TEDA embraces smart manufacturing

China’s car boom has only just begun, but already there are big plans to move auto manufacturing up the value chain as part of the government’s "Made in China 2025" initiative – a bid to avoid being squeezed by lower cost countries on one side and high-end manufacturers on the other.

With that in mind, executives at the Tianjin Economic-Technological Development Area (TEDA) – the country’s top ranked industrial park – have come up with their own plans to transform the region into a globally influential hub for advanced manufacturing.

These plans are based on Industry 4.0 – digitized factories in which machines communicate with one another and computer algorithms make decisions based on data from disparate sources to optimize efficiency and productivity.

“We are still at the very early stage of the so-called fourth industrial revolution, but the sands of change are shifting. In the auto sector, more of our tenants will be embracing digital technologies within their own operations and in their supply chain,” says Hou Xiaolu, deputy director of TEDA’s Development & Reform Bureau.

Unique Capacity

That means building on solid progress already made. TEDA is home to 124 auto companies, including five carmakers and more than 100 component firms that together form a complete industrial chain. Some 1.7m cars are expected to be built there each year and the overall value of the auto industry is projected to reach RMB300bn by 2020.

The presence of three major manufacturers – Volkswagen, Toyota and Great Wall – is unique among China’s 300 or so industrial parks and has seen a wide-ranging supply chain take shape around it.

Component manufacturers that have been attracted to TEDA include Germany’s Continental, Japan’s Fujitsu Ten, DENSO Electronics and Yazaki, as well as others such as Aisin Body Parts and AW Automatic Transmission. They make everything from satnavs and stereos to seats, wiring and engine control units. The new Volkswagen plant, due to start operations in 2018, is expected to bring in a further 300 suppliers, doubling its own production value.

Meanwhile a burgeoning cluster of derivative industries has also taken shape to provide services to the auto industry. They include R&D companies such as Stanley Electric, Panasonic and Liszt Technology Center, auto finance firms such as Tianjin No 1 Auto Finance and Great Wall Binyin Auto Finance, and logistics vendors such as Toyota Logistics and TFGL.

There are also longstanding collaborations – TEDA has been working with the China Automotive Technology & Research Center (CATARC), a think tank and service provider, for almost 20 years. They have held the International Forum (TEDA) on China Automotive Industry Development for more than 10 years, bringing together thousands of executives and making contact with prospective tenant companies.

Cutting Edge

But TEDA is not sitting on its laurels.

“We want greater emphasis on high value-added areas of the automotive industry, such as high-end engine parts, electronics and car information systems,” says Hou.

With more electric cars already being sold in China than in the rest of the world combined, TEDA also wants to be at the forefront of clean energy vehicles, hybrid cars and battery technology.

“Our goal is to produce connective, autonomous and electric vehicles,” adds Hou.

These goals can be achieved through greater automation and use of data that enable companies to make highly customized products and respond rapidly to changing consumer demands without requiring an expensive and time consuming human-led reset of production processes.

“The trend towards servitization of manufacturing is increasingly at play – developing the capabilities we need to provide services and solutions that supplement traditional product offerings,” says Xu Datong, chairman of TEDA Administrative Committee.

“At TEDA, we are aiming for a switch from focus on products and production, to efforts in expanding services. This is key not only to generating incremental revenues but to becoming more competitive.

“We are pushing the envelope for a more collaborative and innovative ecosystem where we will see such activities as web-based design and co-creation by supply chain partners leading to collaborative and agile production.”

Creating Agility

Some of the production lines at TEDA are already set to benefit from the latest software systems.

The Volkswagen joint venture with Chinese carmaker FAW has incorporated the Toyota New Global Architecture system (FAW also has a joint venture with Toyota) into its production line. The system attempts to harmonize planning and components sharing to reduce costs and increase efficiency. In the welding process, high-performance robots are replacing humans, who do just 5% of the work, boosting efficiency by 50%.

Volkswagen is also introducing a flexible assembly line, which sees software and real-time location tracking reduce the cost of large-scale customization and manage product variability without creating large quantities of waste or compromising product quality.

But such techniques are just the beginning, says Richard A. D'Aveni, Bakala Professor of Strategy at Tuck School of Business at Dartmouth in the US.

It is the combination of automation and data in factory production with developing techniques such as 3D printing that will truly transform manufacturing, Dr. D’Aveni says.

“We are starting to see the whole infrastructure come together. You can change models or parts design quickly. You don’t have to wait three months to change the assembly line,” he says.

Servitization Focus

Such innovations may seem a world away, but it is TEDA’s expertise in IT and electronics – another of its pillar industries – that will help drive the transformation, according to Yu Kai, a veteran commentator on the Chinese auto industry.

“With great cutting edge in terms of informatization, TEDA enjoys a better DNA than its rivals in other parts of China in developing the Industry 4.0 auto sector,” he says. “In this regard, it’s a bit like the idea of Silicon Valley appearing posed to take over Detroit’s status as the US auto hub.”

TEDA has been investing heavily in the internet of things, collaboration and enterprise resource planning, cloud computing and big data.

“These four technologies are vital to the servitization of manufacturing and I’m confident that TEDA’s wide-ranging IT and electronics industry offers the perfect launchpad for automakers,” he says.

Executives have worked to spot gaps in the supply chain and screen prospective tenants so that the right companies become tenants. Those efforts mean that all the main elements of the car manufacturing industrial chain can be sourced locally within the Park.

And TEDA is aiming to sharpen this cutting edge still further – “We are looking for more tech companies with auto-industry-integration potential to establish their headquarters here,” says Hou Xiaolu.

Burgeoning Ecosystem

It is already working to provide cloud-based services for manufacturers. By 2020 TEDA aims to host more than 100 service providers offering cloud-based services to up to 10,000 small- and medium-sized companies.

TEDA is also home to China’s National Supercomputing Center and a supercomputer, named Tianhe-3 and capable of one quintillion (a billion billion) calculations per second, that will be operational by 2020. Chinese scientists hope to use it to analyze smog distribution, gene sequence and protein structures to help develop new medicines, but there may also be benefits for the auto industry.

Alongside this, TEDA is offering a package of tax breaks, loans, R&D subsidies and funding to manufacturers that can show they are moving forward with service-based manufacturing processes.

“We are embracing smart manufacturing with open arms,” says Xu Datong, chairman of TEDA Administrative Committee. “It will allow us to respond to the needs of increasingly demanding consumers both here and around the world and it represents the backbone of the next stage of China’s development.”