SAO PAULO, BRAZIL - Volkswagen AG is laying the groundwork in SÃŒo Paulo for what it grandly promises will be nothing less than ``the third industrial revolution.'' Drawing on the vision of its mercurial head of global manufacturing operations, Jose Ignacio L¢pez de Arriortua, the German vehicle maker is building a greenfield truck plant around a concept that repudiates most of the industry's time-honored notions of how to assemble cars and trucks.
In the plant, scheduled for startup in November:
Volkswagen workers will do no assembly, which will be handled entirely by in-plant Tier 1 suppliers. The 400 or so VW workers in the plant will be responsible for product engineering, quality control and distribution.
The plant's suppliers - as few as five, as many as eight - will furnish entire systems, such as engine/transmission or cabin/interior, and install them. Each supplier will set up its own sub-supplier network and logistics, and pay plant overhead costs.
No vehicle will be built unless it is sold.
Suppliers will be paid on a per-vehicle basis, and no supplier will be paid until the vehicle clears final inspection. Thus, for payment purposes, all suppliers are accountable for total quality.
The new plant, at Resende, about 100 miles south of Rio de Janeiro, will have a capacity of 40,000 units a year. Visiting the site last November, L¢pez said Resende will have the highest productivity of any auto plant in the world: eight hours of labor per vehicle.
``Within a year,'' he said, ``all of the global auto industry will be looking at Resende as the platform for a third industrial revolution, as important as the steam engine and the assembly line.''
The new plant, and a more limited project at VW's car plant in Buenos Aires, Argentina, are important tests for L¢pez's radical ideas on how to cut costs by building a so-called ``Plateau 6'' manufacturing plant. The plant will produce trucks ranging from 6-35 tons, and one bus model.
L¢pez left General Motors Corp. for VW in 1993 on the promise that he could build a plant in Spain to try out his ideas. But when that avenue closed because of VW's financial woes and mounting overcapacity in Europe, he transplanted the idea to the expanding market in Brazil.
The new truck factory is planned around what L¢pez has christened the ``fractal concept.'' The name seems appropriate: In mathematics, a fractal is a complete and radical break with all that has led up to it.
Although plans for the new plant have not been made public, its general outlines are known. It likely will be a T-shaped building, with VW administration occupying the crossbar. The leg will be the central assembly corridor, flanked by supplier sheds.
Components will enter the plant through the supplier sheds, be assembled into systems and then roll into the central corridor for final assembly.
The plan is as daring as it is radical, industry executives say. By taking suppliers inside its factory and giving them assembly responsibility, some warn, Volkswagen is changing the fundamental hierarchy of the industry - with potentially dangerous consequences.
``Once you let the parts supplier into your factory, then you create a great interdependence. It is like a family - you can't easily throw them out of the house,'' said Paulo Butori, president of the Brazilian auto parts association Sindipecas.
``So you need to think very carefully before you invite a producer to work in your factory, because you then have to share everything.''
But the up side for the original equipment manufacturer is tremendous, he acknowledged. ``By being free to focus only on vehicle design and how to sell it, you get the most lucrative parts of the business and pass the onus of production to the supplier,'' he said.
``The assemblers' great worry is production. ... This way, the assembler keeps the two lucrative areas and passes on his greatest headache to the supplier.''
But Mauro Arruda, the executive director of the Institute for the Study of Industrial Development in SÃŒo Paulo, said there are limitations to the new concept.
``This is easy to do with low production volumes,'' he said. ``It would be much different for a volume producer. Imagine being responsible for coordinating the subassemblies when you're working with VW's European volume of 100,000 a month.''
Volkswagen is still negotiating its supplier contracts.
Arruda said he believes Brazil's parts firms will largely be pushed out of the Resende process, because the plant's modular suppliers will require technological and financial depth that few locals possess.