a lean view of china ’s auto industry

A Lean View of A Lean View of

ChinaChina’’s Auto Industrys Auto Industry

Dr. Marcus ChaoDr. Marcus Chao

President, Lean Enterprise ChinaPresident, Lean Enterprise China

www.leanchina.orgwww.leanchina.org

OutlineOutline

�� ChinaChina’’s Auto Market Overviews Auto Market Overview

�� My ObservationsMy Observations

�� ChinaChina’’s Unique Auto Markets Unique Auto Market

�� Challenges Facing ChinaChallenges Facing China’’s Auto Companiess Auto Companies

�� Opportunities for Lean Thinking Opportunities for Lean Thinking

�� Lean ApplicationsLean Applications

�� What You Can DoWhat You Can Do

�� SummarySummary


0

1

2

3

4

5

6

7

8

9

2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F 2010F 2011F

Millio

ns

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

PV SalesLCV SalesYOY% Increase of LV

ChinaChina’’s Light Vehicle Saless Light Vehicle Sales

WTO Entry

Light Vehicle = Passenger Vehicle + Light Commercial Vehicle (<6 Ton)

Source: JDPA Forecasting

Increased CompetitionIncreased Competition

Xiali

13.9%

Citroen

8.0%

Suzuki

7.2%

Honda

5.0%

Buick

4.7%

Imports

5.1%

Other

7.2%

Volkswagen

48.9%

Volkswagen

14.4%

Honda

8.2%

Chery

6.4%

Nissan

5.4%

Hyundai

5.3%

Buick

4.9%

Other

32.1%

Geely

3.4%

Chevrolet

3.7%

Suzuki

3.5%

Imports

3.5%

Toyota

9.4%

0.65 Million Units in 2000 5.60 Million Units in 2008

13 brand names in 2000 vs. 60+ in 2008

Source: JDPA ForecastingSource: J.D. Power Forecasting


The number of models in China’s passenger vehicle market has grown more than ten-fold in the last eight years, feeding the booming demand.

A Significant ShiftA Significant Shift

17 34 52 87 104 136 168 184 2060

50

100

150

200

250

2000 2001 2002 2003 2004 2005 2006 2007 2008

Nu

mb

er

of

Mo

de

ls



0

100

200

300

400

500

600

SVW FAW VW SGM Chery Tianjin

Toyota

GZ

Honda

BJ

Hyundai

DFM

Nissan

Ch-Ford-

Mazda

Geely

Th

ou

sa

nd

s

2008F 2007

Total market sales expected to grow 6 percent in 2008.

Top 10 OEM Sales 2008F vs. 2007Top 10 OEM Sales 2008F vs. 2007


0% - 10%

< 0%

> 10%

Growth


China 2008 Initial Quality SurveyChina 2008 Initial Quality Survey

�� Fuel efficiency becomes an increasingly significant Fuel efficiency becomes an increasingly significant factor when purchasing a new carfactor when purchasing a new car

�� Toyota, Honda, and Nissan continue to grow Toyota, Honda, and Nissan continue to grow sizable market shares in Chinasizable market shares in China

�� Chinese new car buyers have higher expectations Chinese new car buyers have higher expectations on vehicles quality and performanceon vehicles quality and performance�� 2008 new car quality survey shows 207 pp100 vs. 202 2008 new car quality survey shows 207 pp100 vs. 202

in 2007 in 2007

�� Vehicle awareness and technical knowledge has been Vehicle awareness and technical knowledge has been enhancedenhanced


My ObservationsMy Observations

�� China will remain a leader in the global auto market, China will remain a leader in the global auto market, at a growth rate close to Chinaat a growth rate close to China’’s GDP s GDP

�� It is a buyerIt is a buyer’’s markets market�� JVs will continue to flood the market with new cars and JVs will continue to flood the market with new cars and technologiestechnologies

�� Domestic car companies will dominate the entry level Domestic car companies will dominate the entry level vehicles and truck marketvehicles and truck market

�� Fuel efficiency becomes significant due to higher Fuel efficiency becomes significant due to higher gasoline price, but being gasoline price, but being ““greengreen”” is not yet in the is not yet in the Chinese cultureChinese culture

�� ChinaChina’’s auto market development path is unique as s auto market development path is unique as a reflection of Chinaa reflection of China’’s Socialist Market Economic s Socialist Market Economic SystemSystem


ChinaChina’’s Unique Auto Markets Unique Auto Market

�� Manipulation of the market by the central Manipulation of the market by the central governmentgovernment’’s macroeconomic policiess macroeconomic policies

�� Paternalism by local governments toward their Paternalism by local governments toward their own auto companiesown auto companies

�� ““Thirst for PowerThirst for Power”” rooted in the Chinese culturerooted in the Chinese culture

�� Rather be a head of a small company than 2Rather be a head of a small company than 2ndnd in in command of a large corporationcommand of a large corporation

�� Consolidating car companies would be a long and Consolidating car companies would be a long and difficult processdifficult process

�� Government likes to see more national brand cars Government likes to see more national brand cars but consumers prefer foreign brand namesbut consumers prefer foreign brand names


Challenges Facing ChinaChallenges Facing China’’s Auto Companiess Auto Companies

�� Overcapacity causes severe competitionOvercapacity causes severe competition

�� Higher operation cost due to doubleHigher operation cost due to double--digit increases digit increases in material, labor, and logistic costsin material, labor, and logistic costs

�� RMB appreciationRMB appreciation

�� Global economy meltdown significantly impacts Global economy meltdown significantly impacts Chinese consumersChinese consumers’’ confidenceconfidence

�� Higher cost of living Higher cost of living

�� How to produce low volume and low cost vehicles?How to produce low volume and low cost vehicles?

�� Speed to marketSpeed to market


One Solution: Lean ThinkingOne Solution: Lean Thinking

�� In competitive economies, companies succeed by In competitive economies, companies succeed by supplying customers more value than competitorssupplying customers more value than competitors

�� Focus on internal process to eliminate waste and Focus on internal process to eliminate waste and increase productivity, enhance capacity and profit increase productivity, enhance capacity and profit

�� Creating valuesCreating values

�� Bring outsourced work in house Bring outsourced work in house

�� Provide contract manufacturing services to other Provide contract manufacturing services to other companies companies

�� Apply flexible manufacturing to develop low volume Apply flexible manufacturing to develop low volume production processproduction process


Lean concept: Reduce investment

Background:

Due to an increase in demand, the capacity of the In-circuit tester is insufficient

Possible Solution (old mindset):

Purchase additional In-circuit testers at US$250K each that can test 1 unit at a time.

Lean Solution (innovation):

The In-circuit tester perform 2 functions: component test & flash programming. The flash programming can be done on a US$80K PXI tester which can program 4 units concurrently. So, the solution is to buy a PXI tester & decouple the flash programming

Incircuit tester

(1 unit at a time)

PXI tester

(4 units at a time)

Lean concept: Reduce inventoryLean concept: Reduce inventory

Inventory cash flow reduction

$25,104

Shanghai Port

Sharp USA

DelphiSuzhou

Sharp Japan (supplier)

Sea

Before (Delphi Suzhou keep 1 week material)

33 days 7 days 4 days (include custom clearance)

44 Days

Air Weekly truck

After (Delphi Suzhou keep 1 day material)

Sharp Japan(supplier)

Shanghai port

WGQ Warehouse

DelphiSuzhou14 days 4 days 1 day

19 Days

Sea Daily milk runWeekly truck

Lean ThinkingLean Thinking

�� A process is a set of steps which must be taken A process is a set of steps which must be taken properly in the proper sequence at the proper timeproperly in the proper sequence at the proper time

�� Drives the basics at each stepDrives the basics at each step::

�� ValuableValuable: Is it valuable for downstream users: Is it valuable for downstream users？？？？？？？？�� CapableCapable: Is it able to produce quality products: Is it able to produce quality products？？？？？？？？�� AvailableAvailable: Is the equipment ready to run when needed?: Is the equipment ready to run when needed?

�� AdequateAdequate: Is there enough capacity? : Is there enough capacity?

�� Flexible:Flexible: Can the production line be easily modified when Can the production line be easily modified when the market changes?the market changes?


Lean is Problem SolvingLean is Problem Solving

�� These steps need to be connected and These steps need to be connected and

�� Flow:Flow: eliminating wait time and WIP inventory eliminating wait time and WIP inventory

�� Pull:Pull: producing only based on downstream needsproducing only based on downstream needs

�� Leveling:Leveling: minimizing fluctuation in production volumes minimizing fluctuation in production volumes

�� The best way of learning is to practice The best way of learning is to practice

�� DonDon’’t be afraid to make mistakes and raise t be afraid to make mistakes and raise

questionsquestions

�� No problem is the largest problemNo problem is the largest problem


Lean Manufacturing in ChinaLean Manufacturing in China

�� Common misperception about lean:Common misperception about lean:

�� Lean is meanLean is mean

�� Lean is a set of tools: 5S and Lean is a set of tools: 5S and ““JustJust--inin--timetime””

�� We applied Lean in 2000 and are now looking for We applied Lean in 2000 and are now looking for

new programsnew programs

�� Lean is from Japan and it is not suitable for the Lean is from Japan and it is not suitable for the

Chinese workers and culture Chinese workers and culture

�� Do not have time for Lean when business is goodDo not have time for Lean when business is good


Lean Manufacturing in ChinaLean Manufacturing in China

�� Many companies took different paths and now Many companies took different paths and now suffer suffer

�� Equate Equate ““largelarge”” with successwith success

�� Trust the advanced equipment/technology will Trust the advanced equipment/technology will resolve all problemsresolve all problems

�� Seek out lowest cost suppliers Seek out lowest cost suppliers

�� Some companies have applied lean and they Some companies have applied lean and they are better prepared for todayare better prepared for today’’s tough economys tough economy�� Better quality, higher productivity, and less Better quality, higher productivity, and less inventoryinventory


Lean ApplicationsLean Applications

�� A misconception: Lean only works in productionA misconception: Lean only works in production

�� Other competitive advantages:Other competitive advantages:

�� Lean product development to shorten the lead time from Lean product development to shorten the lead time from

concept to launch and better designed products for concept to launch and better designed products for

customerscustomers

�� Lean supply chain to reduce material and logistic cost and Lean supply chain to reduce material and logistic cost and

to leverage suppliersto leverage suppliers’’ knowknow--how and resources to enhance how and resources to enhance

technology and ontechnology and on--timetime--deliverydelivery

�� Lean car dealership to increase customer satisfaction and Lean car dealership to increase customer satisfaction and

making rooms for more businessmaking rooms for more business


How You Can Apply LeanHow You Can Apply Lean

�� Integrate Lean activities with business strategiesIntegrate Lean activities with business strategies

�� Appoint Lean value stream managers looking over Appoint Lean value stream managers looking over end to end processesend to end processes

�� Use a trainUse a train--thethe--trainer learning process to develop trainer learning process to develop local talents and build a lean core teamlocal talents and build a lean core team

�� Encourage managers to act as coaches/teachersEncourage managers to act as coaches/teachers

�� Take a Gemba walk and Take a Gemba walk and ““learning to seelearning to see””�� Leverage cross functional teams to focus on total Leverage cross functional teams to focus on total cost cost

�� PDCAPDCA


Lean Enterprise China (LEC)Lean Enterprise China (LEC)

�� LEC, an affiliate of Jim WomackLEC, an affiliate of Jim Womack’’s LEI at Boston, is s LEI at Boston, is a nona non--profit organization established in 2006profit organization established in 2006

�� Primary objective: to promote and educate Lean Primary objective: to promote and educate Lean Thinking in ChinaThinking in China

�� Our missions:Our missions:�� Help companies apply lean transformationHelp companies apply lean transformation

�� Provide onProvide on--site trainsite train--thethe--trainer (T3) processtrainer (T3) process

�� Organize annual lean conference for sharing and learningOrganize annual lean conference for sharing and learning

�� Translate and publish LEI lean books Translate and publish LEI lean books

�� Located in Shanghai to support your lean journey in Located in Shanghai to support your lean journey in ChinaChina


SummarySummary

�� China is an important battlefield for global auto China is an important battlefield for global auto

OEM and component companies OEM and component companies

�� ChinaChina’’s unique auto market development requires s unique auto market development requires

a long learning curvea long learning curve

�� Lean is a key strategy to improve competitivenessLean is a key strategy to improve competitiveness

�� Times of crisis are times to begin Lean journeysTimes of crisis are times to begin Lean journeys

�� Lean leaders will motivate all functional groups to Lean leaders will motivate all functional groups to

eliminate waste and continue improvementeliminate waste and continue improvement

�� It is not too late to begin your lean journeyIt is not too late to begin your lean journey


Wish You A Successful Lean Leap in Wish You A Successful Lean Leap in

The Year of OxThe Year of Ox

a lean view of china ’s auto industry

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