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Management

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Submitted By sunnyhan
Words 1821
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Title: How to get along with the dominant supplier—KNORR-BREMSE

Stream: Yellow
Group: No.4
Members: Duan Xinxin,
Han Han,
Gongjiangbo,
Wuchao,
Liang Haigang
Date:18th April 2016

TABLE OF CONTENTS 1 Abstract 1 2 Introduction 1 2.1Background 1 2.2 Challenges 1 3 Analysis 2 3.1 Bargaining power of suppliers 3 3.2 Bargaining power of buyers 4 3.3 Internal problems of CRRC 4 4 Recommendation 4 4.1 Solution to decrease the power of Knorr 4 4.2 Solution to decrease the power of customers 6 4.3 Solution to improve myself 6 5 Conclusion 6 Reference 7

How to get along with the dominant supplier—KNORR-BREMSE
1 Abstract In the report, the background of CRRC is introduced and 3 challenges are presented when CRRC gets along with the dominant supplier--KNORR-BREMSE, then 3 challenges are analyzed using Five Forces model of Michael Porter, finally solutions to the 3 challenges are proposed.
2 Introduction
2.1Background
The CRRC is the world's largest supplier of rail transit equipment with the most complete product lines and leading technologies. Its main businesses cover the R&D, design, manufacture, repair, sale, lease and technical services for railway rolling stock, EMUs, urban rail transit vehicles, engineering machinery, all types of electrical equipment, electronic equipment and parts, electric products and environmental protection equipment, consulting services, industrial investment and management, asset management, import and export. Its products have been exported to around 100 countries and regions in 6 continents. The export of products has also been changing to export of technologies, output of capital goods, and global business transformation. 1
2.2 Challenges
Until now, CRRC has grasped all the train key technology –system integration, car body, bogie frame, transformer, traction convertor, traction motor, traction control system and traction control network system except the braking system, and KNORR-BREMSE(hereinafter referred to as Knorr) is the leading supplier of braking system who accounts for high proportion in CRRC products. With the development of technology, Customers put forward higher requirements on the price, lead time and quality of the product, and the risk should be under CRRC’s control, so how to get along with Knorr becomes more crucial to the development of CRRC and puts forward 3 challenges for CRRC. * Bargaining power of suppliers; * Bargaining power of buyers; * Internal problems of CRRC.
3 Analysis
Five Forces model of Michael Porter(see Figure 1) is a very elaborate concept for evaluating company's competitive position. Michael Porter provided a framework that models an industry and therefore implicitly also businesses as being influenced by five forces.2
Porter's competitive five forces model is probably one of the most commonly used business strategy tools and has been proven its usefulness in numerous situations. Porter's Five Forces model provides suggested points under each main heading, by which you can develop a broad and sophisticated analysis of competitive position. This can be then used when creating strategy, plans, or making investment decisions about your business or organization. 2
Porter's Five Forces model is made up by identification of 5 fundamental competitive forces: 2 * Barriers to entry * Threat of substitutes * Bargaining power of buyers * Bargaining power of suppliers * Rivalry among the existing players
POTENTIAL
ENTRANTS
INDUSTRY
COMPETITOR

RIVALRY AMONG
EXISTING FIRMS
SUPPLIERS
SUBSTITUTES
BUYER
Threat of new entrants
Bargaining power of suppliers
Bargaining power of buyers
Threat of substitute products or services

Figure 1 Five Forces model of Michael Porter3
Two fundamental competitive forces --“Bargaining power of suppliers” and “Bargaining power of buyers”—are used to analyze the problem, meanwhile, internal problems of CRRC are studied.
3.1 Bargaining power of suppliers
(1)Concentration degree of supplier industry
Knorr has the dominant position in braking system in CRRC’s trains as the figure 2 and figure 3 below shows.

Figure 2 the proportion of Knorr in locomotives

Figure 3 the proportion of Knorr in high speed trains and metro
Its leading position in braking system leads to some sequences as follow: less responsive to trouble-shoot, long delivery time of spare parts and necessary documents,
(2)Switching cost from KNORR to another suppliers
Knorr braking system is mature after many years of testing, batch run assessment, can meet different environmental requirements, therefore, the cost of switching suppliers is huge.
(3)The importance of supplier's products to CRRC
Just as we have described before, the braking system is one of the key technology of rail transit vehicles and related to the life and property safety, especially for the high speed trains. At present, Knorr braking systems have been widely used and recognized by the vast majority of customers. Therefore, switching risk and requirements of customers should be considered at the same time before switching Knorr.
3.2 Bargaining power of buyers
As customers lack experiences of operating other braking systems, they prefer to adopt Knorr braking system. There are mainly two reasons: first, there is no need of additional instruction for their staff, in that way they could save time and put trains into running more quickly and smoothly; second, the braking system of their existing trains are from Knorr, in consideration of maintenance cost, customers also prefer to select braking system from Knorr.
3.3 Internal problems of CRRC
Lacking of professional personnel major in design, negotiation, operating and so on leads to be a disadvantage position in negotiation, be unable to get the important technical documents, be unable to get supported immediately when some technical parameters and the lead time need to be changed by customers and have to wait for suppliers' rescue when something happened.
4 Recommendation
Based on the analysis, CRRC can strengthen its leading role of bake system by taking measures as below.
4.1 Solution to decrease the power of Knorr
(1) From single sourcing to multiple sourcing
Successful supply chain management necessitates an effective sourcing strategy to combat uncertainties in both supply and demand. In particular, supply disruption results in excessive downtime of production resources, upstream and downstream supply chain repercussions, and eventually a loss in the market value of the firm. There are Faiveley and Webtec who can produce braking system but have much less experience than KNORR. Because of the technological maturity and the requirements from our customers, it is necessary that persuading our domestic customers to equipped more braking systems from Faiveley and Webtec from which the technology will be gradually mature compare with the technology from KNORR after operating for several years, then the braking system purchasing mode of CRRC will change from single sourcing to multiple sourcing(see figure 4)
CRRC
Knorr
CRRC
Knorr
Faiveley
Webtec
Single Sourcing
Multiple Sourcing

Figure 4 diagram of changes from single sourcing to multiple sourcing
(2)Large market share can also decrease the power of Knorr4
China market * High speed train: Authority figures shows that: During the "13th Five-Year" period, high-speed rail mileage is expected to increase by 2200km per year. In accordance with the need of 1413 new EMU per million, an average annual need for high speed train is 311. Meanwhile, High speed rail operations management has been shifting from pursuing the quantity of mileage to improving quality of the operation. At present, China's per capita railway density is only 0.82 km / 10 million people, if it reaches Japan's level, the demand for the upgrading of vehicles are huge. * Ordinary rail: Ordinary rail mileage is expected to increase by 4000km per year. Accordingly, the annual need for locomotives, passenger carriages and trucks will be 880, 2520 and 29600 respectively. * Urban rail transit vehicle: By 2020, the total operating mileage the national subway and light rail will reach 7000 km, and an average of 5841 new vehicles are needed every year
International market
At present, the total investment of overseas high-speed rail project that China may participate in is close to RMB980 billion which includes RMB147.3 billion for purchasing the high-speed trains from CRRC. It is estimated that in 2016 China overseas rail business revenue will reach RMB45 billion. The four high-speed rail lines --the Pan Asian high-speed rail, high-speed rail in Central Asia, the Eurasian high-speed rail, and high-speed railway between China and Russia planed by Belt and Road Initiative will make substantial progress mainly due to the formal operation of Asia investment banking, And CRRC brand continues to be strengthened and enhanced, the brand "spillover" effect will appear, and more and more countries will choose cost-effective products manufactured by CRRC.
(3) Establish long-term strategic cooperation relationships
Firstly, sign a long-term strategic cooperation contract, including technical specifications and basic price of all types of components need purchased from Knorr.
Secondly, make supplier to become one member of our project team to develop new product.
(4) Set up supplier platform
Set up a platform which combines all suppliers, such as the braking system board, It can organize meeting, forum and so on, promote the development of new technology, strengthen technology communication and information sharing, and make CRRC control core technology.
4.2 Solution to decrease the power of customers
To convince customers to adopt braking system from other company, CRRC need to improve bargaining power from three aspects:
Firstly, develop other substitutes except KNORR and establish cooperation relationship with them. Standardize interface of all braking system from different company, make sure different system could compatible, then reduce maintenance cost and improve operating performance.
Secondly, improve bargain chip by adopting other braking systems in domestic market and put into operation to check their reliabilities and performance. Make sure CRRC have reliable substitutes then could deliver multiple solutions to customers.
Thirdly, tell customer that adopt different braking system, the bid price should be different.
Finally, understand customer’s needs fully, develop solutions, and help customers make decisions, thereby reduce changes in the implementation process of the project.
4.3 Solution to improve myself
Firstly, improve purchasing team's negotiation skill and intercultural communication ability.
Secondly, introduce talents or experts in braking system and improve technology level in braking system.
Thirdly, improve CRRC's management level including basic management, project management and data management.
5 Conclusion
After continually implement of multiple measures based on Five Forces model of Michael Porter analysis to improve CRRC itself and balance with suppliers and customers, CRRC will establish long-term cooperation relationship with suppliers like Knorr and customers.
Reference
1. Company Profile .[online] Available at: www.crrcgc.cc/g5141.aspx [Accessed 16th April 2016 ] 2. Five Forces Model by Michael Porter. [online] Available at: http://www.maxi-pedia.com/Five+Forces+model+by+Michael+Porter [Accessed 10th April 2016 ] 3. PORTER’S 5-FORCES MODEL. [online] Available at: http://www.referenceforbusiness.com/management/Or-Pr/Porter-s-5-Forces-Model.html [Accessed 10th April 2016 ] 4. Hu Lu,(2016).Forecast for CRRC’s market & report on analyzing and evaluating CRRC quantitatively. [online] Available at: http://www.27580.cn/news-detail-112082.html [Accessed 16th April 2016 ]

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