Dec. 21, 2004
New Brazilian plant seeks gains in quality, agility, and cost reduction.

WHEN VOLKSWAGEN DO BRASIL opened its world truck and bus plant last November in Resende, 150 kilometers south of Rio de Janeiro, it wrote a pioneering page in the history of the automotive industry. In implementing a new concept known as Consorcio Modular-Portuguese for "modular consortium"-VW broke down "the structures of Taylorism and Fordism that are exhausted and can't respond fast enough to the new challenges of the global economy," says Miguel Jorge, vice president for corporate affairs. Going beyond traditional outsourcing strategies, VW invited suppliers to in-stall themselves at the plant, where they not only finish components and parts, but actually assemble modules into vehicles on Volkswagen's production line. The idea had been evolving for some time in the mind of Jose Ignacio Lopez de Arriortua, the former chairman of the board of VW's Brazilian and Argentine branches. His concept took shape when the company built a new assembly complex with a roofed-in area of 80,000 sq meters on a 2-million-sq-meter site in Resende. The production flow is designed to sequentially integrate seven modules, six of which were designated to strate-gic business partners. (Several of the partners are actually joint-venture operations.) Each partner occupies a section of the plant, and each takes full responsibility for the mounting of complete assemblies. The supplier partners are: Iochpe-Maxion (chassis); Rockwell Interna-tional Inc. (axles and suspension sys-tems); the Remon consortium, a joint venture of Iochpe-Maxion, Bridge-stone/ Firestone Inc., and Borlem SA (wheels and tires); Cummins Engine Co. Inc. and Germany's Motoren Werke Mannheim AG (engines); VDO Kinzie Comercio e Servicos (uphol-stery); and Delga Automotiva Indus-tria e Commercio (cabin frame) and Eisenmann GmbH (painting). Another partner, Union Mantein, is in charge of the internal flow of materials and assembly-line supplies. The seventh production module-fi-nal product testing-is operated exclu-sively by Volkswagen. Since VW has, in effect, "outsourced" its assembly opera-tion, it is able to concentrate on logistics, product engineering, process and qual-ity assurance, and customer service. The Resende plant, which is aiming production at both domestic and over-seas markets, will produce 30,000 trucks and bus chassis a year when it reaches full capacity. While VW invested some $250 mil-lion to provide the basic plant infra-structure, the supplier-partners were invited to invest an additional $50 mil-lion in their respective modules, thus configuring the deal as a basic risk-sharing undertaking. The partners have guaranteed fixed-term contracts that span from five to 15 years. Each partner is fully responsible for quality control on its specific module, and receives payment only when the to-tally assembled vehicle is approved by Volkswagen at the end of the produc-tion line-not when parts are delivered, as is the usual custom in the industry. The partners have their own office space and staffs in the totally clima-tized Resende plant. The workforce now totals 400 and is projected to climb to 1,000. In the production area, each module is territorially identified by lines painted in different colors on the floor. The chassis are transported by electrified overhead monorails and flat-top conveyors. A key challenge is the systemic inte-gration of the activities of the part-ners. This is accomplished through in-tense communication, which is made possible by their close proximity, as well as integrated information tech-nology. The plant's 52 networked in-formation systems provide immediate access to data stored electronically. All partners meet early every morning to review the day's production schedule, which is basically set by Volkswagen and agreed upon by the other part-ners. On-the-spot mutual consulting is a regular, though informal, practice. To avoid any subtle psychological conflicts between the staffs of different partners, all wages, fringe benefits, medical care, and meal facilities are exactly the same. Everybody wears the same style uniform, which features a VW logo on the upper left pocket and the specific partner's logo on the right. To maintain conformity within the production process and ensure that quality meets the lead manufacturer's standards, the Consorcio Modular introduced a new professional position to the assembly line-that of "master craftsperson." Recruited by Volkswa-gen from its own ranks of experienced manufacturing personnel and mechanical engineers, these "masters" follow the production line from load station to the final checkpoint, inter-acting very closely with partners at all module locations. They also take part in the final conformity tests, and each takes personal responsibility for a cer-tain number of vehicles produced, placing his or her name and signature on a chassis number plate. Through a toll-free number, customers may call the master with any questions or complaints. The plant now has nine master craftsmen and one "craftswoman"-Claudia Cris-tiane Saito da Rocha, who is making history as the first woman in the industry to hold that position. The Consorcio Modular concept was tested in a one-year pilot program at a nearby temporary assembly facility that built 1,100 buses before the new plant was dedicated. Some modifications were made during the transition from theory to real-world manufacturing. For example, under the original concept, each partner was to be responsible for all logistics related to its own module. Later, however, it was agreed that everyone would benefit by sharing a single logistics provider. The logistics company, which was invited to join the mutual partnership, reduced costs by consolidating the overall transportation procedures for delivery of components. What prompted Volkswagen to try the new approach? The simple explanation is that today's global market demands productivity and competitiveness. Moreover, mass production is giving way to demand- based, fast-response production systems. Agility is the magic word, and customization is its close cousin. In Brazil, the truck and bus market is very demanding, with individual customers wanting to apply a personal touch. In the past, accommodating such requests would take months for VW to get agreement from all suppliers. Now they get together immediately and make decisions on the spot. The benefits to Volkswagen seem obvious. At its previous truck and bus plant, the company "had to negotiate with more than 400 suppliers, which was a hindrance to cost-reduction goals and required much more work in quality control," says Jorge. Now, VW negotiates with only eight suppliers. It is estimated that the overall cost reduction will eventually reach 15% to 25%. And the "pre-delivery functional audit" already has shown remarkable improvement in bus-chassis quality. The average score is now 80, compared with 600 in the previous plant. (Under the VW rating system, the lower the score, the better.) The novel arrangement has also enhanced flexibility, not just in solving problems quickly and in customizing products based on demand, but also in designing and developing new products. The supplier-partners stand to benefit as well. Marcos Redigolo, assistant to the top manager of Delga Automotiva, a 100% Brazilian-owned com-pany, says the partners earn gain-sharing rewards. "Our revenue will improve significantly when production reaches full potential," he says. Redigolo also cites technical bene-fits. other partners," he says, "leads to the improvement of our products-and not just the ones we supply Resende with." Observers in Brazil believe that this type of closer manufacturer-supplier relationship represents a trend that is here to stay-and not just in the auto-motive industry. It may be more easily implemented in a greenfield plant, they acknowledge, but if the right strategy is followed regarding unions, it might be possible to introduce it in existing plants as well. What they hesitate to predict is that Volkswagen's particular approach will become the dominant model for the next century. Observes one Brazilian automotive executive: "Other auto giants like GM, Ford, and Fiat are also pursuing their own streamlined new manufacturing models."

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