Io Smith uses automation to avoid rising labor costs

"No automation is a dead end!"

Faced with high labor costs, the profit margins of the manufacturing industry are squeezed, said Ding Wei, general manager of Ao Smith (China) Water Heater Co., Ltd. In a 2012 survey by the International Labour Organization, the monthly salary of Chinese workers was US$656. This figure is three times the wages of Indonesian workers and five times that of Vietnamese workers. Since 2000, the average annual increase of Chinese workers' wages has exceeded 10%.

On the one hand, there are high labor costs in China, and on the other hand, the price competition of products in the international market is open. Amid this double impact, the home appliance manufacturing industry has hoped to control costs and improve production efficiency through automated production. Io Smith was one of the first to put it into practice. Since 2009, Ao Smith has formed an automation team. "China is no longer a manufacturing factory that relies on cheap labor, and international companies are not waiting for you. For manufacturing companies, if they don't want to go out of business, they must do automation, and if automation is ineffective, they must go out of business." Ding Wei hopes to compete through automation upgrades Soaring labor costs.

Labor costs are forced

Aio Smith initially built a factory in Nanjing in 1998, when the domestic water heater market was just starting, and Ao Smith could not understand the needs of Chinese consumers in depth, and planned to produce locally and sell locally. Gradually find out the market. Although the investment is relatively cautious, in order to ensure the production quality and efficiency, the progressive mold with a high degree of automation at that time is still used, multi-station continuous feeding, and multi-machine and workstation linkage.

During the production line modification process with product adjustment, every time I add equipment, Io Smith will Carefully calculate the payback period of the equipment, that is, the payback period of labor cost savings that an automation equipment can save. In the early days of Ao Smith's entry into China, the labor cost was relatively low. In order to maintain the market competitiveness of product prices, it did not deliberately improve the level of automation. In recent years, with the rapid rise of domestic labor costs, Ding Wei felt the huge cost pressure caused by labor costs.

Ding Wei once inspected a water heater company in Japan. All production processes of this company are realized by robot automation. The production workshop is almost empty, so the high labor cost in Japan has little effect on them. Ding Wei was deeply touched by this: "Companies all over the world are competing together, and the way Chinese companies used to rely on cheap labor to reduce production costs is no longer feasible, which forces you to do automation."

The result of automation is to maintain the company's The level of profitability, keeping production costs under control, is related to the speed of rising labor costs. Ding Wei said: "If China's labor costs continue to rise, and the income of workers in the United States will be the same in five years, then we will achieve the same degree of automation as the United States, otherwise there will be no market competitiveness."

Io Smith's 1,000 For production employees, the average annual salary increase is 10-12%. Ding Wei hopes that at least half of the salary cost will be saved by the production efficiency improvement brought by automation, so as to ensure the market competitiveness of product prices, which requires an annual reduction of 50 production jobs. Under the pressure of this labor cost, Ao Smith began to invest manpower and capital to automate the transformation of the production line.

Incremental Change

In 2009, Io Smith moved the Automation Improvement Working Group from the Process Improvement Department Independently, report directly to the production headquarters, and carry out full-time automation improvement. The assessment indicator is the number of labor positions saved for the company each year. Under this goal, the automation team should look for opportunities in all aspects of the production process, find out the production links that consume the most labor, and constantly discuss how to transform processes and innovate technologies to reduce labor costs.

Different from the highly automated electronic products and automotive industries, the production of home appliances such as water heaters needs to be personalized, so the automation supporting equipment and technological improvements all require manufacturers to explore by themselves. For most enterprises, automation transformation only relies on internal manpower and technology, and the cost is too high. To overcome technical difficulties and challenges, efficient integration of solutions from other manufacturing industries or technology companies is an effective strategy. Io Smith's automation working group is an important bridge to communicate with external resources. After finding the problem, they also look for technology companies, consultants, etc. outside the enterprise. Determining the labor positions and total investment that can be saved by different schemes, after weighing the risk and investment return of the scheme, use the best scheme and the management to examine the feasibility of the project.

Ding Wei believes that the core asset of Ao Smith Automation lies in this group of automation professionals. Their technical ability determines whether they can find problems and control risks. And this team is gradually mature in the continuous experience of the project.

There was a major investment failure at the beginning of the automation revolution. The production of the inner liner of the Aio Smith water heater is to spray the protective layer of Jingui, and this process has been imitating the production method in the United States. In order to improve the adhesion of the protective layer, the inner surface of the liner is roughened with high-speed sandblasting before spraying. Manual operation is required. The automation project team hopes to automate and improve this process, welding first, then sandblasting, and then directly spraying the protective layer, which saves the process of washing and processing welds, and can also improve product quality.

Under this assumption, the Ao Smith automation team found an equipment manufacturer, and after the successful trial production, they directly paid the full amount of 1.5 million to purchase three pieces of equipment and retrofit them to the production line. In the formal production process, these equipments frequently fail, often with inaccurate positioning, and the parts cannot meet the durability requirements of high-speed sandblasting. Not only did the equipment fail to improve production, but it also affected the efficiency of the production line and eventually had to be dismantled.

Dingway and the Automation Working Group produced a "celebrating failure" summary of this failure. Ding Wei said: "If we fail, who will innovate? If we are prosecuted, it will be my responsibility first, because I approved the project. What we have to do is to put risk control in the first place." To encourage innovative corporate culture, the project team continued to tackle key problems, and finally adopted secondary innovation to reduce the amount of manual work.

After the experience of failure, the automation project team paid more attention to risk control and became more skillful in dealing with external technology partners. In the process of automation improvement currently being carried out by IO Smith, a project requiring an investment of 1.5 million will be a major technological breakthrough if successful. It has not been used in the water heater production industry, but the core technology is in the hands of the supplier. Although it can save a lot of labor costs, it is also the first to eat crabs for the entire industry. Dingway rejected the project twice, and when the Automation Working Group submitted a project proposal to Dingway for the third time, he passed it. After negotiation by the automation working group, the supplier promised Ao Smith a three-year technical protection period, and only charged a cost of 300,000 yuan before success.

In 2011, Io Smith saved 30 labor positions in 2011 and 50 labor positions in 2012 through the efforts of the automation working group, which is the cumulative result of many projects. Since the implementation of the project is easier than difficult, this means that the work capacity of the automation team is constantly improving. Ao Smith's annual market sales increase by 20%-30%, and through automation changes, the production increase can be achieved without additional recruitment of employees.

The results of automation improvements not only enhance the competitiveness of Ao Smith's factories in China, but also return the technology to Ao Smith's US headquarters and factories around the world such as India and Canada. In the 2-million-unit production base of AO Smith expanded in Nanjing, the assessment requirement is to increase the production efficiency by 35% according to the latest situation, which means that in a few years, only 650 people will work for the current 1,000 employees. to complete.

The focus of management is knowledge workers

Ding Wei believes that the biggest change brought about by automated production is the management of knowledge workers. The difference between automatic production and manual operation is that the stability of equipment operation is more important, and the loss caused by equipment failure is more serious. This requires the overall quality of the workforce to be improved, and employees must understand the equipment and be able to maintain it. The barracks-style management of labor-intensive factories has become outdated, and training and retaining skilled employees has become the focus of management.

It is not difficult to cultivate skilled workers in China. Operators who have graduated from colleges and universities have a certain background in electrical knowledge. It is important to provide opportunities for learning and improvement. At Ao Smith, operators have many opportunities to participate in on-the-job training, cross-job training and job rotation. Everyone has different job levels. When there are vacancies in senior positions and need to be recruited internally, they must compete through skills. The higher the value of the machine operated by the worker, the higher the salary. Although the complexity may be small, the responsibility for maintenance is greater, which encourages employees to learn more about how to operate the equipment on the job.

In the process of enterprise automation transformation, the most scarce automation talents with equipment transformation or process transformation ability. Ding Wei believes, "In order to achieve automation, enterprises must be able to find and retain the most capable employees. Without automated staffing, salary and equipment investment plans, it is empty talk, and there is no way out in the international competition."

The secret of Ao Smith's retention of intellectual employees lies in equal opportunities, marketization of income and providing employees with a satisfactory working environment. The employees of the non-production line of Ao Smith have to report to the evaluation team every year. The members of the comprehensive evaluation team are composed of 3-5 general managers, deputy general managers and other company executives. Each employee has to conduct an interview for about half an hour, put forward the achievements made in the past year's work, and the proposed solutions. This group-style evaluation saves employees from getting mired in office politics. Employees rated as high potential will receive higher-than-average wage increases, as well as more opportunities for training and better jobs.

The marketization of employee income is the work that Ao Smith has been doing since the establishment of the factory, and it is also one of its core cultural elements. Ding Wei emphasized that market-oriented employee income is extremely important: "If an employee trained internally, his salary is only 3,000 when his ability is not strong, but his ability has become very strong after automation, and he can find a job in the society and get three thousand 10,000, but the company still gives 6,000, and then of course they will leave."

Every year, Ao Smith invites a number of international professional research companies to conduct research on 50 companies with similar industries, regions, scales and brands to Ao Smith. Conduct in-depth research to understand the average salary range in the market for each position. The survey is not only aimed at managers, supervisors, finance, accounting, but also electricians, drivers, assembly workers, production line leaders, etc., so as to ensure that the company's entire salary framework is fully connected to the market. On this basis, and then specific to the work performance of employees, high-potential employees will receive 20% higher wages than the market average, ordinary employees will be on par with the market, and employees with poor performance will be persuaded to quit.

These measures have allowed Iosmith to retain an automated army of elite soldiers. In the past three years, the automation working group has grown from three members at the beginning of its establishment to more than 20 people, constantly promoting the automation upgrade of Ao Smith.