company-operating-system

03 · Value Chain: R&D, Production, Supply & Sales, Service

The horizontal view is about “how value gets created” — one flow from customer need to customer satisfaction. Every step is both a value-adding point and a potential profit leak.

The value chain at a glance

Sales/Business → R&D → PMC/Engineering → Production → QC → Delivery → Customer service / complaints
   │             │         │              │          │      │         │
 Orders       DVT/PVT  Planning/materials  Mass prod.  Quality  Logistics/warehousing  Closed loop

1. Business (target market & business model)

Business model	Gross margin	Investment	Control	Examples
Brand	High	High (marketing / channels)	Strong (owns the end customer)	Apple / Laoganma / Anker
ODM	Medium	Medium (design + manufacturing)	Medium (locked into customers)	Smoore / Luxshare
OEM	Low	Low	Weak (pure contract manufacturing)	Foxconn (partially)

⚠️ Smile curve: profits are high at the R&D and brand ends; manufacturing in the middle is thin
⚠️ Leak plugging: customer portfolio management — concentration of large customers, payment terms, credit, customer lifecycle

Key questions:

Who is our target customer, and why would they choose us?
Should we upgrade from OEM → ODM → brand?

2. R&D (project approval / design / DVT / PVT)

Project approval review → Design → DVT (design verification) → PVT (production verification) → Mass production

Stage	Core actions	Key metrics
Project approval	Dual market + technical review (no fake needs)	Market demand, ROI
Design	Structure / electronics / software / appearance	Cost budget
DVT	Function / performance / reliability testing	Test pass rate
PVT	Pilot run to validate the process	Yield rate, first-pass yield
Mass production	Ramp-up + stabilization	Capacity, cost

⚠️ Leak plugging: project-based management (PM), technology roadmap, IP management (patents + confidentiality), dual control of R&D cost
Case: Huawei IPD (Integrated Product Development) — R&D moved from “heroic” to “process-based,” with three review gates

3. PMC / Engineering / Production (PVT → mass production)

Function	Responsibility	Key metrics
PMC planning	Orders → capacity → scheduling	Plan attainment rate
PMC materials	Kitting, inventory	Kitting rate, inventory turnover
Engineering	Process / equipment / tooling / ramp-up	First-pass yield
Production	Shop floor / output / yield	Yield rate, OEE, capacity utilization

The core of the Toyota Production System (TPS):

Just-in-time (JIT): arrive exactly when needed
Kanban: pull-based production
Andon: line workers can stop the line
Kaizen: continuous improvement (everyone)

4. Quality control (QC)

IQC (incoming) → IPQC (in-process) → FQC (final) → OQC (outgoing)

The law of quality costs:

Prevention costs < Inspection costs < Failure costs (rework / returns / customer complaints)

Spend CNY 1 on prevention to save CNY 10 on inspection and CNY 100 on failure
Case: Toyota’s andon system — quality takes priority over output

5. Delivery & after-sales (logistics / warehousing / customer service)

Function	Responsibility	Key metrics
Logistics (move)	Shipping / transport / customs clearance	On-time delivery rate
Warehousing (store)	Inventory / turnover / dead stock	Inventory turnover, dead-stock ratio
Customer service	Complaint handling / after-sales	Time to close complaints

The 8D process for customer complaints:

Form a team → 2. Describe the problem → 3. Containment actions → 4. Root cause → 5. Permanent corrective actions → 6. Verification → 7. Prevention → 8. Congratulate the team

⚠️ Leak plugging: include after-sales cost in product gross margin; complaint response time and satisfaction are hidden indicators of repeat orders

Case summary

Company	Value-chain strength	Lesson
Shenzhou International (Chinese knitwear manufacturer)	Vertical integration (fabric → garments)	Integration = lead-time + cost advantage
Smoore	R&D (FEELM) + manufacturing + customer lock-in	Strong at both ends
BYD	Vertical integration + in-house R&D	Cost leadership
Toyota	Lean production	Manufacturing itself is a moat
Luxshare Precision (Chinese electronics contract manufacturer)	Track key customers closely + process breakthroughs	Lock in the leaders

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