Good timing for global production
A global product range, increased outsourcing and continuous improvements have together resulted in a significantly more flexible, efficient Scania. But due to weaker economic conditions, especially in Europe, Scania now has to tighten up its operations.
Scania has gradually become better at handling fluctuations in demand, says CFO Jan Ytterberg.
“We still have an order backlog that we are working our way through, but the number of orders is indeed declining now. There is overcapacity in the transport industry and it is difficult to get a good grasp of the underlying demand for new vehicles during the prevailing financial market turbulence, with the consequent difficulty for our customers to obtain financing. Making ten-year forecasts is easy. It is harder to say how things will be going one or two years from now,” says Jan Ytterberg, Scania’s Chief Financial Officer (CFO).
The economic slowdown following the home mortgage and financial crisis will not leave Scania untouched. But the company has gradually become better equipped to cope with fluctuations in demand. The latest example is Scania’s global production programme, which means that the same truck series are being manufactured in Europe and Latin America. The advantages become clear when order bookings weaken in the European market and Scania meanwhile sees strong demand in South America and Asia.
“It was good timing that the global production programme became a reality right now. We can shift production from Latin America to Europe in order to achieve more balanced capacity utilisation.”
Another way of dealing with fluctuations in demand is to ensure that the company has the right staffing for every situation. Scania has a flexible system for its production employees; a “time bank” that serves as an initial regulator in various cyclical situations. Put simply, the system operates like a bank account. Time can be deposited in the bank and withdrawn according to production needs. The company also uses staffing companies as well as temporary contracts. Not renewing temporary contracts is another way of adjusting production to lower demand.
Scania focuses on making strategic components, especially those related to fuel consumption, such as engines, gearboxes and axles. Everything else that is not regarded as strategic can be outsourced. In this way, Scania keeps its own value-added down. Of all the components that a truck chassis consists of, in-house production today accounts for only 30 per cent of the cost. This figure was pre¬viously 40 per cent. If superstructures are included, Scania’s own value-added is substantially lower.
“This gives us a more flexible cost structure. But we are continuously re-assessing our cost structure, and now that we are entering an economic slowdown, we have to tighten up our operations.”
This means that, starting in November, Scania will be adjusting its production rate.
“Scania’s cash flow has been strong over a long period. This is partly due to good sales and partly because we have focused on not tying up capital unnecessarily − in trade receivables or inventories. When demand weakens, it becomes even more important to focus on cash flow. If truck sales decrease rapidly, we build up inventories and then we have to act and lower our production rate,” Mr Ytterberg says. Scania’s cash flow is a prerequisite for being able to act independently in a period of credit market turbulence.
Scania was trimming its production even during the boom period. One example is the transfer of gearbox and axle production to Södertälje, at the same time as certain non-strategic parts were outsourced to sub-contractors. Meanwhile Scania concentrated its European parts warehouse operations in Opglabbeek, Belgium. Altogether, these measures will provide annual savings of SEK 300 m. per year, with full effect starting in 2009.
Text: Petra Lodén Photo: Dan Boman
Add comment
You can leave a response, or trackback from your own blog. All new comments are subject to moderation before being displayed.
Scania Images at Flickr
Comments
No comments