losses.DistributionWalls uses a network of independent distributors who service the street vendors andretailoutlets.DistributorsIn Beijing Walls has eight distributors with another three in Tianjin. Tianjin is 130kilometres south east of Beijing on the Yellow Sea and is effectively Beijing's port. In1996 when the Tiacang plant is fully operational it will service a network of fourdistributors in Shanghai, two distributors in Nanjing and one distributor in each of thefollowing cities: Hefei, Yangzhou, Changzhou, Wuxi, Suzou, Hangzhou and Ningbo. SeeExhibit 5 which shows a map of this region of China.The Walls sales force visits each distributor daily during the season (the warmer monthsof May to September) and once a week during the rest of the year. Orders are not takenduring these visits --they are classified by Walls as"advanced selling".The distributorsphone their orders into Walls at their own convenience. Distributors in turn call on theircustomers -- the street vendors and retail outlets -- daily in the summer months and lessfrequently at other times, and sell product from the back of the truck.Private individualcustomers pay cash for the product; government stores have 60 to 90 day accounts.6Each distributor would typically have two or three trucks. These have freezer units andare mostly either 0.9 tonnes or 2.8 tonnes in size. There are “lots of restrictions" onvehicle operations and regulations change without notice. In Shanghai city, for example,these trucks must have military plates and be driven by a PLA soldier with the Wallsvan salesman sitting next to the military driver. Walls has to pay for the drivers timeand provide meals. Regulations change without notice. In 1995 in Shanghai Wall's paidsix times the amount they had budgeted for vehicle licenses.Steve Martin, the National Sales Training Manager, of Streets Ice Cream -- theAustralian sister company to Walls -- visited the China operation a number of times toconduct training sessions for the sales force. He described one of the many culturalproblems that he has had to face:For a product like ours quality is very important. But this is not an easy messageto get across. One day Ivisited one of our distributors here in Shanghai. Out thefront of the distributor's cold store was an old man sitting on a chair.He wasturning the power on and off. When the temperature of the cold store reached thelow end of the Wall's specified range he would turn the power off.When itreached theupperend of therangehewould turnit on again.His objective was to
losses. Distribution Walls uses a network of independent distributors who service the street vendors and retail outlets. Distributors In Beijing Walls has eight distributors with another three in Tianjin. Tianjin is 130 kilometres south east of Beijing on the Yellow Sea and is effectively Beijing’s port. In 1996 when the Tiacang plant is fully operational it will service a network of four distributors in Shanghai, two distributors in Nanjing and one distributor in each of the following cities: Hefei, Yangzhou, Changzhou, Wuxi, Suzou, Hangzhou and Ningbo. See Exhibit 5 which shows a map of this region of China. The Walls sales force visits each distributor daily during the season (the warmer months of May to September) and once a week during the rest of the year. Orders are not taken during these visits - they are classified by Walls as “advanced selling”. The distributors phone their orders into Walls at their own convenience. Distributors in turn call on their customers - the street vendors and retail outlets - daily in the summer months and less frequently at other times, and sell product from the back of the truck. Private individual customers pay cash for the product; government stores have 60 to 90 day accounts.6 Each distributor would typically have two or three trucks. These have freezer units and are mostly either 0.9 tonnes or 2.8 tonnes in size. There are “lots of restrictions” on vehicle operations and regulations change without notice. In Shanghai city, for example, these trucks must have military plates and be driven by a PLA soldier with the Walls van salesman sitting next to the military driver. Walls has to pay for the drivers time and provide meals. Regulations change without notice. In 1995 in Shanghai Wall’s paid six times the amount they had budgeted for vehicle licenses. Steve Martin, the National Sales Training Manager, of Streets Ice Cream - the Australian sister company to Walls - visited the China operation a number of times to conduct training sessions for the sales force. He described one of the many cultural problems that he has had to face: For a product like ours quality is very important. But this is not an easy message to get across. One day I visited one of our distributors here in Shanghai. Out the front of the distributor’s cold store was an old man sitting on a chair. He was turning the power on and off. When the temperature of the cold store reached the low end of the Wall’s specified range he would turn the power off. When it reached the upper end of the range he would turn it on again. His objective was to
save power costs!Retail CustomersIn early 1996 there were 2,400 cabinets in the Shanghai market servicing around 3,000customers. By the end of 1996 it is planned to have 14,200 cabinets in Shanghai.7 Duringthe winter months activity“" dramatically closes with maybe 2o0 working customers” inShanghai.This seasonality also occurs in Beijing where there are 7,oo0 cabinets.Wallsbuys cabinets for USS600 each and provides them at no cost to their retail customers.Despite customers signing an exclusivity contract many of the cabinets are filled withfrozen dumplings and frozen vegetables during the winter months.OrderProcessingDistributors place their orders by ringing the Sales Assistant at the Walls office inShanghai or the office in the plant at Beijing.Orders are accepted in full pallet lots (of asingle product) only and for a minimum total order size of ten pallets. The SalesAssistantwritestheSKUs ordered ontothe SalesOrderForm(seeExhibit).InShanghai, prior to February 1996, these forms were faxed to the external third-partycold store -- the data was not sent online because adequate speed data lines were notavailable. Orders were then picked directly off the Sales Order Forms.With the Tiacangfactory and its cold store coming on stream in February 1996 the contract with theexternal cold store was terminated and the orders sent on line to Tiacang.In Beijing thesame system operated with the order entry clerk entering the order into thecomputerized order entry /picking / billing system (BPCS). An average of four ordersper day -- each of an average fifteen lines -- were received and processed at the Beijingplant. It is expected that during 1996 much the same throughput will be handled atTaicang.After the order is picked the Warehouse Supervisor prints the three-part DeliveryOrder Form (Exhibit 7). The first part is filed in the warehouse: the second part goeswith the goods to the customer; and the third part is sent to “"sales routine" (accountsreceivable).If the computer system is unavailable the Warehouse Supervisor receives the faxed salesorder form and writes the lot number (used for batch tracking) and supply location codeon it. A manual three part delivery form is prepared with the same distribution asabove. When the system becomes available the order is entered as a post shipped order.sDistribution NetworkAn external cold store is leased in both Beijing and Shanghai. In Beijing it is a 7,400 m?facility covering four floors and with a total of 3,540 pallet spaces. It is used as overflowcapacity for the plant cold store and all items are held there. In Shanghai Walls used aleased cold store at Ming Hang, an outer Shanghai suburb.This facility had 2,oo0 palletspaces, five high, and a total space of1,oo0 m2.The lease on this external cold store ranoutwhenthenewcold storeat theTaicangplantbecame operationalinFebruary1996
save power costs! Retail Customers In early 1996 there were 2,400 cabinets in the Shanghai market servicing around 3,000 customers. By the end of 1996 it is planned to have 14,200 cabinets in Shanghai.7 During the winter months activity “dramatically closes with maybe 200 working customers” in Shanghai. This seasonality also occurs in Beijing where there are 7,000 cabinets. Walls buys cabinets for US$600 each and provides them at no cost to their retail customers. Despite customers signing an exclusivity contract many of the cabinets are filled with frozen dumplings and frozen vegetables during the winter months. Order Processing Distributors place their orders by ringing the Sales Assistant at the Walls office in Shanghai or the office in the plant at Beijing. Orders are accepted in full pallet lots (of a single product) only and for a minimum total order size of ten pallets. The Sales Assistant writes the SKUs ordered onto the Sales Order Form (see Exhibit 6). In Shanghai, prior to February 1996, these forms were faxed to the external third-party cold store - the data was not sent online because adequate speed data lines were not available. Orders were then picked directly off the Sales Order Forms. With the Tiacang factory and its cold store coming on stream in February 1996 the contract with the external cold store was terminated and the orders sent on line to Tiacang. In Beijing the same system operated with the order entry clerk entering the order into the computerized order entry / picking / billing system (BPCS). An average of four orders per day - each of an average fifteen lines - were received and processed at the Beijing plant. It is expected that during 1996 much the same throughput will be handled at Taicang. After the order is picked the Warehouse Supervisor prints the three-part Delivery Order Form (Exhibit 7). The first part is filed in the warehouse: the second part goes with the goods to the customer; and the third part is sent to “sales routine” (accounts receivable). If the computer system is unavailable the Warehouse Supervisor receives the faxed sales order form and writes the lot number (used for batch tracking) and supply location code on it. A manual three part delivery form is prepared with the same distribution as above. When the system becomes available the order is entered as a post shipped order.8 Distribution Network An external cold store is leased in both Beijing and Shanghai. In Beijing it is a 7,400 m2 facility covering four floors and with a total of 3,540 pallet spaces. It is used as overflow capacity for the plant cold store and all items are held there. In Shanghai Walls used a leased cold store at Ming Hang, an outer Shanghai suburb. This facility had 2,000 pallet spaces, five high, and a total space of 1,000 m2. The lease on this external cold store ran out when the new cold store at the Taicang plant became operational in February 1996
During 1996 four new areas will be serviced from the Beijing plant: Wuhan with a 1,250m’cold store' and three distributors; Dalian with a 300 m’cold store and onedistributor; Qingdao with a 650 m? cold store and two distributors; and, Jinan with a550 m’ cold store and one distributor. Wuhan is 1,700 kilometres south of Beijing (48hours driving time)and forms a triangle with Shanghai.Dalian is an a peninsula juttinginto the Korean Sea and is 1,100 kilometres east of Beijing (35 hours driving time).Qingdao is 900 kilometres down the coast from Beijing (24 hours driving time).Jinan is500 kilometres south of Beijing (15 hours driving time).Within the Shanghai region in 1996 two distributors will operate in Nanjing and one inHefei, Yangzhou, Changzhou, Wuxi, Suzou, Hangzhou and Ningbo.These cities are allwithin a 4o0 kilometer radius of Shanghai in the Yangtze river basinWalls does not own or operate any line haul vehicles. They use two third party carriers.A sample of some of the rates charged in 1995were:Beijing to Tianjin1890 RMBpertrip; Wuhan to Guangzhou 15 RMB per kilometre; Beijing to Qingdao, Dalian or Jinan13.5 RMB per kilometre. Drivers on these runs are paid 1,700 RMB per month workingan eight hour five day week -- this would work out at around 66o RMB for a Beijing toWuhan orShanghaitrip.In 1995Wall's used a local company Rufei (Hong Kong joint venture) to ship product tothe Shanghai market from the plant in Beijing. They transported two million litres ofproduct in 40 foot containers each holding 18 pallets.0 In transit damage occurred tolessthan500cartons.For 1996 a contract has been negotiated with TNT to do all the line haul transport. TNTinitially proposed its "world wide open book approach” with TNT providing the rollingstock which would be depreciated over eight years. Wall's would pay TNT the actualcost of the line haul operations plus 8 per cent overheads and 10 per cent profit. Thiswas not acceptable to Wall's who“needed a fixed transport cost." Costs were dividedinto fixed costs, operating costs and standing costs and Wall's negotiated a fixedcontract for 1996 with an option of extending the contract for another three years. Forthe Shanghai region four 8 tonne rigids with ten pallet capacity and costing USs55,o00and three 40 foot trailers with twenty pallet capacity and costing USS120,000 (notincluding the prime mover) will be required.NationalInfrastructureA number of major transport infrastructure projects are either planned or underweightin China.A two lane highway linking Hong Kong and Beijing is planned to open in 1997.Another new two lane highway links Shanghai and Nanjing.In February1996 AsianDevelopment Bank loans were granted to China for a number of "projects including anexpressway in Chongqing, Sichuan Province, an expressway linking Jiujiang toJingdezhen in Jiangxi Province ... and a railway linking Daxian and Wanxian in SichuanProvince."1lWhile the level of investment is large (Asian Development Bank loans, for example, have
During 1996 four new areas will be serviced from the Beijing plant: Wuhan with a 1,250 m2 cold store9 and three distributors; Dalian with a 300 m2 cold store and one distributor; Qingdao with a 650 m2 cold store and two distributors; and, Jinan with a 550 m2 cold store and one distributor. Wuhan is 1,700 kilometres south of Beijing (48 hours driving time) and forms a triangle with Shanghai. Dalian is an a peninsula jutting into the Korean Sea and is 1,100 kilometres east of Beijing (35 hours driving time). Qingdao is 900 kilometres down the coast from Beijing (24 hours driving time). Jinan is 500 kilometres south of Beijing (15 hours driving time). Within the Shanghai region in 1996 two distributors will operate in Nanjing and one in Hefei, Yangzhou, Changzhou, Wuxi, Suzou, Hangzhou and Ningbo. These cities are all within a 400 kilometer radius of Shanghai in the Yangtze river basin. Walls does not own or operate any line haul vehicles. They use two third party carriers. A sample of some of the rates charged in 1995 were: Beijing to Tianjin 1890 RMB per trip; Wuhan to Guangzhou 15 RMB per kilometre; Beijing to Qingdao, Dalian or Jinan 13.5 RMB per kilometre. Drivers on these runs are paid 1,700 RMB per month working an eight hour five day week - this would work out at around 660 RMB for a Beijing to Wuhan or Shanghai trip. In 1995 Wall’s used a local company Rufei (Hong Kong joint venture) to ship product to the Shanghai market from the plant in Beijing. They transported two million litres of product in 40 foot containers each holding 18 pallets.10 In transit damage occurred to less than 500 cartons. For 1996 a contract has been negotiated with TNT to do all the line haul transport. TNT initially proposed its “world wide open book approach” with TNT providing the rolling stock which would be depreciated over eight years. Wall’s would pay TNT the actual cost of the line haul operations plus 8 per cent overheads and 10 per cent profit. This was not acceptable to Wall’s who “needed a fixed transport cost.” Costs were divided into fixed costs, operating costs and standing costs and Wall’s negotiated a fixed contract for 1996 with an option of extending the contract for another three years. For the Shanghai region four 8 tonne rigids with ten pallet capacity and costing US$55,000 and three 40 foot trailers with twenty pallet capacity and costing US$120,000 (not including the prime mover) will be required. National Infrastructure A number of major transport infrastructure projects are either planned or underweight in China. A two lane highway linking Hong Kong and Beijing is planned to open in 1997. Another new two lane highway links Shanghai and Nanjing. In February 1996 Asian Development Bank loans were granted to China for a number of “projects including an expressway in Chongqing, Sichuan Province, an expressway linking Jiujiang to Jingdezhen in Jiangxi Province . and a railway linking Daxian and Wanxian in Sichuan Province.”11 While the level of investment is large (Asian Development Bank loans, for example, have
averaged over the last few years between USS1.2 billion and USS1.5 billion per year) thebase is low. Also the variety of traffic using these new roads is such that truck speedsare limited to around 40 kilometres per hour.ManufacturingIce cream manufacture is done in two basic stages: mix preparation in bulk and thenproduction of the individual retail items. Wall's manufacturing facilities in Beijing andTaicang are very similar. See the layout of the Tiacang plant shown in Exhibit 8.MixPreparationThe mix preparation section of the plant comprises a number of tanks and pipes linkingeach manufacturing step. The plant (mix preparation area and the production floorfacilities) are automatically cleaned by a system called CIP or cleaning-in-place. Threetanks -- holding cold water, hot water and detergent, together with a washing water tankand associated pumping facilities comprise the CiP. All raw materials such as baggedsugar, milk powder, flavours, colours and stabilizers together with the liquidingredients such as rework, coconut and palm oil and water are loaded in batches intopremix mixers. From here the premix is pumped into the pasteurizer and then,for nonwater ice products, into the homogenizer. The product is then cooled and stored in afarm of eighteen mix storage tanks. The mix has to be held in storage for a minimum of24 hours before it can be used in production.ProductionFloorProduct is pumped from the storage tanks to the production floor through 20 mm pipes.Theproduction floorhas four lines where the retail products are made and packed.After being "shaped and moulded" the product moves into freezer tunnels. Afterspecific times in the freezer tunnels the product then moves onto the wrapping machine.After wrapping the product travels onto conveyor packing lines.Cartons are packedmanually on the conveyor as it moves to the palletizing area. All conveyor lines merge atthe palletizing area. Here the cartons are stacked by hand onto pallets. The palletizedproduct then goes through a hole in the factory wall and into the cold store.PlantWorkforceThe Beijing plant operates with a full time workforce of 100 people. In addition are 250to 300 seasonal workers who are employed mainly during the peak demand betweenJune and August. Most seasonal are employed as packers for a period of six to eightmonths at a pay rate of 4oo RMB per month.2 If they return the following year they arepaida 1,ooo RMB bonus after completing their third month of re-employment.Morethan 85 per cent do return each year. Line operators are paid more -- between 600 and8oo RMB per month depending upon their length of employment with Wall's.Lineworkers and packers are initially employed for a three month trial period during whichthey can be fired. Supervisors, shift leaders and managers are University graduates.Aline supervisor (one for each production line for each shift)are paid up to 1500 RMBper month. Area supervisors -- responsible for either the mixing or the finishing areas --
averaged over the last few years between US$1.2 billion and US$1.5 billion per year) the base is low. Also the variety of traffic using these new roads is such that truck speeds are limited to around 40 kilometres per hour. Manufacturing Ice cream manufacture is done in two basic stages: mix preparation in bulk and then production of the individual retail items. Wall’s manufacturing facilities in Beijing and Taicang are very similar. See the layout of the Tiacang plant shown in Exhibit 8. Mix Preparation The mix preparation section of the plant comprises a number of tanks and pipes linking each manufacturing step. The plant (mix preparation area and the production floor facilities) are automatically cleaned by a system called CIP or cleaning-in-place. Three tanks - holding cold water, hot water and detergent, together with a washing water tank and associated pumping facilities comprise the CIP. All raw materials such as bagged sugar, milk powder, flavours, colours and stabilizers together with the liquid ingredients such as rework, coconut and palm oil and water are loaded in batches into premix mixers. From here the premix is pumped into the pasteurizer and then, for non water ice products, into the homogenizer. The product is then cooled and stored in a farm of eighteen mix storage tanks. The mix has to be held in storage for a minimum of 24 hours before it can be used in production. Production Floor Product is pumped from the storage tanks to the production floor through 20 mm pipes. The production floor has four lines where the retail products are made and packed. After being “shaped and moulded” the product moves into freezer tunnels. After specific times in the freezer tunnels the product then moves onto the wrapping machine. After wrapping the product travels onto conveyor packing lines. Cartons are packed manually on the conveyor as it moves to the palletizing area. All conveyor lines merge at the palletizing area. Here the cartons are stacked by hand onto pallets. The palletized product then goes through a hole in the factory wall and into the cold store. Plant Workforce The Beijing plant operates with a full time workforce of 100 people. In addition are 250 to 300 seasonal workers who are employed mainly during the peak demand between June and August. Most seasonal are employed as packers for a period of six to eight months at a pay rate of 400 RMB per month.12 If they return the following year they are paid a 1,000 RMB bonus after completing their third month of re-employment. More than 85 per cent do return each year. Line operators are paid more - between 600 and 800 RMB per month depending upon their length of employment with Wall’s. Line workers and packers are initially employed for a three month trial period during which they can be fired. Supervisors, shift leaders and managers are University graduates. A line supervisor (one for each production line for each shift) are paid up to 1500 RMB per month. Area supervisors - responsible for either the mixing or the finishing areas -