Operations Management in a Modern Chinese Context
   2013-02-20 14:44:52    CRIENGLISH.com      Web Editor: Yang Yang

By Stuart Wiggin

Operations Management is a broad term and can be applied to literally every type of industry. However, there are certain industries within China, especially those related to manufacturing, for which improving the area of operations management has become an essential component by which to achieve success. Under the planned economy prior to 1978, Chinese manufacturers did not need to pay attention to market needs or demands and nor did they need to meet efficiency targets. More importantly, there were no quality control methods in use during this period. Post 1978 economic reforms helped to stimulate competition and made it essential for factories to consider market demands. Fast-forward to present day, and virtually all companies need to be aware of a host of operations management aspects in order to achieve efficiency and maintain profitability.

CHINATALKS spoke with Zhi-Long Chen, professor in decision, operations and information technologies at the University of Maryland's Robert H. Smith Business School about the state of operations management in Chinese industries today. As manufacturing has played such a prominent role in propelling China's economic growth, thanks to low cost manufacturing and cheap labor, many of the gains made in the area of operations management in a Chinese context often relate to manufacturing. However, as the cost of labor continues to rise in the country, manufacturers are compelled to search for new methods and tools by which to offset their losses. Advancements in operations management provide such a solution.

As Professor Chen told CHINATALKS that one of the most obvious changes in operations management in China is related to planning methods, elaborating that, "there used to be a lot of companies doing a lot of manual planning, and it's all based on experience; based on some rough rules. But more recently, a lot of companies, in particular larger companies, use computerized systems like ERP and they do system wide planning based on mathematical models." In reference to his own experience working with Baosteel, one of the largest steel companies in China, Professor Chen noted that as little as seven or eight years ago, the company was still using a lot of manual planning. As a result, Chen stated that the production plans formulated by Baosteel were not optimal. The switch to computerized systems and mathematical models has helped the steel giant formulate plans which are, according to Professor Chen, optimal or near optimal.

Some of the operations management tools used by companies in the developed world for years are relatively new within the Chinese context. As professor Chen pointed out, "I think a lot of companies within the last ten years started to use a lot of new tools, such as 6 Sigma, lean operations; which obviously have been used in the west and also by Japanese companies for many, many years. A lot of these tools were developed in the 1980s and 1990s but I think Chinese companies started to use such advanced tools about ten or fifteen years ago, and now obviously they feel that they are very necessary because these tools bring efficiency to companies and make the (level of) productivity much higher." One might argue that this sense of "infancy" in the use of certain operations management tools has drastically changed the level of demands on Chinese managers, as they are now required to depart from old methodologies and Confucianist principles, and instead adopt tried and tested operations management procedures and tools. As Professor Chen stated, "Because of competition, (Chinese managers) have to learn new things. So they have to really train themselves and also train their employees to these new tools, so that they can make their production, supply chain and logistics more efficient. In order to be competitive, really they have to learn all these new things."

The Chinese government still features largely within China's socialist market economy, which has embraced aspects of free-market capitalism whilst maintaining so-called Chinese characteristics. Many of the country's biggest companies are state-owned enterprises. However, despite the nature of these companies, they cannot afford to ignore the demands of the market. For this reason, as scholars have pointed out, the Chinese government actively supports and protects operations management in China. On this issue, Professor Chen noted that quality management is one such area which has received a lot of attention from higher up due to the fact that Chinese products in general have a lower quality.

"In the US and Japan, quality management was developed a long, long time ago. A lot of companies have been using quality management tools such as 6 Sigma, lean operations, and all these tools for a long time. So now the government realizes China has to produce high quality products in order to be competitive," said Professor Chen, adding that tools such as 6 Sigma have to be used, particularly by large companies; hence why the government supports state owned companies in their adoption of such tools and methods. 

Due to the advanced nature of US and Japanese countries, and their historical development, one often comes to associate the term "best practices" with companies established in developed countries. Professor Chen highlighted the case of companies in Japan that were forced to rebuild following the Second World War. "What they did is focus on quality; focus on cutting costs in order to compete with American companies. So, they started using very rigorous quality management tools such as 6 Sigma, lean operations, and in fact they invented a lot of tools in that area, like Just in Time, the Kanban-an system," Professor Chen pointed out. Chen added, "Now, in fact, most multinational companies are using these tools. So, this really originated in Japan because of their unique situation after the Second World War."

In contrast, China is facing very different challenges, amongst which environmental safety sits near the top of the list. As Professor Chen suggests, "One thing that the Chinese government, and also all these companies have to do is to make sure when they make products, make sure they use so-called sustainable operations. The operations that they manage have to be sustainable, which means they cannot have an impact on the environment and you have to use renewable energy. And you have to make sure that at the end of the product lifecycle you recycle the product you can reutilize the components."

These so-called sustainable operations, green supply chains and green products are already emerging in Europe as well as China, though the need for them in China is much greater. Compared to the US, where the energy mix is much larger with less emphasis on the environment, China's biggest challenge lies in protecting its environment due to its massive dependence upon coal and the impact that has had upon the country's environment. Pursuing manufacturing techniques which produce little environmental impact, and creating products that can be recycled at the end of the product life-cycle through, or what in total is referred to as a closed-loop supply chain, is the goal for all Chinese companies in today's modern context.

Professor Chen spoke out on this uniquely Chinese aspect of operations management, stating, "A lot of western companies, based in China, are already considering green product, closed-loop supply chains; for example, Wal-Mart. I know Wal-Mart stores in China actually use renewable energy; they use solar energy. I think, by following these practices, I'm sure Chinese companies are feeling the competition. They have to follow the best practices from these companies and then they have to go one step further in order to be competitive."

In order to be at the forefront of the competition within the next ten to twenty years, Professor Chen told CHINATALKS that Chinese companies must strive to achieve something new. "They have to design new products, but not only in terms of technology. Now, we focus a lot on innovation. But really, the other side of the product is the impact on the environment. You don't have to have a hi-tech product, but you may want to make sure you design a product that has little impact on the environment. That is very different from the traditional view of innovation."

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