Jiangling Motors drives down purchasing costs with IBM and SAP

Founded in 1968, Jiangling Motors now manufactures commercial vehicles and light trucks for Japanese automotive company Isuzu. Its factories in Nanchang City, Jiangxi province, China, employ 6,000 people and serve the Chinese market, with growing exports to other countries in the Asia Pacific region, as well as the Middle East and United States of America. In 2005, Jiangling Motors achieved revenues of RMB 6,281 million (US$793 million).

Jiangling Motors puts considerable emphasis on developing new products and improving existing ones. To fund this research and development program, in the face of competition, rising raw material costs, increased regulation and a slackening rate of market growth, there is considerable pressure to increase internal efficiency and reduce operational costs.

Jiangling Motors was using a QAD enterprise resource planning (ERP) solution to manage its production processes and supply chain, but realized that it needed to control the purchasing of non-production goods as well.

“We had no central purchasing system for non-production goods – office products, IT, plant equipment, training, consultancy, insurance and so on – which are often more complex and almost always involve smaller volumes than the supplies we use directly for production,” explains Qin Chang Kun, CIO of Jiangling Motors.

“The QAD system was unable to handle these goods effectively, so we had to deal with procurement by hand, and the responsibility was devolved to a large number of individuals. This meant that purchasing took too much time, and we could not direct it strategically from the top level, so costs were relatively high.”


Restructuring and centralization

Jiangling Motors sought the advice of IBM Global Business Services, which recommended one of its Selected Business Solutions to restructure and centralize the company’s non-production goods purchasing process. Instead of each department ordering its own supplies, or heads of department laboriously seeking consensus from each other to make an enterprise-wide purchasing decision, the process would be managed using SAP materials management (MM) and Supplier Relationship Management (SRM) applications, with support from the supplier self-services capabilities.

“SAP software is a proven solution in the automotive industry, and is often considered the best business system in the world, so we were pleased when IBM Global Business Services suggested that it could solve our purchasing problems too,” comments Qin Chang Kun.

Jiangling Motor Company selected IBM because of the record of strong consulting experience with SAP software implementations, deep industry knowledge, best-practice business solutions, full value procurement methodology and the professionalism of the IBM Global Business Services consultants.

“It was a pleasure to work with IBM on this project – the consultants really understand our business sector, and have excellent project management skills; moreover the technical know-how of IBM as an organization is second to none.”


Understanding internal processes

The SAP software was implemented by IBM Global Technology Services as part of the Automotive Manufacturing Productivity Business Solution on IBM System z, System p and System x servers, with IBM DB2 Universal Database. It provides detailed information about the company’s internal demand for a variety of non-production goods, as well as the potential suppliers and their products. It also helps each department understand its own costs and consumption, helping them to budget more accurately and avoid wastage.

The SAP Supplier Self-Services component enables suppliers to make bids for a contract over the Internet, dramatically reducing the time and effort involved in the procurement process. With increasing use of this and other SAP applications, Jiangling Motors hopes to be able to shorten its supplier list, take advantage of economies of scale, and increase flexibility in the purchasing process.

“We are very excited about the ability to attract sealed bids from suppliers via the Web,” says Liu Chun Lai, vice-director of IT at Jiangling Motors. “It should greatly simplify the bidding process, saving costs and shortening the time it takes to gain the supplies we need.”

“Of course, the new system also gives a better view of the overall purchasing situation,” he adds. “If one department is buying something from one supplier and another department needs the same thing, the system shows us, and helps us save money through bulk ordering. Equally, it helps us avoid ordering similar products from different suppliers, so the expense of managing large supplier lists is avoided.”


Single, simple, centralized system

The SAP solution designed by IBM Global Business Services has delivered significant benefits to Jiangling Motors, as Liu Chun Lai explains:

“The IBM Selected Business Solution is not just about technology – it has changed the way we work. Instead of lengthy manual processing and an incomplete view of enterprise-wide operations, we have a single, simple, centralized system which delivers both direct and indirect cost savings.“

Jiangling Motors will leverage the GBS best practices from within the Automotive Manufacturing Productivity Business Solution to accelerate purchasing and simplify the entire procurement process.
Qin Chang Kun confirms the approach: “Through bulk purchasing, the cost of non-production goods has fallen by an average of 15 per cent – and in some cases, by as much as 40 per cent. There are also important savings made by the increased efficiency of the purchasing process, which is now much faster and involves considerably less manual effort for our staff.”

He concludes: “With the combination of business consultancy expertise and powerful, reliable hardware from IBM, added to the intelligent end-to-end process management capabilities of SAP software, Jiangling Motors has an ERP solution that helps keep operational costs low, enabling us to invest more in research and development and maintain our status as one of China’s leading automotive manufacturers.”