{"id":26285,"date":"2017-11-15T22:08:32","date_gmt":"2017-11-16T03:08:32","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/smart-home-intelligent-factories-haiers-journey-of-building-interconnected-factories\/"},"modified":"2017-11-15T22:08:32","modified_gmt":"2017-11-16T03:08:32","slug":"smart-home-intelligent-factories-haiers-journey-of-building-interconnected-factories","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/smart-home-intelligent-factories-haiers-journey-of-building-interconnected-factories\/","title":{"rendered":"\u201cSmart Home, Intelligent Factories\u201d \u2013 Haier\u2019s Journey of Building Interconnected Factories"},"content":{"rendered":"

After a decade of double digit growth fueled by rising disposable income, China\u2019s home appliance market slowed in recent years as ownership level reaches maturation. Home appliance giants like Haier find it increasingly important to sustain market share through product innovation, and to drive profit through improving supply chain efficiency.<\/p>\n

In addition, Haier largely relies on an archaic distribution system that consists of multiple tiers of distributors which are often slow-moving state-owned companies. Visibility through the supply chain is low. As growth slows, price wars inevitably start to happen at the retail level, as distributors continue to estimate demand based on historical data and rule of thumb and subsequently have to slash prices to clear inventory.<\/p>\n

To respond to those challenges, Haier started exploring ways to reinvent itself through building \u201cinterconnected factories\u201d. The goal is to digitally connect customers, distributors, factories, products, supply chain, R&D and marketing functions[1]<\/a>. Since 2012, all of Haier\u2019s new factories are automated and digitally enabled[2]<\/a>. The company aims to have 10 interconnected factories by the end of 2017[3]<\/a>.<\/p>\n

\"\"<\/a><\/p>\n

From mass production to mass individualization<\/em>. To connect with the consumer and enable the transition to mass individualization, Haier built its own eCommerce channel where customers are now able to customize the color, size, and features of their appliance. Orders are directly sent to the factory with modularized production. Haier subsequently uses demand data generated from users to inform their product design.<\/p>\n

More transparent supply chain<\/em>.\u00a0 Demand data is selectively shared across design partners, suppliers, e-Commerce\/logistics partners, which resulted in 67% reduction in order fulfillment cycle time[4]<\/a>.<\/p>\n

Device-driven feedback<\/em>: Haier\u2019s products are end-point connected with the platform through wi-fi. After delivery, data on how users engage with the product get sent back to the Haier. Users can also remotely control appliances on mobile phones, or use applications (e.g. recipe sharing) through the touch screens on the appliances.<\/p>\n

\"\"<\/a><\/p>\n

 <\/p>\n

The effort produced impressive results. In 2016, 1.09mm units produced from interconnected factories. However, compared to the total volume of 65mm units sold[5]<\/a>, Haier still has a long way to go.<\/p>\n

The bigger challenge going forward is how to implement interconnected factories on a larger scale. To achieve that, Haier needs the participation of the entire ecosystem of app developers, internet service providers, suppliers and logistics partners. Longer-term, Haier envisions seamless linkage across all ecosystem participants and that all its products being customized[6]<\/a>.<\/p>\n

Does Haier have the level of influence it needs to push forward the standardization of interfaces through the ecosystem? Majority of Haier\u2019s sales are still generated through offline and online retail partners. How should Haier manage those relationships when more and more customers directly order from the factory, bypassing the channel partners? More importantly, as a state-owned company with 78,000 employees, majority of whom are Haier lifers, how does Haier realign the workforce to shift from a product-first to a customer-first mentality?<\/p>\n

I will attempt to address one of them and leave the rest as food for thought. To address the standardization problem, I would suggest Haier to collaborate with competitors to move towards a unified standard. As a state-owned company with rich resources that many private sector competitors do not have, Haier is uniquely positioned to leverage on its influence on the government to implement incentives that benefit the entire industry.<\/p>\n

In addition, data collected from wi-fi connected appliances would be very valuable to other ecosystem participants. For example, the data on usage frequency and mode of washing machine could allow eCommerce channel partners such as Alibaba to anticipate demand for laundry detergent and push the type of detergent relevant to the consumer\u2019s specific need, hence helping Alibaba generate additional sales outside of home appliance. Given Alibaba\u2019s central position in the ecosystem, it then would have stronger incentive to influence the rest of the ecosystem (competitors, developer community, logistics partners) to innovate around one unified standard.<\/p>\n

 <\/p>\n

(701 words)<\/p>\n

[1]<\/a> Gartner, High-Tech Manufacturing Supply Chainovators 2017: Demand-Driven Digitalization<\/em><\/p>\n

[2]<\/a> China Economic Net, Haier forays into Internet factory<\/em><\/p>\n

[3]<\/a> China Daily, Haier Focuses on Interconnected Factories<\/em><\/p>\n

[4]<\/a> Gartner, High-Tech Manufacturing Supply Chainovators 2017: Demand-Driven Digitalization<\/em><\/p>\n

[5]<\/a> Haier annual report, 2016<\/p>\n

[6]<\/a> Gartner, High-Tech Manufacturing Supply Chainovators 2017: Demand-Driven Digitalization<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

As China\u2019s home appliance market comes to maturation, Chinese home appliance manufactures are now forced to confront the problems that they got away with during times of easy growth. Can they reinvent themselves in Industry 4.0? Or are investments into digitalization what\u2019s necessary to keep their heads above the water? <\/p>\n","protected":false},"author":9727,"featured_media":26286,"comment_status":"open","ping_status":"closed","template":"","categories":[],"class_list":["post-26285","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","hck-taxonomy-organization-haier","hck-taxonomy-industry-manufacturing","hck-taxonomy-country-chile"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\n\u201cSmart Home, Intelligent Factories\u201d \u2013 Haier\u2019s Journey of Building Interconnected Factories - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/smart-home-intelligent-factories-haiers-journey-of-building-interconnected-factories\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"\u201cSmart Home, Intelligent Factories\u201d \u2013 Haier\u2019s Journey of Building Interconnected Factories - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"As China\u2019s home appliance market comes to maturation, Chinese home appliance manufactures are now forced to confront the problems that they got away with during times of easy growth. 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