Source: Nanfang+ By Xiong Cheng, Liu Jialin
Everyday, well-designed small home appliances leave the digital production lines of Guangdong Xinbao Electrical Appliances Holdings Co., Ltd. (Xinbao) in Leliu, Shunde, and are shipped across the globe.
As a promoter of "Made in China" products, Shunde recently put forward "Smart Connectivity Initiative" at the local annual People's Congress and CPPCC sessions. It plans to invest RMB5.5 billion in the digital transformation of the manufacturing industry, which includes helping over 1,000 companies achieve digital transformation and building 100 digital model plants. The key goal is to help all enterprises above designated size digitalize.
The success of industry-wide digital transformation depends on companies, especially industry leaders. Beyond Shunde, many may not have heard of Xinbao. This is in spite of the fact that Xinbao produces one out of every 10 small appliances in the world. What is of greater significance is the transformation that Xinbao is currently undergoing ? from a labor-intensive to technology and data-intensive firm. It is a model of company transforming from a local company to a digitalized national company.
The digital transformation experience of this inconspicuous industry giant is exactly what the Shunde manufacturing industry needs right now. Shunde must study Xinbao carefully and use the company as a model to promote the new trends of digital transformation.
01
Digitalization is crucial to rapid growth. It is more vital when a firm hits a bottleneck.
While keeping a low profile, Xinbao has made fast progress in its globalization since its establishment in 1995. The company seized the opportunities arising from China's reform and opening-up and has achieved ultra-rapid growth. In particular, after China joined the WTO, Xinbao recorded RMB1 billion in revenue in 2002 and doubled it two years later, with momentum for faster growth.
In the wake of its success, Xinbao faced the challenges that every company in Shunde faced as they expanded. The company's size had become much larger than when it started, making management much more difficult. How could a manufacturing company run smoothly in the face of numerous orders and resulting needs for materials, production lines and inventory? The traditional manual ways of managing small workshops had become obsolete as the firm grew.
What should Xinbao do? This was where informatization, the prior era of digitalization, came into play. In 2004, Xinbao began to introduce the MRP system to manage some of its production schedules. Constrained by the external situation, the informatization that Xinbao had embarked on was rudimentary in nature.
The test for whether Xinbao's transformation was successful came in the form of a crisis. It has been proven that Xinbao's rudimentary informatization was insufficient, as it did not improve the company's operations fundamentally. In 2007, Xinbao made its first IPO attempt and failed because it was deemed to have mediocre profitability and a lack of core competitive edges. In 2008 which saw the coming of the global economic crisis, Xinbao registered RMB4 billion in revenue. But its net profits from core businesses saw a year-over-year drop of 39.98%.
The economic crisis worsened. The costs of labor, raw materials and shipping went up rapidly, placing mounting pressure on Xinbao. The problem was especially stark when it came to labor. Shunde's labor shortages made headlines in the news. During the 2010 Chinese New Year, manufacturing workers saw an average pay rise of 20% to 30%. Xinbao's fast growth over those years stopped.
The internal and external challenges that Xinbao faced were similar to those that many firms in Shunde faced during their expansion. All firms wanted to improve productivity and quality, and new tools were needed to do so. The blend of challenges and pressures quickened Xinbao's digitalization. However, like many other companies in Shunde, Xinbao had not begun the path towards full digitalization at that time.
In 2011, Xinbao welcome a specialist from a globally renowned intelligent manufacturer, who helped it create an information management center. The specialist was taken aback by the dismal progress that Xinbao had made in digitalization when he arrived. After all, Xinbao was an industry leader. He found out that there were only a handful of people in charge of the company's information management system and that "not even a single network cable could be found in the workshops".
02
Change is not easy. It requires time, energy and patience.
"Every step we take in our journey towards digitalization was met with challenges," said Zeng Zhanhui, Xinbao President, as he recalled the company's digitalization endeavor.
In 2012, Shunde became China's only intelligent manufacturing pilot site that integrated informatization and industrialization in the machinery industry intensively. Meanwhile, Xinbao commenced a series of informatization projects and underwent an intensive process of informatization by introducing systems such as MES (Manufacturing Execution System). This was its preparatory step towards full digitalization. From that moment on, the company began to face head on all the tricky issues concerning digitalization.
Every company had different types of products and different industrial characteristics. They had different tricky issues in digitalization too. Small home appliance manufacturers manufactured a diverse range of products in small batches. One could have over a thousand types of products. Hence, Xinbao faced all the different tricky issues that different manufacturing segments had.
The issues were tricky because it was difficult to address them. The first step to digitalization was to make online all offline processes such as R&D, manufacturing and logistics. The length of the entire process and the numerous steps involved meant that the work of data collection was arduous.
Digitalization in Xinbao required the synthesis of operations and digitalization tools. That meant that any upgrades of operations or digitalization tools were tricky issues in Xinbao's digitalization. Moreover, these two aspects saw swift changes in recent years. The completion of a project, from its initial stage of planning to implementation, could take a few years. Some components might be outdated when the project was implemented and thus necessitating changes. As the head of Xinbao's information management center said, "You need one or two billion to sustain such a long-term project."
That amount did not take into account the occasional system failures. Mr. Zeng recalled how their company's platform crashed a few years ago due to insufficient computing power. Nearly all operations were suspended for a few days. It took two weeks before all operations fully resumed. Complaints flooded the company during the period ? this would not have happened if they had not decided to pursue digitalization.
Tricky technical issues could be resolved with funding. However, issues about thinking proved the greater challenge.
Digitalization did not happen in a day. With transformation came inevitable pains, which discouraged many firms from carrying out digital transformation. "I support digitalization, but I'm too busy for it. Why don't you handle it on your own?" ? this was a frequent comment that Xinbao's management heard then.
03
Digital transformation entailed a metamorphosis for a company. Fundamental changes must be made in order for such a transformation to succeed.
The resolute support from the company's management was pivotal. In Xinbao, everyone in the management team ?from Chairman to President, from COO to other heads ? maintained the same stance. Despite the doubts and uncertainties, they maintained their unwavering commitments. They strived to change to ensure that their digitalization strategy would not result in any complications.
A benchmark was necessary for digital transformation. In 2011, Xinbao selected business group leaders with a willingness for change and ideas of how to change, before conducting R&D and testing the applicability of MES in some workshops. When the tests yielded positive results, it promoted MES in other business groups.
Once a company has become able to use digital tools well and formed a degree of reliance on them, it is the perfect time to pursue full digitalization. In 2018, Xinbao started to take actions to achieve full digitalization, which included constructing an "information superhighway", extending the results of digitalization to upstream and downstream partners, and addressing "information silos" through integration of production-research-sales processes and enhancement of supply chain and workshop management.
"A fast move is a good move." Digitalization propelled Xinbao into becoming the latest enterprise with RMB10 billion revenue in Shunde. With the integration of data across all areas, it was able to react more swiftly to market changes. It used to stock up on raw materials based on orders. Now, it could plan its inventory based on actual assembly plans. The turnover rate of existing inventory increased by over 20%.
In 2020, Xinbao recorded RMB10 billion in revenue for the first time. In comparison to its performance prior to full digitalization in 2018, its revenue saw a sharp rise of 56.21% while two-year profit rose by 129.49%.
The increase in the company's scale and profit were clear for all to see. Hidden from everyone's eye was the comprehensive upgrade of operation management. "The figures don't lie," Mr. Zeng said. "We're imposing more internal prohibitions. At least 80% of instructions can be fully implemented in the front line."
04
Glory waits for no man. To achieve success, one must fight for it.
In the past decade, Xinbao invested over RMB200 million in digitalization. A culmination of good timing and luck, among other factors, allowed it to speed up and expand its digital transformation. In the past decade, Xinbao invested over RMB200 million in digitalization. A culmination of good timing and luck, among other factors, allowed it to speed up and expand its digital transformation.
Most of Xinbao's manufacturing bases are located in Shunde, while nearly half of its 1,400 key suppliers are based in Shunde's industrial zone. At the helm of the industry chain, Xinbao has significantly affected the digitalization process of its upstream and downstream partners. Currently, it has digitalized three key processes and is about to enter the next phase ? the digital synchronization across all departments in the company as well as upstream and downstream companies in the industry chain.
To keep up with Xinbao's speed of development, suppliers would have to keep apace with its digitalization efforts. Xinbao has included the data of almost all its key suppliers in its industry chain's central monitoring system made up of 147 subsystems. At the height of the pandemic last year, this system played a significant role in ensuring a sustained supply chain and was featured on CCTV-13 channel.
In its earlier stages of digitalization, Xinbao can well monitor its suppliers' manufacturing and shipping through digitalized supplier management. In the next phase, it hopes to build an interconnected platform that is highly integrated with supplier production lines. This will allow for detection of quality or process problems during the production of components, so the problems will not be identified until the components arrive at Xinbao's warehouse or production line, which will prevent losses to all parties.
Xinbao's plans also demonstrate its vision as an industry giant. As an industry leader, Xinbao is aware of how difficult it is to achieve digitalization. It is costly and takes a long time before yielding any results. It hopes that its efforts can facilitate transformation across the entire industry chain.
"It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change," Darwin said when discussing the evolution.
Mr. Zeng looks forward to the day when a fully digitalized Xinbao integrates with AI, allowing the system to aid human decision-making and help the company set better strategies. When the day comes, Xinbao can become much stronger and take upstream and downstream partners to new heights.
November 24, 2021
