On Location: Haier Group
Haier: Working Its Way Up

by Lisa Bonnema, Managing Editor

Although well-known in Chinese households, appliance maker Haier is working its way into the U.S. market by making cost-effective refrigerators at its new facility in Camden, SC, U.S.

Just a few years ago, manufacturers within the U.S. appliance industry were still trying to figure out how to pronounce Haier's name, but today it's a different story - they know it well. That may have something to do with the fact that the company is currently the world's second largest producer of refrigeration products, according to APPLIANCE magazine's World Appliance Companies, 3rd Edition. Or maybe it's because APPLIANCE statistics show that in 2002, Haier was the number three maker of room air-conditioners in the U.S. when it was number five just 1 year before. The company also claimed a 9-percent market share in the U.S. freezer market in 2002 and a 2-percent market share in standard-sized refrigerators - quite an accomplishment considering that in 2000 it posted a mere 3-percent share in freezers and wasn't even on the U.S. market share radar for refrigerators.

The company has also made its mark in niche products, specifically with its compact refrigerators, which are infiltrating the college dorm rooms of next-generation consumers. It has also brought affordable compact wine coolers to the average U.S. home.

Combine those successes with the company's bold March 2002 purchase of the former Greenwich Savings Bank Building in Manhattan, NY, U.S. for Haier America Trading LLC's North American headquarters, and the question quickly becomes: what's in store for this company over the next 2 years?

If operations over at the Camden facility are any indication of the future, the answer is clear: much will be changing.

As part of its strategy to enter the U.S. appliance market, Haier invested more than U.S. $40 million in a 300,000-sq-ft refrigerator plant in Camden, SC, which, after breaking ground in 1999, produced its first products in early 2001. Currently, the refrigerator plant represents the only production Haier is doing in the U.S. The rest of its products are made in China.

According to Allan Guberski, VP and general manager of Haier America Refrigerators Co., one of the main focuses of the Camden plant is finding the most effective way to balance its Chinese and U.S. operations.

One of the plant goals, for example, is establishing a supplier base in the U.S., as opposed to using its parent company's Chinese connections. "We're already sourcing several components domestically," says Mr. Guberski. "What we would like to get to is where we have all of the main commodities here [in the U.S.] - for instance, the glass shelving, angles, brackets, and so on."

The company is off to a good start in terms of its materials supply chain. It is currently getting pre-coated steel from a major U.S. steel supplier, and Morton Custom Plastics, Inc. in St. Matthews, SC, U.S. is doing most of Haier's injection molding work. Much of the company's extruded plastic sheets are also supplied domestically, although it also utilizes sources in Asia.

While many think there is a cost advantage to using Chinese-made components, Mr. Guberski explains that in-bound freight costs can actually make U.S suppliers more economical at times. "We've got some costs to deal with like the sea-container transportation from China over to Charleston, SC. Then the land transportation from Charleston to the plant in Camden is another expense. As we team with some of these local suppliers, we can start to decrease those expenses," Mr. Guberski says.

That doesn't mean the company won't research the most cost-effective option. "We'll do what makes sense," notes Mr. Guberski. "If we can produce a partÉmore economically in China than here [in the U.S.], of course we'll probably go that route. If we can source it domestically, we will certainly do that. We end up passing along this value to our customers, which is what we ultimately want to do to be successful in the marketplace."

Larry Keefover, engineering director for Haier America Refrigerators Co., adds that there are advantages to having an established supplier base in China, specifically quick tooling turnaround. "I consider it a luxury to work with China. We have our own tool development group there. So if we want to make a change, we don't have to go to several U.S. suppliers to figure out when they can work it into their schedules," says Mr. Keefover. "We've made tool modifications and had small tools here in 6 to 8 weeks."

Moves, Adds, and Changes

Currently, the plant produces more than 800 full-size top-freezer refrigerators a day. The 18-cu-ft models follow a good, better, best model, starting with the entry-level HTE products, which are followed by the mid-range HTP and the high-end HTQ models.

Utilizing a platform production technique, differences between the refrigerator models tend to be more on the inside than out, according to Mr. Keefover. The interior of the HTE model, for example, features opaque and wire shelves, while the HTP features a glass shelf and the HTQ features a glass shelf that is also spill-proof. The HTQ also includes humidity control in the crisper bins and has a split-shelf design that allows the shelves to be adjusted.

In an effort to upgrade its product line, the company also recently started producing 21-cu-ft models under the HTE and HTQ model designations. The two models will include the same features as its 18-cu-ft counterparts, but will have a larger capacity and some aesthetic changes such as a new handle design.

Over the last year, the plant has made several adjustments to its production operations, mostly due to new product introductions. Less than a year ago, the company was producing 14-cu-ft models at the Camden plant for the U.S. market, but recently moved that production back to China to make room for the new 21-cu-ft models. "It's more cost-effective to ship the 14-cu-ft model because of how many refrigerators you can get in a container as opposed to the 21-cu-ft," Mr. Guberski explains.

Just this past summer, the company started producing black and bisque models in addition to its standard white models. As of press time, the company also had plans to produce stainless steel products by the end of the year.

And there's more changes to come, according to Mr. Guberski. By the first quarter of 2004, the plant plans to reach its full capacity, which amounts to 1,200 units a day. Although he wouldn't reveal details, Mr. Guberski tells APPLIANCE the increase will be due to additional models the company plans to release.

According to Mr. Guberski, plant management both expected and planned for change, and, as a result, invested in advanced equipment and logistics technologies to help ease any potential growing pains. Management has also carefully chosen in-house operations. "You won't see a metal stamping shop in this plant. You won't see a paint finishing shop. We use all pre-coated steel," says Mr. Guberski. "This allows us to basically operate permit free in the state of South Carolina."

Mr. Guberski says the plant was designed from back to front, starting with the packaging and testing areas at the back-end of the facility, and finishing with the plastics and metal operations at the front of the facility. This meant the facility was often producing appliances before the plant was completely finished, leaving Mr. Guberski and his staff on their toes.

"It was kind of like trying to race a car around the track when you still have people working on the engine and running very fast beside it," he explains. In November 2001, for example, the company was producing 100 to 125 units per day. The following May - just 6 months later - the company was producing more than 700 units per day.

Now fully operational, the refrigerator plant is divided into two segments - the door line and the cabinet line - until the two lines meet at final assembly and go onto testing and packaging.

Cabinet and Door Lines

The cabinet line uses metalforming equipment from Tao Koki of Japan. The operations start with a metal blank of pre-painted and embossed steel material, which varies in size according to the model. The blank automatically goes through several die stations that punch out holes for hinge pins, screws, and other hardware.

Once all of the work is done on the flat pattern, the metal goes through a roll-forming process, which forms flanges to accommodate mating parts, as well as flanges to join the plastic cabinet liner. The metal is then formed into a U-shape and becomes the outer wrapper of the refrigerator.

Adjacent to the forming operation is another line that forms the back and bottom of the cabinet, which is then automatically mated to the U-shell. "We have the folded back and bottom assembly, which is presented at a separate insertion table, and as the U-shell comes by, it is detected by the sensors, and the back and bottom are automatically assembled and locked into the U-shell," explains Mr. Guberski.

The metal cabinet parts are assembled together using the Tox assembly process, which allows the parts to be locked in place without using a rivet or other fasteners.

For the cabinet's plastic liner, Haier uses an automated thermoforming line from Italian company Comi srl. To start, the plastic sheet is moved via conveyor to IR heaters that heat the sheet to its true plastic state. From there, it is taken to the forming station where the "bubble" cabinet liner is formed.

Mr. Guberski explains: "We bring the lower section of the tool up and the top section down, and we seal off the outside air from that sheet. Then we actually pull a vacuum above that sheet, which makes that sheet rise up as if someone is blowing a bubble. When we do that, we take a tool that is at a lower temperature than the plastic, and insert it into this bubble so that we get a uniform wall thickness. If we didn't blow the bubble, the tool would freeze the plastic at the top, which would just stretch and break the sides of the bubble."

After the bubble is formed, a vacuum is pulled through the inside of the tool so that the plastic forms around the tool. Cool water is then run through the tool so that the plastic freezes and takes shape. After the plastic is formed, its edges are trimmed, and an automatic press punches holes for joining shelf supports and other interior parts.

The plastic liner is then assembled into the metal cabinet shell, and the necessary wiring harnesses and copper tubing are manually attached. The cabinet is then transported via conveyor to the foaming operation, where isocyanate material is used to create the cabinet insulation. As of press time, the company was using an R141 B blowing agent, but had plans to shift to R245 FA.

Mr. Guberski says that the Camden facility uses a foam-in-place cabinet. "Some manufacturers still use a design where the center mullion of the top-mount refrigerator still has an expanded polystyrene design," he explains. "We use the actual foam - the isocyanate foam - throughout the entire unit. This gives us better energy efficiency because you don't have any air gaps for leakage."

On the other side of the factory, the doors are constructed using Italian-made metalforming equipment from Berretta. The door operations follow the same pattern as the cabinet metalforming operations: the flat pattern is taken through a series of dies that punch holes for hinges, reinforcements, etc. The sheet is then folded into 7 bends to create the top, bottom, and sides, and is fastened using the Tox system.

The plastic liners are formed using Comi equipment and are automatically trimmed and moved via conveyor to a small sub-assembly area, where it meets with the metal door shell. After foaming tape and reinforcements are added, the foam is inserted, gaskets are attached, and the completed doors move to final assembly as a set.

Final Assembly and End Operations

In final assembly, the cabinets and doors meet via a Galileo conveyor system, although the assembly line itself is not a moving line. Instead, each worker has a foot petal that controls the line movement. "That way we can correct the problem at the earliest part of the process," says Mr. Keefover. "We run things on a total cost to the business (basis)."

Mr. Guberski explains that the final assembly processes are standard for the industry, although the plant does use a unique mix of automated and manual operations. "We have a robot that automatically assembles the machine compartment (the compressor assembly) to the unit. It drives the screw, stands the unit back up, and presents it to the next operator. That's unique from what I've seen in the industry," he says.

The company has also invested in some automated evacuation and leak testing equipment. The helium leak testing is done via a testing system from Inficon that sniffs or detects helium leaks.

Once the helium test is complete, the unit is evacuated at one of the 44 testing stations. According to Mr. Guberski, in order to be more efficient, the plant does not use a timed evacuated system. "A lot of manufacturers rely on a timed system, but if there is a problem with the pump, they don't know exactly what the evacuation percentage was at that time and have to start over," he explains.

Haier's computer-based system records the evacuation levels and informs robots of the percentage that's been evacuated. "It's a tamper-proof system," says Mr. Guberski. "The robot knows when the evacuation is finished. The PLC, which is connected to the transporter boxes, knows and directs two robots to pick up the unit and bring it to one of the two final automatic refrigerant charging stations."

The unit is weighed before moving on to the refrigerant charging station, where it is ultrasonically sealed. Workers then do another refrigerant leak check, and the unit goes through the standard UL safety tests such as voltage, hipot, and earth ground continuity testing. After UL testing is complete, one person manually inspects the fresh food compartment, while the another worker inspects the freezer. An automatic functional test decides whether or not the unit can move onto packaging.

Packaging is also a combination of manual and automated processes. Using Hirata packaging equipment and packaging materials from Sonoco, the appliance is manually covered with the outer packaging carton, and four corner posts are added. From there, the package is automatically closed and banded together.

Haier also invested in an advanced logistics system. An fire-walled Ethernet spine runs through most of Haier's automated equipment, PLCs, and servers, essentially enabling the factory machinery to "talk" to each other. In fact, Mr. Guberski says that about 80 percent of the plant's equipment is currently utilizing a modem, which means suppliers across the globe can monitor Haier's equipment and data in real-time.

Other recent improvements include the hiring of three full-time process control technicians that focus solely on collecting data, inputting it into a database, and monitoring the quality control. Future plans include an advanced vibration analysis system to help with preventative maintenance.

" We do currently have people that come in on a regular basis to let us know if there's any type of RAM vibration that's occurred so we can get a head start on maintenance," notes Mr. Guberski. "We'd rather fix a small problem than a big problem."

With all of the product and tooling changes the Camden facility has made, Mr. Guberski says his 230 employees have been a key component to the plant's succes.

"The biggest challenge I had was to come in and actually build a team here and get the infrastructure together to have this business functioning as a factory. We needed some engineering leadership and some financial leadership; we needed a materials director; we needed to get our business management infrastructure set up in terms of our MRP system, our ordering system, our purchasing system, our financial modules, and our general ledger modules," says Mr. Guberski. "That process was completed in 10 weeks, probably in record time. I was lucky enough to find some good team members, many of which I knew personally from other associations, and we were able to recruit the right people to put something together and move forward very rapidly."

Another challenge Haier was able to overcome was training people who had never worked in a manufacturing environment. According to Mr. Guberski, Camden and its surrounding communities were more experienced in the service industry. "Of course there's a little bit of a learning curve," he notes. "You have to train people in terms of safety, what to do and what not to do, but we have probably one of the lowest incident rates for safety than any plant that I've been at."

A fresh staff also has its advantages. "You get an opportunity to train people…in the way you want them to think about a job, how to approach a job, how they set up their work flow in their work station, how they communicate with other employees, and how they go about developing the skills to solve problems on a daily basis," Mr. Guberski explains. "You don't have to 'unlearn' any preconceived notions of what the factory's going to be and what the goals and objectives are."

Mr. Guberski says his management style is based on active participation between employees and management. "I spend several hours a day on the shop floor myself, and our HR director spends several hours on the shop floor. We want to be visible to employees; we want to be approachable to employees; we want to listen to ideas; we want to implement ideas; and we want to reward ideas," he says.

In fact, one of his major goals is to implement a Chinese management philosophy called Strategic Business Units (SBU). Similar to decentralized management, the philosophy encourages each employee to act as the manager of his or her own business unit.

"For instance, on the thermoforming equipment, the operator has the responsibility for the equipment in its entirety. We're trying to get him to the point where he's actually going to run that as his own small business," Mr. Guberski explains.

Long-term, the plant would like every department and every operator to operate with the "bigger picture" in mind. Mr. Guberski would even like to install electric power meters on the equipment so the operator can monitor utility usage.

" We would even want the operators to look at things like how much maintenance labor they need on their equipment and how much they can do themselves," Mr. Guberski explains. "When an operator needs to call maintenance to service his or her piece of equipment, maintenance is going to charge him or her a labor charge for that. So, essentially, the operator has to make enough money to earn his or her salary."

Because it is an evolving philosophy, Mr. Guberski doesn't expect the SBU practices to be "fully implemented" any time soon. Currently, the philosophy is at the early stages, but has been communicated to employees as an ongoing effort.

"We're changing the target as well as what we're doing to work toward that target," Mr. Guberski says. "We want to expand the scope of what the operator can do and achieve. We have…to get people thinking in terms of what it means to have complete ownership."

The plant is also working to develop a formal incentive plan that will include metrics based on safety, quality, productivity, cost, and warranty. This too, Mr. Guberski says, will take some time to develop. "We don't want to just paper the factory with charts," he explains. "We want to measure all the things that are important."

Paving the Way

While U.S. appliance makers may not know exactly how this newcomer plans to reach the top, they can be sure that Haier is setting goals that are nothing short of lofty.

CEO Zhang Ruimin was recently quoted as saying that Haier is on track to reaching its goal of becoming the third largest appliance maker in the world, moving up from its current fifth position. Mr. Ruimin confirmed that reaching that goal will certainly mean some expansion at the Camden facility. "To achieve our objective of a 10-percent market share [of refrigerators] in 2005, we need an output of 500,000 units," he said in a McKinsey Quarterly report. "The production of our factory is 400,000 units a year, though we have plans to expand, so the difference will be met by exports."

According to Mr. Guberski, in addition to the new products that will be released early next year, there are also talks of the Camden facility producing side-by-side models in the future. "We would have to look at some of the constraints and make sure we have enough space to be able to rotate objects of that size. It's a 36-in wide product, and the diagonal is going to be even larger than that. Right now we work with 33-in wide products."

Mr. Guberski adds that one challenge in producing side-by-side models would be the physical size constraints of the conveyor systems within the plant that are utilized to automatically move finished materials. "As the product moves around a curved section of the line, the diagonal becomes the critical dimension as opposed to the length or width when moving in a straight line. If enough of these constraints exist, you may find that it is not economical to eliminate all of them in order to produce a given size of product," he explains. "All that it takes is one pinch point in a factory, and you don't have a viable plant."

As far as Haier opening up new U.S. factories or expanding beyond refrigerator production, Mr. Guberski says only time will tell. "Our goal now is to…maximize the number of refrigerators we can produce per day over here, get the premium cost level down so it is at a very minimal level, and then look at new opportunities. If those opportunities involve new plants, certainly that would have to be part of the strategy between Haier in New York as well as the Group in China. Personally, I'd like to see growth," he says.

Until then, operations at Camden will most likely be a gauge for Haier's position - and success - in the U.S. marketplace. It seems Mr. Guberski is comfortable with that responsibility and only sees success in the near future, at least for the Camden plant. "I think we've got the executive management team in place here that has a common vision, that works well together, and that can handle all the minutiae that has to happen…to develop this plant as a whole and as a business," he says.

The History of Haier

Haier Group's origin dates back to 1984, when Zhang Ruimin was appointed CEO of the then government-owned Qingdao General Refrigerator Company. In an effort to pull the company out of a bad financial situation, Mr. Ruimin acquired several companies throughout the rest of the 1980s, including the Qingdao Electroplating and Qingdao Air Conditioner factories.

In 1991, all three companies merged to form Haier Group.

Just 5 years later, the company completed another round of purchases, which included acquiring Qingdao Red Star Appliance Factory and the controlling stake in the Wuhan Freezer Factory. That same year, it also formed Shunde-Haier, a joint venture with Shunde company, making Haier the top producer of electrical appliances in China.

In the ensuing years, the Chinese company made its way around the globe. Haier's ventures include:

• 1998 - signed an agreement with California, U.S.-based Malloy, Inc. to exclusively distribute washing machines under the "Universal by Malloy" brand name
• 1998 - formed Haier-Philips Technology Appliance Company, a joint venture with Philips of the Netherlands
• 2000 - opened a refrigerator manufacturing facility in Camden, SC, U.S.
• 2000 - completed construction of an industrial park in Qingdao City, China, which is involved in the manufacturing of major appliances
• 2001 - acquired the Meneghetti SpA factory, an Italian producer of refrigerators
• 2002 - purchased a landmark building in Manhattan, NY, U.S. to serve as the headquarters for Haier America
• 2002 - moved into the Japanese appliance market using the sales network of Japanese appliance maker Sanyo
• 2002 - entered into the Spanish appliance market under the Haier and Hec brand names
• Today, the company markets a wide range of appliances within its 69 product lines. Among its extensive portfolio are refrigerators, freezers, dishwashers, washing machines, air-conditioners, microwaves, vacuum cleaners, irons, commercial refrigeration products, water coolers, electric water heaters, televisions, MP3 players, computers, and mobile telephones.

The company currently has approximately 40,000 sales representatives worldwide and 12 overseas plants. Future plans include a continued focus on the U.S. and Western European markets, with talks of expansion into India.