Automaker-supplier relationships and new product development in the truck industry: the case of...

Jackson Dal Ponte Lean Xchange Consulting Services, Paraná, Brazil Email: [email protected] Jon Charterina and Imanol Basterretxea University of the Basque Country (UPV/EHU), Faculty of Economics and Business, Bilbao, Spain Email: [email protected] Email: [email protected]

www.ehu.es/basterretxea

The complete version of this work can be read in: Dal Ponte, J., Charterina, J. and Basterretxea, I. (2017) ‘Automaker-supplier relationships and new product development in the truck industry: the case of Volvo do Brasil’, Int. J. Automotive Technology and Management, Vol. 17, No. 1, pp.96–116. doi:10.1054/ijatm.2017.10003113 http://www.inderscience.com/info/inarticle.php?artid=82282

http://www.inderscience.com/info/inarticle.php?artid=82282













Goals

Based on in-depth interviews with senior managers at Volvo Trucks Brazil and

two Spanish first tier suppliers, the aims of this research are:

- To learn about the types of New Product Development collaboration ties used

between Volvo and suppliers

- To examine the Supply Chain network management techniques and routines

used to intensify inter-firm collaboration and promote value-chain optimisation.













The Volvo Group and Volvo do

Brasil; summary profile

• The Volvo Group is one of the world’s leading manufacturers of trucks, buses, construction equipment and marine and industrial engines.

• In 2015, the Volvo Group had 88,464 regular employees and 11,037 temporary employees and consultants; 66 factories in 18 countries; sells its products in more than 190 markets.

• By 2007, the Volvo Group has launched the Volvo Production System (VPS), inspired by the Toyota Production System.

• Volvo do Brasil runs a local production facility in Curitiba since 1977 • Produces medium and heavy duty trucks, buses, powertrain and some

construction equipment models • Two Volvo do Brasil production plants currently listed among the five

best-rated VPS results in the Group. (Powertrain plant ranked number one and trucks plant fifth).

• Volvo do Brazil soon considered a group role model [Vahlne et al., (2011), p.10] and currently remains as such for VPS deployment.













The Volvo Production System (VPS)

Obeya Room stands for “large room”, it is the place in which charts and graphs are kept to

depict information regarding program-timing, milestones and progress-to-date and

countermeasures to existing technical or scheduling issues. The Obeya room is the place

where the QRQC daily meetings are kept within the Volvo factory in Curitiba.

Research Sample • In-depth interviews with 8 respondents: → 6 from Volvo

→ 2 from selected Basque Suppliers













NPD frequency differences between the

passenger car and truck business

Lower frequency of NPD cycles than in the car business (Volvo Trucks usually launches a new model every 4 or 5 years; while GM, Toyota or Volkswagen launch several new models every year.)

Given the lower frequency of NPD cycles: There is a lower level of internalisation of NPD capabilities for

Volvo Trucks Volvo Trucks relies more on inter-firm collaboration on NPD than

other companies with higher NPD frequency

The lifespan of production contracts with suppliers tends to be

longer than for those pertaining to the passenger car segment.

Lower production volumes in the truck business compared to the passenger car segment.

Response: Single Source Global Supplier Policy

Volvo Trucks in Brasil outsource the vast majority of the components used in their assemblage. Approximately 90% of the components are produced by external suppliers. “In fact we only assemble things; we’re only putting the parts

together. We use the suppliers, we develop parts but these parts are produced outside based on a production plan and we bring them in.” (Volvo manager 2 interviewed in Dal Ponte, Charterina and Basterretxea, 2017, p. 105)

Types of inter-firm collaboration in NPD













NPD in Volvo do Brasil: In-house and in collaboration with suppliers:

About half of the truck components are developed internally for later quotation with suppliers.

The other half are developed in collaboration with suppliers upon Volvo’s request.

Types of collaboration on NPD may vary according to: The component complexity The amount of technology involved The buyer’s dependence on the supplier’s technology or production capacity.

Supplier collaboration on NPD can range from null or none, to

complete outsourcing as noted in the revision of the theory (Clark and Fujimoto, 1991; Zhao et al., 2014).














Suppliers mainly segregated according to two main criteria: capacity and knowledge

Dependence for capacity:

Suppliers that provide components which the automaker itself could produce internally, but due to reasons such as cost, efficiency, space or management attention… are outsourced.

Those suppliers have lower negotiation power and tend to compete on price, consequently having lower margins

They can interact on NPD, since they are expected to provide improvement suggestions capable of lowering prices and securing the right quality level.

Their suggestions usually consist in proposing adaptation to the tooling design so as to facilitate the industrialisation process, consequently reducing price, or even proposing new materials or standard parts.














Suppliers mainly segregated according to two main criteria: Capacity and Knowledge

Dependece for Knowledge

Non-core business items: Components for which the automaker does not control the know-how. Automaker relies on specialised suppliers (eg. air conditioning, tires, air compressors, steering pumps, turbo chargers, etc.)

Core-business items: Suppliers capable of filling what would be internal competence gaps of automakers. (eg. Suppliers developing solutions to enable automakers to comply with legal requirements, in terms of green-house emissions, providers of selective catalytic reduction (SCR), starter motors, etc.)

Those suppliers tend to have more bargaining power and higher margins, which the buyers consider logical, since providers devote a considerable amount of resources to R&D.














Supply Chain Optimization Road for Excellence (S.C.O.R.E.) program in Volvo do Brasil. Goal: to increase the involvement of Knowledge-intensive

suppliers in problem-solving and promote end-to-end optimisation projects across the value-chain

The program includes providing lean thinking training and consulting to suppliers on specific tools and methods according to the need.

Volvo holds regular meetings and workshops with key suppliers, called ‘the supplier day’ initiative, sharing strategic goals with key suppliers to align them with the company goals.

“We are involving the suppliers and the other areas in the early phases of the projects

more and more. And when we have components under suppliers’ responsibility, we involve them in other areas like manufacturing, after-market in the same way; they are part of the discussions from the beginning of the projects.” (Volvo manager 2 interviewed in Dal Ponte, et al. (2017, p. 107)


Volvo relies on contracts as the main buyer-supplier governance mechanism

Trust never replaces contracts for Volvo Volvo uses a wide variety of formal control mechanisms to

restrain suppliers from eventual misleading behaviour: General price conditions and Price Agreements Warranty agreements, Supplier evaluation model PPM Confidentiality agreements Long Term Agreements Supplier Relationship Manager ….

Supplier evaluation model Assessment: Any kind of buyer-supplier relationship developed by Volvo starts with performing the supplier evaluation model assessment. It evaluates supplier’s situation as per finance, quality, health and safety, production capabilities, etc.

Long Term Agreement: A contract applied to all active suppliers, contemplating a wide range of clauses to secure supplier’s competitiveness, delivery precision, as well as general guidelines concerning productivity.

Contracts as a way to safeguard NPD













Long Term Agreements and Single Source per Component Policy

Different to other competitors that work with dual or even multiple

sourcing

If a new potential supplier, not listed in Volvo’s accredited database, presents better commercial conditions, the long term agreement (LTA) already signed with a current supplier prevents Volvo from shifting to the new one. Rather, Volvo will offer the new and the incumbent suppliers the opportunity to compete. Volvo must offer the active provider the possibility to adjust the commercial conditions to win over the new offer in order to keep the contract in effect.

LTA and Single Source Policy as signs of TRUST.

Help to establish close inter-firm learning and collaboration with providers

Contracts as a way to safeguard NPD













Table1. A comparison between alternative supply chain

management models including Volvo Trucks

Source: Dal Ponte, J., Charterina, J. and Basterretxea, I. (2017) ‘Automaker-supplier relationships and new product development in the truck industry: the case of Volvo do Brasil’, Int. J. Automotive Technology and Management, Vol. 17, No. 1, pp.96–116. (p. 110)

The Volvo case shares many similarities with that fromToyota (Dyer and Hatch, 2006): Implementing its own specific production system, the Volvo

Production System, inspired in the Toyota Production System. Bothcompanies use it as a common-language for leveraging internal andexternal integrated efficiency

Recognizing suppliers as an important source of innovative ideasand making the collaborative relationship with suppliers a corner-stone of its strategy.

The single-source supplier policy and Long Term Agreements, enablelonger and closer cooperation with dedicated Volvo suppliers

Considering the single source supplier policy, long termrelationships, the adoption of the VPS and an extended value-chainoptimisation mindset, we could place Volvo closer to Japanesepractices (Toyota and Nissan) than to American ones (GM, Ford,Chrysler).

Concluding remarks

Volvo relies on contracts as the main

governance mechanism, no type of interaction without formal contracts exists; trust never replaces contracts for this automaker

Acording to the interviewed suppliers, collaboration on NPD is easier with Truck producers as Volvo Trucks, and more difficult with the big western car producers with stronger internal NPD capabilities. These companies tend to be very restrictive when including suppliers in the NPD process, and often build very exclusive contracts preventing changes.

Concluding remarks

www.ehu.es/basterretxea

The complete version of this work can be read in: Dal Ponte, J., Charterina, J. and Basterretxea, I. (2017) ‘Automaker-supplier relationships and new product development in the truck industry: the case of Volvo do Brasil’, Int. J. Automotive Technology and Management, Vol. 17, No. 1, pp.96–116. doi:10.1054/ijatm.2017.10003113 http://www.inderscience.com/info/inarticle.php?artid=82282














Automaker-supplier relationships and new product development in the truck industry: the case of...

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