Systematic Analysis & Policy Study On The Procurement Project Management Of FAW

In the recent years, the development of domestic and internationalautomobile industries has been accelerating. The requirements on function,accessory, and quality have moved to higher and higher standards. Inaddition, the trend of decreasing unit cost is remarkable with the increasingscale of mass production. The unit cost control in larger scale companiesbecomes more and more depending on the purchase management of the rawmaterials and parts.Being the largest automobile manufacturer in China, the First AutomobileWork (FAW) Incorporate has reached substantial achievements in its marketshare along with the development of the domestic economy. However, somedisadvantages still exist compared to the well-developed internationalautomobile industry, such as, low profit margin and high unit production cost.The Purchase Management Division in FAW plays a key role in reducing theunit cost. Analysis on the current status of management and internal andexternal environments leading to improved strategy is very important to cut theunit cost and keep FAW's market share.The main external factor is China's joining WTO. On one hand, thedomestic market is globalized by lowering the import tax and increasing themarket share of the imported products. On the other hand, the capital infusionglobalizes the market players in China. Almost all the major internationalautomobile manufacturers have established factories to produce accessories andparts in China through either sole ownership or partnership. The originaldomestic automobile industry is still too weak to compete with them. Improperproduct structure of the part/accessory suppliers hampers their ability to meetthe demand of the end product.The main problem in the FAW supply system is the excessive group ofsupplies. Sub-divisions have their own supporting suppliers lacking of overlapthat makes the company strongly rely on the supply sources.FAW's Purchase Management Division has improved its purchase projectmanagement including regulations on quality, progress, expense, contract,information, organization, and territory. However, some problems still exist thatcan eventually become the bottleneck of the FAW's further development. It isimportant and timely critical to find the problems and corresponding solutions.Purchase project quality managementCurrent status: A complete quality control system has been established.The potential suppliers are evaluated for their ability of quality warranty. Allpotential suppliers have to pass a stringent evaluation process before becomingofficial suppliers. The existing suppliers are evaluated periodically and goodsuppliers are offered awards.Problem: The quality standard is low, which leads to frequent quality crisis.Raw material supplier evaluation procedure is incomplete.Suggestion: Make proper standards for raw materials and parts/accessories.Enforce the quality monitoring system to reduce the quality crisis. Useuniversal quality standards within the FAW system.Purchase project budget managementCurrent status: Evaluation of supplier's cost is assigned to a specializedsubdivision. Proper pricing standard is established. The supplier's financialreport is analyzed and audited.Problem: lack of financial planning, inaccuracy in budgeting, inaccuratecost analysis and larger price difference, mandatory price cut, and lack of costanalyst.Suggestion: Conduct extensive research before projects. Obtain accuratebudget plan. Manage supply with the sale for both long-term and short-termplanning. Evaluate production cost considering the supply and product priceand market. Larger amount suppler purchase from subdivisions should beorganized by the FAW's Purchase Management Division. Bid could be offeredto potential suppliers. Suppler price cut request should be negotiated withsuppliers according to the situation. Educate and/or recruit more cost analysts.Purchase project progress managementCurrent status: coordination between divisions involved in the process.Analyze and plan supple cost and usage. Use JIT model.Problem: In some of the projects, due to the limitation in the managementprocedure, there are timing problems in purchase and delivery.Suggestion: Link the JIT system with product resource and suppleplanning to reduce the planning error.Purchase project contract managementCurrent status: Use proper supple contract according to the projectspecification. Contracts negotiation follows standard procedure. The contract isprotected and executed.Problem: The contract management sometimes is ignored by the low levelsub-division and personnel in charge of the purchase. This is caused by thedisconnection between the contract management and the execution. It is hard toachieve "TDFJ"Suggestion: Enforce the contract law. Reduce the human error. Enforce thelegal binding with the sub-divisions involved the contract. Coordinate themanagement and execution divisions through out the contract negotiation,agreement, and execution.Purchase project information managementCurrent status: Enforce information administration. Develop andimplement purchase information management system. Preliminarily achievedsharing information.Problem: Lack of long term plan for the information management system.The expansion and maintain the purchase information management systemneeds further enhancement. The functioning of the system has not achieved thedesign specification.Suggestion: Investigate the future needs of the information network. Planinformation infrastructure construction with future goal in mind. Incorporateuser needs and feed back into the system planning. Through extensive researchand analysis make the development plan that can achieve the desiredfunctionality.Purchase project organization managementCurrent status: Make the correct purchase strategy. Establish properpurchase management division organized according to the matrix offunctionality and responsibility.Problem: There are problems in the management procedure. Thetraditional structure of the organization limits the further development. Theproject team work needs to be enforced. Non-standard purchase happenssometimes. There is conflict between the project managing and executingsubdivisions.Suggestion: Change the management method. Establish complete purchaseproject management procedure. Improve the matrix structure of theorganization. Enforce the team work. Enforce personnel education. Make use ofthe resources properly to reduce the conflict.Purchase project range managementCurrent status: The resources are properly catalogued into main andsupporting materials, parts, investment items, capital equipment, maintenance,repair, transportation, and support. Define the proper project category.Coordinate purchase orders from different subdivision in lump sum.Problem: There are difficulties in some items to follow the catalogues andpurchase range, which leads to delay the project.Suggestion: Clarify the itemized catalogue and purchase range.In summary, the current status of the FAW's purchase project managementhas been analyzed. The problems have been identified and solutions to theproblems suggested. In general, FAW's purchase management system iswell-organized and functioning to support the operation. However, some criticalimprovements are necessary for the incorporate to enhance its competitivenessto leap forward for a new era.