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CIO decisions: Setting the table with China

IT execs in the manufacturing space give advice about doing business on the Asian frontier at an executive leadership conference this week.

TRW Automotive, a $12 billion maker of brakes, seatbelts, airbags and other automotive safety supplies, has been doing business in China since the mid-1990s. Back then, Livonia, Mich.-based TRW was working with U.S. companies looking to sell American vehicles in an Asian market. A decade later, Chinese manufacturers are making their own cars. TRW finds itself trying to keep pace with the demands of the rapidly expanding Chinese car industry, said CIO Joe Drouin, while its domestic market is shrinking.

"Our biggest challenge is how to handle the rampant growth in China when 90% of the mentality of the company is still tied up in dealing with shrinking demand and cost cutting," said Drouin. "From an IS perspective, it is difficult to deal with those two different mindsets."

Drouin was one of several industry executives who discussed their Chinese experiences at this week's AMR Research Inc.'s Executive Leadership Conference in Boston. While each speaker said they see opportunity in the Asian country, the challenges include a primitive legal system for contracts and intellectual property protection, and high turnover among experienced professionals.

"Just get by mentality" not good enough

TRW Automotive is no stranger to outsourcing. The company operates 200 manufacturing facilities in 24 countries. Drouin was in China from 1996 through 1997, when TRW did its first joint venture plant. The company now has 11 facilities there, four of them new this year, including a technical center in Shanghai. TRW hired 80 engineers to do product development and research for Chinese customers, but the company hopes the center will become a global resource.

Attracting the talent to do that is difficult, especially for a company with no brand recognition in China, said Drouin. "The cost of finding an experienced automotive engineer in Shanghai honestly is not that much off from finding one in Michigan," he said, and they are harder to retain, because the demand is so great. The company has ended up dependent on expatriates, Drouin said. His key concern is a strategic disconnect within his own company.

"We've taken a low-cost country approach -- moving used equipment from the States, where we were closing plants -- to what has become a high-growth market. We heard today that by 2010 China could be the largest automobile market in the world. In the not-too-distant future we might see Chinese cars on U.S. streets, and yet we are still very much in this just-get-by mentality," he said.

Word play

Another longtime player in China is Applica Inc., which started making goods in China in the late 1970s and eventually expanded to 1 million square feet of manufacturing space. The $600 million company, which is based in Miramar, Fla., makes small appliances and other household goods, from toaster ovens and coffee makers to LitterMaid self-cleaning cat boxes. Black & Decker is probably its best-known brand. Wal-Mart is its largest customer. But its operations in China had problems, from culture and communication to quality, and last year Applica sold its plants to its suppliers.

"We said, 'Enough is enough.' We have about 70 contractors there now," said Joe Harber, vice president of strategic planning for Applica Consumer Products, the company's sales and distribution arm. Harber's take home message: Be prepared for a dynamic marketplace, where contracts are fluid and translation problems abound.

"I know it's said a lot, but culture and communication are more important than contracts," said Harber. Managing the supplier relationship is extremely challenging, he said, with frequent debates over what exactly was meant by a date or by a word. "Contracts are more like agreements -- what's real and what works for both sides."

Working in China also means keeping a constant focus on quality. Problems that were fixed months ago creep back, Harber said, recounting many conversations that began with, "I thought we fixed this thing." The Chinese New Year can wreak havoc on operations unless planned for in advance, because of the turnover on product lines at that time of year. Companies must also control their proprietary IT, processes and designs. "Bottom line, there is no silver bullet with China. You've got to have people on the ground, you've got to have them working hard, and you can't have them turn their back because the situation changes all the time," said Harber.

Simplify, simplify, simplify

Tom Dadmun is vice president of supply chain operations for Adtran Inc., a maker of high-speed digital transmission materials for telephone carriers and retailers like Home Depot and Staples. Based in Huntsville, Ala., the company manufactures 70% of its goods in China. His company's mantra for doing business successfully there? Over the past five years, he has re-engineered the company's supply chain with three goals in mind -- velocity, visibility and value-added.

"We have two tier-one subcontractors that we deal with every single day," said Dadmun. The company flies two 747s fly out of Hong Kong a week, on Tuesday and Saturday, which land at the Huntsville airport, about seven miles from the company's receiving dock. The goods are on the receiving dock four hours after the planes land, the time it takes to clear customs.

"We have a tight supply chain from China, to say the least. And that is very, very important to us because our customer is somewhat fickle and our forecasting is really bad," Dadmun said, getting a laugh from the audience.

Change is a constant. Of Adtran's 1,700 headquarters employees, 700 are engineers. "You see the battle I have already," he quipped, adding that the constant stream of engineering change orders can render items obsolete "instantaneously" in the middle of the manufacturing process. Dadmun not only needs "to see" the goods, but to know where they are. Twice a day, the company's top two contractors upload their inventory data – what they have in their factories and on order -- so Dadmun can plan around change. That visibility is now stretching into customers' domains, so that Adtran can know what they have on their shelves.

If a customer calls in on Monday saying he really wants 10,000 widgets instead of 1,000, the information is sent to China that day, said Dadmun. The order is built that day, assuming his Chinese contractors can source the material nearby. It is shipped out on Saturday and received on Saturday because of the time change and delivered to the customer Monday, one week later. "Some of my competition can't do it here in two weeks, and I'm doing it in China in a week," he said.

This velocity to market is new. Five years ago, when Adtran started working with its contactors, they wanted a four-week "frozen schedule." The company trained its contractors to react immediately. "No such thing as frozen schedules anymore. This is not the 1980s."

Problems remain. Contractors need to get materials to their sites faster, and to be able to change manufacturing processes faster. For his part, Dadmun needs to automate the ever-increasing data he's getting from suppliers, subcontractors and customers so he can get it to his China manufacturing operations more quickly. "We can never be fast enough."

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