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Key Take Away: Company implemented the EW recommendations and was able to reduce their cost structure by 10% and increase sales into their traditional markets approximately 12%, thus enabling the China plant to reach Breakeven within the first quarter after EW completed the Assessment. The company has also begun gathering the market data for potential expansion into a new sector, which has a need for their products, and the company projects making the plant profitable by 2010. As a result, the company has decided not to sell or close the plant but believe the facility can become a profit-center to service a more diversified Asian customer base.
Background:
The company hired East West (EW) to serve as their procurement - manufacturing - quality control - logistics arm in China. Thus, our client's name would never be seen on invoice and the Chinese firms would always be dealing directly with East West.
- Western-based industrial manufacturer had established a manufacturing facility in China in 2004.
- Company entered the China market for 3 primary reasons:
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Raw material sourcing opportunities
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Servicing their Western clients in China as well as potential Chinese customers
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Establishing a global sales presence supported by a Chinese manufacturing facility
- China facility was not generating significant sales or profit to the company.
- Since 3Q 2008, the company had been impacted by the financial crisis and the Chinese government's tax rebate reductions.
- US executives were very concerned about losing their Intellectual Property (IP) on certain processes and thus, had not allowed production in China of particular products.
- The company's IP was their product knowledge and manufacturing expertise and the company had not successfully executed a technology transfer to the China plant.
- US executives wanted to determine how their China facility compared with Western and Chinese competitors. From their China team, these executives did not believe they had clear information on the China market, Asian competitors, product pricing, standard raw material, manufacturing and labor costs for similarly situated manufacturers, distribution channels and procurement strategies.
- The company's sales to Western clients were declining and they had not been able to increase sales to Chinese customers - Company had not successfully developed a China-market oriented sales plan to increase their market percentage.
- The US executives did not feel they were getting 'complete' market information from their China team and wanted an outside organization to assess their China operations.
- Because of poor performance in China, the company wanted to explore a variety of options and determine the best approach to address the problems at their China plant. These options included:
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Establishing a Joint Venture with a Western or local Asian company
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Closing or selling their China plant
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Turning around the operation
- The company's Board of Directors had a defined timetable of 4 months to identify available options and execute a defined strategy.
Challenge:
Conducting an Operational and Manufacturing assessment of the China operation and make recommendations on whether the plant could be turned around or other options have to be pursued.
Solution:
- EW performed a 4-step process in order to gather the information on the plant and make our recommendations about the viability of the China operation.
- Initially, we conducted a plant tour and met the senior executives of each division. The Operational and Manufacturing Assessment of the plant focused upon:
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Manufacturing and Production process
- Production cost structures
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Procurement and Supply Chain
- Product range and strategy
- Senior executive capabilities and HR
- Affect of Chinese regulations
- Based on the results of the Assessment, EW performed a Market Study of the industry in order to determine how the company compared with their competitors in China. These competitors were other Western companies with Chinese facilities and Chinese companies.
- Based on the results of the Market Study and Assessment, EW developed a SWOT analysis of the China plant.
- Lastly, drawing upon our experience of having successfully managed companies in Asia, we developed a list of operational changes for each division within the company, which would reduce their costs, introduce their products into other industry sectors and allow the company to reach Breakeven within the first quarter after EW completed the Assessment.
Result:
Company implemented the EW recommendations and was able to reduce their cost structure by 10% and increase sales into their traditional markets by 12%, thus enabling the China plant to reach Breakeven within the first quarter after EW completed the Assessment.
The company has also begun the potential expansion into a new sector, which has a need for these products. The company had decided not to sell or close the company but is working toward re-building this operation and reaching profitability by 1Q 2010.
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