Type: News
Automotive Sweden: We have two major manufacturers of heavy vehicles in Sweden. Both occupy a strong position on the world markets and both have products that are ranked quite highly. What factors have led to the truck industry´s strong position in our country?
Leif Östlig: the Swedish supplier industry has a structure that suits manufacturing of heavy vehicles. Swedish industry has a tradition of manufacturing and developing heaving industry equipment. It derives from the mining and iron trade. All of those senses fit well when we began to develop heavy vehicles. Truck sales are also a "business to business" operation and we are good at that in Sweden. Selling truck is completely different compared with selling passenger cars.
Truck volumes are on the rise but are low compared with the passenger side. How does that affect the business and development?
A product´s development is, at the beginning, very dependent on the domestic market. The domestic market determines demand level that subsequently provides the prerequisites to venture out into export markets. Sweden is a relatively small market for passenger car development, but it has been large enough for development of trucks. Long distances, poor road conditions and a tough climate set early requirements that were developed further into today´s products where safety and comfort have become increasingly important factors.
The word development comes up often. How does one create the conditions for strong development?
Scania has invested in consolidation to Södertäjle. Development and manufacturing sit together and people rotate between production and development. It provides constant impulses for improvement and development. Through consolidation we acquire an appropriately large "mass" in order to generate a create environment. All development requires a certain critical mass in order to get going and become self-stimulating. We have reached that level in Södertälje.
Centralizing also means that you abandoned some cities. Was that a painful adjustment?
Changes include demands and they are costly. It affects people, their daily lives and cause unease. Scania´s change consisted of closing Falun and Sibbhult when the economy was strong. That meant that new businesses were able to assume personnel making the adjustment less painful. That would have not been possible in the current economic situation. Adjustments and changes should be done, to the greatest extent possible, in prosperous times.
How will truck development and manufacturing change over time?
Increased value is constantly being distributed to suppliers. During the 1990s our own added value was 50%. Today it has decreased to 30% due to outsourcing of portions of manufacturing. We manage things in its entirety, but we engage more actors in the manufacturing process. This results in improved flexibility and productivity. At present this factor is 7.5 and I maintain that we can attain 15 trucks per employee per year. This means that we can manufacture double as many trucks with the same amount of employees at Scania.
That sounds fantastic—but does outsourcing claim the entire proficiency profit?
No — absolutely not. We are constantly working to improve our own efficiency. We´re inspired and have learnt from Toyota, and the key to success is to work systematically, consistently and diligently then results are achieved. We have developed a management system we call "Scania Production System", which in short can be described as managers leave their offices. They participate in the process and ensure that personnel who work with the products become involved and are given responsibility for ensuring that current information is forwarded. The information follows the production and development process. When handovers occur because the vehicle or the project is entering a new phase, the person handing over provides information as to the status. We have abandoned the "John Wayne" mentality where a sole, remote manager sits in his office and barks out orders now and then about something that he or she really doesn´t understand.
What effect has this had in the organization?
Productivity is increasing, stress is on the decline, the work environment has improved and employee presence has increased — we don´t refer to it as sick leave. In 1990 Scania´s employee presence was 90%. Today it is 97.5%. The most important achievement is, however, that our employees feel that they possess ownership of the solutions.
How much more effective can one render an organization?
A lot — I believe that there is between 60-70% "waste" of time in an organization — on all levels. By "waste" I mean time that does not provide the end-user with value, and at the end of the day that is the only thing that counts and makes the difference [that is the differentiator] . All "waste" by production personnel becomes "waste" on the machine side.
In 1993 I visited Toyota´s plant in Lexington, Kentucky in the USA. 450 Toyotas were manufactured there by 4 500 employees and I compared it with a competitor´s passenger car plant in Europe where with the same number of employees 125 cars were produced annually. The breakdown level and the level of technology were, more or less, the same. In other words 4 times more output per employee at Toyota. Furthermore the guarantee cost for the first year for the cars from the Toyota plant was 36 USD or a 1/10 fraction of the branch average. When we saw this we understood that this was something that we did not understand, but it awakened our curiosity. In time we understood that it was Toyota´s management model that leads to this fantastic result. We have successively introduced that model at Scania; a long but very interesting and rewarding voyage.
How far has Scania come?
We have come a short distance on the way but there is always much to do and we are working forward all the time. It is not only extensive and complicated measures, but there are a lot of simple daily measures that are important for efficiency. We have, for example, put a lot of effort into cleaning, getting rid of everything that is not used and maintaining workshops, labs and offices sparkling clean. We have gained a lot of space. We find things where they should be and the working environment has improved. One should begin with the simple measures first, and then move forward and check to see if there is a logical flow that the organization understands. Then everyone is working for improvements.
We have introduced "project rooms" where all development projects are hung up on the walls. Timelines and objectives are also included. Then the project is marked along the timeline like with green — everything works, yellow means — problems starting to arise and red means — major problems have arisen. We gather in the project room every Monday morning and go through the yellow and red markings. It is easy to obtain an overview and the group participates with ideas for solutions — we work together and sometimes we can solve problems directly, which in a traditional vertical organization would take months.
Scania is constantly growing — what is the plan?
We are investing in organic growth of 6-8% per year. We are not interested in acquiring other truck manufacturers because it is difficult to achieve profit in mergers. Scania has approximately 25 000 parts (part number) in its business. Through a well thought out and expanded "lego system" we can combine these into an extremely large array of models that fit most needs on the markets where we operate. If we were to acquire another business the number of "part numbers" would quadruple and it takes time to bring it down, if at all possible, and this affects profitability considerably. Control and limitation of the number of "part numbers" is one of the more important factors for profitability.
What is the future outlook on the market side?
We have integrated forward by taking over a number of our general agents/distributors in various countries. This process was pushed up due to the recession, as certain distributors were experiencing problems. We are closer to the customers and we receive double margins. Today we sell half of our total sales through our own distributors. This also means that we receive the service section. This provides synergies, we are closer to the customers and we can tailor make entire solutions that include financing, service, insurance and vehicles. Coming closer to customers is something we will continue to do.
Is Scania on the verge of entering new markets like USA, China or India?
No - Scania invests selectively and the USA is not a part of our plans. The structure of the market there is so special that it is difficult to earn money. The rapidly developing markets of India and China do not suit our products entirely as yet. Lack of infrastructure and an irrational transportation system result in truck lifecycles of only 30 000 — 40 000 Swedish miles and that is what they are constructed for. Scania´s trucks have lifecycles of 150 000 — 200 000 Swedish miles, which provides an over capacity that these markets don´t have any use for today, and therewith are not prepared to pay for. Of course there are niches in these markets where the need corresponds to what our products deliver and we are active there.
Do you see future manufacturing of Scania vehicles in low cost countries?
It is not actual for us at this time. It is difficult to carry out manufacturing in these countries achieve the same performance from the products that we have set as our standard. Of course we can build plants with all the latest and best, educate people to the same levels as in our other plants, but it is a matter of having the entire supplier chain in these countries on the same level also and that takes time, and at the moment it is not. We would then produce products that are not of the same standard and we are not getting involved in that. We are consolidating manufacturing and development to Södertälje, but have assembly plants in various regions in order to be able to adapt the products to the needs of these markets.
Back to Sweden — how is the level and supply of work force?
All in all it is good. There are grumblings, from time to time, about Sweden, education, universities etc., but we have competent and competitive people in Sweden. Swedish engineers are talented, researchers and the universities are on the ball. We have good collaboration with universities and government agencies. The grumbling continues — and I agree there — that there are not enough people that invest in technical education and that may become a big problem, but it is not unique to Sweden. When I meet colleagues in Europe they share the same worry for the supply of engineers in the long term. Industry and community must cooperate here in order to demonstrate the possibilities and allure of technical jobs.
What is the recipe for the profitability that Scania has achieved year after year?
• Maintain order of "part numbers". It must not overflow.
• Invest in organic growth — then the organization will keep up.
•Management should not monitor — but instead teach, lead and participate.
• Visualize — development and processes. Then the overview becomes clear and easy to keep current.
•The entire organization must take part in development and improvement work and then everyone becomes owners and takes responsibility.
Scania´s core values — Customers first, Respect for individuals and Quality should not be just words but must be understood, respected and lived by the entire organization — then the company will be strong, concludes Leif Östling.
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