Essay: Volvo group

Volvo Group is a Swedish multinational manufacturing company. It produces, distributes and sales trucks, buses, construction equipment and marine and industrial drive systems and financial services. It was established in 1915 but the Volvo Group and Volvo Cars have been officially founded on 14 April 1927.
Volvo group sold its car division Volvo Cars Corporation to Ford Motor Company for 6.45 billion during 2000. It was placed within the Premier Automotive Group alongside Jaguar, Land Rover and Aston Martin. But Ford sold the Volvo Car Corporation in 2010 to Geely Automobile of China for 1.8 billion. In this project we will focus on the Volvo Car Corporation which applied the socio-technical theory in its production.
Volvo Car Corporation headquartered in Gothenburg, Sweden. Now it is owned subsidiary of Zhejian Geely Holding Group of China. It manufactures and markets sport utility vehicle, station wagons, sedans, compact executive sedans and coupes. With approximately 2,300 local dealers from around 100 national sales companies worldwide, Volvo Cars’ largest markets are the United States, Sweden, China and Belgium.
Evolution of production systems in the automotive industry
During the pre-industrial period the automotive production was calculating on peoples skills and in order to pass the traditional craft skills, the craftsmen should train its “student”.
After that, in 1850 came the early mass production system introducing technical standards and rules about parts, tools, jigs, gauges and machines. Its main function was to introduce the interchangeability of the various parts and the beginning of a new evolution, the mass production system.
The next historical period was the Taylorism period (1911). Taylorism was trying to standardize the task content combined with performance, the task sequences and the appropriate selection of workers. The result was the scientific management at the automotive industry. (Constanze C, 2005)
In 1914 Fordism was introduced. Fordism brought various forms of standardization, including material flow processes (assembly line), social standards, and wages and quality inspections. Then, mass production gave the economy a new term, the economies of scale a great break through. Fordism, also, helped the control of production processes and thus, the product quality.
During the period 1942-1992 most automotive used the Toyota model, known as Toyotism. Toyotism has a dynamic standardization brought by standardized operating routines and external processes. As a result the wastes eliminated the processes were improving continuously and the know-how and experience were integrated into standards.
During the Toyotism “dying” period, a new model arises, the sociotechnical model known as Volvoism (1989-1993). Apart from standardized material flow there are no standards to regulate working processes leading to individualism, holistic learning, long cycles and extended work content. Of course we will examine Volvoism thoroughly at this project.
Today the standardized processes have been formalized, new practice methods have been introduced and its enhanced the co-ordination and control between interfaces within companiew and between companies and suppliers. In a few words, the mass production system and economies of scale have arised once again, with some few exceptions, in the automotive industry, which follows a more Volvoism-like model.
Sociotechnical theory
The sociotechnical theory (or socio-technical ideology) is when both social and technological aspects of a company or organization are taken into account and be combined. The management principle is to be in control, but this control is executed through limited delegation of power (Johannessen S. Solem O. 2002). Coordinated production and autonomous decisions, when combined, create added value, according to that theory. The workers and managements are considered as productive parts of a whole system but with social and psychological needs. As a result the information flows vertically as well as horizontally in every organization.
In other words, sociotechnical theory emerges from the combination of the words socio, meaning people and society, and technical, meaning machines and technology. The combination of these two elements creates the proper conditions for a successful system, most of the times. According to Elgar E. (2013), sociotechnical theory is an approach towards manufacturing organization where employees and teams would have much more autonomy in organizing their own work processes.
Volvoism
The most famous example of sociotechnical design is Volvo’s Kalmar and Uddevalla car plants. Volvo embraced the principles of the socio-technical theory based on a clean slate approach and on a very large scale and that’s why the sociotechnical theory is also known as Volvoism. It all started in the later 1970s when Per Gyllenhammer created his new ‘dock assembly’ work system at Volvo’s Kalmar Plant. This removed the traditional flow line system of car production and substituted group working, with a single group assembling an entire car.
Historically, three distinct models for production systems have emerged as we have seen previously: a Fordist-Taylorist model (mass production model), a model based on Volvoism and a Toyotism based model. Obviously, this represents a rather simplified, ideal-type of differentiation. However, these three models (and variations thereof) continue to dominate and influence the organization on the shop floor and throughout companies, today including Volvoism.
Kalmar plant
The Volvo Halifax Assembly plant, located in Halifax, Nova Scotia started its operations on June 1963. It was the first assembly plant that opened outside of Sweden. It was unique, at the time, because of its assembly method. An entire vehicle was assembled by a team and that system was used later at Volvo Torslanda Assembly which started its operations in April 1964.
The Volvo Kalmar plant started its operations in 1973 near the city of Kalmar in Sweden. It was one of the most revolutionary automotive production plants in the world. It used the Volvo Halifax and Torslanda assembly as examples and introduced the group assembly system and the major breakthrough was a move from job design to organizational design.
The teams organized themselves any way they wished and at the speed they choose. While a worker in a conventional assembly line might spend his shift doing the same job and the same moves, standing in the same place, the members of the Kalmar plant team work at one time or another on all parts of the electrical system. The only requirement is that every team meets its production goals for a shift. As long as cars are made on schedule, workers are free to take coffee breaks when they please or to relax themselves in comfortable lounges equipped with saunas and kitchens. The group assembly system operated in two ways, docked or in-line. The teams organized themselves any way they wished and at the speed they choose. While a worker on a conventional assembly line might spend his entire shift mounting one certain part after another, every member of a Kalmar work team may work at one time or another on all parts of the electrical system—from taillights to turn signals, head lamps, horn, fuse box and part of the electronically controlled fuel-injection system. The only requirement is that every team meets its production goal for a shift. The group assembly system operated in two ways, docked or in-line. Docked assembly was carried out by teams of 2-3 that covered one aspect of the car on multiple vehicles or docked where teams of 3 built entire individual vehicles from the ground up. There were 25 production teams in total at Kalmar and every team had access to their own individual break room, workshop and sauna. The plant was closed in 1994.
The Uddevalla plant
In 1989, 15 years after the opening of the Kalmar plant, the Uddevalla plant started its operations. Both plants opened from the Managing Director, Pehr G. Gyllenhammar. The Uddevalla plant, left behind, even more, the Taylorist mode of work-organization that divides the work and controls the workers in detail through machines and supervisors. In the Uddevalla factory (1989-1992), there are no machines, no machine pacing, almost no engineers, a minimum of managers and workers stand still while they assemble an entire car over the course of a few hours. This is the opposite of the lean production, which was developed for Toyota. It is also known as the Toyotism or just-in-time production. The term became known worldwide by the book “The machine that changed the world” written by James P. Womack, Daniel T. Jones, and Daniel Roos.
At Volvo, not only had the assembly line disappeared but so to had the role of supervisor.
In its place was a roving post called a “lagombud” (or ‘group ombudsman’) (Jenkins D et al. 2007) “who relates to other groups and to the product shop manager” (Sandberg, 1995, p. 148). This is an important conceptual difference. Managers and commanders now become a form of executive, coordinating function, ‘designing behaviours’ rather than arduously ‘scripting tasks’
Facts of Uddevalla plant
The Uddevalla plant had a great productivity performance, despite the peoples belief. When they decided to shut down the plant, in 1992, the average assembly time of a car was 32 hours in Uddevalla. (Hours are the same as personhours, and are derived by adding up all the hours worked by all people in the factory, divided by the total number of cars produced during the same reference period) (Hancke B. 1993). The European average was 36 hours. Also, the luxury car assembly average time was 57 hours and this puts the Uddevalla plant among the 5 top luxury car plants in Europe. Also the North-American average was 36 hours, still worse than the Uddevalla.
Another remarkable point is the learning curve of the Uddevalla plant. It seems that it’s very steep (graph 1). As you can see in the graph, on the X axis is the time, years, and on the Y axis the hours spent to assemble a whole car. In 1990, it took about 120 hours to assemble a car, in 1991 it took 50 hours, in 1992, 32 hours, and the productivity target was set on 25 hours in 1993, a figure that would easily be attained. If the production didn’t stop, the hours could be even less, making the Uddevalla plant even more competitive amongst the rest automobile plants.
Graph 1 Learning Curve of Uddevalla Plant
Source: Hancke (1993)
Another interesting fact is the high quality of products produced in the Uddevalla plant. The quality was higher than that of Gothenburg plant, which is the biggest plant for Volvo and the main. According to customers’ service and the number of defects per car we see that the quality of Uddevalla products is better than that of the main Volvo plant, at the time. The defects per car were 6 in Uddevalla and 7 in Gothenburg.
The benefits from the Volvoism are not only production based. The costs are very low also. The Uddevalla plant cost 1 billion Swedish Kronor (somewhere around $ 250 mill.) where the production line, and only, of Citroen in Rennes, at the same time period, cost twice as much, meaning, $ 500 million approximately. That’s due to lack of robots and automation making the investment cheap and profitable. Also, the supervisors needed are very few, so is the management cost. The Uddevalla needs only 1/6 of the management personnel than other car plants. Furthermore, considering all the above, we can figure that the tooling and retooling costs are also low, less than half compared to the other Volvo plants, according to the company.
The only cost that is higher than other plants is the training cost. The personnel goes through a 16 month training period. Even it reduces the training time needed to 6 months the costs are still high. But in the bottom line, the high training cost is eliminated by the low cost of the plant and the low management cost, as seen before.
Reasons for shutdown
Volvo’s official answer is about depressed markets, heavy losses and low capacity utilization.
Indeed, the auto maker is in deep trouble in its main markets. In only three years, from 1989 to 1992, Volvo’s total sales of from 280,000 to 200,000 (Berggren C. 2006). The Swedish market, Volvo’s second most important, virtually collapsed. Registrations dropped from 344.000 in 1988 to 155.000 in 1992, the worst figure in more than 30 years. The year 1993 will be even worse. At the end of the 1980s, when sales had already started to fill, Volvo expanded production capacity in Belgium and commissioned the new plant in Uddevalla. Theoretically the two plants (in Ghent and Gothenburg) alone have the capacity of producing 300.000 cars, which is 50 percent in excess of current sales for two years; the result has been in the red. In 1992, the Group’s operating loss will be 2.3 billion SEK ($300 million) of this Volvo Car accounted for more than hall. Management became preoccupied with immediate measures to reduce capacity and costs. In this situation of disastrous capacity utilization, Uddevalla’s character of being a small and incomplete plant was a great disadvantage.
According to the official figure, presented in 1992, Volvo Car will save 350 million SEK ($50 million) annually by consolidating its Swedish operations in Gothenburg, Volvos main plant (Sandberg A. 2007). This figure has been seriously disputed. First, 100 million SEK of the total 350 is a fictitious capital saving, as a result from accounting transactions. Instead of annual depreciations, the investment at Uddevalla is deleted at one stroke as part of restructuring costs for fiscal ’92. This is of course no real saving, but it is politically important for the new CEO, Soren Gyll, who was appointed in 1992. In this way he will be able to show improvements and claim that he has started to turn the company around. Second, Volvo argues that the company will save 250 million SEK in operating costs by dosing down the two small plants. Many of the entries on this list are debatable or, at worst, fake. For instance, white collar workers are treated as a fixed cost. By consolidating production in Gothenburg, all post positions at Uddevalla are eliminated. In theory, costs are reduced by 30 to 35 million SEK. This estimation assumes that there will be no increasment in salaried positions in Gothenburg as a result of the added volume. Unfortunately, this hypothesis is impossible to check ex post. Closing the production warehouse in Uddevalla accounts for another projected cost saving of, approximately, 10 million SEK yearly. The assumption is that the production warehouse in Gothenburg will stay the same, but this is not proven. Furthermore, this theoretical reduction is not compared with the very real reduction in final product stock Uddevalla could achieve by introducing customer order assembly (that saving was worth 4 times more than the plant’s entire production warehouse). That omission is symptomatic of the whole exercise in which only the costs, and not the revenues, of operating Uddevalla are listed. The Uddevalla anticipants in the company’s study team showed a very different calculation. According to this Volvo would save only 50 million SEK ($7 million) per annum by shutting down the plant.
Irrespective of the exact evaluation of individual items in these exercises it is dear that the operational savings of shutting the plant are insignificant. The puzzle deepens – why did
Volvo takes this decision?
It is impossible to understand Volvo’s decision without referring to corporate politics. Of course, disputes of this character are difficult to substantiate, because it is always embarrassing for top management to accept the fact that strategic decisions are based on other considerations than objective analysis of economic facts. There is very strong evidence that Uddevalla’s future was decided already at a board meeting in early autumn, long before the analytic analysis and estimation of the plant’s performance had started. At this meeting the Volvo executive was under heavy pressure from the company’s major shareholder, the French state-owned Renault Corporation. The Renault managers demanded that Volvo tool radical measures to stem the red ink and eliminate excess capacity. The Renault CEO, Louis Schweitzer criticized, in public, Volvo’s production structures and its small-scale plants. Renault executives never studied Uddevalla’s performance. Compared with Volvo’s option range, Renault’s best selling Clio is much more standardized car concept, relying on tightly scheduled mass-production plants. Renault managers could see no particular advantage in Uddevalla’s flexible ability of building highly individualized cars.
Volvo’s president, Gyllenhammar was conspicuously missing at the press conference in
November announcing the decision, and there were many indications that he was against it.
Historically he has played an important role as an advocate of ‘humanistic manufacturing’.
However, his overall impact on Volvo has been highly ambiguous. While promoting work reforms and decentralization of authority to the shop floor, his own management style became increasingly elitist and autocratic, thereby alienating the most able senior executives. As a result, Volvos top management team is weak, in terms of industry experience and product expertise. There is a conspicuous absence of ‘cat guys’ in leading echelons. Gyllenhammer’s penchant for grand deals, acquisitions, mergers and product diversification (to energy, drugs and food businesses) has diverted managerial attention away from the central business and gave birth to illusions that Volvo could survive without continuously upgrading process and product. He has followed a portfolio strategy similar to the strategies of merger and acquisition that gained such importance in the United States in the 1960s and 1970s and chipped in to the subsequent loss of competitive advantage in American capital-intensive industries. Despite his lack of detailed knowledge of the auto business, Gyllenhammar has nevertheless repeatedly meddled in with the sensitive product development, adding extra delay to an already inefficient process. In 1992, his position had been undermined due to a recent strategic failure, the aborted merger with a Swedish state owned food company Procordia. This gave the new CEO, Soren Gyll, a strong position. For more than two decades Gyllenhammar had been Mr. Volvo. He was closely associated with the development of Kalmar and Uddevalla. Gyll now wanted to definitely seize the reins.
To Gyll, Volvo’s production structure was a matter of simple logic not assuring any close examination; one big consolidated plant must be better than one big plant plus two small ones. When Gyll visited Uddevalla, just before the closing was announced, he was genuinely impressed by the plant’s major productivity improvement, as well as its responsiveness to customer demands and dealer requests. His conclusion was: ‘Thank you; you have done a damn good job. Now Gothenburg will have to do the same.’(Berggren C. 2006) That summarizes Uddevalla’s predicament. The plant had to prove its performance and matches it with Gothenburg’s. When Uddevalla took the lead and developed a number of innovative features, management took as a given, without demanding any proofs, that Gothenburg could do the same. For Gyll, learning about Uddevalla’s accomplishments only made the “pain” worse, since the plant’s future had already been decided.
A third fateful player in this process was the Gothenburg plant. These workers had taken a series of heavy cuts and neither management nor unions accepted taking any more. They both demanded the sacrifice of Uddevalla to save volume and jobs at the main plant. Only a few years earlier the Swedish Metalworkers’ Union -had been heavily involved in the development of the Uddevalla concept. That’s a bit odd because the Union that was involved in the development of the plant, now, they were opposing against it. The plant was seen as a model of labor management cooperation and a proof that the Metalworkers’ demand for a fundamental renewal of manufacturing was no wishful thinking. At two consecutive congresses this was the main policy line, spelt out in several documents advocating a ‘Solidaristic work policy’. At the time of the first contest, this union commitment came to naught. The Gothenburg union representatives on Volvo’s board urged management to dose Uddevalla, and the national union found no way to surmount these entrenched local interests.
Achievements of the Udevalla plant
There were many achievements and innovations that took place during the period tha Uddevalla plant produced cars. Let’s see some of them.
The productivity improved by 50% during the period 1990-1992. After a slow start Uddevalh took off and in 199 1 reached the production of the Gothenburg mass production plant. From the last quarter of 1990 to the last quarter of 1992 Uddevalla decreased the assembly time at an average rate of one hour a month. This rapid learning curve surpassed developments at the Gothenburg plant, where lean production techniques and methods were introduced to maximize performance.
In quality there was a clear edge in customer satisfaction. In the early 1990s, both Gothenburg and Uddevalla improved their quality records considerably, but Uddevalh had a lead. According to American customer evaluations, surveyed by J D Power, Uddevalla was dearly ahead of Gothenburg.
Simple and smart technical solutions in Uddevalla’s parallel assembly reduced the amount of mechanized equipment and tools required by half compared with conventional line assembly
Also, there was a big savings in social cost due to minimisation of health and safety hazard.
The job design and equipment at Uddevalla represented fundamental improvements in ergonomics, in work content and in physical variation. The plant had a long term prospect of maintaining a highly stable personnel and low costs for repeated strain injuries and workers compensation.
At Uddevalla, flexible production design and highly skilled teams made the yearly model conversions much easier than at line assembly plants. For the three years 1990, 1991 and 1992 this resulted in very essential cost savings in both tools and training. The time required to return to normal productivity after an annual model change was half the time needed on the lines at the Gothenburg plant. That means there is a high flexibility with 50% lower training and tools costs every annual model change.
In the autumn of 1992 Uddevalla started making all cars for Europe on customer orders only. As a result, dealers could offer customers personally specified and equipped cars within 4 weeks, instead of persuading prospective buyers to accept pre-specified ‘plan cars’. The total lead time was cut from two months in 199 1 to one month in 1992, and a further 50% reduction was planned for 1993. The savings in finished product stock equaled the value of the entire assembly time! Moreover, since ‘plan cars’ normally must be heavily discounted, in particular in flat markets, every custom-ordered car also implied a significant commercial saving. That means there was a combination of customer-order assembly and short delivery times.
Conclusion
The development of the Uddevalla plant was the account in this paper has demonstrated, not the result of some clever idea, elaborated in union research centers, corporate headquarters or technology institutes, but has to be understood as the contingent outcome of a series of (what is used to call for lack of a better term) quasi-accidents. What was and what wasn’t a part of the project was therefore itself, ultimately contingent. Had Volvo management, for example, been even daring in its original plans, it may have linked the development of the Uddevalla plant? Given the relative receptiveness of Volvo management on the ideas on work organization, chances are that the fate of the Uddevalla plant could have been sealed by the exclusive uniqueness of the car that was produced there -a car designed to be assembled manually in docks, and that could simply not be manufactured in conventional plants. We now know why it never got that far, but it was include, in the logic of the Uddevalla project, no argument that precluded these possibilities.
This heralds the 2nd point in this conclusion. In the previous, assembly lines were not just more efficient ways of making a car. They were also efficient ways of moving control over work contents, work pacing etc. into engineers and manager’s offices. Productivity was not the only reason why the assembly line prevailed over other modes of workplace organization. Beside economics politics mattered too.
Some production techniques thus make it because they have a “constituency,” a group or class that is able to see how its future is linked to the technology, and willing to use its power to assure its implementation. Managers, but even more engineers carry out this role in conventional organizations. They form products, production processes, plants, tasks, and jobs. Engineers and assembly lines need each other. Assembly lines create a great need for coordination, that, because of their education, only engineers are able to provide. Many organizational changes are, mainly ex post facto rationalizations of the engineer’s and the manager’s position in the world. That is really, almost two decades ago, what bosses do.
Sociotechnical theory/ideology brings a humanistic value base and set of non-Tayloristic assumptions. It is not being offered as a cure, but sociotechnical theory seems to offer noticeable promise in terms of at least creating the conditions for cohesive, expert, flexible teams that relate well to a wider system. Indeed, all of this would be only conjecture were it not for sociotechnical theory’s 50 year legacy of applying open systems principles to commercial organizations. Whether the same positive outcomes can be realized in the field of NEC is something that future research and experimentation is directed towards.
In the bottom-line there is no or very few convincing reason for shutting down the Uddevalla Plant. There were massive improvements, for example an Uddevalla worker built a Volvo 940 on his own in 10 hours time (Hancke B. 1993). But it’s not very clear if that kind of management and production could be used today as the demand grows and the majority asks for more cars, mostly standardized and cheap. So the companies are using a more automatic production and with the technology rise the flaws are less and the quality better. But is it better than hand-assembled? Ferrari cars are better quality and are hand assembled (most of the parts at least, for example, but comes with a high price.
So, in my opinion this technology has not at all reached its limits but due to the demands of the times we live in, this theory has, almost, vanish. It may, however, in time, to be regenerated, producing products (cars and not only) of high quality at reasonable costs and thus prices.
My opinion agrees with Sandbergs who believes “”Lean production” and Toyotism do not mean the end of the history of industrial organization. Human and productive alternatives have a place in the demanding labor and product markets of the future.” (Sandberg A. n.d.)