Walls(China)Co.,Ltd.:LogisticsOperationsStartupByPeter GilmourProfessorof Managementof.:Macquarie UniversityAustraliaThiscase waspreparedas abasis for class discussion ratherthanto illustrate effective orineffectivehandlingof an administrativesituationLOGISTICSCASESTUDYDEVELOPED FOR:COUNCILOFLOGISTICSMANAGEMENT
Walls (China) Co., Ltd.: Logistics Operations Startup By Peter Gilmour Professor of Management of: Macquarie University Australia This case was prepared as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. LOGISTICS CASE STUDY DEVELOPED FOR: COUNCIL OF LOGISTICS MANAGEMENT
Walls (China) Co., Ltd.LogisticsOperations StartupIn mid1994the Unilever company Walls (China)Co started manufacturing and sellingice cream inChina.Bob Smith,theGeneral Manager of Wall's outlined some of thechallenges:Operating in China means a number of new concepts for the Chinese managers -profit, selling and customer service. The Chinese manager of the past sat in hisoffice and the customers came to him. It was absolutely a supply driven market.Iread in an official report some time ago a list of phrases that should not be usedwhentalkingtocustomers.The list included"Go awayand don't wastemytimeand 'Can't you hear? Are your ears dirty?' This has now changed and a key tosuccess is getting our product out to the customers. Distribution costs here are 20percent ofMPScompared to5percentinEurope.As Loic Courant, Bob Smith's Commercial Manager in Shanghai, summarized thesituation:Hewhowins logistics wins China.Unileverin ChinaUnileveris anAnglo-Dutchcompanythat has over500operatingunits in75countriesThe company markets over 10oo brands, including margarine, soap,food products,cleaning products, personal care products and specialty chemicals, and employs over300,000peopleworldwide.Revenuesin1994wereSUS42billion.In the 1920s Unilever established a soap operation in China which was nationalized inthe 1950s. The company returned to China in 1986 and by1996 operated ninebusinesses there.I Anton Lenstra, Chairman of Unilever China, described Unilever'scurrent activities in China:China is one of Unilever's greatest challenges of the next few decades. We oftentalkabout growthin ourworldwide businesses, but China is like sitting on thenose-cone of a rocket and we have already ignited the fuel. In the last two yearsalone we've seen the birth of Wall's Beijing, the building of another Wall'sfactory in Shanghai, the construction of a new detergents plant in Minhang, thejoint venture with Zhanjiakou Detergents, the start up of Lipton Guangzhou andthe launch of a whole shopping basket of excellent global Unilever brands. Withthe continuing support and hard work of all our employees across this greatcountry, Iam sure that we will be successful in our drive to deliver profitablegrowth.2In formal terms Unilever (China) Ltd details its objectives in China in the following way:
Walls (China) Co., Ltd. Logistics Operations Startup In mid 1994 the Unilever company Walls (China) Co started manufacturing and selling ice cream in China. Bob Smith, the General Manager of Wall’s outlined some of the challenges: Operating in China means a number of new concepts for the Chinese managers - profit, selling and customer service. The Chinese manager of the past sat in his office and the customers came to him. It was absolutely a supply driven market. I read in an official report some time ago a list of phrases that should not be used when talking to customers. The list included “Go away and don’t waste my time’ and ‘Can’t you hear? Are your ears dirty?’ This has now changed and a key to success is getting our product out to the customers. Distribution costs here are 20 per cent of MPS compared to 5 per cent in Europe. As Loic Courant, Bob Smith’s Commercial Manager in Shanghai, summarized the situation: He who wins logistics wins China. Unilever in China Unilever is an Anglo-Dutch company that has over 500 operating units in 75 countries. The company markets over 1000 brands, including margarine, soap, food products, cleaning products, personal care products and specialty chemicals, and employs over 300,000 people worldwide. Revenues in 1994 were $US42 billion. In the 1920s Unilever established a soap operation in China which was nationalized in the 1950s. The company returned to China in 1986 and by 1996 operated nine businesses there.1 Anton Lenstra, Chairman of Unilever China, described Unilever’s current activities in China: China is one of Unilever’s greatest challenges of the next few decades. We often talk about growth in our worldwide businesses, but China is like sitting on the nose-cone of a rocket and we have already ignited the fuel. In the last two years alone we’ve seen the birth of Wall’s Beijing, the building of another Wall’s factory in Shanghai, the construction of a new detergents plant in Minhang, the joint venture with Zhanjiakou Detergents, the start up of Lipton Guangzhou and the launch of a whole shopping basket of excellent global Unilever brands. With the continuing support and hard work of all our employees across this great country, I am sure that we will be successful in our drive to deliver profitable growth.2 In formal terms Unilever (China) Ltd details its objectives in China in the following way:
Unilever has every confidence in the continuing growth of the Chinese economyand every year increases its investment in the People's Republic of China. Thus,there is a need for co-ordination of the new investments with existing activities inChina. Unilever (China) Ltd provides this co-ordination [ by providing thecapabilityl:to manage and co-ordinate long term investment in China;：to co-ordinate, advise and support the UJVs [Unilever joint ventures];:to provide both established and advanced technology to the UJVs in theirproduction, application and development of consumer products;.to provide financial assistance to the UJVs;to promote and co-ordinate both the export and local sales of products of.UJVs and toestablishandexpandtheirlocal and internationalmarkets;to provide consumers with better and more varieties of products andservices;.to help balance the foreign exchange income and expenditure of the UJVs;to provide extensive training programmes for personnelfrom the UJVs.3-By 1996 Unilever had nine operations in China with most of them based in Shanghai.(See the map of China shown as Exhibit 1),These were Shanghai Lever Co Ltd (makingsuch brands as Lux soaps, Jif cleansers and Lifebuoy soaps), Shanghai Pond's Co Ltd(manufacturing skin care brands such as Pond's, Vaseline Intensive Care and Pears),Shanghai Van den Bergh Co Ltd (manufacturing bakery fats and ice cream), Unilever(Shanghai) Co Ltd (detergent powders including OMO), Unilever (Shanghai)ToothpasteCoLtd (makingZhong Hua, Maxim and Signal toothpaste),Shanghai SoapCo Ltd (toilet and laundry soap including the brands Fan, Baili, Guben and Bee &Flowers), Wall's (China) Co Ltd (manufacturing in two plants Magnum, Cornetto,Calippo, Paddle Pop, Mini Milk and Split ice creams and ices), Zhangjiakou UnileverDetergent Co Ltd (operating a plant in Zhanggjiakou in Hebei Province which producesYunquan brand powder and liquid detergents) and Guangdong Lipton Foods Co Ltd(producing Lipton teas in a plant in Guangzhou).Wall's China StartUpGeoff Sennitt was asked in 1992 to move from his position as Managing Director of theUnilever ice cream operation in Australia, Streets Ice Cream, to participate in a fourperson international study group to evaluate the potential of ice cream operations inChina.The first task of this group was to examine the national market. They concluded that ofthe 1.2 billion people in China about 250 million were easily accessible --those living inthe"golden triangle” extending up the Yangzi River valley and in the broad stripbetween Guangzhou and Beijing centered on Wuhan. In China there are one hundredcities with a population of one million people or more and most of them lie in this area.Atotal of 350 million people live in cities; others live “in the middle of nowhere".Next was the task of determining the spending power of this target group. Bob Smith,the General Manager of Walls (China) described some potential pitfalls in this process:
Unilever has every confidence in the continuing growth of the Chinese economy and every year increases its investment in the People’s Republic of China. Thus, there is a need for co-ordination of the new investments with existing activities in China. Unilever (China) Ltd provides this co-ordination [ by providing the capability]: · to manage and co-ordinate long term investment in China; · to co-ordinate, advise and support the UJVs [Unilever joint ventures]; · to provide both established and advanced technology to the UJVs in their production, application and development of consumer products; · to provide financial assistance to the UJVs; · to promote and co-ordinate both the export and local sales of products of UJVs and to establish and expand their local and international markets; · to provide consumers with better and more varieties of products and services; · to help balance the foreign exchange income and expenditure of the UJVs; · to provide extensive training programmes for personnel from the UJVs.3 By 1996 Unilever had nine operations in China with most of them based in Shanghai. (See the map of China shown as Exhibit 1). These were Shanghai Lever Co Ltd (making such brands as Lux soaps, Jif cleansers and Lifebuoy soaps), Shanghai Pond’s Co Ltd (manufacturing skin care brands such as Pond’s, Vaseline Intensive Care and Pears), Shanghai Van den Bergh Co Ltd (manufacturing bakery fats and ice cream), Unilever (Shanghai) Co Ltd (detergent powders including OMO), Unilever (Shanghai) Toothpaste Co Ltd (making Zhong Hua, Maxim and Signal toothpaste) , Shanghai Soap Co Ltd (toilet and laundry soap including the brands Fan, Baili, Guben and Bee & Flowers), Wall’s (China) Co Ltd (manufacturing in two plants Magnum, Cornetto, Calippo, Paddle Pop, Mini Milk and Split ice creams and ices), Zhangjiakou Unilever Detergent Co Ltd (operating a plant in Zhanggjiakou in Hebei Province which produces Yunquan brand powder and liquid detergents) and Guangdong Lipton Foods Co Ltd (producing Lipton teas in a plant in Guangzhou). Wall’s China Start Up Geoff Sennitt was asked in 1992 to move from his position as Managing Director of the Unilever ice cream operation in Australia, Streets Ice Cream, to participate in a four person international study group to evaluate the potential of ice cream operations in China. The first task of this group was to examine the national market. They concluded that of the 1.2 billion people in China about 250 million were easily accessible - those living in the “golden triangle” extending up the Yangzi River valley and in the broad strip between Guangzhou and Beijing centered on Wuhan. In China there are one hundred cities with a population of one million people or more and most of them lie in this area. A total of 350 million people live in cities; others live “in the middle of nowhere”. Next was the task of determining the spending power of this target group. Bob Smith, the General Manager of Walls (China) described some potential pitfalls in this process:
The data is very suspect.We looked at the GNP of the coastal strip.But weconsidered the quality of this GNP data. Was this GNP being generated by Stateowned companies? We felt that non State generated GNP indicated a morevibrant long term commercial future. From this we generated cities of interest tous and then a distribution profile of these cities. Time not distance was theimportant factor. From this process we determined a footprint of where we wouldlike to be in China in ten years time.Per capita GNP for China as a whole in 1993 was 2663RMB and for seven major citieswas:11,989GuangzhouShanghai11,6998,237Beijing6,075TianjinWuhan4,7005,550QindaoShenyang6,141Walls bought the results of a survey of around 35,000 urban households done in 1992and 1993. Some of the results are shown in Exhibit 2. Annual real income per capita inurban China was 2,583 RMB compared to 922 RMB in rural areas. For key cities in1993,annual real per capita income was 4,640RMB inGuangdong,4,297RMBinShanghai, 3,548 RMB in Beijing and 2,769 RMB in Tianjin. The survey also collecteddata on durable consumer goods which is shown in Exhibit 3.Another important role of the study team was to identify a joint venture partner. At thattime in China industries were consolidated into ministries of the central government. Icecream and detergents were the responsibility of the Ministry of Light Industry. In theearly 1990s these ministries were semi-privatized -- the Ministry of Light Industrybecame the Council of Light Industry.This process generated a number oforganizational shells which were used to form joint ventures. One of these was Sumstar.Mr Wu, with whom Unilever had a good working relationship at the Ministry of LightIndustry,becamehead of Sumstar.Sumstar agreedtobecomeaminorityjointventurepartner in Wall's (China) with responsibility for personnel and public and governmentrelations.As a results of its initial investigations (stage 1 in the plan below) the study grouprecommended that Unilever start ice cream operations in China and proposed thefollowingrolloutplan:Stage1Determine population and GNP of all ChinesecitiesEstablishurbanandrural GNPGroup cities by areas
The data is very suspect. We looked at the GNP of the coastal strip. But we considered the quality of this GNP data. Was this GNP being generated by State owned companies? We felt that non State generated GNP indicated a more vibrant long term commercial future. From this we generated cities of interest to us and then a distribution profile of these cities. Time not distance was the important factor. From this process we determined a footprint of where we would like to be in China in ten years time. Per capita GNP for China as a whole in 1993 was 2663 RMB and for seven major cities was: Guangzhou 11,989 Shanghai 11,699 Beijing 8,237 Tianjin 6,075 Wuhan 4,700 Qindao 5,550 Shenyang 6,141 Walls bought the results of a survey of around 35,000 urban households done in 1992 and 1993. Some of the results are shown in Exhibit 2. Annual real income per capita in urban China was 2,583 RMB compared to 922 RMB in rural areas. For key cities in 1993, annual real per capita income was 4,640 RMB in Guangdong, 4,297 RMB in Shanghai, 3,548 RMB in Beijing and 2,769 RMB in Tianjin. The survey also collected data on durable consumer goods which is shown in Exhibit 3. Another important role of the study team was to identify a joint venture partner.4 At that time in China industries were consolidated into ministries of the central government. Ice cream and detergents were the responsibility of the Ministry of Light Industry. In the early 1990s these ministries were semi-privatized - the Ministry of Light Industry became the Council of Light Industry. This process generated a number of organizational shells which were used to form joint ventures. One of these was Sumstar. Mr Wu, with whom Unilever had a good working relationship at the Ministry of Light Industry, became head of Sumstar. Sumstar agreed to become a minority joint venture partner in Wall’s (China) with responsibility for personnel and public and government relations. As a results of its initial investigations (stage 1 in the plan below) the study group recommended that Unilever start ice cream operations in China and proposed the following roll out plan: Stage 1 Determine population and GNP of all Chinese cities Establish urban and rural GNP Group cities by areas
Stage2Grade cities by population and by GNPEstimatepercapita consumption byGNPforeach cityforten yearsProject population growthForecast Wall's market share by yearsEstablish existing and future road conditionSelect sales areas and methods of distribution and salesCalculate projected distribution costsStage3Roll out plan by areas by yearsProvide sales and distribution assets byareas by year andpeoplerequirement by functionBy the beginning of 1996 Wall's (China) had built two world class manufacturing plantsin Beijing and Shanghai and was selling product into these two cities and into theregions around them. The structure of Wall's (China) is shown in Exhibit 4.Plant ConstructionBuilding is relatively expensive in China -- " materials are expensive, machinery is veryexpensive,labouris cheap."The Beijing plant was built on a 52,000 m? site in the Beijing Economic andTechnological Development Zone located a half hour drive south of the Beijing CBD.Wall's negotiated a 50 year lease.Building costs were USS1,000 per m?for general areassuch as office space and between USS1,500 and S2,000 per m? for the production areas.5As an example, the equipment costs for a production line were S1.34 million (USdollars).A case packer was considered. This machine automatically erects (forms) the fibreboardcarton,packs it(fourat a time)withproductand seals it.It operates at36o conesperminute,costsUSs800,000 and would save14people.Thecasepackerwas ordered butthe orderwas later cancelled.Construction began on the Beijing plant in July 1993 and the first ice cream was on themarket eleven months later. All the appropriate permits to built the plant were obtainedin the first six months of the project.The Shanghai plant is 60 kilometres from the Shanghai CBD, located in an industrialpark in Taicang in Jiamgsu Province. This plant is almost identical to the Beijing plant.It is located on a 64,000 m? site leased for 50 years from the Provincial government.Construction cost USs37.5million without the land andfull productioncommenced inMarch 1996.Arnold van Weezel, the General Technical Manager, described the overall strategy forthesefacilities:We have followed a philosophy in these plants of running them relatively slowlyso that we don't make rejects.Our aim is toreduce production costs and material
Stage 2 Grade cities by population and by GNP Estimate per capita consumption by GNP for each city for ten years Project population growth Forecast Wall’s market share by years Establish existing and future road condition Select sales areas and methods of distribution and sales Calculate projected distribution costs Stage 3 Roll out plan by areas by years Provide sales and distribution assets by areas by year and people requirement by function By the beginning of 1996 Wall’s (China) had built two world class manufacturing plants in Beijing and Shanghai and was selling product into these two cities and into the regions around them. The structure of Wall’s (China) is shown in Exhibit 4. Plant Construction Building is relatively expensive in China - “materials are expensive, machinery is very expensive, labour is cheap.” The Beijing plant was built on a 52,000 m2 site in the Beijing Economic and Technological Development Zone located a half hour drive south of the Beijing CBD. Wall’s negotiated a 50 year lease. Building costs were US$1,000 per m2 for general areas such as office space and between US$1,500 and $2,000 per m2 for the production areas.5 As an example, the equipment costs for a production line were $1.34 million (US dollars). A case packer was considered. This machine automatically erects (forms) the fibreboard carton, packs it (four at a time) with product and seals it. It operates at 360 cones per minute, costs US$800,000 and would save 14 people. The case packer was ordered but the order was later cancelled. Construction began on the Beijing plant in July 1993 and the first ice cream was on the market eleven months later. All the appropriate permits to built the plant were obtained in the first six months of the project. The Shanghai plant is 60 kilometres from the Shanghai CBD, located in an industrial park in Taicang in Jiamgsu Province. This plant is almost identical to the Beijing plant. It is located on a 64,000 m2 site leased for 50 years from the Provincial government. Construction cost US$37.5 million without the land and full production commenced in March 1996. Arnold van Weezel, the General Technical Manager, described the overall strategy for these facilities: We have followed a philosophy in these plants of running them relatively slowly so that we don’t make rejects. Our aim is to reduce production costs and material