China at the Controls

Feature Article | June 23, 2010 by Bettina Jödicke

For emergencies only: Pilz’s off-switches have made it famous around the world. (Image: Siemens)

For emergencies only: Pilz’s off-switches have made it famous. (Image: Siemens)

For companies doing business internationally in China, free-trade zones offer the chance to import and store products and other materials tax- and duty-free before either selling them in China, incorporating them into production processes, or exporting the goods to another location. To map the processes in these zones correctly, constant records must be kept as to which goods in a warehouse have already been taxed and cleared through customs. Depending on the location and end customer in question, warehouses are subject to different valuation methods.

For example, the warehouse Pilz runs for export customers does not import goods into China, and is thus not required to pay taxes or duties. Its warehouse for customers in China, meanwhile, does import goods into the country and is assessed differently in terms of customs and taxes. Pilz opted to manage its inventory and implement automated inventory valuation with SAP in order to ensure exact monitoring of stock and demand in compliance with China’s legal requirements.

Pilz selected ORBIS AG as its partner for the corresponding implementation, having carried out successful projects in service fulfillment, repairs, and quality management with the company since 2002. In their latest joint undertaking, ORBIS implemented several components for quality management, production planning, and operative sales planning. Its office in Shanghai provided local support to Pilz in planning and executing the overall rollout project.

“Since he speaks German, Gerard Engelkamp – the CEO of ORBIS China – served as a sort of interface to our Chinese colleagues,” highlights Hans Nowozimski, head of the system applications group at Pilz. “The fact that the processes involved were standardized and didn’t have to be created from scratch – with the exception of specific Chinese processes pertaining to the Golden Tax and different types of warehouses, for example – made things easier, particularly in the starting phase,” he adds.

Read On: Transparency is key

Transparency is key

The initial preparatory discussions for the SAP system rollout began in January 2008, followed by introductory workshops for Pilz’s project team in Shanghai. The actual rollout then started in October of the same year. The first step saw ORBIS implement the necessary SAP components Financial Accounting (FI), Controlling (CO), Materials Management (MM), and Sales & Distribution (SD). In doing so, the company’s employees also assisted Pilz in issues concerning Chinese tax law.

These components included a special form of reporting and SAP’s interface to China’s mandatory Golden Tax system, which prints all invoices on formatted documents. In addition, Pilz and ORBIS set up an intercompany processing configuration to transfer information on orders, materials, and inventory automatically between Pilz and its local subsidiary. They also integrated financial accounting – which Pilz had previously outsourced – back into its organization for internal handling by Pilz employees.

Pilz has seen all of its expectations met in its China rollout. A total of 24 employees – 20 of them in Shanghai – are now working internationally with much higher levels of efficiency and transparency. “The SAP system is ideal for obtaining a comprehensive overview of warehouses all over the globe,” explains Nowozimski. “The necessary transparency is there in the flow of both goods and value. Checking all of our stocks used to be quite difficult and time-consuming; now we can monitor even external warehouses from a central location.”

Pilz’s new overview function has already proven its usefulness in practice. For example, when a control card failed at one of its branch offices and brought two machines to a standstill, the company quickly procured a replacement thanks to its new ability to access various warehouses in short order. Pilz now plans to expand the SAP BusinessObjects Global Trade Services application it is already using in Germany, and then turn its attention to production planning.

In the medium term, Pilz is considering implementing an interface to a CRM system. The company hopes a link to the data stored in its SAP ERP application will help it react faster to changes in the market.

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