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A Chinese Trilogy
By Chris McKellen
China – a changing country (Part 1)
In part 1 of the trilogy Chris McKellen recounts his early
experiences of the changing country and the setting up of a new facility
in Shanghai.
In the early 1990s, China – the country with the largest population
in the world was opened to visitors and new businesses after being almost
inaccessible to most foreigners. After a short discussion with the worldwide
VP for turbochargers, my wife and I were on a plane to Shanghai, to see
where I was to set up a new facility. We landed on a rainy January evening,
in the dark. Outside the airport our first view of China was rain and
a family of three on a bicycle with a raised umbrella. We arrived at our
western style hotel, which could have been anywhere in the world.
Experiencing the culture
Our first two days were culture training, so that we would not offend
our hosts by asking the wrong questions and so we could learn about the
unusual habits of burping, coughing, blowing the nose with one finger
and allowing the chicken or fish bones to fall from the mouth whilst we
were eating! Then, we travelled to see the huge expanse of land in Pudong
where new facilities for multinationals were to be built. We saw some
of the most modern buildings in the world and in places poverty. We saw
a farmer ploughing his field with an ox whilst talking on his mobile telephone.
We met real Chinese people who wanted to communicate by sign language
with ‘the people with big noses’ (westerners). They were fascinated
by us – our clothes and our shoes, the way we looked and even by
the way we spoke.
As an expatriate, we lived in unreal surroundings – a top floor
apartment serviced by the hotel next door and a driver to drive us everywhere.
We shopped for food in a store run by a Hong Kong based company and could
buy almost everything that we could purchase in the UK and we ate international
cuisine in restaurants of almost every nationality. We soon learned that
twelve people could eat in a high quality traditional restaurant for the
same cost as one person eating in a western restaurant! I visited old
traditional Chinese engineering companies that employed tens of thousands
of people, that provided housing and education for their employees, that
were overstaffed, over structured and that looked after employees and
their families from cradle to grave. I visited state of the art factories
that had been built by joint ventures with overseas partners to make electrical
goods, photo-copiers and compressors. This was my introduction to the
highly educated Chinese people who understood western ways and who understood
the need to change their country.
We learned the importance of ‘face’ and not loosing face.
We learned the need for ‘guanxi’ – having knowledgeable
contacts and we realised that in meetings we would always be outnumbered
by Chinese. Meetings were big social occasions to formally ratify the
decisions that had been made unofficially beforehand, and there were often
hidden agendas! We soon realised the power of the interpreter! We learned
that there was tremendous loyalty to customers and suppliers, that foreigners
were trusted because they were fair and that there were major ceremonies
for any special occasion!
So why should a multi-national company
set up in China?
China has the world’s largest potential for growth – whatever
the product, it will be required in China as China develops. China also
has a low cost base and salaries for normal employees are approximately
1/12 to 1/15 of a UK salary. Communications and the transport infrastructure
are improving daily.
Starting the Construction
My brief was simple – build the best factory in the world and
make turbochargers!
Many discussions took place within the division! Finally, we agreed that
the factory would build ‘older models’ to guard our technology,
but it would have the most advanced machine tools with low levels of automation,
it would have the best employee facilities including a restaurant and
showers as many people did not yet have them at home. It would be the
most environmentally friendly factory that we could build and it would
be fully air conditioned so that employees would work during the hot summer
days. We would employ the best people that we could find and we would
have to provide transport to bring them in to work. Finally, we would
need to change some of their culture!
Traditionally in China, a design institute designs a factory, arranges
for it to be built, specifies and installs the equipment and knows everything
that there is to know about making the product. They also issue all certificates
and approvals for the new building so that it can enter production. We
were reluctant to divulge technical or process information so we immediately
fell foul of the system! We eventually found a department of a local university
who were approved as a design institute and who wanted to work with us
in a western way. Building designs were soon approved, the fabricated
building was ordered from the USA and construction started.
The building teams moved on site to build their huts where they would
live in almost squalid conditions, using packing cases for beds and eating
cabbage and rice for the next few months. We appointed our Chinese building
expert who told us that we wouldn't need to pile the soft ground and that
we would have to mix all concrete by hand as ready mix concrete was not
available! In fact, we drove 495 piles 30 metres into the ground before
pumping ready mixed concrete for over 100 hours! We held the formal ‘ground
breaking’ ceremony with dignitaries from China and all over the
world just as state of the art earth moving equipment arrived on site.
We had designed a sanitary waste treatment plant and an oil and waste
recycling centre as additional buildings and these were built using traditional
Chinese methods. During the construction we uncovered human bones, but
soon the all clear was given by the authorities and we reburied them in
a silk bag and planted the first tree in the development area next to
them.
Containers of girders, window frames and cladding and general fittings
arrived from Kansas City in the USA along with an erection team and the
main factory took shape. One of the largest mobile cranes in China arrived
to lift the air conditioning units on to the roof.
Approvals
The building was finished within eight months but then we needed the approvals
– over 140 chops (official stamps) were required and almost every
official had some input in to something! But, everything was negotiable!
We installed transformers from the USA but the local electric company
would not approve them and it took several weeks negotiating and testing
before the formal connection to the mains! On the ‘switch on’
day the ‘world’ appeared and watched and waited for some catastrophe
to occur but the lights came on and the compressors started up! The fire
department didn't understand sprinkler systems, and the health department
hadn't seen such a modern sanitary treatment plant! Finally, all approvals
were given. The building was handed over and the plant was ready for us
to start moving in our equipment and for us to immediately start production.
China – changing Cultures (Part 2)
In part 2 Chris looks at setting up a new lean, world class facility
in Shanghai, changing cultures and commencing production.
Whilst the new facility was being built, we made a major decision that
would have an effect on the start up of the new plant. We needed additional
office accommodation for our growing workforce so we decided to take out
a short term lease on an empty factory unit. We could then order our machine
tools and equipment early, install them in the temporary facility and
use the whole area as a training school so that all employees would be
familiar with the components and processes when the factory was completed
and ready to enter production.
Recruiting
Using a human resources consulting group who were familiar with China,
we embarked upon employing good people. Apart from myself on operations
and my American colleague on sales and marketing, all employees would
be Chinese nationals. We prepared job descriptions for each position and
also prepared a training plan for when the employee started.
For management positions, we agreed that our direct reports would have
to speak English as ‘American’ was the language of the corporation
throughout the world but English was not a prerequisite for any other
position. We also were determined to recruit the ‘best’ person
for every job, regardless of qualification or sex - our management team
consisted of female quality, human resources, materials and IT managers.
And more importantly we decided that the process operators should not
have any experience of manufacturing as we did not want any traditions,
customs or practices of traditional industries.
Training
The corporation had a superb training programme for all levels of employees
and we de-Americanised this training. Key personnel were sent to Japan,
the USA or the UK for training in the sister plants, and here we encountered
the difficulties and risks of sending employees overseas. One quality
engineer never returned from the USA - his Chinese family paid several
years salary as part of the training agreement, to cover the costs that
we incurred.
Within the plant, we trained employees in the western culture, in teamwork,
empowerment, lean manufacturing and the theory of constraints and six-sigma.
Employees at every level, regardless of their job learned about turbochargers
and experienced assembling and disassembling them. We brought ‘experts’
from the group around the world to help us in areas such as quality and
finance. We taught the employees to use PCs and Microsoft Office and used
a computer simulation package to plan the layout of the new plant. This
was used to teach the operators where their machine would be and how materials
would flow to and from their process. In the early days it was vital that
we paid particular attention to housekeeping – everybody was taught
from day one to understand the 5Ss – every evening everything was
put away and desks were cleared.
Processes
We benchmarked the manufacturing processes and equipment from within the
group to ensure that we installed the ‘best’ and we purchased
our plant and machinery from all over the world. In 1994, it would not
have been wise to rely on the Chinese machines and equipment. Our philosophy
was to use high technology machine tools but with a low level of automation.
Our CNC lathes and machining centres came from Japan (only two hours flight
away, if service was required) and our grinding machines from Switzerland.
The equipment was delivered on old trucks, sometimes with the front wheels
almost off the road due to the weight. Packing cases were jacked up, the
lorry driven away and then the packing case was lowered to the ground.
Health and safety was a major concern - these were traditional practices
that needed to change, urgently.
Suppliers
Our first attempt at local sourcing was aluminium and cast iron castings.
With confidence we went to the major suppliers who were allied to the
Shanghai motor industry but the development took forever and eventually
we went to other less well known foundries. One particular component was
a particularly difficult casting and the UK had become the supplier of
this component to Japan and Europe. Several other foundries in Europe
had attempted to make the casting unsuccessfully so we decided that we
should allow a very long lead time for its development in China.
One day a Chinese entrepreneur knock on the door to tell us he had his
own ISO 9000 foundry that could beat any other in China, so we gave him
this difficult casting. Within four weeks we had a dimensionally perfect
casting delivered – China was changing! With regard to cutting oils
and lubricants we set a very tight supply specification – the chosen
supplier would have to take away waste oils as part of his supply contract
and all but one of the major oil companies walked away from the business!
Customs
The system of paying duty was very simple - goods were delivered to the
port where they would be examined by customs officials who would declare
the amount of duty to be paid and the goods were released when a cheque
was taken by hand to customs. We became the first business in Shanghai
to become a ‘trusted company’ where we paid duty on account,
monthly.
Moving to the New Facility
When the new facility was finally ready to inhabit, all people, plant
and machinery were moved in what seemed like a military operation. Fleets
of trucks moved everything and whereas cranes lifted equipment on and
off the trucks, it was moved within the plant on hover pads. Services
– electricity, water and compressed air were already hung from the
roof and the machines just needed connecting.
Within two weeks the factory had been moved from the temporary facility
to the new plant and we were ready to start making components to supply
to customers. Leasing the temporary facility was a key to the success
in starting up the new plant. It enabled an unprecedented amount of training
to be given to the new employees, start up bugs in equipment and processes
to be eliminated, and for us to experiment with some of our newer philosophies.
In the UK we had been confident that we could rearrange a manufacturing
cell and have one operator working three machines and working with flowing
parts rather than with batches. This change was resisted in the UK but
implemented without question in China.
China – Wake Up UK Manufacturing! (Part 3)
In the final part of the trilogy, Chris comments on how China
has changed, how the facility has grown to become a worldwide supplier
and considers whether China is a threat to UK industry.
China has changed
People in the cities no longer have the habits of burping, coughing, blowing
the nose with one finger and allowing the chicken or fish bones to fall
from the mouth – at least in public. They no longer hang their washing
in the streets or sleep on the flat roofs of buildings during the summer
nights and poverty has become much less of an issue – possibly less
than in some UK cities. Shanghai is now a serious threat in business to
Hong Kong, London or New York – over 200 major conglomerates have
their Asian headquarters there. Pudong is no longer a marshland –
it is a growing major city and the development park where the turbocharger
plant was built has now become a thriving industrial area. A new international
airport has been built nearby and the container port has expanded.
Employees no longer clamour to leave China and those who do often return,
having experienced the west and then realised the potential of their home
country. Mandarin is now taught in 100% of the schools and English (American)
is the common language for business and advanced education. The people
are friendly, willing to learn and respect most foreigners. They still
have difficulty in accepting empowerment and have a fear of doing something
wrong, but they do want to work for foreign companies as they are prestigious
and pay big salaries!
In March 1994, the first cash machines (ATMs) were installed and today
350 million people have credit cards. Western stores are everywhere –
the largest B&Q in the world is in Shanghai. 24 hour convenience stores
are on many street corners and it is much easier for Chinese nationals
to travel overseas. The infrastructure in China is constantly changing
with more and more motorways, better railways and safer airlines.
In Manufacturing
Whilst there are still many slumbering giants, they are beginning to wake
and many traditional companies are adapting to the new world. Quality
standards are high and many companies are approved to IS0 9000. Almost
every major multinational now has some form of joint venture or wholly
owned facility and their Chinese facilities are often achieving the highest
productivity of the plants throughout the world. Employees have become
used to western techniques and local managements have realised that the
world in their ‘oyster’. Continuous improvement programmes
and lean manufacturing techniques are being adopted by many companies.
And for now, the costs remain low.
The output from the turbocharger plant has grown exponentially. It supplies
the Chinese market as well as exporting components to other plants around
the world. Its quality is second to none, its productivity is the highest
in the group and it provides a working environment that is one of the
best in China. Whilst initially we intended to import items such as stampings
and fasteners, the plant now relies on Chinese suppliers for everything,
and the western ways of doing business and the business improvement techniques
are being passed down the supply chain.
A Growing Market
China is still a growing market and whereas the market for some products
is flattening in the UK and Europe, it is still growing and will continue
to grow rapidly in the Far East. If a company wants to expand and grow
in the Chinese market then setting up a facility in China is a logical
conclusion and it will become a superb investment – due to the demonstrated
quality standards, the highly educated labour and the lower manufacturing
costs.
The Threat to the UK
But growing in China and purchasing goods or services from China are two
vastly different scenarios. Today, sourcing components in China or Eastern
Europe rather than manufacturing them in the UK can give the significant
cost reduction that our customers today are looking for. But are we considering
the ‘big picture’ and are we making the correct decisions
for British Industry as a whole? Let’s consider a hypothetical example:–
A customer demands a significant price reduction from Supplier A, or it
will resource the business to Supplier B. Supplier A reluctantly stops
manufacturing components in the UK but retains the assembly here and it
sources its components in Asia or Eastern Europe. The customer gets his
price reduction and is in the short term happy. Supplier A is relieved
and retains the business.
But Supplier B is still anxious to obtain the business, so it too stops
manufacturing components in the UK and sources them in Asia or Eastern
Europe. He too retains assembly in the UK. The result is that two manufacturing
facilities within the UK downsize, jobs are lost and the competitive advantage
of sourcing in Asia has been eroded as both companies are again in a similar
position.
So, who has gained?
The customer - as he gets his reduced price, the airlines and
freight companies through shipping more goods around the world and the
Asian or Eastern European company who increases its export business.
But who has lost?
British manufacturing. And what happens next time the customer want another
major price reduction? Maybe, to retain the business, both suppliers will
move their assembly away from the UK. The remedy is for all of us involved
with British Manufacturing to and
addresses the real issues that face us.
Today’s Issues
Recent statistics show that the productivity of UK manufacturing lags
behind the USA, Italy, France, Germany, Canada, and Japan. To address
this major issue, we need to change the culture of our manufacturing businesses.
We need to have a vision of our future and develop a strategy to improve
by: -
• |
Having flexible machines, processes, systems and people |
• |
Valuing our employees by improving communications, empowerment and
training |
• |
Reducing our inventory and only having small amounts of ‘good’
inventory around us |
• |
Reducing our lead times |
• |
Eliminating all the wastes throughout the business by introducing
lean thinking |
• |
Improving our quality until we achieve six-sigma |
• |
Delivering what the customer wants exactly when he wants it |
A Final World
As China and Eastern Europe develop, more and more people get a taste
of western life and start to wonder if one day they too can own their
own home, have a family car and overseas holidays. Labour costs are increasing
in China and they will continue to rise as the employees receive greater
benefits and start to move from company to company.
Chinese manufacturing companies use the same machine tools, the same processes,
the same tools and the same materials as the rest of the world –
only their labour rate is different. But the gap is huge and it will take
many, many years for the gap to be eroded. The remedy is in our own hands.
In early December 2002, The Honeywell Corporation announced
that their UK turbocharger manufacturing facility – in Skelmersdale,
Lancashire – was to close. The business is being transferred to
Romania and their plant in Pudong, Shanghai, China.
Chris McKellen has been involved in lean and agile manufacturing
and increasing productivity in several companies for the last 18 years.
Today, he has his own training and consultancy company Manufacturing
Awareness Limited and has published a manual ‘A Journey
Towards Manufacturing Excellence’ on CDROM. |
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