2024

HEC MONTREAL

FUYAO GLASS AMERICA:

SOURCING DECISION

Binta Baldé
Mona Akallal
SUMMARY
Company Background 1
Sourcing Dilemma 2
Key Factors: Moraine VS Tianjin 3
Recommended Decision 4
 COMPANY
BACKGROUND

01
 C O M PA N Y B A C K G R O U N D

Fuyao Glass America, established as a sino-foreign equity

joint venture in China in 1987, is a leading force in the
automotive glass industry. As China's number one and the
world's second-largest manufacturer by sales volume, it
dominates with a 65% market share.

In China, the company operates several factories, including a modern facility

in Tianjin.

Between 2006 and 2008, they firmly planted their corporate footprint across
continents, setting up subsidiaries in Germany, South Korea, Japan, and the
US.

In 2014, Fuyao acquired a float glass factory in Mt. Zion, Illinois, and they
bought the Moraine factory, transforming it into the world’s largest single-site
auto glass factory.
C O M PA N Y B A C K G R O U N D

Cho Tak Wong, the Chairman and Founder, is particularly

influential and well-respected. His contributions extend
beyond business, as he is known for generous donations to
disaster relief and educational initiatives, as well as
involvement in religious groups.

As the world's largest supplier of automotive glass, the company produces a

complete range of automotive glass products suitable for nearly every vehicle
in the automotive industry, ranging from Bentley to Nissan.
SOURCING
DILEMMA

02
SOURCING DILEMMA

NEW CONTRACT FOR A FACTORY IN

ONTARIO, CA

TIANJIN, CHINA OR MORAINE, OHIO

 KEY FACTORS: Moraine VS
Tianjin
Cost Efficiency - Transportation - Production & Quality - Strategic Considerations

03
K E Y FA C TO R S : M O R A I N E V S T I A N J I N

COMPARISON OF COSTS

Main factors to consider choosing the production

location:

Labor costs
$50
Energy costs

Transportation costs

Price of raw materials

Transit times

Currency exchange rates and potential duties

TOTAL : $40.60 VS $60.44

K E Y FA C TO R S : M O R A I N E V S T I A N J I N

PRODUCTION & QUALITY

The Tianjin factory in China not only boasts a higher overall yield of 93%, with a
first-pass yield of 91% and the capability for rework and repair contributing an
additional 2%, but it also benefits from a significant workforce presence. This
facility, operating with a monthly schedule of 8 hours per day over 25 days, is
staffed by 57 workers per line, which allows it to produce 780 pairs of automotive
glass per shift.
In contrast, the Moraine factory in Ohio has a total yield of 81% with the same
percentage for first-pass yield, suggesting a no rework and repair policy that could
stem from a lack of required skills or a strategic choice to maintain production flow.
The Moraine factory operates with 63 workers per line for 22 days per month, each
day consisting of an 8-hour shift. This higher number of workers, despite a shorter
work month, indicates a strategy to compensate for the newness of the plant and its
workforce. Currently, Moraine produces 650 pairs per shift, which is 130 pairs less
than Tianjin produces in one shift.
 K E Y FA C TO R S : M O R A I N E V S T I A N J I N

TRANSPORTATION
The cost of shipping a standard 40-foot container from Tianjin, China to Plymouth is The journey from Tianjin to the U.S. East Coast typically takes 30-35 days. This
01. estimated at $7,000. This expense translates to an approximate cost of $15.33 per unit, 04. does not include additional time for customs clearance and inland transportation to
based on the capacity of the container. Conversely, shipping from Moraine, Ohio, is Plymouth. Therefore, for glass originating fromTianjin, the transit time is up to 50
much more economical. The cost of shipping a 54-foot trailer is approximately $1,500, days door-to-door which is an important consideration. As a result, Fuyao maintains
which averages out to approximately $2.13 per unit. an additional 60 days of safety stock at the Plymouth distribution center to mitigate
risks such as dock strikes or other unforeseen disruptions, ensuring that JIT
requirements are met despite the extended supply chain.
From Moraine, Ohio, transit time is significantly reduced due to its proximity to
both the U.S.-Canadian border and the Plymouth distribution center, allowing for
02. In addition, just-in-time is a strategy that matches supplier orders directly to production
schedules, with the goal of increasing efficiency and minimizing waste by receiving faster deliveries to the Canadian plant.
materials only when needed. Automobile assemblers, as Fuyao's main customers,
strictly adhere to JIT systems, which require the timely delivery of components. Delays
in the delivery of essential parts, such as Fuyao's automotive glass, can bring
production lines to a halt. To enforce compliance and prevent disruptions, auto
assemblers often impose severe financial penalties for late deliveries.

05. Finnaly, shipping over long distances from Tianjin to North America entails a higher
carbon footprint due to extensive ocean and land transportation. Meanwhile,
shipping from Moraine to Canada aligns more effectively with sustainability
objectives.
Moreover while imports from China to Canada that transit the United States are subject
03. to tariffs and potential trade tensions, creating unpredictability in both cost and supply
chain stability, shipments from Moraine to Canada are typically free of such tariffs and
trade uncertainties thanks to the NAFTA agreement.
 K E Y FA C TO R S : M O R A I N E V S T I A N J I N
STRATEGIC CONSIDERATIONS
Customer Requirements for Local Sourcing. Key clients such as Toyota require
01. local supply chains, while others like BMW have specific factory qualifications.
This demand influences the strategic location decision, favoring closer proximity to
key markets. For example, Toyota's requirement for 100% local supply and BMW’s
qualification of only certain factories (including Moraine, Ohio) directly impact
Fuyao’s location strategy.
02. Long-Term Commitments. Selecting a production site is typically a long-term
decision, often fixed for the lifecycle of a vehicle model, which is about six years.
This duration emphasizes the need for a location that remains viable and cost-
effective over an extended period.
Future Growth and Flexibility. The decision must align with Fuyao's strategic
03. objectives for market expansion and adaptability in evolving trade environments. The
location of the Moraine factory in the U.S. provides an advantageous position for
future growth in the North American market, particularly considering the increasing
labor and energy costs in China, as opposed to the declining labor.
04. Amortizing Factory Costs & Rising Costs in China. The costs in China, including labor
and energy, have been rising significantly (+30%), while in the U.S., these costs have
been decreasing (-9.5%). This trend makes the U.S. a more attractive option for new
investments. Fuyao’s substantial investment in the Moraine factory, including a $9.7
million tax credit and a $1 million grant for road work, further justifies the strategic
decision to enhance production capabilities there.
RECOMMENDED DECISION

RECOMMENDED DECISION
MORAINE, OHIO
WORLD'S LARGEST SINGLE-SITE
AUTO GLASS FACTORY
Transportation and Logistics
NAFTA agreement lower trade uncertainties, additional
costs & delays. Fuyao can operate with lower levels of
safety stock at the Moraine location, reducing the capital
tied up in inventory and allowing for more capital
flexibility. Alligns better with sustainability goals.
Labor Dynamics
Production and quality may potentially surpass Tianjin
within 20 months as the plant gains experience.
Government Incentives:
Fuyao received a $9.7 million tax credit from the state of
Ohio, which also kicked in a $1 million grant for road
work surrounding the site.
Market Responsiveness
With clients like Toyota demanding 100% local supply
and BMW having strict factory qualifications, a U.S.-
based production site allows Fuyao to meet these
specific client needs more readily. Alligns with JIT.
 WHAT DECISION
WOULD YOU HAVE
MADE ?