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Hungary Auto
The following article is from a past issue of the CENTRAL EUROPE AUTOMOTIVE REPORT™. If you would like to receive our most current information and all the articles included in our information packed monthly and weekly reports, subscribe today.
Article title: Profile, Ford Hungaria's Alba Plant Quietly Expanding: Doubles Size and Sales
Central Europe Automotive Report, Volume III, Issue 2, February 1998
Ford has found fertile land in Hungary for its component manufacturing operations. Ford
Hungaria's Alba plant has grown quickly, with starter motors and air fuel charging
assemblies recently added to its product mix of DIS coils and fuel pump equipment. In June
1998, production of modular fuel pumps, fuel delivery modules, and washer reservoirs are
scheduled to begin.
The Alba plant is a high volume facility, producing about 90% of all fuel pumps, DIS coils, and starters used by Ford in Western Europe. Sales in 1997 totaled $200,000,000, compared to $100,000,000 in 1996.
John Pearn is Managing Director of Ford Hungaria Manufacturing and Sales Ltd., and has held this position since April 1996. From 1978 to 1996, Mr. Pearn held a number of manufacturing, product engineering, and business planning assignments in US plants and offices of Ford. In December of last year, the CEAR interviewed him in Hungary.
CEAR: You've been recently expanding your operations at the Alba plant. Can you give us an update?
Pearn: We've increased production from our original DIS coil and fuel pump equipment, which was installed back in 1991. Since then we've gone into starter motors, completed a service building expansion in March 1997, and [started] a new product line -- air fuel charging assemblies, with equipment installation in June 1997. In October 1997, we completed a full manufacturing building expansion which will launch us into some new products for the future.
Today, we're at around 400,000 square feet -- we started off with a building of about 200,000 sq. feet. So we've doubled in size, and that occurred in just the last two years.
In our manufacturing operations we currently have about 1,200 people, and with administration around 1,350. We expect a moderate change from that, but nothing dramatic for the near term.
CEAR: Was all of this growth planned from the beginning?
Pearn: The only plan from the start was two products. We built the plant a little bigger in anticipation that things would go well and we'd have the opportunity to create some new products.
Then when the starter came along, that took up the extra square footage. The original building concept was for somewhere around 200,000 sq. feet and anywhere from 300-500 people. That was the complete vision. Over the past 6 years, the vision has changed dramatically, with some of it changing as late as 1996. So, some substantial growth.
CEAR: Has the local government assisted you during this expansion?
Pearn: The local government here in Szekesfehervar has been receptive and willing to work with us and has seen the benefits and the infrastructure improvements we can make.
CEAR: How is your supplier localization program progressing?
Pearn: If there's a negative side, it's the suppliers. From the original concept, we had a 3-phase integration [plan]. The first step was to integrate the product using our traditional worldwide supply base, so we imported lots of supplies from North and South America and Asia. The second phase was supposed to be localizing [supply purchases] in Europe. And the third phase was to localize purchases in Central or Eastern Europe.
We have not done well getting to the third phase. We're behind schedule from our original plan back in 1989 and 1990. Right now, about 20% of our overall production purchases, for a volume of about $10 million, is purchased locally, primarily from four suppliers. This is an area of opportunity that we have to focus on a lot more. In fact, we've just localized our purchasing [unit], we're putting in their office. So, more focus will be on the region.
CEAR: What was your target for local purchases by this year?
Pearn: We would have hoped to be at 60%-80% by now. Maybe we expected too much too quick. And with the slow economic growth in 1992-1993, things got pretty flat for a while. Now they're starting to take off again.
CEAR: What's the biggest problem with local suppliers? Lack of capital? Lack of partners? Not learning quick enough?
Pearn: Somewhat all of the above. Our experience has been the lack of quality standards that fulfill our quality expectations. That being the first and foremost. Second, and related to that, is the capital availability. They just don't have [access to capital]. So antiquated equipment, in some cases, just doesn't have the capability. Third has to do with attitude, delivery standards, expectations.
We've been in and out of Hungarian suppliers who, up front, appeared to have the right attitude. But come to delivery on a day to day basis, they were woefully behind. We're a three shift operation and basically just-in-time. It's not acceptable to say "We'll get it to you tomorrow." So we've learned through that process and we set our expectations up front. Now, we do a much better job of conveying to the potential supplier what we expect of them. So that relationship is improving.
And we continue to work with an additional 5-10 suppliers right now, improving their standards, explaining our expectations, and they have potential. We'll continue to work with them.
CEAR: How has your job been changed by the creation of Visteon, Ford's new auto parts division?
Pearn: As part of Visteon, we have a new focus which is trying to penetrate some of the outside markets. Right now as Visteon, we sell about 5% of our total business on outside sales. Our vision is to sell about 20%. I won't time bind us, because the sooner the better as far as we're concerned.
We recognize that Ford on an assembly basis has a limited capacity worldwide. We're overcapacitized from an assembly standpoint in the global market of the auto industry. But where we've supplied just the 8 million units within Ford in the past, now we see opportunity for the 50 million units that are out there. And that will be some of the focus in the future.
We're not going to create outside business at the expense of our traditional customers -- Ford assembly operations. It's going to be in addition to them.
CEAR: Where do you see most of this new business coming from?
Pearn: Primarily Central Europe. Right now we ship worldwide. About 90% of our business is to Western Europe. We ship to Mazda in Japan, they're one of our customers for starter motors. And we ship to our Brazilian plants in South America. Soon we'll be shipping starter component sub kits to our Indian plant.
CEAR: You've created a unique organizational system at the Alba plant. Could you explain this system?
Pearn: This was a pilot started in 1990. We had the opportunity to grow from scratch and implement any organizational structure that we wanted. [Management] was very supportive of doing something unique, [implementing] some ideas that we had bounced around in North America and other worldwide locations of Ford.
We had the opportunity to pull them all together and try some real out of the box thinking, [with] unique structural relationships and attitudes. We had a brand new management team [that included] people with all different experiences.
We take an integrated system approach to organizational development by combining and really enveloping into teams the engineering, production, maintenance, and quality under one product manager. Individual product managers are responsible for all those facets of the business within certain product lines.
Work teams are empowered to make key decisions such as scheduling, allocation of manpower, and hiring. The production work teams [have] a great level of autonomy.
Our structure basically has 4 layers of organization from me to any worker in production. There are very few levels -- that's purposeful and intended [to facilitate] teamwork, openness, and empowerment of employees.
All of our people work on a salary basis, so there are no time clocks. At the time of launch, we were the only all-salaried work force in the Ford Motor Company worldwide. Since then, some other plants have taken a similar approach, but on a much smaller scale.
CEAR: What's the key to making this organizational structure work?
Pearn: I would say the key point is open communication between all organizational offices. Without communication, none of the rest would work. The flat organization is conducive to communication, operational sharing of information, and empowerment.
We meet with the entire production and administrative team once a month and we talk about open issues, the business direction of Ford Hungaria, operational challenges, and efficiencies. It's an opportunity for two-way communication.
At all-employee camp meetings, [employees] discuss within their work teams critical plant strategy issues. Because of their empowerment and responsibility, they need time to themselves to talk about strategies -- how to be more efficient, what kind of design or process issues are there. Twice a year, at a minimum, these all-employee camp meeting take place.
We have a plant newspaper published quarterly, and an in-plant email system available to all employees, [enabling] anybody to communicate with anybody in this organization. My door is 90% of the time open and I'm willing to talk with all employees. We're focused on communication, in an atmosphere of teamwork.
The vision is that we leverage each other, so that we continuously improve on new plants and new launches. And that development, I think, is what has gotten us to where we are today, and where we hope to go in the future.
CEAR: What kind of training do you offer for employees?
Pearn: We have training and language programs available to all employees when they first come into the company. We focus on safety and quality related skills -- these are my two priorities. Then on to social, technical, and business practices. When starting with such a dramatic change in culture and with the Communist influence in Hungary, we need a common understanding, a baseline. And we continue to work on that and improve it.
A continuing education program is available to all employees, and that's not unique at the Alba plant but is [offered by] Ford worldwide.
CEAR: How do you keep your employee pay competitive?
Pearn: We are very much a competitive company and we focus on compensation surveys with updates every six months. We [conduct] salary surveys of major industries throughout Hungary, by region and even by city, to make sure we stay competitive. We don't want to drive inflation, nor can we lag behind our competitors. We want good people, we expect that, and we demand that from a pay-for-performance basis. But we also want to create a unique environment. That's what we think helps retain our employees.
We've maintained low employee turnover compared to the industry and we think a lot of that is strictly environment and our organizational structure. On a competitive wage basis, we're not significantly different from the rest
CEAR: How do you attract employees who live outside of the Szekesfehervar region?
Pearn: We have a home loan program implemented to recruit and maintain employees. In certain regions within Hungary, people are not real mobile and hesitant to move. This program is partially [targeted] at engineers and finance people we need to attract from the economic and technical universities in Budapest or Miskolc. It says "We need your talent, we want you to move locally." It's an incentive to do that, and it's worked out pretty well.
CEAR: Has the local labor market limited your growth plans?
Pearn: To date, it hasn't. But I know in Szekesfehervar unemployment is running somewhere in the 4-5% range, so it's awfully low compared to some adjacent regions, especially compared to the northeast and southeast in Hungary. I think it will be a limiting factor at some point in the future, unless we, and that includes the government, do something.
I've worked locally with the mayor here in town and with some universities, trying to [develop] the opportunities and programs that can attract new people to the region. For example, rather than forcing people to relocate who are from Miskolc or Budapest, what's the opportunity to have a satellite location for a university to train right here from our population.
We've been talking with the university in Vesprem and the technical and economic university in Budapest and it looks like we'll have some programs.
CEAR: What percentage of your administrative staff is Hungarian?
Pearn: We're now about 70% Hungarian management -- we started off with 100% North American. From 13 North Americans, we quickly jumped to 26 with a one-to-one ratio between Hungarians and North Americans. After that, we ballooned, staying at the 200-300 employee level for about 4 years. Just in the last 2 years our expansion has really taken off. We've gone from a little under 600 people two years ago [to the current level of 1350].
CEAR: What's been the biggest surprise for you since starting operations in Hungary?
Pearn: The changing regulations. We have to be adaptable as quick as possible because of governmental modifications to policies, practices, and laws. Whether it's customs, consistency in legislation, or being able to predict some of the laws. That's what causes duress in our business plan. We just don't have that predictability today.
The other goes back to the supply base. That's a little bit of a negative surprise. Not that it doesn't have good potential -- I believe it does. And we're going to place more emphasis and focus on that arena. But we're behind the original plan.
CEAR: How's the customs situation affecting your operations?
Pearn: It's improved slightly, but not to the worldwide or EU standards that we are expecting in the short-term. We continue to work with our customs officials. We are a three shift operation. We can't be serviced just on an 8-10 hour basis during the day. It's very inefficient from the trafficking patterns concept. That's an area where we could use some improvement.
CEAR: How's your logistics chain organized?
Pearn: We're primarily using road. Very little or no rail for components. We focus on trucking. We control it all here locally with our customers and key suppliers. We do use some air freight in the case of a crises. We do a lot of sea shipment for customers in Japan or South America. We truck product to Bremen in Germany and then use sea shipments from there.
CEAR: What's the Alba plant particularly good at?
Pearn: We have a good blend here of technology and assembly-type operations. We are by no means just an assembly plant. We've spent a lot of money and effort and there's a lot of technology in this plant. Two out of our original three products are best in class products where we have superior quality in comparison to our competitors worldwide.
CEAR: Does Ford's recent executive changes in Ford of Europe affect your operations in Hungary?
Pearn: It does and it doesn't. Definitely we're all within Ford Motor Company and just last month I was at manufacturing off site with Rolf Zimmerman, our new manager. The continued focus on the Ford production system, we're all in it together from that respect. I do have some local flexibility, obviously, for our needs here in Hungary, and Mr. Zimmerman and our new officials within Ford of Europe are very much a part of it.
CEAR: What's the key to your continued success?
Pearn: We've got to look to the future, look for growth opportunities. We need to focus on making our customers successful by supplying innovative, quality products that meet and exceed their expectations.