Case Report - Longxi Machinery (China)

Introduction

China is potentially a huge market for small diesels. Sales of diesel-powered agricultural machinery and vehicles had grown by more than 10% annually since 1985, and this growth rate was forecast to continue until at least the year 2000.

85% equipments use single-cylinder diesel engines, while the rest use multi-cylinder ones. In the market of multi-cylinder diesel the competition is less intense because of excessive demand. The prospect is much more promising. Longxi has a certain competitive advantage in this market, resulting from its popular product such as SL2100.

Quality of Machineries in the Market

Prior to 1978, both manufacturers and customers had paid little attention to quality of diesel. Later, they have been realizing the importance of quality. Under-quality products may cause customers to lose production time due to engine breakdown. They may also cause manufacturers to delay engine production and incur high cots in repairing. So quality will have more and more significant implications for future business of all manufacturers including Longxi.

Total Quality Management at Longxi

The total quality management is valuable asset for Longxi providing it was an competitive edge over most of other competitors. However Longxi needs to improve the quality control system further to meet industry accept standard, i.e. ISO9002 to expand further into the overseas markets.

First of all, the top management was clearly aware the importance of quality control. The company is one of the earliest companies to bear a vision of quality control in China. And the GM had attended modern management training from overseas, which made him focus on the establishment of quality control procedures.

Secondly, from years of quality control practice the firm established a well-know quality control procedure, "the Method". It has great value to the company in that it includes detail best practices for the production procedures which guarantees and improves the quality of the products. It serves as an efficient decision measure tool and a great training material.

Thirdly, Longxi conducts intensive training program for it's employees and there is a well established reward system to incentive people to improve quality. This policy is quite efficient to get all the employees involve in the quality improvement procedures, which will translate great profit to the firm.

But there are still some concerns about the quality management:

Firstly, there is no external quality or process auditors. Frequently, the internal auditors faced great pressure to declare quality defects. For example the QC should shut down the affected product lines when they found defects, but in real cases, they are hardly dared to do so.

Secondly, Longxi should seriously consider getting formally certified in an internationally accepted quality standard to easier expand into oversea markets.

Longxi's vs Changchai's Approach to Quality

Chinghai was an early adopter of ISO9002 standard. The approach of Changchai is to adopt well-known standard quality control system, and to import technology and management systems from developed countries to improve quality. There are three reasons for this approach:

1. Changchai is a public listed modern company and has much bigger capital capacity. They are in better financial position to incorporate modern quality control system and modern machines to better guarantee quality.

2. The strategy of Changchai is to merge and acquire distressed domestic production firms and introduce its own quality control system and brand name to the acquired factories. Hence it can achieve huge market power in a short time. To manage many disparate factories is a great challenge to the company. So Changchai decided to capitalize on its strategic advantage of adopting a single set of quality control system, ISO9002, as the standard norm. Changchai believed that the ISO9002 is the general best practice suitable for most companies in different situations. The quality control system can also serve as a bond to link the different factories together to share the same vision and standard norm.

3. ISO9002 is well known worldwide. Changchai has overseas investors and customers. ISO9002 is a powerful marketing tool to the company.

On the contrary, Longxi took a different approach to cultivate his own quality control system from its long experience.

1. The company is a state owned company. There was no competitive pressure from overseas investors. Aside from making money, one of the main objectives of the company is to provide jobs for the local people. So we would not expect Longxi to aggressively merge with competitors in the near future. Hence the management believed that there is no need for a formalized quality control system like ISO9002.

2. The management is proud of their own quality control bible and is reluctant to change it. Longxi was one of the earliest company to implement quality control system in China and through their long term practice summarized their own quality bible, "The Method". The company won several award for this system and the GM deemed it as the best quality control system. Longxi is already practicing procedures specified in ISO9002 and believed it is doing even better than certificated companies. To allow outside auditors to inspect the company is not easily acceptable and is costly to the management.

3. Most of machines in Longxi were built from 60's or 70's, which relied very much on human judgment. The entire ISO9002 standard may not be suitable for the situation compared to "the Method", which is summarized from long term practixing experience. From this point of view, it's makes great sense to use home cultivated