Logistics Management in China: A Case Study of Haier

Jason C.H. Chen School of Business Administration Gonzaga University Spokane, WA 99258, USA (509) 323-3421; chen@gonzaga.edu Binshan Lin* College of Business Administration Louisiana State University in Shreveport Shreveport, LA 71115. USA (318) 797-5025; blin@pilot.lsus.edu Lingli Li School of Business Administration Gonzaga University Spokane, WA 99258, USA lli@gonzaga.edu Patty S. Chen School of Business Administration Washington University in St. Louis St. Louis, MO, USA Pchen1981@yahoo.com

Forthcoming in Human Systems Management

*corresponding author

Logistics Management in China: A Case Study of Haier Abstract Chinese businesses began with a weak foundation in the intense world trade environment, similar to the many other companies that grew from developing countries. How were these Chinese businesses able to compete with foreign competitors armed with strong capital structures and efficient communication networks? Haier is an excellent example of how Chinese companies have successfully adapted to and prospered in the global economy, using information technology as a strategic weapon to improve its competitive advantage and further to create collaborative advantage. Haiers growth is miraculous: in less than two decades, it grew from a state-owned refrigerator factory into an innovative international giant. The company has become Chinas first global brand and the fifth largest appliance seller in the world. What are the secrets of Haiers success? Many researchers have conducted extensive studies on Haiers management and found the key is Management Information Systems such as e-Commerce and logistics systems that improve business operations between its suppliers, customers, and business partners. This article recounts the journey of Haier's achievements to excellence through its MIS, and provides analyses of the company's business model, the market chain management model.

Keywords: Logistics, Management Information Systems, Information Technology, e-Commerce, Customer Relation Management, Supply Chain Management, Business-to-Business.

Logistics Management in China: A Case Study of Haier INTRODUCTION With a rapid entry into global economics, Asia - particularly China with one of the fastest growing markets and the largest populations - has become the most energetic trading ground in the world. The year 2002 marked the first year of China's membership in the WTO. As a member of the WTO, a profound influence was brought to the Chinese electrical appliance industry in addition to a significant increase of trade with other countries. Businesses were forced into the reality of market economics, and those that did not adjust to the new rules perished. As the mindset of the corporate strategist changes, the role of information technology (IT) changes accordingly from being a competitive weapon to a tool for creating collaborative advantage or both. Companies like Haier that adjusted to the new market adopted new international standards utilizing information systems to foster its competitiveness. Haier has broken the record of

achieving 71.1 billion RMB ($8.89 billion) in revenue to become the sales leader among all Chinese businesses (www.haier.com). Many have wondered what impetus Haier acquired in developing into an industry leader pursuing the vision of becoming a Global Fortune 500 company. Though China is a country full of opportunities, few corporations have the financial capacities and human resources to enter the Global Fortune 500. In order to achieve this vision, Haier depends on its adaptability to the world environment and quick response to the market. For example, the company interacts with the global environment, applying appropriate development strategies in varying phases such as brand strategy (1984-1991), multiple strategy (1992-1998) and international management strategy (1999 and beyond) (Hao, 2002). But what exactly makes Haier stand out among the competition beyond their development strategies? Some believe excellent products and advanced technology, while Haiers top

Page 2 managers think that customer satisfaction is the key to success. Haiers CEO Zhang once said, One hand grasps customer demand, and the other hand grasps the global supply chain that can satisfy customer demand. The ability to integrate these two is our core competency. Innovation plays an important role in Haiers success. Haiers management has been restructured to better fit the various innovations brought about by its newly adopted information systems, including Supply Chain Management (SCM), Enterprise Resource Planning (ERP), Customer Relation Management (CRM), and Electronic Commerce (EC) such as Business to Business Platform (B2B), Business to Consumer Platform (B2C), etc.. In this article we first present Internet business model, then look at Haiers background and examine the implementation of its logistics management. Next, Porters Competitive Forces model is employed for analyzing Haier's competitive environment. A company's successful

business model, the market chain management model is also addressed. The article concludes with lessons for other businesses to learn in order to attain their own successes.

LOGISTICS, INFORMATION TECHNOLOGY AND THE BUSINESS MODEL Logistics is the management of flows between business functions (Ernst et al., 1998). APICS (Cox et al., 1998) defines logistics in both the business and the military contexts: In an industrial context, the art and science of obtaining, producing, and distributing material and product in the proper place and in proper quantities. In a military sense (where it has greater usage), its meaning can also include the movement of personnel . From these definitions, the term logistics has emerged as relating essentially to the movement and transmittal of goods, services and information (Lummus et al., 2001). According to the studies (Chandra & Kumar, 2000; Closs et al., 1997; Sum et al., 2001), the scope and role of logistics have been changed dramatically in recent years. In general, there are two broad streams of describing relationship between logistics competence and logistics

Page 3 information systems (LIS) capabilities and characteristics: information as a logistics resource; and information technology as a competitive weapon (Closs et al., 1997). In their recent empirical study (Closs and Xu, 2000), some evidence that IT capabilities significantly influence overall logistics competency is suggested. For example, it indicates that generally, the merchandising firms were perceived to have a lead over the manufacturing firms for most of the nine logistics IT issues probed. Among the baseline firms, the European firms seemingly outperformed the North American and Pacific Rim firms in the five-year improvement in LIS capability, LIS resource share increase, and the adequacy of LIS in meeting the firm's requirements. The North American firms took a significant lead in issues related to EDI, barcode, and real time communications. Information technology (IT) is one of the few productivity tools that is both increasing in capability and decreasing in cost simultaneously. IT supports logistical integration through free flow of critical information, and thus increases operational efficiency and customer responsiveness. IT is now recognized as a critical means to enhance logistics competence and competitiveness (Closs et al., 1997, Sum et al., 2001, Choy and Lee, 2002). The fast-paced evolution of IT continues to offer new tools for firms to apply in logistics planning and operations. In particular, the development of Internet-based e-commerce and e-business

applications, enterprise resource planning (ERP), collaborative planning etc. certainly offer significant potential to enhance logistics performance. Internet business model is introduced next. The Internet covers a broad spectrum of applications that enables an enterprise or business to form electronic relationships with their distributors, resellers, suppliers, and business partners. B2C and B2B are the two most popular Internet business models; however, more business revenues are generated with B2B transactions (Ho and Chen, 2001). Turban et al. (2000) uses three models to depict B2B. The first model, and the most commonly known one, describes B2B as a supplier-oriented marketplace; that is, consumers and business buyers all use the same

Page 4 supplier-provided marketplace. Most of the manufacturer-driven electronic stores belong to this category. The second model describes the B2B to be a buyer-oriented marketplace. Instead of searching all e-stores and e-malls, big buyers, such as GE, may open an electronic market on their own servers and invite potential suppliers to bid on orders. The last one is the intermediaryoriented marketplace. In this platform, business buyers and sellers are matched to conduct their daily businesses. Boeings PART, ProcureNet, and Manufacturing.net belong to this category. Even with many successful B2C examples, acquiring customers and integrating technologies are still difficult, regardless the size of the market. It is very important to look for signs of natural growth, also known as traction. Traction may be in the form of registered users, customer growth, page views, or transactions (Burnham, 2000). Most importantly, a B2B company must have a business model that helps raise barriers of entry to the market. Without such, competition will ultimately drive down the profit. A B2B model used by many EC companies illustrated in Figure 1. In this framework, multiple buyers and suppliers are brought together to create a larger and more efficient entity. Additional services can be delivered through the e-market format in areas of financial, procurement, transportation, logistics, or customer services. ----------------------------Insert Figure 1 Here ----------------------------Aggregated purchasing power, dynamic trading mechanisms such as B2B auctions, streamlined EC processes, and open, Internet-based access to larger markets provide business buyers and suppliers with new efficiencies, new market opportunities, greater choice and competitive advantage. Therefore, the B2B economy presents several opportunities for creating new revenue streams and reducing cost.

Page 5 THE BACKGROUND OF HAIER Haier began as the Qingdao Refrigerator Factory, originally an importer of refrigerator production technologies from Germany. From modest beginnings, the company has grown and expanded into a prospering Chinese multinational corporation whose brand name has been becoming more recognizable in the world community over the last decade. Haier now

manufactures a wide range of household electrical appliances in 86 categories with 13,000 specifications, and is now an exporter of these products to more than 160 countries. Haiers global sales in 2002 were totaled RMB 71.1 billion (www.haier.com). Haiers success started out with three opportunities. The first was a speech given by former Chinese leader Deng Xiaoping in 1992; the speech inspired Haiers CEO, Zhang Ruimin, to form a plan to build the largest household electrical appliances industrial estate with an 80 million RMB (about $9.2 million) loan (www.haier.com). But the loan did not go through because the bank had stringent policies and as a result the company was unable to acquire the required capital. In response, Haier then caught hold of their second opportunity by issuing bonds and raising 36.9 million RMB capital (about $4.5 million) (www.haier.com). Chinas rapid

economic expansion brought about the third opportunity: Haier bought out successful Qingdao Refrigerator Factory, Qingdao Air-condition Corporation, and Guangdong Aide Company. These acquisitions allowed Haier to enlarge its market share in the electrical appliance industry. This led the corporation into a new phase of brand name management through the restructuring of corporate culture and the turnaround of the acquired companies into profitable entities (AMT, 2002). The size of Haier quadrupled following the acquisitions, and the original management system was thus too slow to react to the market. The new larger company needed another method of management, and it was here that Haier grasped its fourth opportunity: applying

Page 6 information systems to reenergize the business. Its success in integrating the Management

Information Systems (MIS) across the corporation resulted in Haier becoming the first wellknown brand name in China. Discontent with success in only China, Haier vigorously promoted its globalization strategy. The company's international promotions network had to extend beyond developing countries as their products became globally competitive in price and quality. As a result, Haier established strategic alliances with many international rivals including joint investment agreements with Sanyo (a Japanese electric corporation, signed on January 8, 2002) and SAMPO (signed on February 20, 2002) for technology development to promote mutual benefits with respective advantages and resources. On March 4, 2002, Haier unveiled its American headquarters in former office of the Greenwich Savings Bank on Broadway in New York, indicating their strong determination of long-term development in foreign markets. Currently, Haier products are

marketed to 12 of 15 European and 9 of 10 American top chain supermarkets (www.haier.com). Haier is well respected in the world business community and has been publicly recognized accordingly. From the latest statistics of Euro-monitor, Haier was placed fifth of the global white goods (white household appliances are large electrical home appliances such as refrigerators or washing machines etc. that are typically finished in white enamel) manufacturers with the largest world market share for refrigerators. In a list of most respected companies in Asia and the Pacific Region published by the Far Eastern Economic Review issue December 26, 2002, Haier was ranked number one (www.haier.com). Following the introduction of e-Commerce and preparation for Chinas entry into the WTO, the company began a management restructuring program supported by an efficient Haier market chain system and order process performance in 1998. inventory and operation cost reduction. These processes focused on information efficiency in market forecast, logistics service, capital investment, after-sales services, Haiers production and management system

Page 7 restructurings have enabled the company to diversify internal and external resources. At present, Haier has converted its advantages in worldwide logistics, distribution, and manufacturing facilities into total customer satisfaction. NATIONAL AND INTERNATIONAL COMPETITIVE ENVIRONMENTS TO HAIER Because thousands of household electrical appliances are produced by Haier, the air conditioner, one of their core products successful in the national and international environment, is used as an illustration in this section. As the economy improves steadily in China, air conditioners are becoming more affordable, increasing the demand for these products. In 2001, the demand for air conditioners in China shot up an astonishing amount, reaching 19.2% and it was 29.43% of the world total demand (42,480), surpassing U.S. demand for the first time. In recent years, Chinese air conditioner exports rise at the rate of 63.5% per year according to Chinese Custom data, making China the worlds largest air conditioner manufacturers and exporters (Hu, 2002). According to Porter, there are five competitive forces in any industry, and the attractiveness of the industry depends on the strength of each force (Porter, 1985). Under the perspective of market structure, Porters competitive forces model (Porter, 1980; Applegate et al., 1999) has been broadly adopted as the underpinning for investigating the effect of information technology on the relationships between suppliers, customers, and other potential threats. Five forces are: the rivalry among existing competitors, the threat of new entrants, the threat of substitute products, the bargaining power of buyers, and the bargaining power of suppliers. They are illustrated next (Figure 2). ----------------------------Insert Figure 2 Here ----------------------------Traditional intraindustry rivals

Page 8 With a lack of regulations governing product safety and quality in the past, corporations with inferior management, technology and services were able to enter the industry. The products manufactured by those corporations yielded poor quality but their low price strategies incited commotion in the industrys proper pricing. Because many customers were unable to discriminate low price/low quality air conditioners from low price/high quality products, a price war inevitably ensued. In 2002, air conditioner prices dropped 20% and many companies stocks, including Haier's, plummeted up to 45% (www.haier.com). This dampened the enthusiasm of those Foreign, multinational

corporations who invested in technology, good quality, and service.

companies also had various manufacturing and retail locations within China, but their strong capital structures, advanced technologies, and well-known brand names gave them an obvious competitive edge over Chinese companies. At the end of 2001, Chinese manufacturers produced 30,000 air conditioners (Hao, 2002). At this point, production greatly exceeded current demand, and the number of surplus inventories were high. In 2002, because of the bad weather, there was indeed a greater supply than demand. Many corporations competed in the market share by decreasing price and profits in the air conditioning industry resultingly dwindled to a new low point. Threat of new entrants Because of the industry's huge profit potential, not only do traditional electrical appliance manufactures invest capital to rebuild equipments and expand production, but other non-electrical appliance corporations also enter the market. These new entrants are typically Original

Equipment Manufacturers (OEMs) distributing their products through commercial websites, further aggravating the condition of oversupply. According to an updated prediction, however; the total commercial and industry inventory of air conditioners in China amounts to 10 million units (www.haier.com).

Page 9 The bargaining power of suppliers In recent years, the prices of raw material and accessories were expected to decrease, but the end of 2002 saw prices of raw materials increase due to the war in Iraq. Concerns about the war caused the price of raw materials (especially copper) to increase, and the costs of air compressors rose 15%-20% as a result (www.haier.com). Additionally, Haier's many

international suppliers have comparatively higher technology and design capabilities, and thus have greater bargaining powers. Bargaining power of buyers The development of electrical appliances distribution brought changes in the logistics system. In past years, the distribution of products relied mainly on the wholesaler end. It then moved to the shelves of department stores. Professional electrical appliance specialty shops then became widely popular with the customers. In the coming years, the market share hold by these specialty shops is expected to increase, and the popularity of these specialty shops will strengthen their bargaining positions in the future. Buyers currently have a greater bargaining power due to a flourishing e-Commerce; through the Internet, customers can find the price of every product or service quickly and accurately. Savvy customers compare products or service price and quality which inevitably increases the pressure to manufacturers. Threat of substitutes At the present time, refrigeration mechanisms do not vary and thus a threat of substitutes to Haier's products is slim. Without other technological breakthroughs, Haiers air conditioners should not face any imminent threat of substitution. However, although present refrigerators require Haier's core competency, electrical systems, future innovations in refrigerator technologies could introduce new methods of cooling. Like Xerox's inability to foresee the computer's

potential and importance, and their eventual loss of the monumental product, Haier must

Page 10 constantly be aware of new innovations and their potential effects on the refrigeration industry. Based on Porters model, Haier is in a challenging position. Four out of Porter's five forces exert an immediate significant pressure on Haier. How can Haier withstand these forces and use these pressures constructively to fuel its development? The key is Haiers effective application of its Management Information Systems (MIS), mainly logistics system. We will expound Haier's information system in the next section. MIS APPLICATIONS IN HAIER Survival and success depend entirely on the organizations ability to adjust to the dynamics of the business environment. Haiers top management understand the broad effects and implications of the information systems and how it can create substantial and sustainable competitive advantages. In Haier, implementation of its information systems is not only an evolution, but also a revolution that streamlines its operations. Through the course of Haiers development, upper management has taken market information into consideration, but has also pondered how to apply this information. Haier continues to grow by applying information and perfecting their information network and technology through the process of its development in the current information age. In todays global business environment, information systems, Internet, and other global networks are creating new opportunities for corporate coordination and innovation. Information systems can help companies extend their reach to faraway locations, offer new products and services, reshape jobs and work flows, and profoundly change the way businesses are conducted. By studying the information systems in Haier, we can understand that Haier Group is the first household appliance maker in China to adopt a logistics management system. Logistics is an important link in Haier's "market chain business flow renovation", establishing the company's unique concept of modern logistics management -- one flow and three nets (AMT, 2001; Hao, 2002; Figure 3). One flow

Page 11 focuses on orders information flow; three nets refers to the global supply chain resources net, global customer resources net, and computer information net. Three nets work together to support the processing of orders information, and the orders information moves all business activities. Through its advanced logistics system, Haier has realized integrated control of the entire production process, from the purchase of raw material under perfect price parities through the manufacturing, inspection, delivery and shipment of products. Haiers logistics system breaks free from the traditional closed purchasing model under which materials are kept in stock, and adopts a system under which goods are purchased by placing orders with powerful suppliers who have taken part in pre-stage designs. Through JIT (Just in Time) purchase, JIT delivery and JIT distribution, the goal of zero overstock can be met. The figures listed below can demonstrate the benefits brought about by the logistics system: the cost of the finished products in Haier accounted for 7.9% of the sales income in 2001, whereas the national average was 30% for the 180 thousands domestic enterprises; the logistic management cost in Haier accounted for 7.0% of the total commodity cost, whereas the cost in other enterprises was 15% (Zhong Chu Inc., 2002). The modern logistics system fosters the expansion of Haiers e-Business. It is one part of Haiers strategy to realize the goal of total customer satisfaction. Haiers logistics system is introduced next. 1) Business process reengineering supports Haiers logistics innovation and information management from all sides. All-round information management is the revolution from the traditional corporation management. It makes business process reengineering as the base and order information as the center, thus enabling goods flow and capital flow to move. By conforming global supplier resource and user resource, Haier realizes the goal of zero stock, zero delivery capital, and zero distance with customers.

Page 12 Haiers reengineering organization has three phases. The first one is a linear organization, one that many corporations still use. This organization is suitable for the small company and has a pyramid-like structure: the lowest level is made up of personnel, followed by the shop directors, then section chief, manager, and then general manager. Haier used this organizational structure in its brand name strategy phase, the advantage of this structure in its ability to react quickly and to easily control any sudden problems. The second phase is the matrix organization. When Haier implemented the multiple strategies, it used this organizational structure. Its abscissa stands for all functional departments, such as finance, supply, and plan department and so on; and its ordinate stands for different projects/products, such as refrigerator, washing machine, and airconditioning project and so on. This type of organization requires every department to adhere to the project's standards. Haier employs the market chain management model (Figure 3) for its current phase. This organizational structure is based on Haiers culture and Overall Every Control and Clear (OEC) from which Haier is able to focus its order information and realize the three zeroes goal. OEC is fundamental to Haier's business process. OEC is the platform of business process reengineering which is unique to Haier. The significance of OEC is that all employees should finish every days work, manage, and improve their work on a daily basis. Using OEC gets everyone involved from the CEO to the ordinary worker, everyone knows what they should do each day which helps them to assess their job performance (Hao, 2002). Haier separates the finance, stock, and distribution divisions from all of the departments, and groups them as a business flow to enter into the main center with cash flow and goods flow. As a result, Haier can realize uniform balance, distribution, management, and stock. The 3Rs (R&D, HR, CR) are innovations in order support flow, and the 3Ts (TCM, TPM, TQM) are assurances in order fulfillment support flow. The 3Rs and 3Ts are based on the corporate culture

Page 13 and functional centers (logistics center and products center etc.), and sustain the flow of Haiers market chain. Supported by the innovative support system of 3Rs, the product center increases customer service level, order demand, and product expectation by innovating new products and new markets and improving competitive ability. Supported by the fundamental support system of the 3Ts, product project boards apply the orders that originate from the business flow and product center. Under reengineering work flow circumstances, manufacturing products changed from production in mass to production in orders. In doing so, Haier has direct-to-market and integrated goods flow and business flow, and 3Rs and 3Ts support systems. Business flows push the orders received from the global purchase and distribution net to the product center, business center, and logistics center. Following, the logistics center arranges purchasing and distribution, and the product center arranges production; products are sent to the customers by the logistics distribution system, and payment for goods are sent to the suppliers of product center, business center and logistics center. This organizational structure realizes that Haier's external and internal factors are connected by the networks, forming its business process system (AMT, 2002, Hao, 2002). ----------------------------Insert Figure 3 Here ----------------------------The outcome of the Business Process Reengineering model is remarkable and is described as follows: 1) revenue: 3.48 million RMB ($421 thousands) in 1984; while it was 40.6 billion RMB ($4.9 billion) in 2000 and 68.8 billion RMB ($8.32 billion) in 2001, 2) tax: 14.7 million RMB loss in 1984; while it was 3 billion RMB profitable ($ 363 million) in 2000, 3) the price of Haiers trademark: 3.85 billion RMB ($466 million) in 1995; while it was 30 billion RMB ($3.63 billion) in 2000, 4) the category of Haiers products: only one type of refrigerator in 1995; now it has more than 10,800 types of products in 69 categories, 5) the revenue for export: since 1998, the

Page 14 revenue from export has increased sharply. It reached 2.95 billion RMB ($ 356 million) in 2001 and become the No. 1 in the electrical appliance industry in China (www.haier.com). 2) Quality strategy is the base of the logistics innovation. Customers like Haiers products because they perceive the quality of Haiers products to be reliable, and the after-sale service gives them a peace of mind. In order to satisfy customers in the past, Haier tried only to repair the faulty products. Haier has since then adopted the zero defect concept, because faulty products have cost Haier billions of RMB in customer service and other related fields. It all began in 1985 with a symbolic move by Haiers CEO Zhang Ruimin when he smashed one malfunctioning refrigerator; shortly after, the quality concept was accepted among all employees. To achieve the goal, Haier adopted Total Quality Control and insisted on total customer satisfaction. Recently, Haiers supreme quality has been validated by many

international standards, such as ISO9001, ISO14001, UL, CSA, SAA, CE, etc. (Hu, 2002). 3) Supply-chain management is the essence in logistics innovation. In the 1990s, Haier realized that surplus inventory contributed to a substantial portion of costs in products and materials, and service inputs from suppliers had a major impact on its ability to meet customer needs. This led to an increased focus on the supply chain and outsourcing strategy. Haier also realized that producing a quality product was not enough. Getting the products to the customers is a daunting task, and Haier wanted to have the materials at the right time with the right quantity delivered to the customers hands in a timely manner. Most

importantly, all of these had to be done in a cost-effective manner. The management of Haier found that using MIS to monitor the supply chain system was the answer to this challenge. There are five steps to Haier's development of its supply chain management which are introduced next (Figure 4). ----------------------------Insert Figure 4 Here

Page 15 ----------------------------Phase 1. Framework Construction In this phase, Haier critically examined the current situation, analyzed the pros and cons of the MIS-driven supply chain management effects, and brainstormed innovative methods in which to implement the new supply chain management. Phase 2. Function integration This phase mainly emphasizes the steps taken to achieve customer satisfaction and related criteria. Here Haier adopted Material Requirements Planning (MRP), a very efficient tool and technology to forecast and control customers needs to plan and control. Without the forecasts, distribution and manufacturings efficiencies would be crippled. Currently, the MIS system integrates all the information to quicken the response in manufacturing and distribution. Phase 3. Internal supply chain integration In this phase, Haier first integrated the existing internal activities directly controlled by the corporation, done by an information network between departments. The output of this

integration resulted in better planning and more efficient control. To support this integrated system, Haier employed Supply Chain Planning (SCP) and ERP. The base of these two kinds of information technologies is a Client/Server system. Effective SCP integrated all the daily

operation functions, including customer demand forecasts, resource allocations, equipment management, production schedules, and purchasing plans. ERP systems integrated those

executive functions in operation flow, such as orders management, financial management, stock planning and production management (Copal and Cahill, 1992). The goal of supply chain management is consistent with the corporations goal, which is to attain total customer satisfaction. The information system used in the supply chain

management system allows for the delivery of the products to the customers at the most

Page 16 competitive prices. In this phase, Haier also used Electronic Data Interchange (EDI) and the Internet to foster better relation with suppliers. EDI has been considered a useful component of an interOne of the benefits of implementing EDI inter-

organizational information systems.

organizationally is to provide opportunities for Haiers partners to better communicate, which in return benefits Haier and all parties involved. These benefits include higher levels of operational efficiency, lower distribution time, and improved customer service (Copal and Cahill, 1992). Phase 4. External supply chain integration In this phase, Haier stressed establishing partnerships with external suppliers. Haier

augmented communication with its suppliers, sharing useful information with them. By using Vendor Managed Inventory (VMI), both Haier and its suppliers are aware of inventory levels through shared information on the Internet (Hao, 2002). Now the suppliers have a better estimate of how many inventories Haier will need, reducing inventory costs for the suppliers. At the same time, it ensures the flow of raw material to Haier, which eliminates the down time related to lack of material supply, offering a win-win situation for both Haier and its suppliers. Phase 5. Dynamic alliance of integrated supply chain In this phase, all the parties in the supply chains become a rapid response organization. When orders were received by Haier, all the suppliers worked together to support the flow of raw materials. Not to mention, this kind of quick communication can only be accomplished by an effective information network, such as Internet or intranet. 4) Customer Relationship Management is an ultimate goal of Logistics Management . According to some beliefs, the cost of gaining one new customer is five times greater than keeping one old customer (Hao, 2002). In this sense, CRM is highly profitable for corporations. The transformation of sale management from the 4Ps (Product, Price, Place, Promotion) to the

Page 17 4Cs (Consumer, Cost, Convenience, Communication) and ultimately to the 4Rs (Relationship, Retrenchment, Relevancy, and Reward) tells us that Haier set customer satisfaction as its top priority (Hu, 2002). In the current information age, Haier relies on IT in its Customer

Relationship Management to achieve this goal in the following areas: Management of customers information by computer systems, providing helpful service information to customers. In 1997, Haier first discovered the usefulness of computer networks and applied it to product consultation services and telephone supported customer centers, forming its first national service information network. It not only rendered the convenience to customers, but also monitored the administration of customer information and after-sale service, providing information services to more than 7,000 customers per day. Haier strongly believed that total customer satisfaction built on alleviating customers annoyance and treating them with all sincerity, consequently, forged the company into a leader in its industry (Xu, 2002). e-Business as a method of effective utilization of information technology. Haiers suppliers and other business partners are connected by business-to-business procurement (BBP or B2B) platforms (www.ihaier.com). In this platform, suppliers can bid on the web, inquire about forecast demand, check account receivables, receive payment information for goods, and also send or receive suggestions on methods to improve operations. B2B

communication furnishes suppliers with timely information to better serve the needs of future deliveries. For Haier, e-Commerce nourishes its growth, enables it to select suppliers worldwide, and thus warrants better quality and lower price raw materials (China Computer Inc., 2002). Table 1 shows the development stages of Haiers e-Business platform. ----------------------------Insert Table 1 Here ------------------------------

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The outcomes is impressive: quicker information value and zero distance with global customers, receiving 25,000 pieces of customer information, offering individualized design, an increase in customers to 218,000, and an increase in the e-Commerce turnover rate to more than 100% THE IMPLICATIONS OF HAIERS MIS APPLICATIONS Haiers newly innovated logistics system provides valuable lessons for corporations in China and around the world. Haier incorporates information technology to corporate

management and integrates the modern logistics management and business flow management. No company can become as successful as Haier simply by copying its corporate organizational structure, but valuable lessons can be learned from Haiers experience. Five (5) important lessons are stated below: 1) Information technology is the most powerful tool in the 20th century, and it continues to define the competitive arena. Today it is widely recognized that understanding information systems is essential for managers because most organizations require information systems to survive and prosper. Haiers top managers always value information and use it to improve or to create the company's competitive advantage. 2) Many companies invest billions of dollars in IT, but heavy investment does not equate success, thus many organizations are not obtaining any significant business benefits from IT despite their investment. To stay competitive or to realize genuine benefits from IT, many organizations should innovate their structures to better fit the information flow. To fully benefit from IT, organizations should rethink and reengineer the ways they design, produce, deliver and maintain goods and services. 3) By eliminating inefficient paper-based processes for locating suppliers, ordering supplies, or delivering goods, and by providing more opportunities for finding the lowest price products

Page 19 and service, B2B web sites can save participants anywhere from 18 percent to 45 percent of material cost. 4) Developing CRM/e-CRM systems is very important for companies. CRM/e-CRM effectively manages pertinent information for customer needs and service oriented activities, and gives the company insight into market demands. It allows for consumer involvement in the

development and marketing process, gathers data to drive products or service innovation, and creates a collaborative e-Business environment integrating the relationship network among enterprise, customer and partners. 5) SCM is very important in Haiers logistics system and utilizes many management information systems. Haier's Business-to-Business Procurement (BBP) platform allows all suppliers to receive orders from the website, check the plan and inventory to supply goods in time, and realize the advantages of JIT purchase. After goods are stored in the warehouse, the

distribution center matches products by using ERP according to the production plan of the next day. The production center then completes production according to B2B and B2C orders. CONCLUSION In this article, the authors have explored the key components of Haiers success, and how information technology restructured Haiers management systems to meet the need of expansion. Logistics management is made possible with the modern information systems, coordinating the movement of material distribution with the needs of JIT manufacturing. MIS has also innovated the concept of the supply chain management. The original concept of hierarchical ordering is too slow to react with the market economy; from requisition to ordering to suppliers, every part of this material purchasing cycles takes enormous amounts of time and human resources, and the finished products become less competitive because of high cost of goods manufactured. Today,

Page 20 the new supply chains process information simultaneously from every part of the purchasing circle, with suppliers aware of manufacturers needs through an information-sharing network. All these systems have reduced the response time and the cost of material purchased, which in turn translates into lower cost and higher quality products. Haiers success demonstrates the

effectiveness of MIS in an efficient relationship between coordination and corporate culture in large organizations. The information systems allows Haier to inculcate better customer relationships and sustain quality products, which carries the company one step closer to the goal of total customer satisfaction.

Page 21 REFERENCE Lynda M. Applegate,F. Warren McFarlan and, James L. Mckenney, Corporation Information Systems Management, 5th ed., The McGraw-Hill Companies, Inc., 1999. AMT Inc., Haiers future-one net and three flows, 2001. Available at: www.amteam.org <http://www.amteam.org> AMT Inc., Haier entering information age, 2002. Available at: www.amteam.rog <http://www.amteam.rog> B. Burnaham, Burhams Beat: B2B, investors promised land or giant quagmire?, ZDII Inter@active Investor, January 31, 2000, available at http://www.zdii.com/industry_list.asp?mode=news&doc_id=ZE502911 C. Chandra and S. Kumar, Supply chain management in theory and practice : a passing fad or a fundamental change ? , Industrial Management & Data Systems, Vol.100, No.3, (2000), pp. 100-113. Chinabyte Inc., the eight principal of application MIS, May 8, 2003. Available at: www.chinabyte.com <http://www.chinabyte.com>. K.L. Choy and Lee, W.B., A Generic Tool for the Selection and Management of Supplier Relationships in an Outsourced Manufacturing Environment: The Application of Case Based Reasoning, Logistics Information Management, Vol. 15, No. 4, (2002), pp.235-253. D.J. Closs, T. J. Goldsby, and S. R. Clinton, Information technology influences on world class logistics capability, International Journal of Physical Distribution & Logistics Management, Vol. 27, No. 1, (1997), pp. 4-17. D.J. Closs and K. Xu, Logistics information technology practice in manufacturing merchandising firms: An international benchmarking study versus world class logistics firms, International Journal of Physical Distribution & Logistics Management, Vol. 30, No. 10, (2000), pp. 869886. Copal, C. and G. Cahill, Logistics in Manufacturing, the Business One, Irwin, Inc., 1992. Cox, J.F. III, Blackstone, J.H. Jr and Spencer, M.S. (Eds) (1998), APICS Dictionary (9th ed.), The APICS Educational and Research Foundation, Falls Church, VA. China Computer Inc., Haier cooperation with SAP in e-Business,2002. Available at: www.ccw.com.cn <http://www.ccw.com.cn> Ho, Cina and J.C.H. Chen, The Prospect of B2B E-Commerce in Chinas Internet Industry, Business Forum, Vol. 24, Nos. 3,4, 2001, pp.62-69. Hu, Yong, Competitive strategy and core competency-Haier, Hainan publishing, 2002, China.

Page 22 Hao, Zhenting, Haiers Innovation Model - One Flow and Three Net, China Time Economy publishing (Chinese ed.), 2002, China. Haier Group. Available at: www.haier.com <http://www.haier.com> Lummus, R.R., D. W. Krumwiede, and R. J. Vokurka, The Relationship of Logistics to Supply Chain Management: developing a common industry definition, Industrial Management & Data Systems, Vol.101, No.8, 2001, pp. 426-431. Porter, Michael E. & Millar, Victor E. (1985). How information gives you competitive advantage. Harvard Business Review, pp. 149 160 Sum, C.C., C.B. Teo, and K.K. Ng, Strategic logistics management in Singapore , International Journal of Operations & Production Management, Vol. 21, No. 9, 2001, pp. 1239-1260. Turban, E., Lee, J., King, D., and Chung, M.H., Electronic Commerce: A Managerial Perspective, Prentice Hall, 2000. Xu, Liang, Haiers information road,2002. Available at: www.ithomecn.net/example/example.htm <http://www.ithome-cn.net/example/example.htm>

Zhong Chu Inc., Haiers logistics, 2002. Available at: www.156net.com/carry3/index.htm <http://www.156net.com/carry3/index.html

Page 23 Figure 1: An e-Commerce Model

Knowledge Management/Business Intelligence

e-Commerce E-Customer Relationship

Procurement Network

Trading
Network M:N

e-Channel
Management 1:N

M:1

E-Portal Management

E-Services

SCM/ERP/Legacy Applications

Busin ess & Cons umer s

Busi

ness

Page 24 Figure 2: Porters Five Competitive Forces Model

Threat New Market Entrants

Threat of Substitute Products and Services

The Firm

Industry Rivals

Bargaining Power of Suppliers

Bargaining Power of Customers

Page 25 Figure 3: Haiers Market Chain Management Model Innovative Support Systems Fundamental Support Systems

R&D WinWin Global Purchase & Distribution Network Global Supply Chain Resource HR CR

TCM TPM TQM

Value Added

Create Orders Attain Orders Global Sales Orders Information Flow Orders Information Flow Network Business Global Sales Flow Logistics Center Products Center Center Products Flow JIT Orders Accelerated Products Division Fulfill Orders Global Sales Division Capital Flow

Global Customer Resource

OEC Haier Culture

R&D: Research & Development HR: Human Resource CR: Customer Relationship

TCM: Total Capital Management TPM: Total Production Management TQM: Total Quality Management

Page 26 Figure 4: Five Steps of Supply Chain Management Phase 1. Framework construction
Logistics Flow Purchas e Customer Service

Logistic s

Productio n

Sale

Distributio n

Phase 2.Function integration

Logistics Flow Logistics Management

Control
Customer Service

Manufacture Management (MRP)

Distribution

Phase 3. Internal supply chain integration

Logistics Flow Logistics Management Customer Service

Manufacture Management (SCP, ERP, EDI)

Distribution

Phase 4. External supply chain integration

Material Flow Supplier Customer Service

Inner Supply Chain (VMI)

Customer

Phase 5. Dynamic alliance of integrated supply chain

Supply Chain Alliance (Intranet, Internet)

Sources

Collectio n

As fdofij Page 27 Table 1: The development stages of Haiers e-Business.

e-Business Co. Ltd founded Date 03/10/2000 e-Commerce Platform (test) 4/18/2000 e-Commerce Platform (operational) 6/18/2000 B2C: 6.08 million RMB BBP: 778 million RMB End of 2000 B2C: 12.36 million RMB BBP: 1.88 billion RMB End of 2001