Prime Mover Magazine

Iveco trends up

Iveco trends up

With Australian manufacturing slightly more optimistic after a three-month growth spurt, local manufacturers like Iveco now see their commitment to producing locally pay off – and not just in a business sense.

After a surge of negative news about Australia’s struggling manufacturing industry, the September reading of the Australian Industry Group’s Performance of Manufacturing Index must have come as a surprise to many in the automotive trade. Clocking in at 52.1*, up from August’s 51.7 and July’s 50.4, the Index continued to rise for the third month in a row – the first case of three straight months of expansion since 2010.

In a statement, Australian Industry Group Chief Executive, Innes Willox, said the lower dollar was “a clear driver” of that growth, with local goods becoming more competitive against imports. “Last month the Australian dollar was about 10 per cent lower than the average for the first half of the calendar year and against the Trade Weighted Index, the domestic currency was around seven per cent lower in September,” he said.

“The gains in the sector come despite continued weakness in two key manufacturing sub-sectors – metals, which is being buffeted by global demand/supply imbalances, and machinery and equipment, which despite areas of strong growth is battling the wind-down of automotive assembly and reduced orders from the mining sector.”

One company that has successfully weathered the storm and is now hoping for a second spring of Australian manufacturing is Iveco, a brand owned by global capital and industrial goods heavyweight, CNH Industrial. By building a highly integrated local support network that is mainly made up of small and medium-sized enterprises (SMEs), the company managed to remain flexible enough to react to volatile demand and still preserve hundreds of jobs in and around Melbourne.

Iveco’s local manufacturing facility in the Melbourne suburb of Dandenong currently employs some 300 staff, with about half of that total directly involved in manufacturing vehicles like the new Acco, which was re-launched in 2014. A further 600 are employed by CNH Industrial across Australia, says Ronald Grasso, Head of Corporate and External Affairs for CNH Industrial in Australia and New Zealand – stating that another 200 or so businesses are part of the company’s domestic supply chain.

“Iveco’s local manufacturing process would simply not exist without the support of our extensive network of SMEs that manufacture our truck components. They number somewhere in the vicinity of 200 just for our direct assembly line,” he explains. “Most of these suppliers – many of them we’ve had a long and trusted relationship with – are located within a 100km radius of our Dandenong facility. They bolster our manufacturing capabilities and enable us to provide customised and tailored products to the Australian market.”

In a time where Australia is widely considered too costly, too fragmented and too far away from the rest of the world to be able to sustain an automotive manufacturing industry, that collaborative approach enables the OEM to not follow the example of major automobile brands in Victoria.

“The component manufacturers support our objectives and help us meet industry demand and the market’s requirements. Iveco strives to work closely with its suppliers in the form of a partnership rather than pure purchasing, so there can be improvements made to the overall value of the supply chain.”

Despite the brand originating in Italy, Ronald says Iveco has always aimed to source components from local manufacturers “when and where appropriate” to do so. “As a company, we’ve always strived to use the skills and capabilities that exist within the Australian supply chain because of the obvious benefits like reduced logistics costs, responsiveness to the market and JIT-type (Just-in-time, ed.) philosophies,” he says, adding that as a general rule, only the components that can’t physically be made in Australia are imported.

As a company that consciously elected to rely on local components and talent to compete in the competitive commercial vehicle space, Ronald says Iveco has developed a special responsibility for the businesses and people that rely on it across the country.  “There is definitely a lot of responsibility on us, but I don’t think everyone is aware of it. Look at the bigger picture that is the broader automotive sector and even the transport sector as a whole, depending on how you categorise the industry in which we operate,” he says.

“Within the truck industry alone, there are around 35,000 jobs linked to both original equipment manufacturers and body builders, or secondary manufacturers. Besides that, there are numerous industries that rely on business that comes from the truck industry such as repair shops and service outlets. We are all part of a huge, living organism and have to play our part to keep it alive.”

Agrees Nick Carthew, Managing Director at Ararat-based AME Systems, a long-standing supplier of electrical wiring assemblies and urea dosing systems to Iveco. Nick says being part of the Iveco supply network has allowed businesses like AME to operate consistently during the recent downturn, even as others faltered and bowed out – but he also acknowledges the pressure that both had to endure during the process.

“The economy has put pressure on the very concept of being an Australian manufacturer, but being part of an OEM’s network of component manufacturers leverages us considerably,” he says – pointing out that there are not many OEMs left in Australia who produce locally and use local components in the process. “Iveco is a substantial customer of ours. A large percentage of our turnover is from them, and the manufacturing of their parts has created steady employment in our region of rural Victoria. Every dollar we make from their parts is helping to create cash for our economy.”

In return, Nick says AME’s role as a local partner also provided many benefits to Iveco’s manufacturing process. “Sourcing truck parts from us as a local manufacturer allows them to get the highest quality product in a very short lead-time. It allows them plenty of lead-time for revision, change and customisation, among other things. We’re also able to work closely with them on the design and engineering side of things,” he says, emphasising that the ability to collaborate will decide many a manufacturing business’s future. 

Part of that is the ability to communicate openly and honestly, as Wigley Engineering, a steel fabricator based in southeast Melbourne, found. As a supplier of small to medium-truck bracketry and OE partner for vehicle modifications and custom work, Operations Manager, Mat Palmer, says pointing out areas of improvement is crucial to maintaining a healthy relationship in the current business climate.

“Our working relationship with Iveco has been healthy for a long time and the company has supplied us with a constant stream of work for the last decade or so,” he says. “Lately, however, we’ve brought forward the concept of a new ‘kitting system’, which is something that has interested us for a while. It will enable Iveco to have JIT manufacturing and eventually help both our companies out.”

He adds, “A truck normally has 12 or 13 parts coming from different boxes. An ideal situation would have all those parts coming from one pallet in the same kit. That means Iveco would not have to hold as much stock and us as a supplier are able to improve our forecast.”

According to Mat, by actively communicating potential improvements and helping each other operate in a leaner, more efficient way, Iveco and local suppliers like Wigley Engineering have been able to brace the storm that has swept over Australia recently and brought down long-standing household names like Holden and Ford.

With Australian manufacturing now showing signs of a recovery and Prime Minister Malcolm Turnbull promising a new innovation policy for Australia by Christmas, that commitment to local manufacturing may soon pay off, they hope. Iveco’s September sales plus of 4.3 per cent (year-to-date) could be a sign they are on the right track already.

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