Longxi_Case_Analysis

China Market China is a huge market for small diesels, where sales of diesel-powered agricultural machinery and vehicles had grown by more than 10% annually since 1985, and this growth rate is forecasted to continue until at least the year 2000. 85% equipment use single-cylinder diesel engines, while the rest of 15% use multi-cylinder diesel engines. Due to intense demand for single- cylinder diesel engines, the competition is less intense in the market of multi-cylinder diesel. However, due to customer demand for more power, formation of large co-operative farms, greater need for small agricultural transportation vehicles and need for versatile engines with broad applications, the future prospects for multi-cylinder diesel engines are much more promising. As competitors in the market, there are 15 medium and small sized firms that compete on the basis of low cost production. Therefore, due to strong competition, a price war is imminent in the market. Quality in the market In the early years, the concept of quality of diesel engines was not regarded as an important factor that can be used as a competitive advantage by diesel engine producing companies. However, due to lost production time by consumers due to underperforming products caused by engine breakdowns, the manufacturers of the diesel engines were incurring high repair or replacement costs. Therefore, quality has become one of the major factors for the success of the businesses. Longxi Longxi is an SOE that was founded in 1957. Primarily, the company is enjoying continuous growth in the production of single and multi- cylinder diesel engines for domestic and international markets; however, Longxi has a particular competitive advantage in the market of multi-cylinder diesel engines. The most popular model is SL2100. Longxi shares a part of 55% of market share. Changchai- Major Competitor The major competitor of Longxi is Chnagchai, which is the largest producer of single-cylinder diesel engines (for mostly tractor and agricultural equipment) and constitutes 92% of sales in the domestic market. Due to a series of joint ventures, the company is enjoying major expansion, including 275 service stations (located throughout 26 provinces) with export business with SE Asia. Additionally, the most popular model of diesel engine by Chnagchai is certified by ISO 9002, which provides strong credibility to the quality of products offered by the company. Despite all the successes, the major weakness of this company lies in a lack of substantial market share in the sales of multi-cylinder engines. To overcome this weakness, the company is investing in R&D, and plans to participate in various joint ventures. For superior technology transfer and greater market access, the company recently raised equity capital by selling shares to a Japanese firm. Eventually, to enhance its competitive advantage, the company plans to double the capacity of multi-cylinder production lines to meet future demand. TQM at Longxi • Longxi is one of the first companies to bear a vision of quality control in China, which is evident from the fact that after a 2 week TQM training session by China Ministry of Machine and Industry (encouraged by Japanese approach to TQM), QMD was established at Longxi that consisted of Inspection, Measurement and Management Group. These departments worked in collaboration to eliminate any issues related to quality of the products. • From years of experimentation with various methods of quality control, Longxi has evolved a high quality QC system: The Method. This system is of great value to the company because it provides best practices for the production procedures which guarantees and improves the quality of the products. It serves as an efficient decision making tool and a great training material. • Longxi has effective and efficient reward system with great training programs for employees that acts as an incentive to improve quality of the products in the company. This system is responsible for engaging employees in the process of quality control, which sets a tone of urgency in regards to the issue of QC within the company. Despite such great measures, there are some weaknesses in the QC procedure at Longxi. These weaknesses are: • There is a lack of auditors who could measure the level of quality at the plant level. The internal quality inspectors are under extreme pressure to maintain or enhance the quality of the products in the company. However, whenever defect arises, due to the fear of lost production time, the inspectors seldom stop the production lines. • ISO 9000 has great potential to market the quality of products at Longxi. Therefore, the executive management team should seriously consider attainting ISO 9002 certification for its products. Additionally, to provide more support to QC group, top management should be more involved in QC group activities. Comparative Analysis between Longxi and Changchai Comparative Factors Changchai Longxi Company Structure • Publicly traded company, whose main goal is making profits, and enjoys the capability to invest huge capital to use better quality control systems and modern machines to ensure higher quality • SOE that, along with making profits, also focuses on providing employment to the local people. Business Strategy • Business Strategy is to merge and acquire distressed domestic production firms under its own brand name, which provides big market shares in a short period of time • Adopted a single set of quality control systems (ISO 9002) in its standard form, which also acts as a bond to link the different factories together to share the same vision • The management has its own quality control measures based on ISO 9002 that have won the company various provincial awards in the area of quality control. Hence, the management is reluctant to change these measures • The management is not comfortable, and cannot afford to hire outside auditors • Most of the machines in the plant are old, and are based on human judgment. Hence, it is not prudent to achieve ISO 9002 certification • ISO 9000 is costly and needs renewal every year. ISO 9000 has also lost credibility because it has been awarded to various companies whose products are comparatively lower than the products offered by Longxi. Quality, such as ISO 9002, Certification • Uses ISO 9002 as a strong marketing tool to attract international firms, customers and investors • Most of the customers are in the domestic market that does not care about ISO 9002 certification • The recognition from the government is highly regarded Views of Yang and Lin • The executive management understands the importance of Quality Management. Both, Yang and Lin, are committed to improve the quality of products in Longxi, and understand the competitive advantage that can be brought upon by the enhanced better quality management systems in a fierce market. Yang is the Managing Director of the company. Hence, if QC 96020 decides to bring in any changes, or make changes to the existing quality control systems, Yang will be needed to make sure that the entire company, under his leadership, is following and adopting the proposed changes. Yang is a crucial link to the success in the execution of the Quality Control changes. Similarly, Lin is also very important to the success of QC 96020. It is a fact that the success of the quality group will depend on the willingness of its members to bring in effective changes to the process of quality management. Lin is a crucial link to the productive mindset of the members of the group who want to take on an initiative to enhance the quality of DGS systems in the company. • Yang believes in “Fact management” instead of “Relationship management”. Identification of the problem is the first step towards the eradication of the problem. If, for any reason, workers and other staff members try to hide the cause of the problem, the eradication of the problem can be extremely hard. Lin also believes that the root cause of major problem with the quality management system is lack of motivation and relevant training, such as workshops, for the technical staff. Therefore, with under Yangs vision and leadership, and Lin’s expertise, the issues related to QC at Longxi can be fixed. • To sustain any changes and processes initiated by Lin, Yang and his executive team will have to participate in the QC management systems at a lower level in the organizational structure (plant level). Yang believes that he does not have time to take part in the QC activities at such a lower level. On the other hand, Lin believes that the top management should be involved at the lower level QC activities. Involvement of executives can help create a feeling of urgency and importance among the lower level staff members in regards to the issues related to the QC. Such involvement will also make it easier for middle management to understand the importance of executing his ideas and proposed changes in QC systems. I believe that, due to above mentioned reasons, along with experienced QC members; Yang should also be involved in the activities of QC group 96020. Resolving the DGS quality defect will not only prevent subsequent engine seizure, but also boast the confidence and ability of the QC team to troubleshoot complex and cross functional problems. Mr. Yang should head this QC group as his presence will ensure the swift implementation and execution of necessary corrective actions. Cause and Effect Diagram and recommendations It is evident that the defects in DGS are the major reasons for critical issues related to multi-engine failure. Therefore, the manufacturing process of DGS should be carefully examined and monitored. For further information on manufacturing processes, please see Fish Bone Diagram in Appendix A. The discovery of the root cause of defect in DGS should be the priority task for QC group 96020. The QC group should thoroughly and systematically examine the entire manufacturing process and address the weak/critical points which might contribute to the failure. As mentioned in the case, the majority of defects in DGS originate from the Thermal Treatment Plant where common processes take place with human judgment. Hence, it is especially important that processes which require a high degree of personal judgment & experience be closely scrutinized. Once the root cause of defects in DGS is found, a standard operating procedure should be implemented. All workers should be notified to follow this procedure to minimize any defects related to human error or lack of human judgment. Finally, to completely eliminate any errors caused by human judgment, the QC group should recommend to the top management team to invest in high-tech manufacturing and inspection machineries to address the weakest process (related to human judgment) link in the manufacturing process.