Vw's Factory Of The Future

Jose Lopez' radical scheme, in which suppliers will do much of the assembly, is taking shape in Brazil

For nearly a decade, Jose Ignacio Lopez de Arriortua dreamed of sparking a new industrial revolution. The controversial auto executive, who once exhorted co-workers at General Motors Corp. to eat a "warrior diet" of fruits and nuts, tried in vain to persuade GM to build his super-efficient factory. Then, in 1993, he defected to Germany's Volkswagen to pursue the same goal. On Nov. 1, the 55-year-old Spaniard will finally see his dream come true in the Brazilian hinterland. That's when the first shiny new truck is scheduled to roll out of a one-of-a-kind plant in Resende, a rural town in the state of Rio de Janeiro.

If it succeeds, Lopez' brainchild will put VW in the vanguard of radical change roaring through the auto industry. From Stuttgart to Detroit, carmakers are racing to squeeze cost from factories through ever closer partnerships with key parts makers. The $250 million plant makes the biggest leap yet: Seven main suppliers will make components in the plant using their own equipment, then their own workers will actually fasten the components together into finished trucks and buses. The approach may be a blueprint for the new automotive factories springing up all over the developing world.

With rival carmakers watching closely, Lopez has refined his concept over the past year. At a pilot plant in Resende, on the bend of a river, suppliers have been building one or two trucks a day, working the kinks out of a production system that within a year should be cranking out 100 trucks and buses a day on two shifts. Competitors want to see if Lopez can solve the huge problems of coordinating justin-time delivery of parts and ensuring top-notch quality. "You've got to give him credit," marvels a GM executive. "He has really pushed the needle on this one." Lopez and other top VW executives declined to be interviewed for this story.

Since the late 1980s, such auto makers as Ford Motor Co. and Chrysler Corp. have given suppliers responsibility for complete modules of parts, such as brakes or suspension. But in Lopez' system, hundreds of suppliers are reduced to just seven final assemblers (table). Each is responsible for a single module.

German instrument maker VDO Kienzle, for instance, will start with the steel shell of a truck cab. In a part of the Resende plant, marked off from other suppliers' workspaces by yellow lines on the floor. Up to 200 VDO workers will install everything from seats to the instrument panels. Then, they will attach the finished cab to a chassis moving down the assembly line through the suppliers' spaces. In a traditional factory, suppliers deliver parts to the loading dock or occasionally to the assembly line, but final assembly is done by the carmaker's own workers. At Resende, improvements by suppliers in the assembly process have cut work hours in the pilot plant by 12% vs. a typical factory, says Roberto Barretti, VW's operations manager there.

The approach has other attractions. First, VW's capital investment drops. While VW provides the building and assembly line conveyors, suppliers put in their own tools and fixtures. Instrument supplier VDO, for instance, kicked in nearly $10 million of the total investment in the factory. If sales of trucks and buses run significantly below the 30,000 annual capacity, all the partners take a hit, not just VW. Since parts will arrive just an hour or so before they're needed, everyone's inventory costs should plummet. And with multiple workforces, it will be harder for unions to gain strength. Of a total 1,400 workers when the factory reaches full speed, just 200 will be VW employees.

The truck models built in Resende, ranging from 7 to 35 tons, date from the 1980s, when they were developed as part of VW's now defunct joint venture with Ford, Autolatina. But as VW develops new products, including a new truck cab due in 1998, Resende's suppliers will be able to suggest designs that cut costs and boost productivity even more. Such cooperation is one key reason for Chrysler's success in recent years, say industry experts. "You just have more brains" tackling problems, says Dietmar Straub, a VDO managing director.

HODGEPODGE. VW already is experimenting with modular assembly techniques in existing factories. Suppliers to its Mosel plant in eastern Germany are delivering complete modules, including the dashboard and entire front end. That has slashed from 30 to 20 the number of hours it takes to build a Golf hatchback. Other carmakers are heading in the same direction. Mercedes-Benz, in a joint venture with watchmaker SMH Swatch, plans a modular approach for the Smart, a $10,000 city car. The car, to be built in a new factory in western France starting in late 1997, is split into seven modules. All will be assembled inside the plant by suppliers. But unlike VW, Mercedes will handle final assembly. GM is mulling a similar modular scheme for a new plant in South America.

Some critics think Lopez is reaching too far at Resende. How, they ask, can a hodgepodge of suppliers assemble a defect-free vehicle? The risk is that they will focus on their own module and ignore problems elsewhere on the vehicle. "How do they control the flow of what's going on?" asks Ronald E. Harbour, vice-president at Harbour & Associates Inc., a Troy (Mich.) auto manufacturing consultant. "It presents all kinds of new challenges."

One of the biggest for both VW and suppliers is the shift in plant hierarchy, requiring close teamwork. In his office overlooking the Resende pilot plant floor, Barretti holds a daily "roundtable discussion" with the suppliers, whom he calls partners. "VW has to be part of the table, not its owner," he says. For suppliers, working closely with other parts makers, some of them rivals, requires the breakdown of competitive taboos, says Fred Carvalho, a Brazilian auto industry analyst.

Industry consultants say VW may assign one of its workers to each truck and bus to catch defects during final assembly. That might work in a low-volume truck plant. But it would be hopelessly inefficient in a factory pumping out 1,000 cars a day. Besides, quality leaders, such as Toyota Motor Corp., make each worker responsible for stamping out defects, eliminating the need for such inspectors.

POTHOLE. Resende is building on long VW experience in Brazil, where the company has concentrated all of its production of heavy trucks. Most of the assemblers at Resende have supplied VW in Brazil for years. Still, logistics could become a major pothole as VW tries to coordinate the massive inflow of parts to suppliers in the plant. The task will be complicated by the lack of experience of many second- and third-tier Brazilian suppliers with the rigors of just-in-time delivery. Indeed, Ford is blaming suppliers for part of its costly problems in launching its Fiesta small car in Brazil.

A big wrench in the works could be Lopez' own legal troubles. In a civil lawsuit in the U.S., GM has charged Lopez and VW with stealing sensitive trade secrets when the executive switched companies, and it is seeking damages. On Oct. 16, a U.S. District Court judge will hear VW's motion to throw the case out. If that effort fails, Lopez may be distracted by preparations to defend himself from the lawsuit.

In all likelihood, though, some variation on Lopez' Resende approach will become the model for new car factories all around the world. In Western Europe and the U.S., where the industry faces overcapacity, change will come slowly because new factories aren't needed, and unions resist letting suppliers into assembly plants. But in developing markets, such as China and South America, this radical new way of making vehicles could quickly become the norm. Then, Lopez will have had his revolution.

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