Shanghai Baolong Automotive Corporation

4 Pages   |   1,002 Words

Problem Identification

Baolong Automotive Corporation – manufacturer of automobile parts with its primary clients spread out across the west – was facing several problems with respect to its production and operations.
  • During the last five years, the company had experienced tremendous growth in sales, but the production wing did not grow along because of which the company was failing to meet deadlines for delivering products.
  • In addition to this, there were several inefficiencies within the firm at different stages of the value chain, which was hurting the profit margin. As a result, the two founding partners of the firm decided to implement lean management concept throughout the firm, in order to bring an end to all these problems. For this purpose, the company carried out several strategic changes and hired a couple of key personnel; however, the initial results of the implementation phase did not provide the expected results.
  • Furthermore, a new dilemma has popped up within the company among the senior management group i.e. whether to focus on meeting delivery deadlines or to continue efforts for improving the quality of products.

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Lean Management of Supply Chain

5S Methodology

Despite the fact, implementation of 5S had started in mid-2008, but due to the poor implementation strategy, even months after the start of the plan, the company was no way near its completion. The manufacturing plants were in a situation of a complete mess; therefore, the 5S methodology was initiated again.

Seiri (Sort)

Throughout the factory, there were unnecessary items lying on the floor, particularly raw materials and unfinished goods, which were not only increasing the cost, but also creating obstacles for workers. Eliminating or reducing them was a priority for the company.

Seiton (Straighten)

Despite the fact that workflows were defined via proper manuals, but the implementation from workers’ end was very low because of which time wastage was often experienced. So there was a need of arranging and setting all things in order for improving efficiency.

Seiso (Clean)

This element already existed within the company as the plant apparently seemed to be clean; however, it was not corresponding to other elements of the 5S methodology.

Seiketsu (Standardize)

This was the major lacking in the company as no standardized work processes were followed because of which multiple issues with the quality of the product were being found. Each department was blaming the other one for the issue without identifying the root of the problem. So, there was a need of standardizing the process as it was a mass-production plant.

Shitsuke (Sustain)

As the sales grew by almost fifty percent between 2002 and 2006, the company forgot about making its operations sustainable and continued with ad-hoc management and production style, which resulted in all sorts of problems. Now, it was time to bring order within the plant and focus on removing issues rather than bringing in new sales.

Just In Time

The company had failed to forecast the variation within its sales because of which there were times when company had excess inventory at different levels (raw material, in-process, finished goods) and at others it fell short of raw material. In either case, it was facing huge cost in the form of storage cost or lost sales. The Just-in-time model implemented by the company was off to a positive start, but it was not sustainable as the desired cultural changes within the firm were yet to be made; therefore, it is essential to make them at the earliest, in order to derive maximum value from the process.

Pull Production

The company had failed to meet product delivery deadlines even after following a sophisticated forecasting technique due to high uncertainty within demand. Therefore, the new idea is to implement a pull supply chain management strategy i.e. a demand-driven strategy. In this case, the Toyota’s Production System would serve as an ideal benchmark because the company despite using a pull strategy for production does not produce as per the order. It follows a so-called supermarket model where it stores a limited inventory and replenishes them as per need. In this system, a Kanban cards based system would benefit the company as it would signal the preceding function to start the process; for instance, sales would signal warehouses, warehouse to production, production to procurement, etc. Here, the most challenging task was to determine the right amount of inventory i.e. number of units to be stored, in order to ensure limited storage cost, as well as, no loss in sales due to shortage.

Recommendations

  • First of all, it is essential to understand the importance of managing the balance between quality, as well as, meeting delivery deadlines because if high-quality product is delivered after the deadline then the sales team will have to provide discount, which will hurt the firm’s profit margin. Similarly, if a poor quality product is delivered prior to deadline even then it has no use because the product would be returned, and the company will have to provide after sales service. The company is already losing 4-6 percent annually, in the form of production wastage and poor quality products, which were unacceptable in the market. This percentage is considerably high and the hurting the company to a great extent; therefore, the primary idea should be to create a balance between the product quality and meeting the deadline.
  • Secondly, the improvement within the quality aspect of the product should be incremental because it is logically not possible and too optimistic to roll-out improvement plan across all stages of value stream.
  • Third, though the top management has been making an all-out effort for attaining the cooperation and support of the middle management, but it has been facing several challenges. The top management should make it clear – in written – to all of its employees regarding its final intentions, and if the problem persists, then it should start firing and hiring new people with the right attitude because the future of the firm is at stake here.

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