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Outsourcing in a motor manufacturing industry

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Outsourcing in a motor manufacturing industry
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Sunanda K. Chavan
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Outsourcing in a motor manufacturing industry - October 19th, 2010

This sutdy shows the effects of outsourcing in the employment relation in Portugal
Extent, growth, motivations

In order to study the effects of outsourcing on the employment relationship, we will look primarily at the case of Volkswagen and the greenfield where the company's assembly plant is located. Volkswagen has been operating in Portugal for about five years.

The automotive industry in Portugal has undergone significant changes over the past few decades. In the 1970s and 80s the big auto manufacturers came to Portugal only to do the final assembly, bringing in components that had been assembled elsewhere to be integrated on the assembly line.

As described below, the components are now either produced or assembled in Portugal by subcontracted companies. Car bodies, for example, used to arrive ready for assembly. Now, however, sheet metal is brought in to be moulded here.
1.1. What activities are outsourced by the motor manufacturing industry:

1.)The company relies on outsourcing for nearly all its automotive components.

2)The company outsources few services. Those it does are primarily in the area of human resources, such as certain types of job training, and a few other limited services. It uses some outside professional services, such as legal services.

3) Volkswagen's core activity is assembly. Activities range from moulding sheet metal to assembling auto bodies, including the painting and final assembly. Other activities include human resource management and financial management.
1.2. How does the motor manufacturing industry carry out this outsourcing:

1)According to company sources, the subcontracting company in the case being studied here maintains commercial contracts with suppliers. These subcontracted companies in turn buy components from other companies. Although the situation varies from component to component, in some cases there are as many as three levels of subcontracting. The companies in the greenfield do only assembly; all the parts used are purchased.

2).A regular flow network has been established between the subcontracting company and the various other companies. There are about ten of these subcontracted companies in the vicinity of the Volkswagen plant. The number of workers at each company varies widely, with the majority having between 100 to 500 workers, but some having as few as fifteen. These companies maintain close ties with the central company. One company serves as a link between the various companies, assuring a steady flow of materials to supply the assembly line and handling transport of the components to the assembly plant.

3)The Volkswagen plant is located in PALMELA, in a rural area about 30 Km outside of LISBON. A number of other companies that provide various types of maintenance services and assistance in the painting and treatment of paints are located in the same workplace. In the same building there is also a canteen, a doorkeeper and security office (fire fighters), a bank branch and an insurance and logistics and transport company.

Adjacent to the building, in the same greenfield, are companies that assemble components: fuel tanks, tyres, dashboards and plastics, upholstery, exhaust pipes, brakes, hinges, axles, etc. A total of ten companies operate within the greensite.
Some companies that produce wiring and wire covering, radios, brake pad assemblies, and mufflers (fibre pack) are located a few kilometres away.
>Any place
Lawyers, some job training specialists. Other companies - Portuguese (upholstery), Spanish, and German - produce components that are not assembled in the greensite. The companies having facilities within the greensite are of the same national origins.

4)The companies are organised and function as a just-in-time system. All are quality certified. Certification was done simultaneously to ensure that the companies shared common standards and certain requirements for worker qualification and organisation of work.
The companies are very interdependent. This is especially true for those within the greensite, which work almost exclusively assembling components for Volkswagen. According to the union, only two of the companies do work for outside companies.

5)According to company, there is no other relationship between the subcontracting and the subcontracted companies beyond contracts for services. According to the Sindicato dos Trabalhadores Metalúrgicos de Setúbal Setubal Metalworkers Union, some of these companies were suppliers for Ford, which until recently was a Volkswagen partner at this assembly site. The union fears that, once the current contracts for services expire, Volkswagen will replace these subcontracted companies with others that they normally work with.

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