Fuyao Industry Group
Fuyao Group is leading the glass industry, as they are one of the largest suppliers of automotive glass. Established in 1987 and originally based in Fuzhou, China, the company has expanded to the United States. Fuyao Glass America continues its parent company tradition: Offering consumers the highest quality of products and services.
So, what's the problem? Choosing where to source from. Sourcing decisions are wholly based on place, time, and costs: How long will the production process take, where production takes place, delivery time, and cost differences. The case study asks its readers to choose from one of two manufacturing facilities (Tianjin, China, or Moraine, Ohio) and to consider the issues faced when choosing.
Main Drivers + Complexities
1. Costs: The cost of raw materials, energy, transportation, and labor costs can fluctuate. The site to be chosen must have fewer risks to ensure that the company will not be damaged by its future decisions.
2. Location: Choosing the location of where to source can potentially have an overall effect on costs. It's imperative to determine where the raw material needed is most available. Transportation is required to receive and send material which can become costly when there aren't any nearby means of transportation.
The cost difference between Tianjin and Moraine: China is relatively known for cheap labor costs. The Tianjin facility is about $2.25/windshield while Moraine is a whopping $23.93/windshield. Packaging and transportation costs from Tianjin are $15.33/windshield and Moraine is only about $2.33/windshield due to the fact that glass sets were shipped to the distribution center in Michigan. Shipping windshields from Tianjin wouldn't be the only cost that Fuyao Group had to worry about; there were also tariffs and clearances they had to pay for. Raw materials needed to make the glass is cheaper in China, by about $6.89. The Moraine factory was also newer, which meant more money was spent on training workers. The Tianjin factory only needed 57 workers per line, while Moraine needed 63 per line.
Sourcing
Moraine
Fuyao Groups' interest in a site based in Moraine, Ohio grew when they found out that it was previously a General Motors Assembly site that was conveniently built close to rails and highways. Because it would be less costly to renovate the facility, the Moraine location was ideal for expansion. There was a surplus of automated inspection machines, easy access to transportation sites, and a steady labor cost.
China
The Tianjin factory is ideal when it comes to labor costs, energy, and the price of raw materials. The facility in China was advanced and equipped with the latest technology -- production lines that can laminate, temper, and encapsulate products. There was also specialized glass made in the Tianjin facility: Heat-reflective coatings, embedded heaters, and semi-tempered laminated glass. Although wages increase annually by 30%, labor costs will continue to be cheaper in China than in the United States due to the lack of labor laws. The port is less than 50 miles away and when glass needed to be reworked, Tianjin workers can rework glass 2% faster than the Moraine location due to more experienced workers.
Thoughts
The Tianjin facility is prized for its knowledgeable workers, cheap costs, and specializations; however, if time and a little more money are invested into the Moraine facility, I believe that the Moraine location would become the more favorable manufacturing facility. There are too many risks with sourcing overseas, especially from China. When sourcing from China, there are possible trade restrictions, tariffs, and trade actions.
Recommendation
Labor costs in Moraine can become costly because there are less specialized/skilled workers. Recommended solution: Encourage in-house mentorship and share knowledge. When workers share knowledge, it can increase productivity and minimize any possible disruptions.
Key Learning Points
- This case study offers a glimpse into what factors can influence an operational manager's sourcing decisions.
- This case study demonstrates what challenges an operational manager may come across. There were numerous issues that needed solutions.
- Always assess the situation before addressing it; be transparent as possible when decision-making.