Volvo Car Corporation - The LCC Based Procurement Strategy

The process for procurement with focus on reliability and LCC led to a new formal standard at Volvo.

When creating a particularly complicated production process, how can you determine the right capacity beforehand, and how can you be sure that costs are controlled? When embarking on the S80 model at its Torslanda plant, Volvo Car Corporation faced the challenge of setting supplier and system requirements in the complex auto body production. Systecon was hired to help Volvo develop the right methods. This involved a new approach to setting and verifying requirements, and to opportunities to reduce operating and maintenance costs both during and after the introduction of new equipment.

Volvo decided to use the LCC philosophy in procuring the new equipment. LCC refers to "Life Cycle Cost" and entails considering as many of the costs generated by the prospective equipment as possible when selecting a system solution and supplier. This requires a special emphasis on reliability and maintenance, because they are important cost drivers in the long term.

The range of production and cost outcomes for manufacturing equipment is primarily determined in the design and construction phase. The traditional approach – demanding certain guarantees from the supplier, and verifying them over a brief warranty period – unfortunately does not give much indication of the expected financial outcome. So we created a procurement process focused on obtaining verifiable facts to support the determination that the equipment could handle the demands on production capacity.

The manufacturing of auto bodies is a fairly complicated production process consisting of a number of main and side flow stations, with buffers in between. This entails a rubber band effect in the production flow, where production stoppages to some extent can be offset by running the stations faster than the average production flow. In a process of this kind, it is not possible to describe operational availability as a simple function of production stoppages. It is also not useful to consider availability independently from other design parameters.

To ensure a consistent work flow and desired production capacity, the solution was to impose requirements on the expected production per time unit, and the maximum acceptable deviation for each production section. Then the supplier candidates were asked to show how their supply would meet the requirements using simulations. Cycle times, reliability and maintenance requirements became variables to be guaranteed by the various suppliers. The guaranteed features were then verified in several contractually agreed on steps.

To facilitate the evaluation of all information generated as part of the process, and which naturally became quite extensive, Systecon developed a customized database tool. This tool can easily generate results based on the expected availability of different plant components and also forecast the cost in terms of supplies and human resources.

In practical terms, the project generated:

  • A methodology for formulating process performance requirements, including both production and reliability requirements.
  • Processes and tools for following up and analyzing process and maintenance data, both during verification and normal production.
  • A simplified and improved process for verifying contract requirements .
  • Methods for acquiring and processing data regarding maintenance and spare parts during procurement.

The process for formulating requirements and performing procurement using a reliability and LCC focus has since become the formal standard at Volvo Car Corporation.