June 15, 2011: Henrik Fagrenius
MG of Scania on the company’s modular technology and India plans
Scania has in its modular system a uniform basis on which it builds the trucks it sells in all its markets. Many of your competitors who’ve entered, or are in, the mass segment have found it necessary, if not to develop entirely new vehicles, at least to modify vehicles from their existing portfolios that they want to bring in. Within what Scania has, would you say you are confident of meeting the needs here?
I’m confident that we will meet the demands. Look at the mining segment — we sell lots of mining trucks in Indonesia, in Brazil, and now in India as well. And they all have exactly the same components we use all over the world. Even if we sell mining trucks in Sweden, they are the same truck, based on the same components.It might be, though, that we will develop new performance steps with input from the Indian market. But those performance steps will be valid and available all over the globe. For this our regional product centre will have some resources from our R&D — not very many, but some resources to get in demands from the Indian market.
What do you mean by ‘performance steps’?
If we talk about engines, the performance steps are the different power outputs, from 230 hp all the way up to 730 hp. For axles it’s the different technical load capacities. We also have three different cabs, P, G, and R.The beauty of our modular system is that with quite a limited number of components, we are able to supply the customer with a variety of different opportunities to build a truck that exactly suits his operation and needs. And the limited number of components also provides us with economies of scale.For example, the combustion chamber is the same for all our engines, while they differ in bore and stroke. They also share components such as pushrods, valve gears, roller tappets, and piston rings. This makes them exceedingly simple to maintain and repair.
When you say a limited number of components, isn’t it more or less the same as any other truck would have?
No. For instance, we have the same windshield in all our trucks — for the P cab, G cab, and R cab. There’s only one part number for windshields. We also build all our cabs from a very limited number of cab components. We have the same interface for all four roof types. It’s very important to have the same interfaces, because then we can build as with a Lego set.The grille is divided into two segments — the lowest portion, which folds out and is meant for the driver to stand on and clean the windscreen, is the same on every truck, but there are two different middle sections, with three ribs and four ribs, for the different cab heights.We also have basically three modular frame profiles, which we can put into each other to create stronger frames. So instead of having five different frames, we have only three. And by combining them we create five different alternatives.
How many fewer components does Scania use compared to its competitors — in Europe, for instance?
When I was working in purchase some 10–15 years ago, we said that a typical competitor had 20,000–25,000 part numbers. Scania at that time had something around 12,000. Assuming our modular system still reduces the number of components by 50 percent, that would reduce the cost of R&D by 30–50 percent, production by about 10 percent, and sales and service by about 30 percent.
What customer benefits does this bring, apart from simplicity of maintenance and repair?
The obvious thing is that each of our components is made in much higher volumes, so that we can have economies of scale. Scania is not one of the largest truckmakers in Europe, but due to our modular system we still do a lot of components — engine blocks and cylinder heads, for instance. Since we are so focused on quality, we also do all our other core components in-house — axles, gearboxes, and cabs. The complete driveline is in our own hands.The value for our customers here in India is that many of the components will be the same for the ODC truck as for the tipper. And that will help the service organisation because, if you can service the one, you can service the other. And also spare parts availability — because if you have spare parts for one truck, you have them for the other too, and for the bus as well. Our bus chassis share 85 percent of their components with the trucks. Having a limited number of parts also simplifies our spare parts supply chain.
What kinds of components would you need to develop new performance steps for in India?
We already have a suitable product for the Indian market, but perhaps some attributes inside the cab aren’t what the customer is asking for, here or in other emerging markets. It could also be possible that we develop a higher performance step for some component.
You say the ODC and bus segments are good for Scania’s business model. How would you explain your business model?
Our business model is to make our customer profitable. We look into the costs a customer has – fuel consumption, repair and maintenance, etc, – his total cost of operation. The price of the truck is just one parameter. We are also very driver-focused because we believe the driver is an essential key to a low cost of operation. A good driver can save up to 15 percent on fuel, reduce emissions, and occasions fewer repairs. And therefore we, together with L&T, have also done a lot of driver training.
Scania earned a good 21 percent of its revenues in 2010 from services. How do you plan to go about that in India? What kind of service infrastructure are you planning?
We need to go by the customer demands. Does the customer have his own workshop? Then we need to train his mechanics on the Scania product, ensure good availability of spare parts, and also have someone he can turn to if he has a problem. Then, of course, we’ll see where we need to put up certain strategic workshop hubs around India. It’s hard to say now — it all depends on customer demand. We will have very close discussions with our customers and I think we have shown together with L&T in the mining segment that we really have made a very good service offer.
L&T’s engineering construction division does a lot of ODC transport itself — doesn’t it make sense for L&T to also be your service and training partner for this market as well? Have you started talking to them about it?
We haven’t finalised any discussions with L&T about this, but we aren’t ruling anything out. Of course in the future we will have to look at a dealer network. In Europe we have both, Scania-owned and independent service dealers. And we have both, complete dealers that sell and service, and we have only service points as well. For the ODC tractors and buses we want to bring in, it would probably make sense to have pure service dealers.
You think this is possible?
At some point of time, yes. Which country we choose to locate it in depends on the import and export duties between the countries of the region. We sold 500-odd trucks in China last year and 200 in India. We estimate we’ll sell about 2,000 units here within five years, but India could one day become a region by itself if the market grows big enough.
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