Publications edited by the Departments of Geography, University of Gšteborg Series B, no 97 PROXIMITY MATTERS? Geographical aspects of changing strategies in automotive subcontracting relationships: the case of domestic suppliers to Volvo Torslanda assembly plant Anders Larsson School of Economics and Commercial Law UNIVERSITY OF G…TEBORG Proximity Matters? Geographical aspects of changing strategies in automotive subcontracting relationships: the case of domestic suppliers to Volvo Torslanda assembly plant Anders Larsson Distribution: Department of Human and Economic Geography School of Economics and Commercial Law University of Gšteborg Box 630 SÐ405 30 G…TEBORG Sweden © Anders Larsson ISBN 91Ð86472Ð33ÐX Printed by Parajett AB ISSN 0346Ð6663 Landskrona 1999 For Maria, Ulla & Eric Abstract Larsson, Anders, 1999, Proximity Matters? Geographical aspects of changing strategies in automotive subcontracting relationships: the case of domestic suppliers to Volvo Torslanda assembly plant. Department of Human and Economic Geography, School of Economics and Commercial Law, University of Gšteborg. Series B, No 97. 285 pages. ISBN 91Ð86472Ð33ÐX. This study analyses the significance of geographical proximity in the restructuring process of a domestic subcontractor system in the Swedish automotive industry, using the Volvo Torslanda assembly plant as a case. The focus is on: i) the organisation of buyer-subcontractor relationships, ii) time-related delivery strategies, iii) the significance of geographical proximity. The findings provide an empirical contribution to the general understanding of the geographical buyer- subcontractor relationships in the automotive industry. The case covers the development of the domestic subcontractor system in the 1990's and is subdivided into three parts: i) the 40 most important domestic subcontractors in 1996/97, ii) the development of the Arendal supplier-park project 1997-1998, and iii) an analysis of Hydro- Raufoss Automotive Plastics AB, a Norwegian subcontractor, 1993-1998. Up until 1996/97 geographical proximity played a marginal role in the organisation of domestic subcontracting. The system was in the initial stage of an organisational restructuring, showing the first signs of an emerging subcontractor hierarchy. The average delivery frequency increased from weekly to daily deliveries during the 1990's, facilitated by a good infrastructure. Proximity became an important strategic factor with the development of the S80-model, launched in 1998. The main reason was the accelerating use of sequential production on the Volvo assembly line, which directly integrated the production processes of Volvo and its subcontractors. To better respond to the tight time schedule, a number of subcontractors established operations in the new Volvo-led supplier-park, five minutes from the assembly plant. In the introductory phase, there were no explicit plans for subcontractor co-operation. Instead, the park served as a Òdelivery-pointÓ where incoming components were sorted in sequence and delivered to Volvo on an hourly basis. An exception to this was Hydro-Raufoss, which had developed from a delivery-warehouse into a complete production unit. The launch of new models offers an opportunity to implement structural changes in the subcontractor system. Whether the recent change in VolvoÕs ownership will also have a bearing on this is, however, a moot point. Keywords: automotive-industry, Hydro-Raufoss Automotive, just-in-time, location, proximity, sequential deliveries, subcontracting, supplier-park, Sweden, transportation, Volvo Acknowledgements At last, the end of a long journey is reached. The trip has not always taken the shortest route, but on the other hand, I have learned to keep up even when I have felt completely lost in the deep forests of aims, questions, references, theories and models. Now it is over, and I will take the opportunity to thank all of you who have contributed to my work. My supervisor Kenneth Asp has provided support and comments ever since the first stumbling steps, thank you for not losing your patience! Claes-Gšran Alvstam has played a pivotal role as a constant source of ideas, references and critical commentary. With his straight-forward "now it's your turn to finish your dissertation"- approach, I have had the pressure needed to keep on writing. During different stages of the work, many people have dedicated their time, reading and making comments and suggestions. I would like to mention Bertil Vilhelmson, Kajsa EllegŒrd, Sten Lorenzon and •ke Forsstšm for their valuable comments in different stages of the writing-process. A special thanks to my next-door neighbour, Inge Ivarsson who, since he finished his own dissertation, has been a constant reminder that there actually is a life after the doctoral studies. Inge has also been a good companion on several conference-trips around the world. I am very thankful to Risto Laualajainen for a continous flow of articles, references and very useful comments. In this context should be mentioned Arne Jensen and Gšran Svensson who made the effort to act as opponents on an earlier version of the work. The study benefited furthermore from the comments and observations made by Bo Terje Kalsaas. Thank you David Rich and the others at the Geography Department at Macquarie University for making my Australian visit a memorable one. And despite this stay, I really needed the help from John Shelton to correct my "English". This study could not have been conducted without the help from a great number of people in various positions at the subcontracting firms who were willing to answer my questionnaire and participate in my telephone interviews. A special thanks to Lars Bolminger Volvo Car Corporation and Henrik Karlsson Hydro-Raufoss Automotive Plastics for their help at various stages of the study. The dissertation has partly been financed by the Swedish Transport & Communications Research Board (Grant 1989Ð0139). Finally, I would like to thank my family: Ulla and Maria. They have been the source of inspiration during the course of the project. Now I will be home from work before midnight, I promise! Gšteborg, 17 november 1999 Anders Larsson Contents 1. Introduction 1.1 Background . 1 1.2 Introduction to the research problem. 3 1.3 Aim, research questions and limitations. 7 1.4 Structure of the thesis. 8 1.5 Methodological considerations. 9 Methodological approach Research method Selection the cases Using personal interviews as a method for data acquisition Using questionnaires and telephone interviews 1.6 The automotive industry in a general context. 16 2. Time and space in the organisation of industrial production processes: some theoretical considerations 2.1 Introduction. 21 2.2 Early theories of industrial location. 22 2.3 Agglomeration and inter-firm relations. 24 2.4 Industrial linkage studies. 29 2.5 A network approach to industrial organisation. 31 2.6 Other theoretical approaches. 34 2.7 Industrial inter-firm relationships and location: a temporal-geographical conclusion. 37 2.8 Summary. 40 3. Subcontracting relationships - an overview 3.1 Introduction. 41 3.2 What is subcontracting? - Concepts and definitions. 41 3.3 The rationale for subcontracting. 45 3.4 Summary. 47 4. Changes in the organisation of subcontracting relation- ships in the automotive industry: the importance of geographical proximity 4.1 Introduction. 49 4.2 Organisational changes in buyer-supplier relationships - towards a new model?. 49 From market-base transactions to co-operation? Lammings' four-phase model of changing supplier relationships i 4.3 The geography of the partnership model: the spatial organisation of subcon- tracting relationships in some major automotive producing regions. 55 Introduction The organisation of Japanese automotive supply systems The geography of Japanese automotive suppliers The organisation of automotive supply systems in North America The geography of North American automotive suppliers The organisation of automotive supply systems in Western Europe The geography of European automotive suppliers 4.4 Towards a new geography of supply relationships in the automotive industry? Ð concluding remarks. 69 5. Time-compression and subcontracting 5.1 Introduction. 73 5.2 The concept of time-compression. 73 5.3 Time-compression in the production process. 77 Introduction Inside the production-unit Between production units The entire production process 5.4 Time compression and inter-firm relationships: the case of subcontracting linkages. 81 5.5 Just-in-time manufacturing and automotive suppliers. 82 5.6 Summary. 85 6. Physical supply linkages in a time-compressed environment: the significance of transport and information 6.1 Introduction. 87 6.2 Transportation and time-compression. 87 Introduction Time-compression and reliability Models of transport organisation under JIT-production JIT production in traditional facilities or new greenfield location? Synchronised sequential JIT-deliveries 6.3 The importance of information and information technology. 93 Introduction Information, IT or ICT, some notes on concepts Information technology and automotive suppliers 6.4 Organisational aspects of JIT-deliveries. 96 6.5 Summary. 100 ii 7. Subcontracting in Swedish industry: an overview with focus on the automotive sector 7.1 Introduction. 101 7.2 The significance of subcontracting in Swedish industry. 101 7.3 The automotive supply industry. 106 The structure and importance of subcontracting Spatial characteristics of automotive subcontracting The Swedish