A Week In Shanghai: A View From The Trenches In The Convergence Of

Formerly distinct quality systems around the world are converging and students need a range of skills not typically taught in the classroom to succeed in this emerging workplace. Quality systems are converging as global supply chains expand, become more complex, and more multi-national. At first glance, this is a rational and rule-based process with explicit expectations and little ambiguity. What could be more logical than everyone following the same rules – and to make it appear even easier – in English. The global sourcing reality is complex and obfuscated by distance, language and cultural differences. Historically, manufacturing has moved from vertically integrated supply chains within the same company, to locally or nationally-based outsourcing and now to sourcing without geographical limits. With few exceptions, the global logistics, financial, and transportation systems are transparent – that is, we can order, specify, have fabricated, move, pass through borders, and pay for anything from anywhere with very little difficulty. List the companies of origin printed on your computer components and imagine all the engineering and business transactions that took place to get the machine to your desk. During March, 2008, the authors visited five companies involved in the global automotive supply chain in Shanghai and nearby Pudong, China. This is China’s largest industrial area and center of automotive production. The companies were selected because they are all registered to ISO 9001, TS16949, and all supply American, European, Chinese, and Japanese companies producing vehicles in their home countries and in China. Our central questions emanated from the focus of this paper: what are the central issues/difficulties associated with converging global quality systems? The literature is extensive on the benefits of outsourcing, the inevitability of global supply chains, selection of partners in global supply chain, optimizing supply chain logistics and many other related topics. What seems to be missing is an analysis of what it actually takes to make these systems function. How do we need to incorporate these lessons learned into engineering-related curricula? Overview: The Flat World: De-verticalization and Globalization of Manufacturing One of the most important developments of the early twentieth century was the vertical integration of manufacturing. Perhaps the best example was the River Rouge complex in Dearborn, Michigan where Henry Ford and his able collaborators created a system capable of converting iron ore and coal into Model Ts in less than 2 days. Ford owned iron mines in Minnesota, coal mines in West Virginia, and rubber plantations in Brazil in his attempt to control the entire supply chain. This model was followed by other large manufacturers such as General Motors and process industries such as Standard Oil. So powerful was this model that through the 1960’s their sheer size and integration fended P ge 14147.2 off competition since challenging such behemoths was considered too expensive for any single company. The amount of capital required to compete was widely accepted as a relatively insurmountable “barrier to entry” thus ensuring monopolies and oligopolies especially in the auto industry. From the 1920s until the late 1960s, vertical integration in the U.S. auto industry produced high profits and market dominance. The energy crisis of the early 1970s flooded the U.S. market with inexpensive and reliable fuel efficient cars from Japanese manufacturers such as Toyota, Nissan, and Honda. The largest, Toyota, was not vertically integrated. Rather Toyota was (and is) a keiretsu, or a family-like group of companies with interlocking business relationships and shareholdings. The Toyota model has the Original Equipment Manufacturer (OEM) producing about 25% of the total value of the vehicle; typically this includes power trains, body stampings and final assembly. The first tier partners (such as Yazaki and Nippondenso) supply not parts to the OEM but rather systems e.g. electrical, interiors, brakes etc. The Toyota vehicle OEM model has been adopted by all of the former U.S. Big Three OEMs with the result of spinning off internal parts suppliers: GM spun off Delphi in 1999 and Ford Visteon soon after in 2000. Chrysler went through a bankruptcy in the early 1980s and had already disposed of MoPar. In dis-assembling their highly vertically integrated production system, the U.S. OEMs have not followed the distinctly Japanese keiretsu form of supply chain. They have attempted to adopt the Tier system of supply chain in which the Tier One supplier provides (and often co-designs) systems. But, distinct from Toyota, U.S. companies have chosen not to develop long term loyalties to any suppliers. “Many firms are now linked to production networks...to deverticalize their activities and subcontract the production of numerous components...trade among affiliates of multinational companies represents 45% of total trade or about $3.2 trillion in 1999”. Sturgeon and Florida in Kenney and Florida provide an excellent account of Globalization, Deverticalization, and Employment in the Motor Vehicle Industry. 4 Add to the complexity of the globalized, deverticalized supply chains the obvious issues of language and culture. And in China, one must include the confounding effect of the paradoxical support of capitalism by a single party, Marxist state. To sum up the effect of de-verticalization and globalization in manufacturing in general and the auto industry in particular: “The same part, for the same price, anywhere in the world.” In the previous vertical integration model, the design and manufacturing of products was an internal affair and regulated by long-held standards, procedures, and hierarchies. This world is disappearing and being replaced by the much more chaotic “flat” de-verticalized and global design and manufacturing For technical professionals including engineers, globalization and de-verticalization means that instead of the predictable long-established world of a Ford or an IBM, new graduates must master their profession in the largely undefined universe of 12,000 mile supply chains, multiple languages, and dozens of suppliers all with differing roles as to design and manufacturing. This problem has been previously explored by Tucker and Wang. 6,7 Convergence of Global Quality Systems: P ge 14147.3 Supply chains in manufacturing are global in reach but increasingly common in quality system standards. As documented by Bandyopadhyay, by the early 1990s the ISO (International Standards Organization) 9000 was accepted as the global generic quality standard. ISO 9000 was adapted by the American Big Three through the Automotive Industry Action Group (AIAG) in 1994 to create the QS9000 standard applicable to automotive supply chain. Entering the new millennium, the QS standard was supplanted by the new ISO/TS 16949 system. Adoption of the TS standard was largely driven by the desire to not just document procedures but to build in continuous improvement and customer focus. The importance of quality systems throughout the supply chain has generated a great deal of interest as shown by studies such as Kannan and Tan. As Friedman suggests “Supply-chaining is a method of collaborating horizontally – among suppliers, retailers, and consumers – to create value. The more these supply chains grow and proliferate, The more they force the adoption of common standards between companies, The more they eliminate points of friction at borders, The more the efficiencies of one company get adopted by the others, And the more they encourage global collaboration.” As identified by AIAG and others, the convergence of quality systems has paralleled the increase in complexity of supply chains. The number one problem in the automotive supply chain from China to the U.S. is quality. While it is true that the ISO/TS systems have been adopted globally by the automotive industry, quality problems persist. Registration of quality systems does not guarantee that the production system will be free of problems as measured by their customers in parts per million defects. As indicated by Johnson and many others: “A company could complete QS9000 registration and have poor performance”. Nonetheless, international supply chains, especially in the automotive sector, use a common language contained in the ISO/TS quality system standards. Also, de-verticalization and geographically extended supply chains have, to some extent, contravened the advantages of converged quality systems. As suggested by Tucker, these developments place increased responsibility on technical professionals at each node in the supply chain. Our students need to be prepared to solve these problems which arise from design to final shipping whether the problems are engineering, quality, logistics, or business-related. The Continuing Importance of U.S. Manufacturing in the Post-Meltdown World. The recent financial melt-downs of 2008 and near-bankruptcy of U.S. automakers might lead us to abandon concern for manufacturing. The U.S. continues as world’s biggest manufacturer (although now second to Japan in vehicles) and real manufacturing output has (until very recently) been growing at a pace greater than GDP growth . Manufacturing as a percentage of U.S. GDP has been constant since about 1980. For our purposes we can assume that Schumpeterian change will continue to wrack U.S. capitalism but that the need for engineers to design and make things will continue unabated. Sturgeon and Florida in Kenney and Florida report while the globalization of production continues, vehicles are assembled close to where they are sold. This has P ge 14147.4 meant that 75% of Japanese vehicles sold in the U.S. are assembled in the U.S. Massive global automotive supply chains will continue to terminate in the U.S.. Complex international supply chains are changing the role of many technical specia