Case 1

Jiangshan Machinery Works
May 30, 2007

(1) Why should the purchasing department be converted into a company?

(2) What kind of company model should be chosen?

(3) What is your evaluation of the proposed company model?

(4) What alternative company model do you propose?

To come

Executive summary:

Jiangshan is a state Owned Enterprise Company established in 1949 and is one of the biggest premier manufacturers of machine tools in China.  Thecompany has basically to types of manufacturing lines, standardized and tailor-made. Selection of human resources was based on SOE “full employment” policies. Under the planned economy government controlled enterprises.

After china entered into WTO (world trade organization), many multinational companies have established their businesses in China. Due to changed macro environment, Jiangshan was meeting increased competition. In order to meet these challenges, they had to consider major changes in their business setup. There were several problems which Jiangshan was supposed to solve internally due to low efficiency, lack of responsibility among employees, high payroll, low product margin, lack of motivation among employee, less efficient processes, surplus of employees etc. They identified their major cost to be material cost. They realized that their material cost was higher than their main competitors. Therefore they decided to look into the purchasing department. 

Jiangshan hired MBA consultants to propose two business models to be able to fix the current problem in the purchasing department. The two business models presented in the case are the Branch and Subsidiary Models. We propose our model based on the evaluation of the comparative advantages and disadvantages from the management and employees’ perceptions between the two models. It is worth noting that, we will also evaluate our analysis in the context of all SOEs in China and therefore certain assumptions may be misleading when put in other contexts. The company model with less risk profile will be chosen.

Restructuring the purchasing department will have limited effect on the company performance. To be able to maintain its premium status as a manufacturing company the whole firm needs to restructured. A hierarchical structure is proposed to create transparency and accountability. Measurable work processes will make it possible to implement reward/incentive systems, this will increase motivation and secondly efficiency.

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