Operations Management LongXi Manufacturing - Essay Example

?LongXi Machinery Works (A) Problem ment LongXi under the management of Zhang Lin is faced with important problems in line with product quality and its team. LongXi is faced with this significant problem that specifically tries to hinder its long-term goal for the future. It is important to address this problem so that it will not hinder its potential to create high standard quality management in the future. LongXi and its quality management problem absolutely encompassed the issue of how the company should obtain its competitive advantage. In the midst of on-going competition, LongXi remarkably needs to compete with significant quality in its product offerings. The issue is not just on quality improvement of its offerings and restructuring its quality improvement team, but the problem itself boils down to how LongXi should survive in the midst of highly competitive environment with too many choices for the customers to choose from. How then should LongXi differentiate its product offerings even if it has significant quality improvement is the most specific issue aside from the issue of quality improvement management. Situation Analysis LongXi’s position in the Chinese small diesel engine market LongXi’s position in the Chinese small diesel engine market is heading to international scope. As the demand for product offerings within diesel engine industry increases as far as the Chinese economic reform is concerned, competition increases within the international business setting. China is competitive enough to go for low-cost production which gives the ability of the Chinese market to have at least around 25% less cost in production compared to Japan. However, prior to this significant market trend, LongXi has been creating a major market share considering that small diesel engine market particularly in the agriculture and machinery sector was pushed to pursue even more due to Chinese economic reform. This economic reform paved way for LongXi to promote product offerings that cater the needs and increasing demand in the market. However, competition within its industry has become too intense as the demand increases. As a result, there is a need to augment production. The capacity of production needs to be improved as the demand continues to reach an upward spiraling growth. However, LongXi is willing to invest in new improved technology to ensure quality and stretch its production. It is not going to help on its part to rely on other organizations producing duo-gear shaft (DGS) because there is just limited number of them and are already having their production over-stretched. Thus, in house management is necessary. As a result to this, LongXi has remarkable market share in China as it overstretched production. Furthermore, as the country continues to lead economically, there is a good chance to expose produced product offerings of the said company into the world. This particularly is a promising output considering that LongXi is aiming for low-cost production with high standard quality. As a result, there is going to be a low-cost price of its product offerings at a reasonably high market demand. This ensures high revenue and eventually obtaining LongXi’s corporate objectives. In Comparison with Chanchai Changchai is LongXi’s ultimate competitor in China. In Appendix Table 7, LongXi and Changchai are compared based on production volume by product, revenues, proportion of export sales, profits, gross margin per unit, extent of vertical integration, external partnerships, ISO 9000 certification, and technology investment. In 1996, LongXi was able to target production of multi-cylinder diesel engines which is higher than Changchai. This is a remarkable figure and it is in this product offering that LongXi is creating a significant competitive advantage considering that there is a great market opportunity for multi-cylinder diesel engines not just in China but in the international market. This is due to the fact that the said product offering has remarkable and practical applications. However, it is clear that Changchai has been moving ahead of LongXi based on the amount of revenue, profit, outsourcing, external partnerships, ISO certification, and technology investment. In line with this Changchai has significant competitive edge in the market. However, LongXi as the market challenger has to essentially keep its multi-cylinder diesel engines grow for the better as far as there is a strong demand for the product offerings. It is therefore good for LongXi to consider specialization in order to extend its potential to be a cut above Changchai. Thus, focus strategy in the case of LongXi is necessary in order to gain significant market share not just in China but in the international market. The role of quality in the market Quality in the market has important role to play. Good quality is remarkably tantamount to creating trust and loyalty among target customers and specific market segment. Once customers are satisfied about the quality of product offerings produced by LongXi, there is a good chance to develop strong trust and loyalty and eventually quality relationship. It is therefore important that LongXi should address the issue of its quality control in order to consistently come up with products that are highly reliable. LongXi should ensure that customers are satisfied. In fact, the very reason for the company to improve the quality of its product offerings is to be able to satisfy customers. Thus, the total quality management is necessary in order to create specific competitive advantage and ensure significant customer satisfaction and eventually market share for a certain product offering. LongXi’s application of the TQM’s concepts, framework and tools As shown in Appendix Table 9, Changchai compared to LongXi is generic in its approach in its TQM application. Changchai is planning for R&D expansion which encompasses the overall quality inspection of LongXi. Changchai has become so generic in its approach considering its international scope. Furthermore, Changchai’s strategic options have been widely enhanced by practical joint ventures. This increases not just the sales but the opportunity to tie up with renowned product offerings with remarkable trademark of quality such as Kubota. LongXi however has something good to say due to its western management ideas, but such could be broad enough in its sense. What matters is that LongXi is able to promote standard quality through ISO certification, but Changchai still remains ahead of this plan. Table 9. Framework and Tools of TQM Applied by LongLi and Changchai Quality problem facing LongXi Quality problem facing LongXi in general is about the failure to create good structure for quality control. Furthermore, there is lack of important knowledge on how to ensure effective diagnosis on certain problems due to lack of research and development which is the thing closely planned by Changchai. The remarkable failure of LongXi for the quality of its product offerings can be attributed to these mentioned factors. LongXi has been trying to solve its problem primarily on DGS but its quality team’s evaluation of the problem lacks empirical evidence. The ability of the team to diagnose problems is far from more scientific approach which has to be under the scope of research and development. Thus, in detail, it remains a possibility for LongXi to be able to come up with more systematic approach for the quality of its product offerings. It is not just enough for the quality control team to be confined with their basic assumptions of the problem but they have to test them in order to come up with evidences that are highly scientific in nature. Obviously the required data should be based on the actual observation about the problem. However, the quality control team has to formulate assumptions, create hypothesis and test them. In this case, the approach will be more meaningful because it has to undergo significant inference. Benefits of a company-wide quality improvement program There are at least four essential benefits that a company-wide quality improvement program in the case of LongXi. These include teamwork, customer satisfaction, company growth and competitive advantage. Under teamwork, there is a good opportunity to restructure the entire operation. For customer satisfaction, there is ensured development of customer’s trust, loyalty and eventually long-term relationship with the firm. Proceeding to company growth, is the chance for LongXi to achieve its financial goals and other relevant corporate objectives. For achieving competitive advantage, LongXi will be able to become the leading company in its industry. Alternatives and Decision In issues such as faced by LongXi, there are two generic alternative courses of actions that have to be applied: do something about the problem or just do nothing. However, considering the level of Zhang Lin’s commitment to achieve LongXi’s corporate goals, there has to be something to be done in order to address the problem faced with the company. The first course of action should be to restructure every department and emphasize the important role to be played by instituting research and development. Under this, there has to be strong emphasis on empirical evidence prior to decision-making process. The second course of action is to focus on single product with remarkable high market share plus investing in advanced technolgoy. In the case of LongXi, it is important that it should only focus on multi-cylinder diesel engine considering its practicality and wide market acceptance. In order to speed up its production, there is a need to utilize highly advanced production technology. The third course of action should be in line with establishing international market segments which may be costly at some point. However, the bottom line is to showcase high quality product with low-cost production. This has to be implemented by investing in new technology in order to ensure low-cost production yet with high quality. Market research is also important and this has to be integrated with the total quality management through product research and development strategy. Since this is for long-term productivity and efficiency of the company, it is necessary to come up with the idea to restructure first every department and emphasize the important role to be played by instituting research and development. This will result further to creating strong emphasis on empirical evidence prior to decision-making process. In fact, when this has to be started the rest will follow and LongXi will eventually discover more important things needed in the process. Appendix: Table 1. LongXi’s position in the Chinese small diesel engine market: Primary Market 1st China 2nd Japan Agriculture Machinery Sector 1978 Economic Reforms: Incentives to exceed quotas Result: 1)Agricultural output increased , increased Buying power in rural sector, raising demand for small to medium sized diesel engines for use on small-scale agriculture units 2)Encourage development of larger cooperative farming efforts increasing demand for larger model engines, wider offering of product options, economies of scale Strategy: China- Single cylinder diesel engine: 1) Compete on low cost production (25% less cost than Japan) 2) Over capacity but investing in new technology to lower costs and improve quality Strategy: China-Multi-cylinder diesel engine 1) Customer demands for more power 3) Small transportation vehicles move products greater distances 4)Multi single engines offers greater versatility-broader range of applications; demand growing faster than supply-imposing price increases Agriculture and Machinery Sales grew 10%./year since 1985, projected until 2000 Results: 1)Domestic manufactures est. combined to produce 1.9 million small tractors and 15,200 seeders, 23,600 threshers and others 2) 85% of this equipment use single-cylinder diesel engines 3)45% China’s production single-cylinder diesel engines 4) Large Manufactures (4) 5) Medium Size (reduced from 30 then 15 then ? includes Longxi) 6)Smaller Firms Table 2. LongXi Machinery Works (Longxi) Longxi State-owned enterprise Founded 1957 (non public company) Located Zhangzhou, Fujian; southern coastal province/across from Taiwan Merger between military machine works from Sichuan (China’s southwest interior) and agricultural machinery plant owned by city government of Zhangshou Produces single and multi-cylinder diesel engines primarily for agricultural sector: Primary Customer Groups: 1) Tractor Manufacturers 2) Ancillary Equipment Manufactures, 3) Engine Wholesalers and 4) Farmers Table 3. Longxi Product Line Growth Early years: Model Single Cylinder, Low Speed Diesel Engine Primarily sold to Domestic Market, Small volume export to Africa, Latin America and Southeast Asia 1970’s Single-cylinder, high speed engines Sold locally and to export markets 1980’s Several two-and three-cylinder models Exporting to U.S. Most popular Multi unit SL2100; 2 cylinder model generating 28 hp, piston diameter of 100mm Competitors-older, multi-cylinder engine model m295 insufficient power generated 24 hp, larger and lower quality, piston diameter of 95 Strategies: Key to sales; primary market SL2100 engines, 25-30 hp wheeled tractors and adaptable to other agricultural equipment increasing market potential. SL2100 favorable feedback from U.S. importers-strong potential for SL2100 to replace S295 throughout industry. SL2100 offered wide range of uses; outside equipment sector than other single- or two-cylinder models and adapted for electrical generator and small boats. Last 5 years, series of four-cylinder, high speed units Table 4. Longxi Sales Forecast 1996 Year to date financials Projected Sales 80,000 single-cylinder engines 6,900 multi-cylinder engines Targeted to reach revenues RMB 176 million Income RMB 6.5 million 1997 Projected total sales of 12,000 SL2100 units Table 5. Changchai: Longxi’s primary Competitor Product Line Growth Changchou Diesel Engine Works (Changchai) (Public company) Largest producer of single-cylinder diesel engines Competes mainly on high quality products at prices similar to or less than most competitors including Manufacturing Strategy: Outsourcing all non-critical components while maintain control over production of key items such as cylinder heads and engine blocks. 1993 S195 Model 92% destined for domestic market services through network of 275 service centers located in 26 provinces Increasingly exported to Southeast Asian countries of Indonesia, Vietnam and Thailand. 80% sales were to tractor and agriculture equipment manufacturers, while distributors purchased remainder ISO 9002 Certified Strategies; Sold in Southeast Asia for small premium Table 6. Changchai Sales Forecast 1994 Raised Capital: 20 million Class A shares Shenzhen Stock Exchange Sales: 21.6 billion RMB Profits: 208 RMB Acquired controlling interest in three domestic diesel engine manufacturers who were incurring losses or operating under capacity—licensed their better known brand name to these Co. to increase Sales. 1995 Operated 33 separate engine production lines Doubled sales since 1994 100 million class B shares valued at US $90 million (30% of companies capital base) listed on Shenzhen Stock Exchange Japan’s Kubota Corporation purchased 25 million US$ of stock Invested in JV’s, Captured 23% of the domestic market for single-cylinder engines---1.2 million units. Sold only 3,000 multi-cylinder units with capacity of 60,000 units. Planning to expand R&D and increase range of models being offered. Management plans to double capacity of multi-cylinder production lines to meet market demand. Two JV’s with diesel engine component manufactures has been established earlier in the year in a move to backward integrate and better control the supply of parts. Kubota Corp. is a high quality manufacturer of farming equipment---company plans to have future cooperation with Changchai involving technology transfer and market access. 1996 Forecasted Sales 3.0 billion RMB and Profits 300 million RMB Sales projected to increase to 1.8 million units 83% of component requirements were outsourced New manufacturing technology was imported from Germany, U.S., Japan, Taiwan and France to improve quality and productivity. 2000 Corporate Objective: Capture 30% of market Table 7. LongXi Compared to Changchai Company Attributes 1996 LongXi 1996 Changchai Production Volume by Product Single-Cylinder Multi-Cylinder 80,000 units 6,900 units 1.8 M units 3,000 units Revenues 176 million RMB 3.0 Billion RMB Proportion of Export Sales 92% Domestic Market Profits 6.5 Million RMB 300 Million RMB Gross Margin per Unit Extent of Vertical Integration 80% Components Outsourced Location/Logistic Concerns 83% Components Outsourced External Partnerships JV’s Kubota Corp. 275 Service Locations ISO 9000 Certification The “Method” Book, Training System, spiritual & material rewards, Concerns; ISO Cost and Time to implement/annual renewal, creditability Target 1998/99 Spirit of Devotion ISO9002 Certified Technology Investment Borrow ST loans improve technology processes 135 Million, 30+ % capital base Table 8. Role of Quality in Market --- Customer Satisfaction TQM Customer satisfaction for quality Customer satisfaction develops trust Customer satisfaction develops loyalty Customer satisfaction eventually develops good working relationship with the firm Table 9. Framework and Tools of TQM Applied by LongLi and Changchai LongXi Changchai Western management ideas External partnerships/joint ventures ISO 9000 certification ISO 9002 certified Overall quality inspection R&D expansion Table 10. Diagnosis of Quality Problem facing LongXi 1996 Action Plan for Improvement Critical Part Duo-Gear Shaft (DGS) RMB 15 Sources of Feedback Used in Multi-Cylinder Diesel Engines to Transfer Power Between gears: Agriculture Sector Failure Options Minimum Performance Failure and Impact Inspection process manual since 1978 Minimum Performance Failure Non Conformances Examine components and engines after produced Improve Customer Quality Customer Complaints Potential impact to long term strategy to expand sales both at home and abroad Reliable suppliers limited, suppliers and over capacity Contain failures 14 Incidents Mechanic sent to Customer Replacement Part or if severe damage replace engine RMB 4,000 Crack, and then Break, possibly resulting in complete failure of the engine Losses in production time from engine breakdowns Utilize Thermal Treatment Workshop Results Inspection Department Failures Change process 44% Failure rate in Sept. Costly delays to engine production Change in temperature and humidity in plant; e.g. rainy season B/1981 Formulation of QC Group Trained other SOES in TSM Attended two week TQM Training Formed 3 groups; Inspection, Measurement, Management Shut down line if quality issues Did not want to lose production 1981 Separated Inspection Group from QMD Developed plant wide quality Changed name of QMD to TQM 1986 Recognized for achievements in quality “Provincial Excellence” in TQM Viewed strong management team 1989 Office TQM separated QMD-Quality Management Dept. EMO-Enterprise Management Office Employees rewarded on Dept production vs. quality plant wide 100 points/.40 base pay Bonus predicated on severity of problem 1992 Attended 4 week training course in NY 1993-1996 QC Excellence Awards 1994 “The Method” Book structure of ISO 9000 Upgrading Technology and Quality Processes Zhanghou City Government maintain employment levels 130 inspectors Table 11. Benefits of Company-Wide Quality Improvement Program for LongXi Teamwork Opportunity to restructure the entire operation Customer satisfaction Develops customer’s trust, loyalty and long-term relationship with the company Company growth Achieves financial goals and other relevant corporate objectives Competitive advantage Ensures to become the leading company in the industry Table 12. Production facilities at LongXI Employment Level was 2,300, now 1,880 Facility Built in 1960’s and 1970s new engine lines added New Technologies-Group processing centers acquired from Germany, Britain, Japan and Taiwan Older Technologies Industry: Increased competition, demand greater value at reduced costs Capable of cutting, grinding and drilling engine parts Rapidly developing and testing engine component prototypes Relied on human judgment Key engine components internally produced ( cylinders, cylinder heads, and number component parts including DGS) remainder outsourced One railway line to Zhangshou Difficulty getting products distributed and marketed 350 Technical Staff Manage Facility and 14 production lines 30% Title Senior Engineer from different government ministries and to those with 15 or more years of technical work experience Market Management, Quality, Profit Credo Goals set for marketing, production, profits and employee benefits. Required approval of Employee Assembly Goals translated into quotas and distributed to employees Action Plans developed for technological improvements, quality improvements and new product introduction Every department analyzed actual to planned performance Senior management reviewed bi-annual basis, quality and production planning on a weekly basis Table 13. LongXi Process Chart for DGS into Gear Housing Assembly Step Nbr. Time Distance Operation Transport Inspect Delay Store Step Description X Material Storage 1 X Scheduling steel rods from storage in warehouse to sawing machines 2 X Sawing operation-machines cut rods from 6m by 58mm into 46mm lengths 3 X Operator strings steel wires 4 DGS parts through 9 mm holes 4 X After 1st unit batch 125 parts proper steel HB45 and dimensions correct/Plate and twice per shift 5 200 m X Load parts small cart to machining dept. 6 350 parts per month/1 shift X Parts stacked beside one of three lathes/operator signed release 7 X Cutting steel at lathe three different diameters 8 X Inspect at random 9 X Operator stacked completed parts on tool box 80cm by 60cm by 120cm high X Material handler moved parts on hand cart to Drilling Operation Drilling Operation two 9mm holes parallel to cylindrical axis 4 X 4 strings (16 parts) 130 cm steel hook-bottom heat cycle into Pre-Hear ovens plus several holes drilled partway into part X Material handler batch moved to final inspection 5 250 meters X Approval process 6 2 Shifts 10 Minutes X Heat treatment for hardness and coating applied; 4 strings 16 parts using 130cm hook into electrical preheat furnace. 200-300 C visual cue temperature @300C 7 X Transfer parts to main furnace 8 Nearby station X Operator push bottom at nearby station start and control heating cycle 850C—Auto recorded 9 X Operator hold parts during heating cycle 10 X Quench parts plunging into vat of water-temperature 200 to 300C—visual observed 11 10 Min Nearby concrete floor X 16 parts heavy basket 12 X Overhead crane transferred iron basket into Tempering Furnace 13 2 Hours 10 Meters Tempering process to stabilize part structure, electrically controlled 14 X Crane remove from furnace to process washing vats 15 16 X Worker removes steel wires from the bundle of parts 17 X Inspector tests hardness of steel of these parts 18 10 Minutes X Worker places parts into basket and with small crane dip parts into hot alkalized water to remove surface contaminants 19 3-10 Minutes X Subsequent hot acid bath prepare for coating anti-oxidant prevent rust 20 35-45 Minutes X Basket dipped into hot specially formulated anti-oxidant liquid 21 Nearby X Parts washed in water bath and coated with oil by dipping in oil vat 22 X X Semi finished parts placed on drying rack to await Completion Inspection. Hardness part measured w/instrument, thickness of antirust layer visually inspected 23 X Parts stacked for return to Machining Department for final grinding operation 24 2 Shifts Grinding machine operator signs for receipt. Grind for precise alignment of DGS with the Idle Gear in final assembly of Great Housing Assembly 25 X Initial Inspection, Patrol Inspection 26 X Parts sent to Machining Department’s Inspection for final Completion Inspection 27 X Parts sent to Finished Products warehouse 28 X Administrator stacks 29 X Assistant costs each DGS one by one with oil further anti-rust treatment Read More