shanghai baolong automotive corporation · lean production study and implementation. at the same...

26 August 2011

Shanghai Baolong Automotive Corporation

Zhang Zuqiu is the President of Baolong Automotive Corporation (“Baolong”) located in Songjiang District, Shanghai. He is responsible for sales, production, and daily operations of the company. On 30 July 2007, he arrived at his office as usual. His desk was still piled up with pending faxes and letters, together with the monthly production status report and the monthly order fulfillment status report.

The pending faxes and letters were new orders and expedite order requests from Baolong’s

customers. Looking at the amount of new orders and fulfilled orders, Zuqiu was pleased with Baolong’s rapid development and market expansion that resulted in its rapid growth in both market shares and revenues. Although Baolong is a young and small company with its key business in the sales and production of auto parts, Zuqiu is confident that Baolong’s growth rate for the first half of the year will be similar to past years, i.e. over 50%. However, he frowned after seeing the expedite order requests and production status report. Since 2000, Baolong’s production lines had not been able to keep up with the orders. With many of the deliveries due, the stocks were still in short supply despite having the production lines operating under extended hours. It was a daunting challenge.

After reviewing the sales and production status report, Zuqiu began to work on the expedite order

requests. He found a delivery due next day from a client in North America. Although the order quantity was for only one box, but to meet the delivery deadline and reduce default loss, Zuqiu sent the Vice President, Feng Meilai, to America by air that day to make a personal delivery. He knew this meant an additional air freight cost.

President Zhang also used his e-mails to keep abreast of the business operations for Baolong

subsidiaries and holding company in the overseas markets, especially in North America. An e-mail from America DILL (Dill Air Controls Products, Llc) caught his attention. DILL is the main distributor in the United States (U.S.), responsible for Tire Valves products for Topseal (Shanghai) Auto Parts Pte. Ltd. where Baolong is the holding company. According to the e-mail, DILL had received multiple complaints on cracks found in the Snap-in Rubber Tire Valves (refer to Exhibit 1). He realised immediately this may be Baolong’s manufactured product quality issue. After discussing with the Chairman, Chen Hongling, Zuqiu had a meeting with all the department managers, including production and sales managers. He highlighted the need for immediate actions to find the cause for cracks in the Tire Valves and to propose solutions to prevent further losses. Baolong Automotive Corporation

Baolong was founded in 1997 with its headquarter located in Songjiang District, Shanghai. Over the years, Baolong has established itself as an integrated Automotive organization with production, sales, product development, and project investment. Since then, Baolong and its subsidiaries companies have been engaged in research and development, production, and sales of auto parts. Some of the key products include exhaust systems, tire valves, tire pressure monitoring system (TPMS), wheel balancing weights. (see Exhibit 2). Baolong has established itself as a leading quality exhaust systems and tire valves supplier.

Shanghai Baolong Automotive

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Its products are sold to seventy-six (76) countries and regions, including renowned vehicles manufacturers. It has two manufacturing plants: one in Songjiang, Shanghai (“Shanghai Plant”), and the other in Ningguo, Anhui (“Anhui Plant”). The sales and manufacturing of tire valves and other auto parts is done through the Shanghai Plant, whereas the Anhui Plant is responsible for the exhaust systems and related accessories.

In the OEM (Original Equipment Manufacturer) market, Baolong’s key products are part of major

vehicle manufacturers’ Parts Supply System, such as exhaust systems and tire valves for North America Ford, North America General Motors (GM). It is also the sole tire valves supplier for Ford passenger cars globally, and Tenneco’s Class A supplier. Baolong’s key client for its product packages include Ford (including North America, Australia, Changan-Ford), GM (America, Shanghai), Volkswagen (Germany, Shanghai, FAW-Volkswagen), Chrysler, Mercedes-Benz (Beijing), Hyundai (Beijing), PSA Peugeot Citroen, Nissan, FAW, BYD, Chery, Shanghai Auto, and Haima Auto.

In the aftermarket, Baolong’s key product tire valves have successfully penetrated the North America

market for high-value added aftermarket supply systems, where it has the highest market share. Baolong has also established an extensive sales distribution network. Customers such as DISCOUNT TIRE, ASCOT, SEARS, BRIDESTONE are some of the key independent aftermarket distribution companies.

Baolong is a market leader in products technology. It has received several recognitions in China,

including: • High-tech Enterprise by the Shanghai Science and Technology Committee and related agencies. • Shanghai Innovative Enterprise and Shanghai Technology Little Giant Enterprise by Economic

Committee and Shanghai Science and Technology Committee. • Shanghai Enterprise Technology Center by Shanghai Economic Committee. Besides, Baolong serves as the Vice Chairman in Tire Valve Standard in China, and member of the

Europe’s Tire and Wheel Technology Organization, America’s Tire and Wheel Association, and China’s TPMS Standard main blueprint unit. Baolong has also received multiple product certifications including Torch Programs at National/City level, and Shanghai New Key Products. As of July 2011, Baolong has fifty (50) patents in China, including six (6) new inventions, and thirty-eight (38) utility models. Baolong and its subsidiary company, DILL, also held 4 overseas patents, including three (3) new inventions and one (1) utility model.

Baolong has established a strict quality control system and has attained ISO/TS16949, ISO14001

quality and environmental certifications. By adhering to the company’s vision of “Benefiting More People by Automotive Technology”, Baolong will strive towards constant innovation and development in the automotive industry1.

Baolong Production System Initiative Background

1http://www.baolong.biz/


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Since the setup of the factory, Baolong has adopted a traditional production model (as opposed to lean production), characterized by piece-rate wage, functional layout of the equipment, mass production, and traditional costing system. With a stable economic environment, Baolong was able to develop and grow rapidly between 2000 and 2006, achieving a growth rate of approximately 50% annually.

However, with the rapid market development, Baolong began to face problems with their production

practices. With new orders increasing rapidly and no improvement in production efficiency, Baolong began to experience insufficient capacity and short supply. As production is unable to keep up with new orders, to avoid short supply situations, Baolong would sometimes, send its salesman carrying boxes of the product and fly to America to deliver personally. This resulted in higher delivery cost, further reducing its profit. In addition, due to its lax management, where it emphasized too much on cost and delivery deadlines, problems with its product quality started occurring.

To avoid short supply and meet delivery deadlines, the employees worked overtime in the traditional

production lines to increase output. The senior management was solely relying on employees’ enthusiasm and passion to meet the growing demands and delivery deadlines. However, due to mass production, with a large amount of raw materials and in-process inventory, limited production technology, and low skilled workers, this resulted in more defective products, leading to uncertainty in production, increased in inventory, and significant wastage within the company. The losses caused by defective products were increasing.

Meanwhile, the economic environment began to change. In 2005, China’s exchange rate policy reform

led to higher raw material and labor cost in the domestic market. The impact was not significant then to Baolong. However, in 2006, the production cost increased rapidly. Senior Management noticed that profits were not increasing as much as sales.

To address the situation of excessive inventory build-up, the production managers proposed level

production to the senior management. Hongling and Zuqiu also realized the drawbacks of their ad hoc management style and traditional production practices could not keep up with the company’s rapid growth. Although they were aware of Toyota Production System, they did not have in-depth knowledge. In 2006, Hongling and Zuqiu attended the Asia-Pacific EMBA program in NUS Business School, where they gained more knowledge and interest on Toyota (or widely known as lean) production. They began to introduce the concept of lean production within the company. In 2007, they conducted a lean production simulation exercise during the annual shareholders’ meeting to educate the senior management on lean production practices and let them hands-on experience benefits of lean production. Through this exercise, the senior management began to conceptualize a lean production model with pull production to support the rapid growth of Baolong.

Since 30 July 2007, Baolong continued to receive complaints from their customers about the cracks

on the tire valves distributed in the North America market2, the quality issues began surfacing. Through an independent testing organization, Baolong discovered the defects were caused by the lack of a key ingredient – rubber anti-aging agent during production. From this incident, Hongling and Zuqiu (founders of Baolong) realized the key challenge faced by the company then was to improve the product quality.

2Source: Introduction to IPO of Shanghai Baolong Automotive, July 2011.


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Other than measures to improve the product quality, they were also considering defects preventive measures in the long run, company future plans for sustainable growth, and working toward the goal of “Built to last”.

Through the tire valve incident, Hongling and Zuqiu felt the urgency to implement lean production,

but prior to 2008 Baolong did not have the required senior management resources and skills to lead the lean production study and implementation. At the same time, the production was all based in the Shanghai Plant, thus lacking a pilot site for implementation. Also, with the pressure of short supply and meeting delivery deadlines, Baolong did not have the capacity to implement any improvement.

In 2008, the automotive industry was heavily impacted by the global financial crisis. The sales and

production of vehicles had sharply reduced, leading to sharp reduction of orders for Baolong. Meanwhile, the currency exchange policy in China continued to be reformed, the pressure on costs increased. With the majority of its customers based overseas, Baolong suffered lower profit margins, higher export cost, and less competitiveness.

Faced with this situation, it became a pressing issue for Baolong to reorganize itself to meet these

challenges so as to achieve stable growth and sustainability. The senior management team decided to implement lean production. Hongling, the founder and the Chairman of the Board said,

“Before 2008, we are aware of the benefits of lean production and the senior management team had the consensus to implement lean production. However, we did not have the capabilities at that time, including the production technology, talents, and the sites. But now, we realized that lean production can be effective even when the production technology is not fully developed.”

Lean Production Trial

To take advantage of the lower land cost and labor cost, Baolong moved its Performance Exhaust Systems Plant to Ningguo, Anhui, and built the Anhui Plant. The Anhui Plant started its production operations in October 2007. The production equipment was slowly shifted to the new plant from Shanghai. At the beginning, there was chaos in the production lines, and they almost lost control of the situation. The senior management team realized then that Baolong had to commit fully to a new management style built upon lean production to move forward.

By the end of 2007, the senior management decided to implement lean production in the tire valve

production unit in the Shanghai Plant. Senior managers including Wang Shengquan (Director, responsible for the operations of Shanghai Plant) and Chen Hongquan (Director, responsible for the operations of Anhui Plant) were sent for lean production related training. They also invited consulting firms to diagnose their operations problems, hoping to engage them for the implementation of lean production.

In mid 2008, the IT manager shared the success stories of implementing the electrical Kanban system

by other companies with the senior management team. They saw the benefits of this system and decided Baolong should learn and adopt it. They started to invite several software consulting firms to share their experience in implementing the systems, and visited other organizations to learn from their experiences.


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Baolong was about to be more committed to implement lean production in the organization. They invited quotes from five (5) consulting companies, and at the same time, they were also considering alternative implementation option, i.e., training its employees in lean production and recruiting lean production talents.

In September 2008, the Anhui Plant started the initiative to implement lean production. Chen Xulin,

the general manager of the plant, was responsible for the project. Employees involved in the project were also sent for training. Although the senior management were fully supportive of the project, due to the lack of experience and in-depth lean production knowledge, the resultant benefits were not significant. However, this did not deter them on the journey of lean production. Talent Recruitment

In July 2008, Shengquan and Hongquan were attending lean production trainings with a consulting firm. Through an opportune referral, Shengquan and Hongquan decided to attend a lean production class conducted by Huang Qicai over a weekend. They had a good impression of Qicai, especially with his extensive implementation experience in Japanese companies. They hoped to recruit him to be responsible for the lean production implementation in Baolong.

After reviewing the options of engaging a consulting company, or recruiting talents for the

implementation, the senior management decided to recruit Qicai for the self-implementation of lean production. In July 2008, Baolong contacted Qicai to recruit him for the role responsible for lean production implementation in Baolong, and to develop Baolong Production System (BPS).

Initially, Qicai had some concerns. His education background was in automation, and he started work

for a Japanese firm in Shenzhen in 1998. Because of Qicai’s outstanding performance, he was sent to Japan to be trained in Japanese management styles. He learned lean production systematically during the six-month stint. Having worked in that company for 6 years as the technology and production manager, Qicai joined Panasonic in Zhejiang as the product quality manager for a year. In 2005, he worked in Kobayashi Shanghai, a Japanese pharmaceutical company, and was responsible for the technology research and development. At the same time, he started teaching part-time with a consulting firm on lean production on weekends. When he received the job offer from Baolong, he was already the personal assistant to the general manager of Kobayashi Shanghai. At that time, he had two major concerns: (1) through his training engagements, he discovered some common phenomena existed during the lean production implementation in Chinese private firms. For example, when faced with setbacks, the senior managers will blame their subordinates; (2) usually, the leaders (mainly the founders) were supportive of the change, but the general manager and middle management were not co-operative, leading to project implementation failure.

After Qicai had more meetings with the senior management team, he felt they had a strong

determination and sincere attitude towards the implementation of lean production. Also considering his career progressing in the Japanese company, and the strong referral came from within Baolong, Qicai decided to join Baolong. In October 2008, when Qicai arrived at Baolong and started his sites visit to the Shanghai Plant and Anhui Plant to understand the current management style and production situation.


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The visit had left a deep impression in Qicai. He said “Compared with other local plant, the situations in the Shanghai Plant was relatively OK, but was far behind when compared to Japanese firms. The situation in the Anhui Plant was terrible. It was not a factory but a huge workshop, with disorganized equipment and facilities, and workers mishandling products. The plant was a total mess.” Based on the successes of implementing lean production in Japanese firms in China and his own

working experiences, Qicai was confident that Baolong could implement lean production successfully. In November, 2008, he joined Baolong as an expert and trainer for the implementation of lean production. Lean Production Implementation

Baolong established its action plan for 2009. The first year is designed as the foundation or pilot year of transforming the production system. The main tasks were to develop foundations for transformation, including lean consciousness revolution, 5S implementation, improvement culture awareness, production cost reduction, Hoshin Kanri implementation, and lean production line model development. Considering that Shanghai Plant has already established a relatively good management and production system, the senior management and Qicai decided to implement lean production incrementally in Shanghai Plant, and slower roll out to the rest of the factory in phases. In the case of Anhui Plant, Qicai decided to implement lean production factory wide simultaneously. Although the senior management had some reservation, they supported his plan. Zuqiu (Baolong’s founder and President) recalled,

“Qicai proposed that we implement lean production in the whole factory in the Anhui Plant. I felt that he was too optimistic. However, considering the situation at that time, we decided to fully support his plan.”

Shanghai Plant

The Shanghai Plant is responsible for the sales and production of tire valves and other wheel accessories. Shengquan, General Manager and Production Director, had prior knowledge of lean production when he joined Baolong in 2000. As an OEM firm, the Shanghai Plant implemented quality systems ISO9002 in 2001, and Automotive Quality Standards QS9000 in 2003. Since 2005, the Shanghai Plant had begun transition to these quality systems starting from the tire valve products. The tire valve defects incident led the senior management team to realize that the quality systems were not sufficient to support the company’s rapid growth.

In the Shanghai Plant lean production implementation, Qicai only needed to set the directions, and

commit a quarter of his time on the project. The pilot testing was performed at the metallic tire valve unit. After analyzing the existing production layout (see Exhibit 3), it built a lean production model line (see Exhibit 4). At the end of 2008, a lean production team was established with Shengquan as the team lead, and members from the department managers in production, design, purchasing, and quality. In order to resolve the production technology challenges that will affect the production flow, a lean production technology team was formed in March 2009.


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The implementation of the lean production model line was not a small process. With the new

management system, the middle managers and workers were doubtful about the effectiveness and some had defiant attitudes. Most of them regarded the lean production line as just another company new “exercise” and “form” or just simple reallocation of the equipment layout. They did not believe that this new line could increase the production efficiency. They doubted the concepts of lean production, such as ‘zero inventory’, ‘JIT production’. Some of the workers resisted the change and they do not see any benefits in lean production. They believed that methodology from Japan was not suitable for Chinese manufacturing firms and culture.

The workers in the production line had negative attitude towards lean production. They were

worried their wage may get impacted, and they will have to work harder. Baolong’s production workers were on piece-rate wage and their wage was dependent on their labor skills. Skilled workers who produce more will have higher wage. In addition, due to the functional layout of the production line, the upstream parts production has little direct impact on the downstream production process, thus among the workers, they can replace/exchange their workdays without affecting production process. With the introduction of lean production, the production processes are streamlined according to the new equipment layout to achieve pull production. The flow and efficiency of the production process is now driven by the required number of finished products, to achieve on-time production. The production workers thought they will now have more work, and reduced wage as it is dependent on the number of finished product. There were vey few workers volunteered for the lean production line.

To attract the workers to join the new production line, knowing that the workers’ wage was the key

factor, Shengquan and the respective department heads introduced several policies. They first assured the workers that their incomes will not reduce, but in fact increase. During implementation, their target completed products will still be piece-rated. They also trained the workers in multiple skills so that the workers could perform multiple tasks, and earned extra income by performing other work in their spare time after they have achieved their target for the day. On the setting of lean production model line output, Shengquan elaborated,

“Lean production requires the workers to produce only the equivalent of the required number of parts, not more, not less. On the one hand, this enables us to measure our worker’s production efficiency and compute the standard processing time of each step, and to identify bottlenecks in the production flow. On the other hand, it is to enable our workers to experience first-hand what the JIT production is.” From the model production line, the lean production team developed a job instruction manual for

each process in the production line (see Exhibit 5). The production efficiency of the model production line was increased from 6000 pieces every 13 workers to 9000 pieces every 11 workers per day. With the improved production efficiency, reduced work-in-process, and higher wage for the module production line workers, the production workers began to realize the benefits of lean production, morale among the workers was improved. The lean production team adopted multiple measures to propagandize the achievement internally. They organized learning tours for the non-model production line workers to visit the model production line to change their mindset. By setting new wage policies to demonstrate that


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model production line workers’ wage will increase with efficiency, and less work intensity, the workers were changing their mindset slowly. More workers were requesting to join the lean production model lines, and actively participating in improvement suggestion activities (See Exhibit 6).

Anhui Plant

Baolong began production of the Performance Exhaust products in May 2002. Due to the rapid

growth at the initial stage, there were high demands, and the plant was constantly busy in production. They were busy developing new products to expand the market share. At the same time, they were busy meeting delivery deadlines through overtime production. They paid little attention to production cost and management. In 2006, when business had stabilized, the senior management realized this management practice can no longer support the rapid growth. They started to focus on improving production cost and management. In March 2007, the Sales Department invited China Production Cost Association to help them implement improvements to reduce the production cost. However, the project did not bring significant results. In October 2007, the Anhui Plant was built and started operations, Director Hongquan, General Manager Xulin, and Assistant General Manager Lan Ruilin were tasked to oversee its operations.

Prior to the move, to assure no disruption to production, the senior management encouraged the key

managers and workers to participate in the construction of Anhui Plant through several approaches. Some of the employees of this new plant were transferred from Shanghai, especially those senior mid-level managers and key production line workers. Majority of the production line workers was hired locally. These local production workers were also working in their farms. Baolong is not their only source of income. During busy farming seasons, it was not unusual having cases of absenteeism, workers on leave, or late arrivals and/or early departures. In addition, the production equipment and facility were much disorganized, thus causing production line to be constantly in chaos. In 2008, when demands dropped sharply, the raw materials were piled everywhere, there were also high volume of work-in-process and finished products. The production line was almost beyond control.

Although the initial outcome of the lean production trial was not satisfying, it has built the foundation

for future implementation of lean production. In November 2008, Qicai began to lead the implementation of lean production in Anhui plant. He spent three quarters (3/4) of his time in this plant. During his first meeting with the middle management, the senior management defined his authority and lead position in the project to enable smooth project implementation. Xulin told the middle managers in Anhui Plant,

“Qicai is our teacher, both Ruilin and I (in lean production). His instructions are equivalent to the instructions from Ruilin and me. Everyone should do what he says. I hope everyone will execute his instructions seriously.” In December 2008, the move of production equipment from Shanghai was completed in Anhui Plant.

In January 2009, they planned 9 production units, U001-U009, rolling out lean production in the whole plant (see Exhibit 7 and Exhibit 8). It was not a smooth project, and there were many challenges during the implementation. Qicai began to exercise the management authority that was given to him at the beginning of the project. At times he was even perceived to have taken over Xulin and Ruilin’s roles.


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Implementation Strategies3 Lean Consciousness Revolution

The senior management realized that the leader’s mindset and attitude was the key to the success of lean production implementation. Although the senior management was confident and committed to the implementation of lean production and the establishment of the BPS, the workers and mid-level management were against it. To change their mindset, Baolong introduced the BPS Principles, a series of company-wide lean production awareness programs, with declarations and slogans (see Exhibit 9). The workers and mid-level management felt these were just another new “exercise”, and did not take them seriously.

However, the senior management was determined. For the workers, they printed the BPS Principles on cards and require the workers to carry them all the time. There were random checks that the workers will be tested on their knowledge on the BPS, thus, “brainwashing” them. For the mid-level management, they were given the strong message “Change or Leave”. This is because the manager’s mindset and attitude will directly affect their staff. Meanwhile, Baolong introduced several activities to encourage employees to take responsibilities, and uncover problems in the production. The activities include responsibility storms, and “Sangen Shugi”. To the workers, when product defects were found, there will be no penalty, instead, they were encouraged to report and discover the root of the problem, and be rewarded.

Despite of the efforts, the outcome from these measures did not meet the senior management’s

expectation. The workers had not accepted the BPS Principles in their mind. They learned the principles and slogans to meet the requirements of the checks. When checks were loose, workers began to forget them. From January 2009, many mid-level and junior managers who did not accept the BPS Principles were demoted. Some chose to resign, while others stayed on with Baolong. Conflict

Han Xiangming joined Baolong in August 2001 in Ningbo, and transferred to Baolong Shanghai as a group leader in production planning in September 2002. In March 2008, he took on the production manager role in the Anhui Plant. Xiangming had been trained in lean production since 2004. He participated in the 2007 lean production trial. Though the implementation was small and not systematic, he found lean production to be effective. However, he felt the effectiveness of lean production is dependent on the product and not the principles. He did not agree with the BPS Principles, and measures for the model production U-line. Thus, during the implementation of the BPS in November 2008, he was consciously against it. He was demoted to workshop supervisor in January 2009. Xiangming did contemplate if he should leave Baolong, but decided to stay on. He has grown attached to the company over the years, also he wanted to prove his thinking and actions were correct. As a workshop supervisor, he led twenty (20) workers and built the model production line and put into operation. In April 2009, during a “Sangen Shugi” (actual site, actual product, actual fact) meeting with Xulin, Ruilin and Qicai with

3Source: Chen Hongquan, The Transformation of Baolong Production System, EMBA Advanced Study Project, NUS Business School, December 2009.


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his group to check production status, Qicai pointed out the products had quality issues. Xiangming did not agree and they had an intense argument. Xiangming highlighted that the products were produced according to the requirements of Product Design Department and Quality Assurance Department. His group should not be responsible for the quality issues. Qicai maintained that Xiangming should uncover the problems from his own team and not push the blame to Product Design Department and Quality Assurance Department. The general manager, assistant general manager all agreed with Qicai, and they criticized Xiangming. Everyone on site, including the middle managers and production workers witnessed the scene. However, Xiangming still insisted that his team should not be held responsible for the quality issue. He was disappointed and felt sad with the senior management criticism. He had taken his work seriously and followed closely with the requirements from product design Department and quality assurance Department. He could not understand why he should be responsible. He began to reconsider his decision to stay. The senior management had criticized him in front of his colleagues without “saving his face”. In addition, is it worthwhile for him to stay with a company where its senior management seems not to look at the root of the problem? Implementing 5S

The Senior management had long acknowledged the importance of 5S in operations management where they set up a position to be responsible for the 5S before 2009. In October 2008, Qicai told Hongquan when he first visited the plant,

“I admired you for being able make a total mess in a new factory that looks nice and clean externally.” Although Hongquan did not agree with him at that time, he replied, “We are implementing 5S.” Qicai immediately pointed to the production line and said, “I cannot see any signs of 5S implementation here. For a manufacturing company, if you cannot implement 5S, then you will fail in everything.”

In January 2009, the 5S implementation was re-initiated. They started training the department heads

and above level in groups over a two (2) days training program. The trained department heads are then asked to train their immediate subordinates, and this continues to the junior employees. The workshop supervisors were required to train the workers in the production line. Through these trainings, Baolong hope to transform the mid-level management’s attitude from “dealing with 5S” to “truly identifying with 5S”. Baolong treated “5S” as a project to be implemented, the production manager appointed as the “5S project manager”, and the rest of the department managers as the “5S project team member”. Qicai highlighted,

“We used the tools and methodology in project management to implement each plan. The major difference from other projects is, in a lean production project, there is no end date, and it is a never ending project.”

During the monthly meeting, the project manager updated on the progress of previous month, goals


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achieved, action plans status, and results attained. The respective team members will update their department action plan status and results achieved. They will also highlight any delays, problems, providing detailed analysis, counter measures and action plans. Baolong also rolled out activities for “treasure hunt” and “Red Tags Challenge” to promote the implementation of 5S. Improvement Suggestion System

Baolong had previously implemented “Improvement Suggestion” system. However, there are considerable gaps when compared to those implemented by the Japanese firms. First, it was not all-employee participation. Second, the participation was spontaneous. Some employees participated only at end of the year for the competition. Third, it did not become a corporate culture.

In order to cultivate continuous improvement culture within the organization, Baolong launched an improvement program company-wide involving all the employees. An “Improvement Suggestion Project Team” was formed with the human resource manager performing the project manager role. The team created “Suggestion Management Policies”, “Suggestions Management and Evaluation Procedures” (see Exhibit 10), and “Suggestion Improvement Form”. The “Suggestion Management Policies” defines the scope and content of the submitted suggestions, the suggestion evaluation process and period, and incentives guidelines. Baolong had also set a target (by month) for the Improvement Suggestion System for 2009: “Improvement Suggestion 1-2-3”, i.e., one suggestion from each production worker, two suggestions from each group leader, and three suggestions from mid-level manager and above every quarter, respectively. The suggestion scheme became part of every employee’s job function, and was included into the Hoshin Kanri. (see Exhibit 11 and 12) Total Cost Management

The production cost had been increasing due to the rising raw material cost and China exchange rate policy reform. To keep production cost low, in January 2009, Baolong implemented Total Cost Management (TCM) throughout the organization. Among all the projects in Hoshin Kanri, TCM was placed as the top priority.

In November 2008, the Anhui Plant established a “Cost Reduction Project Team”. The Purchasing Manager was appointed as the project manager (the financial manager position was vacant then), the members were from the respective department managers. After several meetings, Baolong set the goal at reducing RMB 20 million for year 2009. They defined action plans to reduce wastage and reduce production cost, such as improving product quality, reducing both internal and external quality loss; increasing productivity; reducing inventory, including raw materials, work-in-process, and finished products; re-designing the production line; reducing the production cycle, lowering transportation cost; improving work safety and lowering accident rates. The targets were deployed to all departments accordingly and began execution in January 2009. During the monthly meeting, they reviewed if the targets were achieved at monthly and year-to-date basis. (see Exhibit 13). Total Quality Management


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The price Baolong paid for the low product quality was extremely high. The quality loss could be as high as 10% of the sales revenue yearly. In 2008, the quality loss was RMB 12.39 million for the Anhui Plant, with the quality loss ratio up to 6.7%, with the product scrap up to 5.44%. To improve the product quality, the Anhui Plant implement Total Quality Management (TQM) project where Quality Department Manager is the project manager, and the other department managers as members.

There are many activities in the TQM project. The implementation began with mindset change, understanding TQM concepts and tools, followed by project implementation. Some of the project could start at pilot sites before being fully implemented. Lastly, during the monthly meetings, project status is updated and the effectiveness of the action plan is assessed.

During the implementation process of TQM, the management and Quality Department began to face a difficult problem, i.e., the conflict between quality and delivery deadlines. Quality Department maintains its stand that quality was the top priority, and should not be compromised. This leads to the Production Department not being able to meet the delivery deadlines. Hoshin Kanri

Hoshin Kanri is built based on the organization strategic goals, including both long (mid) term

strategic goals, and short-term yearly business goals. To be effective, it requires the participation from all employees in the organization. In November 2008, Baolong conducted a foundational training to the senior management team, and formed the “Hoshin Kanri Project Team”. The project was managed by the Human Resource Department Manager, and the relevant department managers as members. Baolong incorporated past years’ annual plans, performance evaluation into the Hoshin Kanri. After discussing with all the team members, Baolong defined the Hoshin Kanri for 2009, including “Improving Quality, Reducing Waste, Stabilizing the Market, and Increasing R&D”. “Reducing the cost RMB 20 million” was placed as the top priority. Each department proceeded to define their business plans according to the Hoshin Kanri (see Exhibit 14). Employee Training

While introducing the BPS Principles, providing awareness training, and carrying out random checks, Baolong continued to send the employees for lean production training. The trained employees were asked to train other employees within the organization. This helped them gain an in-depth understanding in lean production while training others. Baolong also engaged Industrial Engineering (IE) experts to develop and strengthen its science and technology capabilities.

The implementation of BPS requires project management methodology and tools to be used for every

project. To meet this requirement, Baolong started project management training. In order not to affect production schedules, Baolong requires all employees to attend these trainings during their spare time. With concurrent projects progressing at the same time, some employees experienced higher work stress. TQM Monthly Meeting


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On 30 May 2009, Baolong had their monthly TQM project meeting. At 10am, all members of the senior and mid-level management team were present at the meeting room. The TQM project manager, i.e., the Quality Manager, Mr Zhang distributed the meeting agenda and notes. He updated the progress status in May and highlighted that although the product quality had improved, the quality issue continued to be a problem in the Production Department without improvement. Through random checks, Quality Department discovered the dimensional tolerance between products was high, leading to their decision to hold back the whole batch of finished products. They asked the Production Department to fix the problem. The Sales Manager, Mr Liu highlighted that due to this batch of products being held back, several orders may not be met before the delivery deadline, thus the cost reduction target for June cannot be met. All eyes turned to Ruilin, paused for a moment, he responded,

“For those products within the tolerance limit, Quality Department should release them to meet the delivery deadlines, to avoid increasing the sales cost.” Hongquan echoed, “I hope all departments are cooperative. If the product quality is within the acceptable tolerance, we should release the products. The priority is to meet delivery deadlines.” Qicai added, “Quality Department was right. I hope Quality Department continues to put quality first. I hope Production Department has these products reworked. Meeting the delivery deadline is the secondary.” After the meeting, Quality Manager Zhang and Sales Manager Liu were confused. Whose instructions

should they follow?


14

Exhibit 1 Product Recall of Tire Valves4 Incident Background

Date Incident Since 30 July

2007

Topseal (Topseal (Shanghai) Automotive Component Corporation) received several complaints on

cracks found on the tire valves from DILL, their distributor in America.

30 April 2008 DILL lodged a formal report to NHTSA (National Highway Traffic Safety Administration) on the sales

of possible defective tire valves in America. The defect is due to the missing rubber anti-aging

ingredient during the production of tire valves.

2 May 2008 DILL began to recall the unused tire valve model DILL-ACP/TR-413, TR-414, TR-418 distributed

between November 2006 and July 2007. At the same time, suggested the clients in America to check and

replace all possible defective tire valves.

5 December

2008

DILL submitted the product quality investigation report to America Quality Defects Investigation

Office, confirming that tire valves sold between November 2006 and July 2007 of the type

DILL-ACP/TR-413, TR-414, and TR-418 contain serious defects.

9 December

2008

DILL advertise through newspapers, radios, internet as well as written notice etc to inform all

consumers on the recall of the defective tire valves produced in July 2006 and sold between November

2006 and July 2007, with free replacement.

12 December

2008

NHTSA confirmed the product recall launched by DILL and requested the latter to submit quarterly

reports on the recall status for consecutive 6 quarters.

Improvement Measures

In July 2007, Baolong and Topseal worked closely with DILL to investigate the quality issues and adopted the following measures to improve the quality in tire valves:

A. Replaced the anti-aging supplier, and established new stricter terms, “Rubber related products must be purchased directly from the manufacturer, or Grade 1 distributors”, thus enforcing stricter control on raw material quality;

B. Improved the quality of rubber by increasing EPDM ratio by 3% and the quantity of the anti-aging ingredient, changing the production techniques, to increase the anti-ozone concentration to meet the requirements in selected states in America;

C. From November 2007, improved the quality standard based on America SAE (SAE J12054-1997) and China National Standard (GB 12836.1-1999) by increasing the anti-ozone duration from 72 hours to 96 hours, and the anti-fatigue testing from 40,000 times to 80,000 times;

D. On 15 April 2008, increased the detection frequency of anti-ozone from yearly to monthly based on SAE J12054-1997 and GB 12836.1-1999;

E. Continuously improve the quality and quality management system by adoption of German TUV TS16949 in May 2008.

4Source: Introduction to IPO of Shanghai Baolong Automotive, July 2011


15

Exhibit 2 Baolong Key Products5

Picture Name Picture Name

Snap-in Tire Valves

Wheel Balancing Weights

Performance Exhaust Products

Wheel Bolts & Nuts

TPMS

Tire Repair Products

Refrigerant Valves

Garage Equipment

Pressure Sensors

Air Compressors

5http://www.baolong.biz/baolong_en/products.aspx

http://www.baolong.biz/baolong_en/product_list.aspx?classid=200907231128436406&flag=1





































































































16

Exhibit 3 Original Layout of Tire Valve Production Line6



17

Exhibit 4 Lean Production Line Of Tire Valve7

Exhibit 5 Working Guide of Tire Valve Lean Production Line8

7ibid 8ibid


18

Exhibit 6 Comparison between the model U-line and original production line9: the Shanghai plant

Category Item Before lean After lean Improvement

Productivity (P)

Team productivity (piece/team) a 6000 9000 50.0% Worker productivity (piece/man-hour)b 54.6 102.3 87.4%

Overall Equipment Effectiveness (OEE)c 82% 88.6% 8.0%

Quality (Q) Defective rate 0.84% 0.39% 53.6%

Customer’s defects rate (PPM)d 68.00 8.00 88.2%

Inventory (I) Work in progress (piece) 900 200 77.8%

Work-in-progress cycle time (second) 2206 480 78.2%

Cost (C) Production cost (RMB/piece) 0.0815 0.07417 9.0%

No. of workers 21 16 23.8% Non-value-add carrying distance (meter) 293.4 17.1 94.2%

Delivery (D)

Production cycle time (second) 19854 4323 78.2%

Changeover time (second)

Semi-automatic underpan process

1800 1200 33.3%

Fixed length process 2400 1200 50.0% Necking process 1200 420 65.0%

Percentage of on-time delivery 94.85% 98.55% 3.9%

Safety (S) Safety issues (incident) 0 0 0.0%

Worksite Safety improvement (case) 0 13 -

Morale (M) Improvement Suggestion participation rate 0% 71% 71% Completed of improvement Suggestion rate 0% 100.0% 100.0%

Note: a. Team productivity (piece/team): production quantity of non-defective products for each team in every 8 hours;

b. Worker productivity (piece/worker.hour): average production quantity of non-defective products for each worker in one hour;

c. Overall Equipment Effectiveness (OEE) = time efficiency*speed efficiency*(1-defective ratio);

d. PPM: defects ratio in every 1 million products.

9ibid


19

Exhibit 7 Original Layout of Performance Exhaust Product10

10Baolong (Anhui) Automotive Component Corporation


20

Exhibit 8 Lean Production Line of Performance Exhaust Product11

11Baolong (Anhui) Automotive Component Corporation


21

Exhibit 9 The BPS Principles12 Principle of BPS—— Be Quality-centric and eliminate waste totally! Slogan of BPS—— A little Improvement every day! Manifesto of BPS——No excuse, Action immediately! Agreement of BPS——Do not say no way! Do not say what had past! Do not say what others did! BPS Mindset

Throw away inherent methods and ideas! Think about how to do it instead of why can’t it be done! Don’t find excuse, start by questioning the current method! Don’t wait for a perfect solution, act immediately even with a 50 percent success rate! Correct mistakes immediately! Improvement don’t require huge investment! Learn from mistakes! Look for the true cause by asking yourself 5 whys! Wisdoms from 10 persons are greater than one man’s knowledge! There is no deadline for improvements!

BPS Disdained Excuses

That thing does not have any function! It is indeed true but our situation is different! The suggestion may be good but you will never know the actual outcome! There is no room for further cost reduction! We have always done it like this! Do not like to be told what to do by others! If the cost is reduced, the quality will decline accordingly! Why change when nothing is wrong? It doesn’t work; we tried that 10 years ago! We are most familiar with this!



22

Exhibit 10 Improvement Proposal Evaluation and Deadline13

Improvement Suggestion Evaluation and Duration Form

Employee Name and

Department

Suggestions evaluation and duration

Team leader Workshop manager Department manager Admin Suggestion team

Evaluat

ion Dur

Evalu

ation Dur

Evaluat

ion Dur

Collect

ion Dur

Evalua

tion Dur

Production/

Quality/

Logistic/

Technology

Worker - < 2 days - < 3 days - < 3 days - Monthly - 5th next month

Team

leader/

Clerk

- < 3 days - < 3 days - Monthly -

5th next month

Manager - < 3 days - Monthly - 5th next month

Purchasing/

HR/Admin

Cleaner,

etc - < 3 days - Monthly -

5th next month

Clerk - < 3 days - Monthly - 5th next month

Exhibit 11 Summary of Improvement Proposal (January -May 2009)14

Month Total

No. Accepted. (A) Good (G) Excellent (E) Bonus (A) Bonus (G) Bonus (E) Total

Jan, Feb 526 464 54 8 1392 70 80 1742

March 364 316 40 8 948 200 80 1228

April 260 227 23 10 681 15 100 896

May 264 227 27 10 681 35 100 916

Total 1414 1234 144 36 4782

Exhibit 12 Excellent Improvement Proposals in Anhui Plant15

Month Excellent Financial contribution (RMB/year)

Jan, Feb 8 523,874

March 8 46,294

April 10 32,484

13ibid 14ibid 15ibid


23

Exhibit 13 Achievement of Cost Reduction in Anhui Plant (January-May 2009)16

Target Department Items Jan Feb Mar Apr May

RMB

20

million

Whole

company

Actual 791394 87620 1093222 973393 926736

Accumulative 791394 1667624 2760845 3734238 4660974

Monthly target 1271976 1056575 1446544 1197760 1198217

Accumulative target 1271976 2328551 3775095 4792855 6171073

Monthly achievement 62.2% 82.9% 75.6% 81.3% 77.3%

Accumulative achievement 62.2% 71.6% 73.1% 75.1% 75.5%

Exhibit 14 Hoshin Kanri 200917

Company

Hoshin

Kanri

Improving quality

Reducing waste

Stabilizing market

Increasing R&D

Department Hoshin Kanri

Approval Examine Examine Reference.

Date 20 December 2008

Target Department Strategy

Target Responsibility

Item Goal Challenge Target Challenge Measure Quality

P Productivity 30% 35%

Layout redesign,

Standard working time,

Multiple-skilled

workers,

Implementing IE

Productivity 15% 18%

Workers 15% 20%

OEE 75% 80%

Q Quality

I Inventory

C Cost

D Delivery

S Safety

S Sales

M Morale

16ibid 17ibid

1

Shanghai Baolong Automotive Corporation1 Teaching Notes Synopsis On 30 July 2007, Zhang Zuqiu, President of Baolong Automotive Corporation (“Baolong”), arrived at his office as usual. His desk was still piled up with pending faxes and letters, the monthly production status report and the monthly order fulfillment status report. Although Zuqiu was pleased with Baolong’s rapid development and market expansion that resulted in its rapid growth in both market shares and revenues, he frowned after seeing the expedite order requests and status reports. Since 2000, Baolong’s production lines had not been able to keep up with the orders. With many of the deliveries due, the stocks were still in short supply despite having the production lines operating under extended hours. Quality issues resulting in the recent recalls in the America made the situation gloomier and prospects of the company worrisome. Faced with worsening international trade conditions and mounting problems, Chairman Chen Hongling and President Zhang Zuqiu were compelled to expedite the initiative of transforming Baolong into a lean manufacturer. However, it was a daunting challenge as Boalong had no in-house expertise or experience in lean production. The case presents a challenging situation faced by many companies in the course of their moving up the ladder of production competence and operational excellence. The major learning from this case is how an emerging Chinese company goes about adopting and implementing lean production. Another interesting aspect is about the culture (both corporate and social). How is lean (or more accurately Toyota Production System (TPS)) production, of a Japanese origin in 20th century, successfully adopted in a Chinese company of 21st century? How is such an implementation different from those in the companies of Western cultural background? Purpose 1. To highlight why most companies fail in the TPS adoption 2. To demonstrate how Baolong adapt and reinvent the model (still work in progress) 3. To illustrate, through challenging situations faced at Baolong, how to improve the likelihood of

success in implementing lean production 4. To emphasize the role of leadership, i.e., right people, right approach, right culture, and what they

did right or wrong Suggested Assignment Questions 1. How to decide whether to engage a consulting firm or to recruit seasoned experts to implement

lean production? 2. What are the major challenges faced by Huang Qicai initially? 3. How to handle the conflict if you were Han Xiangming? What should the top management do to

resolve Han’s issue? 4. What are the benefits of U lines? What are the critical success factors? 5. What are the challenges facing Zhang Zuqiu in the months ahead?

1 This note was prepared by Professor H. Brian Hwarng with the assistance of Xuchuan Yuan, PhD student at the Department of Decision Sciences, NUS Business School. It is developed for the sole purpose of aiding classroom instructors in the use of Shanghai Baolong Automotive Corporation. It provides questions, analysis, and teaching suggestions to help enrich classroom discussion and deepen students learning.

2

Pressing situations faced by Baolong Baolong enjoyed a growth rate of approximately 50% annually between 2000 and 2006. It has established itself as a leading quality exhaust systems and tire valves supplier. It is also the sole tire valves supplier for Ford passenger cars globally, and Tenneco’s Class A supplier. Baolong’s key client for its product packages include Ford, GM, Volkswagen, Chrysler, Mercedes-Benz, Hyundai, PSA Peugeot Citroen, Nissan, FAW, BYD, Chery, Shanghai Auto, and Haima Auto. Despite of the successes in securing deals with leading global automakers, Baolong started to experience the growing pains in 2005. In the past, Baolong was able to attain steady growth owing to relatively stable global economic conditions. During a period of growth and expansion, resource efficiency or operational excellence is not a critical factor for survival. Everyone gets business. However, in 2005 when China’s exchange rate policy reform led to a less favorable cost advantage, and subsequently the global financial crisis in 2008, the following issues became pressing. 1. Quality issues: Due to fast growth 2. Customers: Meeting delivery deadlines (due dates) 3. Resistance from employees and suppliers 4. Machines: Underutilization of facilities 5. Man: Low skills levels 6. Recalls and external crisis: Finance or natural disasters (such as snow storms, floods, earthquakes,

epidemics, etc.) 7. Survival: Due to fierce competition (e.g., low cost or high quality)

Teaching Suggestions A good way to start the classroom discussion is by asking the class to evaluate the culture aspect of the case. This can be done in small groups (preferably in pre-assigned study groups). Given the diverse background of the students, the discussion can be very interesting and stimulating. The key idea is to set the stage for discussing the implementation of a new initiative such as lean production in different contexts or cultural settings. Students are expected to provide different views with some cultural slants. The instructor should press on to ask students for transferrable lessons, if any, to a different context, say in Singapore or India? Part 1 Baolong’s State before Dec 2007 (10 minutes)

• What were the main challenges?

• How did they handle late deliveries?

• What was their mentality on the core fundamentals?

• Why was their production system failing then?

Part 2 The Turning Point (5 minutes) (the trigger: 30 July 2007 complaints => 2 May 2008 Recalls)

• What was the major trigger for embarking on the lean production initiative?

• In what areas did they fail?

• How did they respond to the crisis?

3

Part 3 The Approach (15 minutes)

• Research and proactively sought help

• Consulting firms or seasoned experts/talents? What were pros and cons?

• Incremental or factory-wide?

• Why did the conflict mentioned in the case occur?

• How can it be avoided or prevented in the future?

Part 4 Critical Success Factors (10 minutes)

• What are the challenges? • Resistance • Mentality • Talents

• Leadership and commitment

How can these challenges be overcome? Part 5 Key Takeaways (10 minutes)

• Quality systems alone do not guarantee success. • Training and development is fundamental to transformation.

• The determination and persistence of the leadership (the right people) is critical.

• Sustainable development requires the right culture, effective structure, workable systems and

mechanisms.

Analysis A. The Pilot U-line in the Shanghai Plant Prior to the re-launch, the shop floor situation was not conducive at all for lean production as Qicai’s initial assessment after his sites visit shows,

“Compared with other local plant, the situations in the Shanghai Plant was relatively OK, but was far behind when compared to Japanese firms. The situation in the Anhui Plant was terrible. It was not a factory but a huge workshop, with disorganized equipment and facilities, and workers mishandling products. The plant was a total mess.”

However, based on the successes of implementing lean production in Japanese firms in China and his own working experiences, Qicai was confident that Baolong could implement lean production successfully.

4

The Shanghai Plant was more established and better prepared for embarking on the initiative. It produces tire valves and wheel accessories and has been operated under the quality systems such as ISO9002, QS9000 for some time. Wang Shengquan, General Manager, carrying on his lean effort prior to the re-launch, was tasked to take the new lean initiative further. Huang Qicai was the in-house expert and mentor in charge of the overall implementation. A lean production task force was established comprising department managers from production, design, purchasing, and quality. In January 2009, the first pilot U-line was established in one of the product areas. In March 2009, a lean technology team was assembled to solve problems related to production technology which were the bottlenecks of the production flow. At the beginning, most of the middle managers were skeptical about the effectiveness of the U-line. Some even resisted to cooperating. Wang Shengquan recalled that,

“Most of them considered U-line merely a re-arrangement of equipment. They did not believe that this new line could improve the production efficiency. They doubted the philosophy of lean production, such as ‘zero inventory’, ‘JIT production’. Some thought that lean was originated from Japan and not suitable for Chinese manufacturing firms. They did not want to change.”

As for the shop floor workers, they were concerned more about their incomes and work load. Since the existing compensation was piece-rate based, the workers could earn more by producing more. With the U-line, the workers were not allowed to produce more but according to the set target. They worried that the amount of work would be increased while their wages would be reduced. The workers were reluctant to join the pilot U-line. To change the situation, Baolong adopted several measures. Wang Shengquan shared:

“We first assured the workers that their existing incomes were guaranteed and the work load would be even reduced in the pilot U-line. We also trained the workers to possess multiple skills so that they could perform multiple tasks. The pilot U-line workers could earn extra income by performing other work in their spare time after they have achieved their target for the line.”

Through the pilot U-line, the team was able to measure the standard processing time for each operation and develop a job instruction manual for each process in the U-line. Through continuous improvement, the line was balanced and the Kanban system was implemented. The production efficiency of the pilot line was increased from 6000 pieces every 13 workers to 9000 pieces every 11 workers per day. The pilot line now became a model line for the rest of the plant. With the success of this model U-line, the lean initiative task force adopted multiple measures to propagandize the achievement internally. Besides the tangible benefits demonstrated by the model line, intangible positive outcome was also observed, especially the morale of the workers, as noted by Wang Shengquan,

“All the workers witnessed the achievement of the model line: the income increases while the work intensity decreases as a result of higher productivity. The workers became very keen to be part of the model line.”

The success of this pilot U-line boosted the confidence of the team. Employees also considered it an honor to be selected for the model U-lines. Qicai was even more determined to replicate this to other production lines and throughout the plant. B. The Bold Undertaking in the Anhui Plant Although the initial sign of the lean production trial in the Anhui Plant in September 2008 was not encouraging, it has laid a foundation for the future implementation. In November 2008, Qicai began to lead the lean initiative in the Anhui plant. He was tasked to allocate three quarters (3/4) of his time in this plant. Facing the chaotic situation in the Anhui Plant and armed with the support and authority

5

granted by the senior management team, the confident Mentor Huang decided to embark on a plant-wise lean exercise. Although the senior management team had some reservation, it decided to endorse Qicai’s bold proposal. In January 2009, 9 U-lines were simultaneously rolled out in the Anhui Plant. Multiple projects were concurrently carried out. At the end of 2009, however, it became clear that the production efficiency and quality was not improved, still suffered high defect ratio and inventory, and poor delivery. Lan Ruilin, General Manager of the Anhui Plant, recounted the situation:

“There were several reasons for the disappointing outcome of this “Big-Bang” approach. First, most of the managers and workers did not have the lean awareness and mindset then. They resisted simply because they were required to do what they could not agree at. Second, we did not have a competent team with lean knowledge, project management and IE techniques. Third, we were lagging in our production technology which became the obstacles to implementing U-lines. Fourth, we were overambitious for quick results. As we launched 9 U-lines in the shop floor and carried out many projects simultaneously, our people felt tremendous pressure. Some employees resigned during this period.”

A subtle problem contributing to the ineffective launch was confusing leadership and ambiguous divisions of management tasks. Huang Qicai was supposed to provide guidance and expertise. However, due to the un-readiness of the management team, Qicai was compelled to take over and acted upon some responsibilities of the general manager in driving the initiative. Thus, some problems could not be addressed appropriately or timely. Zhang Zuqiu reflected,

“We experienced a serious problem during the initial roll-out in the role of management. Huang Qicai took many general’s manager’s responsibility and he put much of his energy to solve the problems which should be tackled by Lan Ruilin. Their responsibilities at times became overlapped. Managers, supervisors, and workers were confused about the leadership and lines of reporting when problems emerged.”

Learning from the positive lessons from the Shanghai Plant as well as the negative experiences from the Anhui Plant, the management team decided to reorganize and adopt the incremental approach beginning in January 2010. Model U-lines were experimented and expanded incrementally. In June 2011, Huang Qicai proudly shared,

“Although the initial outcome in 2009 was disappointing, the exertion actually laid the critical foundation for our current success. Lean awareness was gradually cultivated in the organization; team members were equipped with problem-solving skills. Employees acquired new skills and learned new tools to perform their jobs.”

C. Strategies in Lean Implementation C.1. Lean Consciousness Revolution Although the senior management was confident and committed to the implementation of lean production and the establishment of the BPS (see Exhibit TN1), the workers and mid-level management were against it. The senior management realized that the leader’s mindset and attitude was the key to the success of lean production implementation. For the workers, something visible and physical is easier to relate. Thus, they printed the BPS Principles on cards and require the workers to carry them all the time. The key is to reinforce and internalize these principles. They must become the workers’ instincts. For the mid-level management, the message is clear and loud: “Change or Leave.” The key is realign all managers’ mindset and attitude to the unified vision and goals. They are the change agents, directly affecting their staff.

6

Owning up responsibilities and uncovering problems are strongly encouraged. To the workers, when product defects were found, there will be no penalty, instead, they were encouraged to report and discover the root of the problem, and be rewarded. Despite of the efforts, the outcome from these measures did not meet the senior management’s expectation. Chen Hongquan recalled this period of toils and pains in shaping up:

“Most of our managers and workers could not appreciate the BPS principles at first. But due to our determination, they realized that the company was serious about this revolution. For some of managers who could not accept the BPS principles after much consultation, they were demoted or reassigned to other positions. This was a critical step since the mid-level management played a key role in shaping subordinates’ attitude and behavior. Some resigned during 2009. Most of them were not key members of the team though. Those who had been demoted and eventually embraced the BPS principles were restored in positions and compensations. Lean consciousness was gradually cultivated in our company, though there were ups and downs. By the end of 2009, the lean attitude and mindset became part of corporate culture. The lean reinforcement is on-going at Baolong, but now we do not need to resort to punitive approaches such as the “Skin-Peeling Meetings.2”

C.2 Employee Training Continuing training and development is the core activity of Baolong’s lean initiative. The trained employees were then asked to train other employees within the organization. This helped them gain an in-depth understanding in lean production while training others. This cultivates a learning culture. The implementation of BPS requires project management methodology and tools to be used for every project. To meet this requirement, Baolong started project management training. To encourage participation in the training programs, incentive schemes were devised. Huang Qicai elaborated,

“We encouraged employees to take training courses after working hours. To incentivize, we designed some kind of credits system. Credits are earned by successfully completing relevant training courses. Certificates are issued for fulfilling the program requirements. Credits and certificates are used in the appraisal exercise for considered promotion and/or salary adjustment. For those who are keen to develop, we even support them to study in colleges. Through training programs, employees not only acquire knowledge and skills, but also increase their personal market value. Employees are keen to take courses now.”

C.3 The Teamed-Project Approach Baolong adopted a teamed-project approach to carrying out its lean initiative. All key elements of lean production were executed in the form of projects, e.g., 5S (Seiri, Seiton, Seiso, Seiketsu, Shitsuke) Project, ISS (Improvement Suggestion System) Project, TQM (Total Quality Management) Project, TCM (Total Cost Management) Project, TPM (Total Productive Maintenance) Project, and Hoshin Kanri (Strategic Planning and Policy Deployment) Project. The contents of these projects form the building blocks of the BPS (See Exhibit 2 for the initial version of the BPS house used in Baolong). Each project is championed by a team led by a department manager and composed of a number of relevant functional managers. Team members were equipped with relevant knowledge and skills before undertaking the responsibilities. For example, the Manager of Production Department is the team leader of the 5S Project; the team is composed of managers from departments such as Human Resources, Purchasing, Logistic, Accounting, Equipment & Environment, and Quality Control. Each project team holds monthly meetings to evaluate the progress of their tasks and propose solutions to any problems brought to their attention.

2 Such meetings were conducted in the Anhui Plant to identify the individuals who were to be blamed for the problems. Literally, it implies that the skin of the culprits was peeled to get to the problems identified and addressed.

7

In 2009, projects were rolled out in an unstructured manner and often simultaneously competing for resources. Toward the end of 2009, the management team realized that an improved approach was needed. Beginning in Jan 2010, projects were rolled out in a coordinated and somewhat staggered manner. A project was kicked off and allowed to gain a foothold before the next one was launched. Unlike typical projects, each of the Baolong’s lean projects has a beginning but no ending. In other words, all projects are meant to be on-going and kept on improving. Through these projects, the lean initiative gradually permeated every corner of the company. Chen Hongquan commented on the merits of the teamed-project approach,

“All lean teamed-projects continue as on-going efforts within the organization. The composition of the teams ensures cross-functional and full support from all relevant departments. This is done without expanding or changing our functional structure. The practice resonates with the lean principle.”

LPA (Layered Process Audits), a widely adopted approach in the automotive component industry, was also incorporated into the BPS. LPA contains a system of audits performed by multiple levels of supervision and management to monitor key process characteristics and verify process conformance on an ongoing basis. Through LPA, Baolong strives to reduce variation in the manufacturing process. Above all, the Hoshin Kanri (strategic planning and policy deployment) Project team was tasked to map out the strategic goals and plans for the company on an annual basis. Hoshin Kanri is built based on the organization strategic goals, including both long (mid) term strategic goals, and short-term yearly business goals. This is important so that various projects will not go astray. Huang Qicai reflected on the positive development of this approach:

“With clear strategic goals and policies, each project team and department has the needed measures and tools to assess their own progress and performance. The incentive schemes are also clear and transparent to all.”

D. Initial Results Baolong established its first BPS action plan for 2009 and mapped out a 5-year lean journey. 2009 is designed as the foundation or pilot year of transforming the production system. The main tasks were developing foundations for transformation, including lean consciousness revolution, 5S implementation, improvement culture awareness, production cost reduction, Hoshin Kanri implementation, and lean production line model development. D.1 Improved Production Efficiency In the Shanghai Plant, the production efficiency of the model production line was increased from 6000 pieces every 13 workers to 9000 pieces every 11 workers per day. With the improved production efficiency, reduced work-in-process, and higher wage for the module production line workers, the production workers began to realize the benefits of lean production, morale among the workers was improved. The new wage policies ensured that the model production line workers’ pay will increase with efficiency, and less work intensity. Workers’ mentality changes slowly. More were requesting to join the lean production model lines, and actively participating in improvement suggestion activities. Exhibit TN2 summarizes the improvement in the following categories, Productivity (P), Quality (Q), Inventory (I), Cost (C), Delivery, (D), Safety (S), and Morale (M). The similar statistics for the Anhui Plant are listed in Exhibit TN3. D.2 New Culture Cultivated

8

Change in corporate culture is evident in the success of the Improvement Suggestion System. During January and March 2011, employees contributed 1243 suggestions for various types of improvement in the Anhui Plant, a 182% increase over the suggestions received in 2009 and 2010 combined. 82.9% of the approved improvement suggestions got implemented. With positive working attitude and the right incentives, employees are active in submitting their ideas for work improvement. Workers on the shop floor constantly brainstorm ways to save working space, reduce traveling or transporting distance, cut down the consumption of energy, decrease the opportunities of making errors, and many more. The whole work force is realigned to the unified goal, that is, continuous improvement. This new culture transforms Baolong into a learning organization. The senior management team plays a critical role in leading by example. They are excited about unlimited new opportunities in savings through the ISS. D.3 Impact across the Supply Chain The lean initiative at Baolong not only helps Baolong achieve high production efficiency, but also helps develop its supply chain. On how the demand side of the supply chain gets better managed, a marketing manager (Shanghai) explained,

“Through training and closely working with internal customers (e.g., production), our salesmen have better knowledge about our products, production processes, quality and costs. We are more confident when engaging external customers. Customers also have more confidence in our products. This indeed helps us build mutual trust and create a win-win situation.”

On how the suppliers benefited from Baolong’s transformation, a purchasing manager (Anhui) who had worked for an American company for 15 years, shared,

“Our supply chain was fragmented. Suppliers were far behind in meeting our growing needs in all dimensions. With the mandate of lean production, we spare no effort in helping our suppliers improve quality and reduce costs. We are able to gradually develop the local supplier network. We help our suppliers develop and grow; meanwhile, our purchasing and logistic costs were significantly reduced.”

D.4 New Challenges With the initial success of the model lines, plans for converting other lines to U-lines are well under way and the pace will be accelerated. Lean production promotes small lot sizes and quick changeovers. Companies can benefit from such a system only when these practices are applied across their supply chain. This means that the BPS has to be extended not only companywide, but also to Baolong’s supply chains. The capabilities of supplies, shop floor workers, engineers, and management staff all need to be raised. Zhang Zuqiu admitted that while the future of Baolong looks promising, the looming challenges are just around the corner:

“The capability of rapid line changeover is the bottleneck for small-lot U-line production. Currently, we are still unable to achieve this for some of the key equipment. We need to conquer this difficulty through technology innovation Besides, we are still lacking specialists and competent staff in production management, industrial engineering and lean manufacturing. We are developing our employees, but it takes time. We are extending our lean practices to our supply chains. However, most of our suppliers are small factories and relatively underdeveloped. That explains why we still need a large team of quality control staff. We are now trying to implement the BPS in the new automotive electronic components line where more advanced technology is involved. The emerging problems may be totally different than the existing ones. The new challenge just begins.”

E. Lessons Learned

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The lessons learned from Baolong’s journey in its lean initiative so far can be summarized in four categories, namely, leadership, people, culture and process. The four categories are interconnected. Changes in any category affect the others. Specifically, leadership sets the direction and provides the support; culture acts as the environment and provides the nutrients; people are the driving forces and the executors; process ensures things get done properly. We believe these lessons and the framework provide useful insights for other organizations interested in implementing lean production. E.1 Leadership Lesson 1: A clear vision leads the organization. The vision of the need to transform is a blessing to Baolong. Despite of fast growth, Baolong leadership recognized the fundamental structural problem that it faced. Such vision can only take root in the minds of leaders who are visionary. Chairman Chen Hongling certainly is a rare leader belongs to this category. Lesson 2: A determined and united senior management team convinces all employees. Despite of employees’ skepticism and resistance, Baolong senior management team was unwavering. The leadership’s confidence and determination was demonstrated even through extreme measures such as demotions or pay-cuts in selected cases. As CEO Zhang Zhuqiu puts it, “the strength of the leadership is in the team of united leaders, not a single charismatic leader.” Lesson 3: A long-term perspective resists the temptation of short-term interests. The journey began with a 5-year plan. There is no constraint in terms of resources needed in order to make this initiative a success. All projects are meant for long-term under continual improvement. Lesson 4: Right talent and empowerment is critical. The recruitment of a seasoned lean expert proves to be crucial. The senior management team was determined to seek professional assistance. In the process, the team developed the instinct to make formed decisions in choosing the right talent. The lean expert, or mentor, was granted the full support and authority by the leadership to implement the BPS. He was empowered to overcome any resistance. A top-down and authoritative approach was considered a norm at Baolong. We note that this approach may not be always applicable in other cultural contexts. Lesson 5: Leaders are the first to be equipped with relevant knowledge. The two co-founders were first exposed to and fascinated by Toyota Production System. They then shared the knowledge with the senior managers. The consensus on the merits of lean production for Baolong was developed. The senior management was equipped to discern what is appropriate in terms of seeking external assistance. E.2 People Lesson 6: Equip managers into trainers. The mid-level managers played a critical role in the implementation of the lean initiative. The senior management needed to, first, secure the managers’ buy-in; then, equip them with lean knowledge. Baolong required its managers to internalize the knowledge by teaching their own subordinates. Through these trainings, Baolong transformed the mid-level management’s attitude from “dealing with 5S” to “truly identifying with 5S”. Lesson 7: Develop shop floor workers into problem solvers. Baolong set a target (by month) for the Improvement Suggestion System. For example, “Improvement Suggestion 1-2-3” requires one suggestion from each production worker, two suggestions from each group leader, and three suggestions from mid-level manager and above every quarter, respectively. The suggestion scheme mobilizes every employee to constantly look for better ways of doing things.

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The various training programs provide the workers with tools to implement their ideas and solve the problems. E.3 Culture Lesson 8: Awareness and culture-readiness is fundamental. For any initiative to succeed, the conditions of the context must be right. The corporate culture at the time of the launch often determines its fate. Baolong lacked the fundamental ingredient, lean consciousness, in 2009 to start the initiative companywide. Baolong spent the foundational year to cultivate lean awareness. Lesson 9: A learning and sharing culture is needed for sustaining development. A culture of encouraging leaning is best evidenced by Baolong’s investment in sending its senior executive to attend executive MBA programs. Since the two co-founders, 5 other senior executives have attended the Asia-Pacific EMBA program at NUS business school. They often return to share the latest knowledge and practices acquired in the program. They initiate book studying and sharing sessions across the company. For instance, a series of studying and sharing on Deming’s books was launched in July 2011. All managers of the mid-level and above were required to participate. E.4 Process Lesson 10: Adopt an incremental approach. The contrast of success and failure during the initial implementation was quite clear between the Shanghai Plant and the Anhui Plant. The Shanghai Plant, though was better prepared, adopted an incremental approach to its implementation. The use of model U-lines was exemplary. The initial success builds the employees’ confidence and boosts the morale. Experiencing the setback of its initial plant-wise roll-out, the Anhui Plant also benefited from the incremental approach subsequently. Lesson 11: Adopt a goal-driven teamed-project approach. All key building blocks in the BPS House are championed by a project team. Each of these blocks is treated as a “project.” The project is meant to be continual as long as it is fitting in the lean initiative. A project is led by a manager from a closely related functional department. The team is made up of a number of related department managers. The cross-functional composition ensures a team effort in developing capabilities collectively. The Hoshin Kanri project provides an overarching framework to implement the project with clear goals and milestones. Lesson 12: Regular and effective communication is critical. Regular meetings are held for each project team to assess the progress of the project and analyze the causes of any problems. The senior management attends these meetings to provide necessary guidance and support, and ensures that the project is on track. The senior management also shares their thoughts and company agenda with all employees through an internal publication, Baolong Times. Baolong Times also serves as a platform for all employees to share not only their achievements at work but also their talents in corporate leisure activities.

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Exhibit TN1 The BPS House (the initial stage)

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Exhibit TN2 Comparison between the model U-line and original production line: the Shanghai Plant

Category Item Before lean After lean Improvement

Productivity (P)

Team productivity (piece/team) a 6000 9000 50.0% Worker productivity (piece/man-hour)b 54.6 102.3 87.4%

Overall Equipment Effectiveness (OEE)c 82% 88.6% 8.0%

Quality (Q) Defective rate 0.84% 0.39% 53.6% Customer’s defects rate (PPM)d 68.00 8.00 88.2%

Inventory (I) Work in progress (piece) 900 200 77.8% Work-in-progress cycle time (second) 2206 480 78.2%

Cost (C) Production cost (RMB/piece) 0.0815 0.07417 9.0%

No. of workers 21 16 23.8% Non-value-add carrying distance (meter) 293.4 17.1 94.2%

Delivery (D)

Production cycle time (second) 19854 4323 78.2%

Changeover time (second)

Semi-automatic underpan process 1800 1200 33.3%

Fixed length process 2400 1200 50.0% Necking process 1200 420 65.0%

Percentage of on-time delivery 94.85% 98.55% 3.9%

Safety (S) Safety issues (incident) 0 0 0.0% Worksite Safety improvement (case) 0 13 -

Morale (M) Improvement Suggestion participation rate 0% 71% 71% Completed of improvement Suggestion rate 0% 100.0% 100.0%

Note: a. Team productivity (piece/team): production quantity of non-defective products for each team in every 8 hours; b. Worker productivity (piece/worker.hour): average production quantity of non-defective products for each worker in one hour; c. Overall Equipment Effectiveness (OEE) = time efficiency*speed efficiency*(1-defective ratio); d. PPM: defects ratio in every 1 million products.

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Exhibit TN3 Comparison between the model U-line and original production line: the Anhui Plant Note:

a. The target of the model line; b. The performance in Jan 2010; c. The performance until Nov 2010.

Category Item Before lean After lean (Nov 2010) Improvement

Productivity (P)

Team productivity (piece/team) 800 1530 91.25% Worker productivity (piece/man-hour) 7.1 21.4 201.41%

Utilization of working hours 85%a 88.9% 5.76%

Quality (Q) Defective rate 1.00% 0.09% 91.00%

Remanufacturing rate 1.60%b 1.04% 35.00% Semifinished product passing rate 97%a 99.1% 2.16%

Inventory (I) Inventory level (baseline: 100%) 100%a 78% 22.00%

Cost (C)

Space required (square meter) 182 118 35.16% Number of workers per team 16 9.5 40.63%

No. of workers 21 16 23.81% Supplementary material cost (RMB/piece) 0.11b 0.03 72.73%

Energy cost (RMB/piece) 0.12b 0.06 50.00%

Delivery (D) Percentage of on-time delivery 98%a 100% 2.04% Production cycle (day) 1.5a 0.95 36.67%

Morale (M) Improvement Suggestion category (case)c

5S 43 Safety 17

Equipment 35 Efficiency 44

Total 139

shanghai baolong automotive corporation · lean production study and implementation. at the same...

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