Excellence in Management ™

April 28, 2013

Operational Excellence in ChinaArie Schreier - PTL Groupwww.PTL-Group.com

Survey: Operational Excellence in China

• Objective: to draw attention of senior executives to the key

issues affecting operations in China".

• 35% started the survey but never completed

• Profile of individuals who answered:

C-level managers managing manufacturing companies

more than 5 years in China

100 employees or more

located in China 1st tier cities

Entity: mainly WFOE’s

• Managing operations in China is very different than any other place in the world.

The Management Challenge in China

• Effectiveness of management operation in China should not be lower than any other place in the world.

Why checks and balances are so crucial now?

• Technological gap is closing, competitive advantages is reduced

• Wider spread of the China operation is crucial

• Operational management excellence and investment in

infrastructure to sustain competitive advantage.

The Management Challenge in China

• Who should be the China GM?

• Control of work flows

• Transparency and knowledge

• Western management style vs. traditional Chinese management style

Challenges of the new entity in China

Measures:

• Level of transparency

• Communication channels

• Involvement of HQ

• Report line

• Internal and external controls

Organizational structure for the China operation

HQ

IT Logistic Operation CEO HR Sales

IT Logistic Operation Manuf. Finance HR Sales

China GM

Finance

China

Foreigner

Operational Auditor

Loyal AssistantChinese

HQ

IT Logistic Operation CEO HR Sales

IT Logistic Operation Sourcing Finance HR Sales

China GM

Finance

China

Chinese

Operational Auditor

HQ

IT Logistic Operation CEO HR Sales

IT Logistic Operation Sourcing Finance HR Sales

China GM

Finance

China

Taiwan/HKSingapore

Operational Auditor

HQ

IT Logistic Operation CEO HR Sales

IT Logistic Operation Sourcing

Finance

Chinese GM

Finance

China

Foreign MD

Loyal Assistant

HR Sales

WFOECHINA

Operational Auditor

HQ

IT Logistic Operation CEO HR Sales

IT Logistic Operation Sourcing

Finance

Chinese GM

Finance

China

Foreign GM

Loyal Assistant

HR Sales

JVCHINA

Operational Auditor

HQ

IT Logistic Operation CEO HR Sales

IT Logistic Operation Manu. Finance HR Sales

China GM

Finance

Operational Auditor

China

Active involvement of HQ professionals from different departments

Frequent visits of HQ managers from relevant department

Matrix management with HQ managers

Accountability of HQ managers to increase controls and balances

Best Management structure in China

Operational audits

• Multiple vs. single source of information

• Trust/confidence issues between a GM and local staff

• Financial audit

• Legal/ Compliance audit

• Operational audit: HR, Logistics, Manufacturing, operations

• Auditor as a coach

Self improvement, training, improving inter departmental communications, improving management confidence are allby products of a good repeating audit process.

Who generally initiates internal audit activates in you company?

If HQ will not push for internal audit, no one else will!

Recruitment issues

• For SME’s a loss of a manager during the first 2-3 years of

penetration can be devastating.

• Budget to match the required position

• Background and moral instincts assessment

• Professional history and references

• Computerized credibility and integrity tests

• Psychological assessment by experienced professional

What is the turnover rate in your company for the last 3 years?

Have you ever used an assessment company to test loyalty and integrity of new hires? Would you consider using such service?

Integrity and loyalty can be assessed

HR issues

• Job description perception - manager/employee

• CV vs. Job description

• Job description vs. reality

• Job description vs. CV vs. salary

• Performance vs. salary

• Bonus system and labor contract

• KPI vs. results

• Termination issues

• Company structure vs. reality

How often do you revise your classified HS codes?

Note: HS code stands for Harmonized System Code and is used for calculation of duty.

Logistics issues

• Constant review of logistics suppliers: import agents,

transportation, Insurance

• Regular review: HS code, licenses, inspections, customs

regulations

• Review work flows regularly

• Special attention to point of Entry/Exit

How often do you physically go to a warehouse and do stock count sampling?

Production issues

• Raw material issues

• Defected items and production losses

• Work processes

• Second and third shifts

• Selling through the back door

• Relationship in the factory (“Who is the boss?”)

• Selling price calculations

How often does middle management initiate a change in management/internal processes?

Sales issues

• Sales practice in each industry

• The distributor dilemma

• NDO - Non Dollars Objectives

• Transparency of the sales chain

• Commissions and “under the table money”

• Distribution network

• Management of sales people

How often are your clients being audited by your company?

Sourcing issues

• Suppliers will always push purchasers for higher prices

• Every purchasing person is under huge pressure and

temptation

• Setting up a parallel team

• Cross checking with other companies

• Use online resources to check prices

• Details of any deal: delivery time, QC, penalties, down

payments, credit, transportation etc.

Where do you see fraud risk initiating from?

Turnaround and risk management

• Interim Management/ manager

• Turnaround will require a group of supporting professional to audit, coach or replace existing managers during through out the process

• Loose management leaves the best employees exposed to such corruptive pressures in the field and within time something will happen.

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Industrial turnkey project management in China: industrial incubator, Product localization projects

Industrial Projects

Operational audits, transformation and  turnaround of underachieving subsidiaries in china

Business Recovery

Equity Partnerships

Joint investments with international companies.

What PTL Group Does?

Operations management for international companies developing their Sales and Distribution in China: logistics, warehousing, HR, marketing

Management Solutions

Outsourcing

www.PTL-Group.com

Shanghai Head OfficeRoom 301, 798 ZhaoJiaBang Rd.

Shanghai, 200030, P. R. China

Phone: +86 21 64453190, Fax: +86 21 64453191

Arie SchreierEmail: arie@ptl-group.com

Cell: +86 13817825201

Skype: ariesher

Contact Us:

www. PTL-Group.comChina • Israel • The Netherlands • Italy