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Cost Management in Automotive Industry Innovation Strategy


Abstract: The accession to the WTO, foreign auto companies at low cost as the basis for price competition, accounting for China's auto market competition. China's car production capacity of enterprises widespread underemployment, management, backward technology, high production costs and other issues. To increase the competitiveness of our cars should be the introduction of advanced management techniques, the implementation of innovative cost management strategies. Keywords: Automotive industry; Cost Management Innovation the world auto market in recent years, the auto giant's fierce competition embodied in lowering costs. Major automotive groups have employed a As the world's largest potential auto market with China, the WTO's next few years, the auto industry is full of opportunities and challenges, will be a full range of impact and shock. Price competition is the automobile enterprises in China after WTO accession and the world automotive giants can not avoid competition. Thus reducing the cost of vehicles is the inevitable choice for China's automobile industry. 1, China's automobile industry after WTO accession the foreign auto companies face the challenge 1.1, foreign auto companies at low cost as the basis for price competition foreign auto companies into the emerging market strategy has always been based on cost, low-price competition strategy to seize the market. Strategy from the use of price competition effect, the low price can make a business in competition with rivals, the collapse of the loyalty of customers to other brands, and then open up their brand and capture the market share. Therefore, foreign auto manufacturers have sought ways to reduce costs to meet price competition. during the price competition strategy, foreign auto enterprises in China's WTO accession, China has begun to attach importance to the market economy to adapt to the development and manufacture of cars. Recently, Japanese car companies introduced more than 20 varieties of 9 models of economy cars, for sale are located in U.S. dollars between 7000-8000; Ford and the worn - g has launched in the 7000-8000 dollar price of the economy between car; Mercedes-Benz has also launched the These economy cars are with our price position, measure impact. 1.2, the cost comparison of Chinese and foreign auto companies Chinese and foreign auto companies will do a cost comparison, China's auto enterprises are obviously at a disadvantage. Japan, for example, Toyota to In June 1974 -1976 in December, the amount of the company's cost reduction up to 650 billion yen, the Corporation's annual contribution to the profit costs are maintained at 10% or more. with three major Japanese auto companies have adopted In 1998-1999, three major Japanese auto company's cost of sales rate of the two companies showed decline. 1998 Toyota 78.3% to 77.1% in 1999; Honda from 69.1% in 1998 to 67.7% in 1999. from our current situation, the cost of auto companies are showing slow decline. FAW Group's cost of sales increased from 86.2% in 1998 to 85.7% in 1999; Dongfeng Group in 1998, 88.2% to 82.7% in 1999; Beijing Automotive, SAIC, from 92.9% in 1998 , 75.7%, down to 90.2% in 1999, 74.7%. SAIC is the lowest cost of sales of the manufacturers, only 74.7%. This is so mainly because of its flagship product - It is noteworthy that, as gradually moving towards the same cost of sales will lead to increase in the rate of SAIC. Although the cost of auto companies reduce the trend, albeit slowly, but compared with the three car makers, there is still a large gap. China's auto enterprises higher cost of sales for two main reasons. First, the market is currently China's dozens of models, the vast majority of imported or imitation of foreign products 80 years of the 20th century, you need to pay large sums of money to the partners for technology transfer fees, high prices and commitment to the foreign purchase of key components high-wage workers; Second, although the introduction of the 20th century, the production line 80 years of technology and products are mature and stereotypes, but less than the production volume economies of scale points, resulting in huge high fixed costs, which lead directly to cost of sales rate of auto companies increased. 2, China's automobile industry's own problems and opportunities 2.1, the problem 2.1.1, the production capacity is generally under- China's auto production business in the design of the car on the assembly line have reached economies of scale production, but the actual output common point of failure to achieve economies of scale. End of 2000, China has built with the annual output of 3,000,000 cars (cars with an annual output 1.2 million) of production capacity, but only the year 2000 the production of 2.06 million vehicles, accounting for 68.6% of production capacity. Car production reached 600,000, the production capacity of 50%. Table 1 shows the major automobile manufacturers in China in 2000 capacity utilization. can be seen from Table 1, 2000, Shanghai Volkswagen and FAW Volkswagen's car production capacity utilization was higher, at 73%; Shanghai GM, Chang'an Auto, Dongfeng Shenlong capacity utilization is only about 30%. The serious capacity utilization is not full, cars are a direct result of high fixed costs. Meanwhile, the actual production of automobile companies failed to achieve economies of scale, also led to high car prices, thereby inhibiting the market demand, so China's automobile industry formed a → → high cost of high prices and insufficient demand, significant economies of scale automobile industry, the greatest impact on production costs is the production volume, if the annual production output to meet the design program, product price reduction is inevitable. At present, China's car market demand is only 60-70 million. Not demand to reach an annual output of automobile manufacturing companies the size of one million cars, is clearly unrealistic. Needs of the market has hampered China's automotive enterprises. Perth UK Maxi and Sears automotive production line by the cost of doing long-term average results show that: 1 the smallest car line, the best scale is the annual output of 60 000 -10 million. Therefore, the reality of China's auto enterprises should first automobile production line to make a single minimum optimal scale (-10 annual output of 60,000 units), then economies of scale through the formation of the same production lines, expanding production capacity to achieve economies of scale production. Since then, demand growth and expansion in the case of exports, reaching an annual output of 1 million corporate economies of scale. 2.1.2, enterprise management technology behind management technology behind China's first in the basis of weak management of the enterprise itself, most businesses are run by state-owned enterprises through restructuring, equity or Holding method developed, the management structure, mostly from a planned economy state-owned enterprises, the larger part of the lack of modern enterprise management quality. excessive administrative intervention in local government, tied to a large extent independent of the management capacity of enterprises to play. China's auto companies face the market, was artificially divided into the local market and foreign markets, local governments on the protection of the local auto companies, foreign cars into the local market to set a variety of barriers. This not only led to car companies to enter foreign markets to pay high costs, but also inhibited the auto companies to improve their management of local innovation initiative. 2.2, opportunities China's automobile industry, to develop a strong 2-3 furniture internationally competitive large enterprise groups. major reorganization of China's auto industry opened the curtain, so that enterprises on the scale and efficiency. China's automobile industry, ambitions. Development of China Automobile Industry is now with the ability of low-priced economy cars, so the domestic auto companies, this is a huge market opportunity. 3, the introduction of advanced management technology, innovation and cost management 3.1, change the strategic cost management thinking implementation costs cost strategy is different from the traditional cost reduction approach. It is fixed on the target market to competition, cost center, by using unique technology, raw material purchasing channels with favorable economies of scale properties and to operate, so as to achieve the lowest cost in the same industry, the industry competitors below the price to get significant market share strategy. build low-cost position, so that enterprises in determining the industry with the lowest possible price on the decision to reduce costs or become the leader, there are more opportunities to gain excess profits. cost strategy through market research, identify product features that consumers want, and then set up the product's target cost. The cost of pre-defined product target cost ceiling, the actual consumption during the manufacturing process provides the cost of no more than this limit, and then to design, engineering, purchased materials and other departments work together to achieve the target cost. Cost strategy requires only the amount of the final process to achieve the goal of cost reduction, can enter the actual manufacturing stage, or are still squeeze through the multi-cycle cost, so the actual cost to target cost goals. cost strategy will change the cost standpoint, to shift from the traditional production site to the product planning, concept and design stage; from the downstream business chain transfer to the source. Intuitively, in the design phase will take place on the virtual product cost accounting, development of new products can greatly reduce the cost. the cost of the key strategies is to determine the target cost, that is, new product development and design process, the actual target profit and cost targets to be achieved. It can be expressed as: target cost two expected sales price - target profit. Target cost is the cost of business the maximum amount allowed. expected sales price competitors in the same industry in comparison to similar products available, taking into account the other companies to similar products currently has a market share may reach the market capacity, whether their own sales and distribution system sound (sales network staff proficiency) and commodity strategies. Target profit must take into account many factors, not only from the business concept of operations, business policy and business strategy of departure, but also taking into account the company's long-term investment plans, research and development plans, medium-term profit plans and the use of retained earnings within the plan and other factors. 3.2, to improve labor value-added rate new ideas, eliminate waste, improve labor value-added rate is one of the principal means to reduce costs. Production waste can be divided into the following 7. a. excessive production of waste, the most typical is the work of ultra-progress, resulting in the product backlog, and production moved or stacked to increase the work product; b. slowdown caused by the waste; c. waste transportation links; d. processing their own waste; e. waste inventory, inventory the greater the amount of funds used more; f. operational waste; g. made of defective waste. in small quantity and variety produced mixed case, because the number of changes in production and more waste of production become more serious. To change this situation, first of all, the switching equipment required to shorten debugging time, at any time according to production needs to switch debugging equipment to meet the post-production process instructions or customer demand, so production of the reality of the process of final demand and product demand step. Second, to reduce the transport volume, even if the process can be switched by small-volume production, if the next process of handling large quantities, you can not avoid carrying in-transit or processing to wait in transit, handling bulk quantities with the production should be reduced and seek to reduce its ideal state is Third, we should use same location processing station, then take back processing to eliminate invalid object loss. Fourth, on this basis to be 3.3, increase the labor value cost of another major aspect of the strategy, labor ideology update, reduce inefficiencies and increase value-added work. any workshop production division of labor can be as shown in Figure 2, the on-site labor is divided into Although the increase in the proportion of value-added less effective labor, but only this part of the assembly can change the quality of products and processing methods. In other words, this part in the manufacture of parts or products, raw materials or semi-finished products can pay a processing object such as labor, to create added value, that is, the labor value-added rate. Strictly speaking, there is no value-added work should also be considered as waste, because they do not improve or increase the value of the products will only increase labor costs. Is a waste of labor should be immediately eliminated; do not increase the value of labor, to a reasonable arrangement, be improved to minimize their share of increasing labor added value. 3.4, reduce material procurement costs reduce material procurement costs depend on the procurement of innovation, competition mechanism into the market, reduce material procurement costs. Automotive products account for the price of material cost is generally 35% -60%, which is the most direct product costs, the most basic part, so that to reduce the cost of materials, each of the first products should be carefully checked the data. in material procurement, product support parts procurement, market competition mechanism should be imported, a company's procurement operations, including the production of products directly to parts, materials, indirect materials (machinery, equipment, housing, service and maintenance, etc.), should be centralized purchasing department of the procurement. purchasing department to purchase required the classification of non-direct material classified as a class; is directly supporting the production of parts or assemblies as possible be composed of the procurement system, by expanding the value of each batch quantities can be obtained lower purchase price. the supplier of choice, first of all, you can refer to QS-9000 quality standard system, to the supplier rate, selection of qualified suppliers. By market competition in the acquisition costs can be reasonably within the control of the lower support prices. Practice of statistics according to the Shanghai GM, select qualified suppliers after several rounds of bidding, in general, prices dropped an average of 5% -10%. With the maturity of the production process, skilled workers to operate, the output increases,[link widoczny dla zalogowanych], increase the proportion of qualified products and other factors change, may require a supplier to adjust the supply price of each year. China's accession to WTO, with the reduction of tariff rates, car companies can also use the WWP, GPS global procurement system, in the same world-wide access to quality, cheaper components, so that the cost of automotive products have a competitive advantage. References 1, China Automotive Technology and Research Center. China Automotive Industry Yearbook, 1999,2000,2001 2, National Automotive Technology and Research Center. Automotive Intelligence, 2001 (7) ( (9) (10) (11) (12) 3, RobinCocperandRegineSlagmulder, StrategicCostManagement, Management, Accounting.1998 (1) 4, Guo Kesha. China's auto industry development of market and economic and technological conditions. Management World, 2001 (2)