TRAMAGAL, Portugal - Mitsubishi Trucks Europe SA has finished a difficult two-year conversion of its knock-down kit operation here into a conventional assembly plant.
But its work is far from finished.
Mitsubishi has made the Tramagal plant its headquarters for European truck production and sales. The company's goals: Get closer to its customers, slash delivery times and insulate itself from fluctuations in the Japanese yen.
At Tramagal, life used to be much simpler. Workers assembled the Canter commercial truck and other sport-utilities and light trucks from parts shipped from Japan. But in April 1996, Tramagal was upgraded to a low-volume assembly plant to build only the light- and medium-duty Canter.
Easier said than done. To accomplish its goal, Mitsubishi needed to source as many parts as possible from European suppliers. That covered almost everything but the engine and transmission - built in Japan and accounting for about 30 percent of the truck's value.
The cab-over, diesel-powered Canters assembled at Tramagal now carry about 50 percent European content, said Jorge Rosa, manager of the Tramagal plant. Reaching that content level - representing about 900 different parts from 80 independent suppliers - has taken a lot of effort. When it started assembly operations in 1996, the plant was buying about 20 percent of the value of the trucks in locally produced parts.
Rosa wants to boost European content to 60 percent. But gaining another increment of local supply is tough, chiefly because most of the readily available components have already been sourced.
Boosting local sourcing
Still, Rosa can point to recent successes. Mitsubishi has just reached an agreement to buy axles, hubs and brakes from Mecobusa, a Nissan-owned truck parts maker based near Santander, Spain. The axles, now shipped in from Japan, are due to begin arriving from Spain in October.
Another hurdle to boosting local sourcing: Most of Mitsubishi's suppliers at Tramagal are light-vehicle parts makers. The production schedules for Tramagal - 10,000 units this year - do not excite suppliers looking for high-volume, light-vehicle business.
So Mitsubishi holds out a carrot. Supply the Tramagal plant, it tells suppliers, and your business will grow, albeit modestly, when scheduled production reaches some 16,000 units by 2003. And, the company says, suppliers to the truck plant will also be viewed favorably when supply opportunities arise at the NedCar passenger car plant in Born, Netherlands, the joint venture between Mitsubishi and Volvo.
Mitsubishi is still a small player in the European truck market. About 30 percent of this year's production will be absorbed by buyers in Portugal. The rest, about 7,000 units, will be exported throughout western Europe and into emerging markets in Poland, the Baltic countries and Israel.
For the past two years, the procurement and engineering staff have focused on setting up a local supply base. Now the emphasis is shifting to cost-cutting. Mitsubishi's goal with Tramagal suppliers is to slice overall costs by 2 percent this year.
Suppliers that win new business are given a target price set in Japan as a condition of getting the business. Parts makers with existing business were asked to submit a plan showing how they would meet the 2 percent target.
'We started 1998 with a very strong focus on cost reduction,' Rosa said.
However, the 2 percent target is not ironclad. Mitsubishi assesses each supplier and eases the requirement where rising material costs or adverse currency fluctuations are important factors.
For example, Mitsubishi has been less stringent on the 2 percent target with metal stampers because steel prices have been rising in Europe, Rosa said.
Likewise, UK suppliers have been coping with a strong pound, which makes their parts more expensive in Portugal. Mitsubishi takes that into account.
Types of suppliers
Rosa said suppliers at Tramagal are basically of two types:
First, multinational parts firms, such as Denso and Bosch, that supply Mitsubishi all over the world.
Second, smaller firms, many of them Portuguese, that need more help to meet Mitsubishi's cost, quality and delivery requirements. One such firm is Jorogaso, a stamper and producer of welded assemblies in Santo Joao da Madeira.
Next year, Jorogaso will rank behind only Mecobusa on the list of largest suppliers at Tramagal, Rosa said.