Walls(China)Co.,Ltd.:LogisticsOperationsStartupByPeter GilmourProfessorof Managementof.:Macquarie UniversityAustraliaThiscase waspreparedas abasis for class discussion ratherthanto illustrate effective orineffectivehandlingof an administrativesituationLOGISTICSCASESTUDYDEVELOPED FOR:COUNCILOFLOGISTICSMANAGEMENT
Walls (China) Co., Ltd.: Logistics Operations Startup By Peter Gilmour Professor of Management of: Macquarie University Australia This case was prepared as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. LOGISTICS CASE STUDY DEVELOPED FOR: COUNCIL OF LOGISTICS MANAGEMENT
Walls (China) Co., Ltd.LogisticsOperations StartupIn mid1994the Unilever company Walls (China)Co started manufacturing and sellingice cream inChina.Bob Smith,theGeneral Manager of Wall's outlined some of thechallenges:Operating in China means a number of new concepts for the Chinese managers -profit, selling and customer service. The Chinese manager of the past sat in hisoffice and the customers came to him. It was absolutely a supply driven market.Iread in an official report some time ago a list of phrases that should not be usedwhentalkingtocustomers.The list included"Go awayand don't wastemytimeand 'Can't you hear? Are your ears dirty?' This has now changed and a key tosuccess is getting our product out to the customers. Distribution costs here are 20percent ofMPScompared to5percentinEurope.As Loic Courant, Bob Smith's Commercial Manager in Shanghai, summarized thesituation:Hewhowins logistics wins China.Unileverin ChinaUnileveris anAnglo-Dutchcompanythat has over500operatingunits in75countriesThe company markets over 10oo brands, including margarine, soap,food products,cleaning products, personal care products and specialty chemicals, and employs over300,000peopleworldwide.Revenuesin1994wereSUS42billion.In the 1920s Unilever established a soap operation in China which was nationalized inthe 1950s. The company returned to China in 1986 and by1996 operated ninebusinesses there.I Anton Lenstra, Chairman of Unilever China, described Unilever'scurrent activities in China:China is one of Unilever's greatest challenges of the next few decades. We oftentalkabout growthin ourworldwide businesses, but China is like sitting on thenose-cone of a rocket and we have already ignited the fuel. In the last two yearsalone we've seen the birth of Wall's Beijing, the building of another Wall'sfactory in Shanghai, the construction of a new detergents plant in Minhang, thejoint venture with Zhanjiakou Detergents, the start up of Lipton Guangzhou andthe launch of a whole shopping basket of excellent global Unilever brands. Withthe continuing support and hard work of all our employees across this greatcountry, Iam sure that we will be successful in our drive to deliver profitablegrowth.2In formal terms Unilever (China) Ltd details its objectives in China in the following way:
Walls (China) Co., Ltd. Logistics Operations Startup In mid 1994 the Unilever company Walls (China) Co started manufacturing and selling ice cream in China. Bob Smith, the General Manager of Wall’s outlined some of the challenges: Operating in China means a number of new concepts for the Chinese managers - profit, selling and customer service. The Chinese manager of the past sat in his office and the customers came to him. It was absolutely a supply driven market. I read in an official report some time ago a list of phrases that should not be used when talking to customers. The list included “Go away and don’t waste my time’ and ‘Can’t you hear? Are your ears dirty?’ This has now changed and a key to success is getting our product out to the customers. Distribution costs here are 20 per cent of MPS compared to 5 per cent in Europe. As Loic Courant, Bob Smith’s Commercial Manager in Shanghai, summarized the situation: He who wins logistics wins China. Unilever in China Unilever is an Anglo-Dutch company that has over 500 operating units in 75 countries. The company markets over 1000 brands, including margarine, soap, food products, cleaning products, personal care products and specialty chemicals, and employs over 300,000 people worldwide. Revenues in 1994 were $US42 billion. In the 1920s Unilever established a soap operation in China which was nationalized in the 1950s. The company returned to China in 1986 and by 1996 operated nine businesses there.1 Anton Lenstra, Chairman of Unilever China, described Unilever’s current activities in China: China is one of Unilever’s greatest challenges of the next few decades. We often talk about growth in our worldwide businesses, but China is like sitting on the nose-cone of a rocket and we have already ignited the fuel. In the last two years alone we’ve seen the birth of Wall’s Beijing, the building of another Wall’s factory in Shanghai, the construction of a new detergents plant in Minhang, the joint venture with Zhanjiakou Detergents, the start up of Lipton Guangzhou and the launch of a whole shopping basket of excellent global Unilever brands. With the continuing support and hard work of all our employees across this great country, I am sure that we will be successful in our drive to deliver profitable growth.2 In formal terms Unilever (China) Ltd details its objectives in China in the following way:
Unilever has every confidence in the continuing growth of the Chinese economyand every year increases its investment in the People's Republic of China. Thus,there is a need for co-ordination of the new investments with existing activities inChina. Unilever (China) Ltd provides this co-ordination [ by providing thecapabilityl:to manage and co-ordinate long term investment in China;：to co-ordinate, advise and support the UJVs [Unilever joint ventures];:to provide both established and advanced technology to the UJVs in theirproduction, application and development of consumer products;.to provide financial assistance to the UJVs;to promote and co-ordinate both the export and local sales of products of.UJVs and toestablishandexpandtheirlocal and internationalmarkets;to provide consumers with better and more varieties of products andservices;.to help balance the foreign exchange income and expenditure of the UJVs;to provide extensive training programmes for personnelfrom the UJVs.3-By 1996 Unilever had nine operations in China with most of them based in Shanghai.(See the map of China shown as Exhibit 1),These were Shanghai Lever Co Ltd (makingsuch brands as Lux soaps, Jif cleansers and Lifebuoy soaps), Shanghai Pond's Co Ltd(manufacturing skin care brands such as Pond's, Vaseline Intensive Care and Pears),Shanghai Van den Bergh Co Ltd (manufacturing bakery fats and ice cream), Unilever(Shanghai) Co Ltd (detergent powders including OMO), Unilever (Shanghai)ToothpasteCoLtd (makingZhong Hua, Maxim and Signal toothpaste),Shanghai SoapCo Ltd (toilet and laundry soap including the brands Fan, Baili, Guben and Bee &Flowers), Wall's (China) Co Ltd (manufacturing in two plants Magnum, Cornetto,Calippo, Paddle Pop, Mini Milk and Split ice creams and ices), Zhangjiakou UnileverDetergent Co Ltd (operating a plant in Zhanggjiakou in Hebei Province which producesYunquan brand powder and liquid detergents) and Guangdong Lipton Foods Co Ltd(producing Lipton teas in a plant in Guangzhou).Wall's China StartUpGeoff Sennitt was asked in 1992 to move from his position as Managing Director of theUnilever ice cream operation in Australia, Streets Ice Cream, to participate in a fourperson international study group to evaluate the potential of ice cream operations inChina.The first task of this group was to examine the national market. They concluded that ofthe 1.2 billion people in China about 250 million were easily accessible --those living inthe"golden triangle” extending up the Yangzi River valley and in the broad stripbetween Guangzhou and Beijing centered on Wuhan. In China there are one hundredcities with a population of one million people or more and most of them lie in this area.Atotal of 350 million people live in cities; others live “in the middle of nowhere".Next was the task of determining the spending power of this target group. Bob Smith,the General Manager of Walls (China) described some potential pitfalls in this process:
Unilever has every confidence in the continuing growth of the Chinese economy and every year increases its investment in the People’s Republic of China. Thus, there is a need for co-ordination of the new investments with existing activities in China. Unilever (China) Ltd provides this co-ordination [ by providing the capability]: · to manage and co-ordinate long term investment in China; · to co-ordinate, advise and support the UJVs [Unilever joint ventures]; · to provide both established and advanced technology to the UJVs in their production, application and development of consumer products; · to provide financial assistance to the UJVs; · to promote and co-ordinate both the export and local sales of products of UJVs and to establish and expand their local and international markets; · to provide consumers with better and more varieties of products and services; · to help balance the foreign exchange income and expenditure of the UJVs; · to provide extensive training programmes for personnel from the UJVs.3 By 1996 Unilever had nine operations in China with most of them based in Shanghai. (See the map of China shown as Exhibit 1). These were Shanghai Lever Co Ltd (making such brands as Lux soaps, Jif cleansers and Lifebuoy soaps), Shanghai Pond’s Co Ltd (manufacturing skin care brands such as Pond’s, Vaseline Intensive Care and Pears), Shanghai Van den Bergh Co Ltd (manufacturing bakery fats and ice cream), Unilever (Shanghai) Co Ltd (detergent powders including OMO), Unilever (Shanghai) Toothpaste Co Ltd (making Zhong Hua, Maxim and Signal toothpaste) , Shanghai Soap Co Ltd (toilet and laundry soap including the brands Fan, Baili, Guben and Bee & Flowers), Wall’s (China) Co Ltd (manufacturing in two plants Magnum, Cornetto, Calippo, Paddle Pop, Mini Milk and Split ice creams and ices), Zhangjiakou Unilever Detergent Co Ltd (operating a plant in Zhanggjiakou in Hebei Province which produces Yunquan brand powder and liquid detergents) and Guangdong Lipton Foods Co Ltd (producing Lipton teas in a plant in Guangzhou). Wall’s China Start Up Geoff Sennitt was asked in 1992 to move from his position as Managing Director of the Unilever ice cream operation in Australia, Streets Ice Cream, to participate in a four person international study group to evaluate the potential of ice cream operations in China. The first task of this group was to examine the national market. They concluded that of the 1.2 billion people in China about 250 million were easily accessible - those living in the “golden triangle” extending up the Yangzi River valley and in the broad strip between Guangzhou and Beijing centered on Wuhan. In China there are one hundred cities with a population of one million people or more and most of them lie in this area. A total of 350 million people live in cities; others live “in the middle of nowhere”. Next was the task of determining the spending power of this target group. Bob Smith, the General Manager of Walls (China) described some potential pitfalls in this process:
The data is very suspect.We looked at the GNP of the coastal strip.But weconsidered the quality of this GNP data. Was this GNP being generated by Stateowned companies? We felt that non State generated GNP indicated a morevibrant long term commercial future. From this we generated cities of interest tous and then a distribution profile of these cities. Time not distance was theimportant factor. From this process we determined a footprint of where we wouldlike to be in China in ten years time.Per capita GNP for China as a whole in 1993 was 2663RMB and for seven major citieswas:11,989GuangzhouShanghai11,6998,237Beijing6,075TianjinWuhan4,7005,550QindaoShenyang6,141Walls bought the results of a survey of around 35,000 urban households done in 1992and 1993. Some of the results are shown in Exhibit 2. Annual real income per capita inurban China was 2,583 RMB compared to 922 RMB in rural areas. For key cities in1993,annual real per capita income was 4,640RMB inGuangdong,4,297RMBinShanghai, 3,548 RMB in Beijing and 2,769 RMB in Tianjin. The survey also collecteddata on durable consumer goods which is shown in Exhibit 3.Another important role of the study team was to identify a joint venture partner. At thattime in China industries were consolidated into ministries of the central government. Icecream and detergents were the responsibility of the Ministry of Light Industry. In theearly 1990s these ministries were semi-privatized -- the Ministry of Light Industrybecame the Council of Light Industry.This process generated a number oforganizational shells which were used to form joint ventures. One of these was Sumstar.Mr Wu, with whom Unilever had a good working relationship at the Ministry of LightIndustry,becamehead of Sumstar.Sumstar agreedtobecomeaminorityjointventurepartner in Wall's (China) with responsibility for personnel and public and governmentrelations.As a results of its initial investigations (stage 1 in the plan below) the study grouprecommended that Unilever start ice cream operations in China and proposed thefollowingrolloutplan:Stage1Determine population and GNP of all ChinesecitiesEstablishurbanandrural GNPGroup cities by areas
The data is very suspect. We looked at the GNP of the coastal strip. But we considered the quality of this GNP data. Was this GNP being generated by State owned companies? We felt that non State generated GNP indicated a more vibrant long term commercial future. From this we generated cities of interest to us and then a distribution profile of these cities. Time not distance was the important factor. From this process we determined a footprint of where we would like to be in China in ten years time. Per capita GNP for China as a whole in 1993 was 2663 RMB and for seven major cities was: Guangzhou 11,989 Shanghai 11,699 Beijing 8,237 Tianjin 6,075 Wuhan 4,700 Qindao 5,550 Shenyang 6,141 Walls bought the results of a survey of around 35,000 urban households done in 1992 and 1993. Some of the results are shown in Exhibit 2. Annual real income per capita in urban China was 2,583 RMB compared to 922 RMB in rural areas. For key cities in 1993, annual real per capita income was 4,640 RMB in Guangdong, 4,297 RMB in Shanghai, 3,548 RMB in Beijing and 2,769 RMB in Tianjin. The survey also collected data on durable consumer goods which is shown in Exhibit 3. Another important role of the study team was to identify a joint venture partner.4 At that time in China industries were consolidated into ministries of the central government. Ice cream and detergents were the responsibility of the Ministry of Light Industry. In the early 1990s these ministries were semi-privatized - the Ministry of Light Industry became the Council of Light Industry. This process generated a number of organizational shells which were used to form joint ventures. One of these was Sumstar. Mr Wu, with whom Unilever had a good working relationship at the Ministry of Light Industry, became head of Sumstar. Sumstar agreed to become a minority joint venture partner in Wall’s (China) with responsibility for personnel and public and government relations. As a results of its initial investigations (stage 1 in the plan below) the study group recommended that Unilever start ice cream operations in China and proposed the following roll out plan: Stage 1 Determine population and GNP of all Chinese cities Establish urban and rural GNP Group cities by areas
Stage2Grade cities by population and by GNPEstimatepercapita consumption byGNPforeach cityforten yearsProject population growthForecast Wall's market share by yearsEstablish existing and future road conditionSelect sales areas and methods of distribution and salesCalculate projected distribution costsStage3Roll out plan by areas by yearsProvide sales and distribution assets byareas by year andpeoplerequirement by functionBy the beginning of 1996 Wall's (China) had built two world class manufacturing plantsin Beijing and Shanghai and was selling product into these two cities and into theregions around them. The structure of Wall's (China) is shown in Exhibit 4.Plant ConstructionBuilding is relatively expensive in China -- " materials are expensive, machinery is veryexpensive,labouris cheap."The Beijing plant was built on a 52,000 m? site in the Beijing Economic andTechnological Development Zone located a half hour drive south of the Beijing CBD.Wall's negotiated a 50 year lease.Building costs were USS1,000 per m?for general areassuch as office space and between USS1,500 and S2,000 per m? for the production areas.5As an example, the equipment costs for a production line were S1.34 million (USdollars).A case packer was considered. This machine automatically erects (forms) the fibreboardcarton,packs it(fourat a time)withproductand seals it.It operates at36o conesperminute,costsUSs800,000 and would save14people.Thecasepackerwas ordered butthe orderwas later cancelled.Construction began on the Beijing plant in July 1993 and the first ice cream was on themarket eleven months later. All the appropriate permits to built the plant were obtainedin the first six months of the project.The Shanghai plant is 60 kilometres from the Shanghai CBD, located in an industrialpark in Taicang in Jiamgsu Province. This plant is almost identical to the Beijing plant.It is located on a 64,000 m? site leased for 50 years from the Provincial government.Construction cost USs37.5million without the land andfull productioncommenced inMarch 1996.Arnold van Weezel, the General Technical Manager, described the overall strategy forthesefacilities:We have followed a philosophy in these plants of running them relatively slowlyso that we don't make rejects.Our aim is toreduce production costs and material
Stage 2 Grade cities by population and by GNP Estimate per capita consumption by GNP for each city for ten years Project population growth Forecast Wall’s market share by years Establish existing and future road condition Select sales areas and methods of distribution and sales Calculate projected distribution costs Stage 3 Roll out plan by areas by years Provide sales and distribution assets by areas by year and people requirement by function By the beginning of 1996 Wall’s (China) had built two world class manufacturing plants in Beijing and Shanghai and was selling product into these two cities and into the regions around them. The structure of Wall’s (China) is shown in Exhibit 4. Plant Construction Building is relatively expensive in China - “materials are expensive, machinery is very expensive, labour is cheap.” The Beijing plant was built on a 52,000 m2 site in the Beijing Economic and Technological Development Zone located a half hour drive south of the Beijing CBD. Wall’s negotiated a 50 year lease. Building costs were US$1,000 per m2 for general areas such as office space and between US$1,500 and $2,000 per m2 for the production areas.5 As an example, the equipment costs for a production line were $1.34 million (US dollars). A case packer was considered. This machine automatically erects (forms) the fibreboard carton, packs it (four at a time) with product and seals it. It operates at 360 cones per minute, costs US$800,000 and would save 14 people. The case packer was ordered but the order was later cancelled. Construction began on the Beijing plant in July 1993 and the first ice cream was on the market eleven months later. All the appropriate permits to built the plant were obtained in the first six months of the project. The Shanghai plant is 60 kilometres from the Shanghai CBD, located in an industrial park in Taicang in Jiamgsu Province. This plant is almost identical to the Beijing plant. It is located on a 64,000 m2 site leased for 50 years from the Provincial government. Construction cost US$37.5 million without the land and full production commenced in March 1996. Arnold van Weezel, the General Technical Manager, described the overall strategy for these facilities: We have followed a philosophy in these plants of running them relatively slowly so that we don’t make rejects. Our aim is to reduce production costs and material
losses.DistributionWalls uses a network of independent distributors who service the street vendors andretailoutlets.DistributorsIn Beijing Walls has eight distributors with another three in Tianjin. Tianjin is 130kilometres south east of Beijing on the Yellow Sea and is effectively Beijing's port. In1996 when the Tiacang plant is fully operational it will service a network of fourdistributors in Shanghai, two distributors in Nanjing and one distributor in each of thefollowing cities: Hefei, Yangzhou, Changzhou, Wuxi, Suzou, Hangzhou and Ningbo. SeeExhibit 5 which shows a map of this region of China.The Walls sales force visits each distributor daily during the season (the warmer monthsof May to September) and once a week during the rest of the year. Orders are not takenduring these visits --they are classified by Walls as"advanced selling".The distributorsphone their orders into Walls at their own convenience. Distributors in turn call on theircustomers -- the street vendors and retail outlets -- daily in the summer months and lessfrequently at other times, and sell product from the back of the truck.Private individualcustomers pay cash for the product; government stores have 60 to 90 day accounts.6Each distributor would typically have two or three trucks. These have freezer units andare mostly either 0.9 tonnes or 2.8 tonnes in size. There are “lots of restrictions" onvehicle operations and regulations change without notice. In Shanghai city, for example,these trucks must have military plates and be driven by a PLA soldier with the Wallsvan salesman sitting next to the military driver. Walls has to pay for the drivers timeand provide meals. Regulations change without notice. In 1995 in Shanghai Wall's paidsix times the amount they had budgeted for vehicle licenses.Steve Martin, the National Sales Training Manager, of Streets Ice Cream -- theAustralian sister company to Walls -- visited the China operation a number of times toconduct training sessions for the sales force. He described one of the many culturalproblems that he has had to face:For a product like ours quality is very important. But this is not an easy messageto get across. One day Ivisited one of our distributors here in Shanghai. Out thefront of the distributor's cold store was an old man sitting on a chair.He wasturning the power on and off. When the temperature of the cold store reached thelow end of the Wall's specified range he would turn the power off.When itreached theupperend of therangehewould turnit on again.His objective was to
losses. Distribution Walls uses a network of independent distributors who service the street vendors and retail outlets. Distributors In Beijing Walls has eight distributors with another three in Tianjin. Tianjin is 130 kilometres south east of Beijing on the Yellow Sea and is effectively Beijing’s port. In 1996 when the Tiacang plant is fully operational it will service a network of four distributors in Shanghai, two distributors in Nanjing and one distributor in each of the following cities: Hefei, Yangzhou, Changzhou, Wuxi, Suzou, Hangzhou and Ningbo. See Exhibit 5 which shows a map of this region of China. The Walls sales force visits each distributor daily during the season (the warmer months of May to September) and once a week during the rest of the year. Orders are not taken during these visits - they are classified by Walls as “advanced selling”. The distributors phone their orders into Walls at their own convenience. Distributors in turn call on their customers - the street vendors and retail outlets - daily in the summer months and less frequently at other times, and sell product from the back of the truck. Private individual customers pay cash for the product; government stores have 60 to 90 day accounts.6 Each distributor would typically have two or three trucks. These have freezer units and are mostly either 0.9 tonnes or 2.8 tonnes in size. There are “lots of restrictions” on vehicle operations and regulations change without notice. In Shanghai city, for example, these trucks must have military plates and be driven by a PLA soldier with the Walls van salesman sitting next to the military driver. Walls has to pay for the drivers time and provide meals. Regulations change without notice. In 1995 in Shanghai Wall’s paid six times the amount they had budgeted for vehicle licenses. Steve Martin, the National Sales Training Manager, of Streets Ice Cream - the Australian sister company to Walls - visited the China operation a number of times to conduct training sessions for the sales force. He described one of the many cultural problems that he has had to face: For a product like ours quality is very important. But this is not an easy message to get across. One day I visited one of our distributors here in Shanghai. Out the front of the distributor’s cold store was an old man sitting on a chair. He was turning the power on and off. When the temperature of the cold store reached the low end of the Wall’s specified range he would turn the power off. When it reached the upper end of the range he would turn it on again. His objective was to
save power costs!Retail CustomersIn early 1996 there were 2,400 cabinets in the Shanghai market servicing around 3,000customers. By the end of 1996 it is planned to have 14,200 cabinets in Shanghai.7 Duringthe winter months activity“" dramatically closes with maybe 2o0 working customers” inShanghai.This seasonality also occurs in Beijing where there are 7,oo0 cabinets.Wallsbuys cabinets for USS600 each and provides them at no cost to their retail customers.Despite customers signing an exclusivity contract many of the cabinets are filled withfrozen dumplings and frozen vegetables during the winter months.OrderProcessingDistributors place their orders by ringing the Sales Assistant at the Walls office inShanghai or the office in the plant at Beijing.Orders are accepted in full pallet lots (of asingle product) only and for a minimum total order size of ten pallets. The SalesAssistantwritestheSKUs ordered ontothe SalesOrderForm(seeExhibit).InShanghai, prior to February 1996, these forms were faxed to the external third-partycold store -- the data was not sent online because adequate speed data lines were notavailable. Orders were then picked directly off the Sales Order Forms.With the Tiacangfactory and its cold store coming on stream in February 1996 the contract with theexternal cold store was terminated and the orders sent on line to Tiacang.In Beijing thesame system operated with the order entry clerk entering the order into thecomputerized order entry /picking / billing system (BPCS). An average of four ordersper day -- each of an average fifteen lines -- were received and processed at the Beijingplant. It is expected that during 1996 much the same throughput will be handled atTaicang.After the order is picked the Warehouse Supervisor prints the three-part DeliveryOrder Form (Exhibit 7). The first part is filed in the warehouse: the second part goeswith the goods to the customer; and the third part is sent to “"sales routine" (accountsreceivable).If the computer system is unavailable the Warehouse Supervisor receives the faxed salesorder form and writes the lot number (used for batch tracking) and supply location codeon it. A manual three part delivery form is prepared with the same distribution asabove. When the system becomes available the order is entered as a post shipped order.sDistribution NetworkAn external cold store is leased in both Beijing and Shanghai. In Beijing it is a 7,400 m?facility covering four floors and with a total of 3,540 pallet spaces. It is used as overflowcapacity for the plant cold store and all items are held there. In Shanghai Walls used aleased cold store at Ming Hang, an outer Shanghai suburb.This facility had 2,oo0 palletspaces, five high, and a total space of1,oo0 m2.The lease on this external cold store ranoutwhenthenewcold storeat theTaicangplantbecame operationalinFebruary1996
save power costs! Retail Customers In early 1996 there were 2,400 cabinets in the Shanghai market servicing around 3,000 customers. By the end of 1996 it is planned to have 14,200 cabinets in Shanghai.7 During the winter months activity “dramatically closes with maybe 200 working customers” in Shanghai. This seasonality also occurs in Beijing where there are 7,000 cabinets. Walls buys cabinets for US$600 each and provides them at no cost to their retail customers. Despite customers signing an exclusivity contract many of the cabinets are filled with frozen dumplings and frozen vegetables during the winter months. Order Processing Distributors place their orders by ringing the Sales Assistant at the Walls office in Shanghai or the office in the plant at Beijing. Orders are accepted in full pallet lots (of a single product) only and for a minimum total order size of ten pallets. The Sales Assistant writes the SKUs ordered onto the Sales Order Form (see Exhibit 6). In Shanghai, prior to February 1996, these forms were faxed to the external third-party cold store - the data was not sent online because adequate speed data lines were not available. Orders were then picked directly off the Sales Order Forms. With the Tiacang factory and its cold store coming on stream in February 1996 the contract with the external cold store was terminated and the orders sent on line to Tiacang. In Beijing the same system operated with the order entry clerk entering the order into the computerized order entry / picking / billing system (BPCS). An average of four orders per day - each of an average fifteen lines - were received and processed at the Beijing plant. It is expected that during 1996 much the same throughput will be handled at Taicang. After the order is picked the Warehouse Supervisor prints the three-part Delivery Order Form (Exhibit 7). The first part is filed in the warehouse: the second part goes with the goods to the customer; and the third part is sent to “sales routine” (accounts receivable). If the computer system is unavailable the Warehouse Supervisor receives the faxed sales order form and writes the lot number (used for batch tracking) and supply location code on it. A manual three part delivery form is prepared with the same distribution as above. When the system becomes available the order is entered as a post shipped order.8 Distribution Network An external cold store is leased in both Beijing and Shanghai. In Beijing it is a 7,400 m2 facility covering four floors and with a total of 3,540 pallet spaces. It is used as overflow capacity for the plant cold store and all items are held there. In Shanghai Walls used a leased cold store at Ming Hang, an outer Shanghai suburb. This facility had 2,000 pallet spaces, five high, and a total space of 1,000 m2. The lease on this external cold store ran out when the new cold store at the Taicang plant became operational in February 1996
During 1996 four new areas will be serviced from the Beijing plant: Wuhan with a 1,250m’cold store' and three distributors; Dalian with a 300 m’cold store and onedistributor; Qingdao with a 650 m? cold store and two distributors; and, Jinan with a550 m’ cold store and one distributor. Wuhan is 1,700 kilometres south of Beijing (48hours driving time)and forms a triangle with Shanghai.Dalian is an a peninsula juttinginto the Korean Sea and is 1,100 kilometres east of Beijing (35 hours driving time).Qingdao is 900 kilometres down the coast from Beijing (24 hours driving time).Jinan is500 kilometres south of Beijing (15 hours driving time).Within the Shanghai region in 1996 two distributors will operate in Nanjing and one inHefei, Yangzhou, Changzhou, Wuxi, Suzou, Hangzhou and Ningbo.These cities are allwithin a 4o0 kilometer radius of Shanghai in the Yangtze river basinWalls does not own or operate any line haul vehicles. They use two third party carriers.A sample of some of the rates charged in 1995were:Beijing to Tianjin1890 RMBpertrip; Wuhan to Guangzhou 15 RMB per kilometre; Beijing to Qingdao, Dalian or Jinan13.5 RMB per kilometre. Drivers on these runs are paid 1,700 RMB per month workingan eight hour five day week -- this would work out at around 66o RMB for a Beijing toWuhan orShanghaitrip.In 1995Wall's used a local company Rufei (Hong Kong joint venture) to ship product tothe Shanghai market from the plant in Beijing. They transported two million litres ofproduct in 40 foot containers each holding 18 pallets.0 In transit damage occurred tolessthan500cartons.For 1996 a contract has been negotiated with TNT to do all the line haul transport. TNTinitially proposed its "world wide open book approach” with TNT providing the rollingstock which would be depreciated over eight years. Wall's would pay TNT the actualcost of the line haul operations plus 8 per cent overheads and 10 per cent profit. Thiswas not acceptable to Wall's who“needed a fixed transport cost." Costs were dividedinto fixed costs, operating costs and standing costs and Wall's negotiated a fixedcontract for 1996 with an option of extending the contract for another three years. Forthe Shanghai region four 8 tonne rigids with ten pallet capacity and costing USs55,o00and three 40 foot trailers with twenty pallet capacity and costing USS120,000 (notincluding the prime mover) will be required.NationalInfrastructureA number of major transport infrastructure projects are either planned or underweightin China.A two lane highway linking Hong Kong and Beijing is planned to open in 1997.Another new two lane highway links Shanghai and Nanjing.In February1996 AsianDevelopment Bank loans were granted to China for a number of "projects including anexpressway in Chongqing, Sichuan Province, an expressway linking Jiujiang toJingdezhen in Jiangxi Province ... and a railway linking Daxian and Wanxian in SichuanProvince."1lWhile the level of investment is large (Asian Development Bank loans, for example, have
During 1996 four new areas will be serviced from the Beijing plant: Wuhan with a 1,250 m2 cold store9 and three distributors; Dalian with a 300 m2 cold store and one distributor; Qingdao with a 650 m2 cold store and two distributors; and, Jinan with a 550 m2 cold store and one distributor. Wuhan is 1,700 kilometres south of Beijing (48 hours driving time) and forms a triangle with Shanghai. Dalian is an a peninsula jutting into the Korean Sea and is 1,100 kilometres east of Beijing (35 hours driving time). Qingdao is 900 kilometres down the coast from Beijing (24 hours driving time). Jinan is 500 kilometres south of Beijing (15 hours driving time). Within the Shanghai region in 1996 two distributors will operate in Nanjing and one in Hefei, Yangzhou, Changzhou, Wuxi, Suzou, Hangzhou and Ningbo. These cities are all within a 400 kilometer radius of Shanghai in the Yangtze river basin. Walls does not own or operate any line haul vehicles. They use two third party carriers. A sample of some of the rates charged in 1995 were: Beijing to Tianjin 1890 RMB per trip; Wuhan to Guangzhou 15 RMB per kilometre; Beijing to Qingdao, Dalian or Jinan 13.5 RMB per kilometre. Drivers on these runs are paid 1,700 RMB per month working an eight hour five day week - this would work out at around 660 RMB for a Beijing to Wuhan or Shanghai trip. In 1995 Wall’s used a local company Rufei (Hong Kong joint venture) to ship product to the Shanghai market from the plant in Beijing. They transported two million litres of product in 40 foot containers each holding 18 pallets.10 In transit damage occurred to less than 500 cartons. For 1996 a contract has been negotiated with TNT to do all the line haul transport. TNT initially proposed its “world wide open book approach” with TNT providing the rolling stock which would be depreciated over eight years. Wall’s would pay TNT the actual cost of the line haul operations plus 8 per cent overheads and 10 per cent profit. This was not acceptable to Wall’s who “needed a fixed transport cost.” Costs were divided into fixed costs, operating costs and standing costs and Wall’s negotiated a fixed contract for 1996 with an option of extending the contract for another three years. For the Shanghai region four 8 tonne rigids with ten pallet capacity and costing US$55,000 and three 40 foot trailers with twenty pallet capacity and costing US$120,000 (not including the prime mover) will be required. National Infrastructure A number of major transport infrastructure projects are either planned or underweight in China. A two lane highway linking Hong Kong and Beijing is planned to open in 1997. Another new two lane highway links Shanghai and Nanjing. In February 1996 Asian Development Bank loans were granted to China for a number of “projects including an expressway in Chongqing, Sichuan Province, an expressway linking Jiujiang to Jingdezhen in Jiangxi Province . and a railway linking Daxian and Wanxian in Sichuan Province.”11 While the level of investment is large (Asian Development Bank loans, for example, have
averaged over the last few years between USS1.2 billion and USS1.5 billion per year) thebase is low. Also the variety of traffic using these new roads is such that truck speedsare limited to around 40 kilometres per hour.ManufacturingIce cream manufacture is done in two basic stages: mix preparation in bulk and thenproduction of the individual retail items. Wall's manufacturing facilities in Beijing andTaicang are very similar. See the layout of the Tiacang plant shown in Exhibit 8.MixPreparationThe mix preparation section of the plant comprises a number of tanks and pipes linkingeach manufacturing step. The plant (mix preparation area and the production floorfacilities) are automatically cleaned by a system called CIP or cleaning-in-place. Threetanks -- holding cold water, hot water and detergent, together with a washing water tankand associated pumping facilities comprise the CiP. All raw materials such as baggedsugar, milk powder, flavours, colours and stabilizers together with the liquidingredients such as rework, coconut and palm oil and water are loaded in batches intopremix mixers. From here the premix is pumped into the pasteurizer and then,for nonwater ice products, into the homogenizer. The product is then cooled and stored in afarm of eighteen mix storage tanks. The mix has to be held in storage for a minimum of24 hours before it can be used in production.ProductionFloorProduct is pumped from the storage tanks to the production floor through 20 mm pipes.Theproduction floorhas four lines where the retail products are made and packed.After being "shaped and moulded" the product moves into freezer tunnels. Afterspecific times in the freezer tunnels the product then moves onto the wrapping machine.After wrapping the product travels onto conveyor packing lines.Cartons are packedmanually on the conveyor as it moves to the palletizing area. All conveyor lines merge atthe palletizing area. Here the cartons are stacked by hand onto pallets. The palletizedproduct then goes through a hole in the factory wall and into the cold store.PlantWorkforceThe Beijing plant operates with a full time workforce of 100 people. In addition are 250to 300 seasonal workers who are employed mainly during the peak demand betweenJune and August. Most seasonal are employed as packers for a period of six to eightmonths at a pay rate of 4oo RMB per month.2 If they return the following year they arepaida 1,ooo RMB bonus after completing their third month of re-employment.Morethan 85 per cent do return each year. Line operators are paid more -- between 600 and8oo RMB per month depending upon their length of employment with Wall's.Lineworkers and packers are initially employed for a three month trial period during whichthey can be fired. Supervisors, shift leaders and managers are University graduates.Aline supervisor (one for each production line for each shift)are paid up to 1500 RMBper month. Area supervisors -- responsible for either the mixing or the finishing areas --
averaged over the last few years between US$1.2 billion and US$1.5 billion per year) the base is low. Also the variety of traffic using these new roads is such that truck speeds are limited to around 40 kilometres per hour. Manufacturing Ice cream manufacture is done in two basic stages: mix preparation in bulk and then production of the individual retail items. Wall’s manufacturing facilities in Beijing and Taicang are very similar. See the layout of the Tiacang plant shown in Exhibit 8. Mix Preparation The mix preparation section of the plant comprises a number of tanks and pipes linking each manufacturing step. The plant (mix preparation area and the production floor facilities) are automatically cleaned by a system called CIP or cleaning-in-place. Three tanks - holding cold water, hot water and detergent, together with a washing water tank and associated pumping facilities comprise the CIP. All raw materials such as bagged sugar, milk powder, flavours, colours and stabilizers together with the liquid ingredients such as rework, coconut and palm oil and water are loaded in batches into premix mixers. From here the premix is pumped into the pasteurizer and then, for non water ice products, into the homogenizer. The product is then cooled and stored in a farm of eighteen mix storage tanks. The mix has to be held in storage for a minimum of 24 hours before it can be used in production. Production Floor Product is pumped from the storage tanks to the production floor through 20 mm pipes. The production floor has four lines where the retail products are made and packed. After being “shaped and moulded” the product moves into freezer tunnels. After specific times in the freezer tunnels the product then moves onto the wrapping machine. After wrapping the product travels onto conveyor packing lines. Cartons are packed manually on the conveyor as it moves to the palletizing area. All conveyor lines merge at the palletizing area. Here the cartons are stacked by hand onto pallets. The palletized product then goes through a hole in the factory wall and into the cold store. Plant Workforce The Beijing plant operates with a full time workforce of 100 people. In addition are 250 to 300 seasonal workers who are employed mainly during the peak demand between June and August. Most seasonal are employed as packers for a period of six to eight months at a pay rate of 400 RMB per month.12 If they return the following year they are paid a 1,000 RMB bonus after completing their third month of re-employment. More than 85 per cent do return each year. Line operators are paid more - between 600 and 800 RMB per month depending upon their length of employment with Wall’s. Line workers and packers are initially employed for a three month trial period during which they can be fired. Supervisors, shift leaders and managers are University graduates. A line supervisor (one for each production line for each shift) are paid up to 1500 RMB per month. Area supervisors - responsible for either the mixing or the finishing areas -
are paid 1800RMB per month and the shift leader2500RMB a month.Graduateengineers are paid 2300 to 2500 RMB a month and electricians, mechanics and fitters1100RMBpermonth.Both line operators and supervisors rotate jobs. The operators change jobs within aparticular line during a shift and over a number of weeks between lines. Unskilledpackers do not rotate their jobs. Everyone in the plant works a 40 hour week on one ofthree shifts --8:00 a.m.to 4:00 p.m., 4:00 p.m.to 12:00 midnight, and midnight to 8:00a.m, -- which they rotate every month. On Saturdays and Sundays 20 per cent overtimeis paid and 50 per cent is paid on public holidays.Wall's provides buses from a number of central locations to the plant. Many people mayspend up to two hours travelling each day. To ease this problem an internal agreementhas been reached for supervisors and above to work12 hours on and 36 hours off over aseven day week with no overtime.Maintenance can provide some difficulties for Mike Wong, the Beijing Factory Manager.Typically "experts from the suppliers spend three to six months in the plant to get themachines going and then they train the operators one-on-one." Maintenance --"localsdon't like to do it." Plant and equipment spares are held in the Technical Store. Almostallofthese are imported and stock levels are held to cover leadtimes of one week by airand three months by sea.Each Thursday there is a factory meeting attended by the Mix Room Supervisor, theProduction Manager, the Engineering Manager, the Factory Planner, the Cold StoreSupervisor and the Dry Goods Store Supervisor. Major problems, the next week'sproduction and the impact of legislation changes are discussed.Plant Cold Stores and WarehousesAt both plants the cold store and the raw material warehouses are integral parts of themanufacturingfacilities.Construction of the production hall at Taicang began in January 1995.Two cold storesare planned to hold the output of the plant. The first cold store was built during theperiod September 1994 to February 1995. There are two areas in the cold store. The firstis the storage area itself which holds product in 2,720 pallet spaces at a temperature of -28'C. The pallets are in twelve sets of mobile racking five high and are serviced by anMHE Demag reach truck. Only one of these sets can be accessed at any one time and ittakes eight minutes to completely open. The second section is the staging area whereorders are accumulated on the floor.There is room forbetween 100 and 200 pallets inthree rows; each row leading to one of the three truck docks. In total the cold store is1,500 m? in size. The second cold store is a mirror image of the first and was builtduring the period August 1995 to March1996. It does have a static pick face of 200pallets which are replenished each night. A reach truck also operates in this cold store.Product from the plant is located in the cold stores on a random basis. The warehousesupervisor obtains the put away location for each pallet from his computer screen. The
are paid 1800 RMB per month and the shift leader 2500 RMB a month. Graduate engineers are paid 2300 to 2500 RMB a month and electricians, mechanics and fitters 1100 RMB per month. Both line operators and supervisors rotate jobs. The operators change jobs within a particular line during a shift and over a number of weeks between lines. Unskilled packers do not rotate their jobs. Everyone in the plant works a 40 hour week on one of three shifts - 8:00 a.m. to 4:00 p.m., 4:00 p.m. to 12:00 midnight, and midnight to 8:00 a.m. - which they rotate every month. On Saturdays and Sundays 20 per cent overtime is paid and 50 per cent is paid on public holidays. Wall’s provides buses from a number of central locations to the plant. Many people may spend up to two hours travelling each day. To ease this problem an internal agreement has been reached for supervisors and above to work 12 hours on and 36 hours off over a seven day week with no overtime. Maintenance can provide some difficulties for Mike Wong, the Beijing Factory Manager. Typically “experts from the suppliers spend three to six months in the plant to get the machines going and then they train the operators one-on-one.” Maintenance - “locals don’t like to do it.” Plant and equipment spares are held in the Technical Store. Almost all of these are imported and stock levels are held to cover lead times of one week by air and three months by sea. Each Thursday there is a factory meeting attended by the Mix Room Supervisor, the Production Manager, the Engineering Manager, the Factory Planner, the Cold Store Supervisor and the Dry Goods Store Supervisor. Major problems, the next week’s production and the impact of legislation changes are discussed. Plant Cold Stores and Warehouses At both plants the cold store and the raw material warehouses are integral parts of the manufacturing facilities. Construction of the production hall at Taicang began in January 1995. Two cold stores are planned to hold the output of the plant. The first cold store was built during the period September 1994 to February 1995. There are two areas in the cold store. The first is the storage area itself which holds product in 2,720 pallet spaces at a temperature of - 280 C. The pallets are in twelve sets of mobile racking five high and are serviced by an MHE Demag reach truck. Only one of these sets can be accessed at any one time and it takes eight minutes to completely open. The second section is the staging area where orders are accumulated on the floor. There is room for between 100 and 200 pallets in three rows; each row leading to one of the three truck docks. In total the cold store is 1,500 m2 in size. The second cold store is a mirror image of the first and was built during the period August 1995 to March 1996. It does have a static pick face of 200 pallets which are replenished each night. A reach truck also operates in this cold store. Product from the plant is located in the cold stores on a random basis. The warehouse supervisor obtains the put away location for each pallet from his computer screen. The