses in developing technology system. It had an
unstable engineering team, and there was a real problem related to communication
between R&D department and sales department and customers; Customers couldnt
transmit their feedbacks to R&D department about new products concepts.

Because 35% of sales were paid at 28th of the month instead of the 25th, and with the 30
days credit system implemented by the company, bills of the current month were excluded
and pushed to the next one. In addition to that, most of customers were paying by bank
acceptance (their issue date is after 3 or 4 months) and 30 days credit term. Shanghai
Interiors had to accept those Bank acceptance notes in order to get paid. But the problem
was that the company wasnt monitoring or updating customers information in the billing
system they were susceptible to neglect existing terms and any eventual customers
unfavorable payment history.
Another aspect of failure was in the managing system; Middle managers were leading other
middle managers which caused a kind of frustration among employees. Interiors acquisition
of ADP was seen to be a downgrade and turnovers increased by 18%. Also, the annual
increase of salary didnt exceed 8% comparing with the average of 10% of industry.

The out of control problems:


Personal Limitations
Unqualified labor
Unstable engineering
team

Lack of direction
Lack of hard work
No communication
No monitoring/
between R&D
updating data about
department and sales
customers payment
department and
and credit history
customers

Customers couldnt
transmit their
feedbacks
Middle manager
leading many other
middle managers

Recommendations:
Shanghai Interior must recruit more qualified hand labor in order to resolve problems
related to manipulating production machines and also, the company must insist on training
to western suppliers in term of quality requirement and technical capability.
In a second hand, more communication effort must be done to guaranty a good feedback
transfer between R&D department and sales department and customers appreciation about
products. In addition to that, the company must implement a monitoring and updating
system able to identify unfavorable customers payment and record payments history.
Shanghai Interior must restructure its top managing strategy, and should put on top
management general managers and directors instead of middle managers.

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