The little casting plant that could

COMMENT

Paraphrasing Mark Twain, the death of local manufacturing has been greatly exaggerated. A case in point: NCAP – Nissan's aluminium casting plant.

This is the very model of a successful division embedded within a multinational corporation, exporting parts elsewhere while operating in the local market.

Aluminium parts cast by the plant, in the Melbourne suburb of Dandenong South, are exported to Nissan subsidiaries (or former subsidiaries, like JATCO) all over the world. The plant has been in existence for 35 years and commemorated its anniversary last month – coincidentally, the same month Toyota closed the Altona vehicle assembly plant and Holden shut up shop at Elizabeth.

What NCAP proves is that Australians can manufacture sophisticated automotive products – and deliver them on time and on budget. NCAP is a lean operation that has been steadily improving the way it operates, practically from day one in 1982. The high-pressure casting machines at the plant are decades old, but they are constantly updated, and other elements of production are also subject to 'Kaizen', the Japanese manufacturing philosophy of constant improvement.

One example of that is the plant's 'fettling' robots, which grind the 'flash' or excess metal off the cast product and ensure holes are cleared for coolant or lubricant to flow through during vehicle operation. These robots each replace three workers, yet NCAP's workforce is very stable. The average length of employment there is around 15 years and the workforce comprises 146 full-time permanent workers, out of 192 – the balance made up of contractors. What that means for NCAP is that the unexpected loss of a contract can be met by reducing contractors' hours, without laying off permanent staff.

Kaizen doesn't have to be a big-ticket item like the fettling robots. It can be something quite simple. As one example, a worker suggested replacing grates over drain channels in the floor with checker-plate steel featuring a couple of drain holes in each plate. Metal filings can be swept up, rather than fished out of the water in the bottom of the drain channels. This reduces the time spent cleaning from 15 minutes to five. There's a small but significant productivity gain right there.

The aim of NCAP's management is for the plant to work very efficiently. They're not looking for massive profits. As a matter of fact, the strategy is to 'break even', producing high-quality castings that are acceptably affordable up against rival bids for supply contracts. It's a dog-eat-dog world in international trade – even within the same multi-national corporation.

Yet NCAP has not only survived (at better than break-even point last year), it has thrived. The plant's ability to do some basic engineering (the only Nissan casting plant outside Japan to do so) is another string to the bow, and its timeliness, attention to detail and overall cost efficiency are well and truly recognised by the parent company in Japan.

All of that sets up NCAP to be an off-shore centre of expertise, as the place to cast aluminium housings for electric vehicles. As Nissan expands its range of EVs in future, NCAP's prestige will likely grow with that.

If it sounds like NCAP's current standing within Nissan (and the broader Renault-Nissan alliance) has been achieved effortlessly, consider this: in a resource-rich country like ours, NCAP has to import its aluminium ingots from abroad. That inevitably erodes any cost advantage when quoting for business to supply aluminium parts overseas.

Until recently NCAP could source its 'secondary aluminium' from local supplier Simsmetal, but then Simsmetal got out of that business. The secondary aluminium contains iron 'impurities' that actually lend the alloy greater flexibility, so it will bend rather than break.

And all the other challenges that afflict Aussie exporters apply equally to NCAP. We're remote from vehicle manufacturing hubs, our labour costs are more than for other nations closer to those same manufacturing centres, and our commodities-market currency is more volatile. On top of all that, NCAP faces rapidly escalating prices for gas and electricity in the domestic market. An effective energy policy has become a critical concern to NCAP's management.

But NCAP employs a number of tactics to reduce its exposure to these challenging business conditions. It can reduce shipping costs by negotiating deals for empty container ships to subsidise their return journey to home port. Container ships arrive in Australia full, but leave empty. NCAP can negotiate a price essentially summed up by this argument: "Well, your ship has to leave Australia anyway, you might as well make some money from shipping our goods, which could be shipped out on any other empty vessel."

NCAP has made its labour more of a fixed cost by negotiating a four-year enterprise bargaining agreement with its permanent staff. And the pricing it charges its customers is reviewed every four months, and adjusted if necessary, to allow for currency exchange rate fluctuations.

NCAP has helped itself to (state and federal) government assistance on occasion, but as with other companies, the funding is contingent on the company investing its own money as well. And NCAP has been transparent, drawing on a rebate, for example, from the Green Car Innovation Fund to reduce CO2 emissions at the plant by 50 kilotons.

What NCAP does, is work steadily manufacturing products that are a match for any similar product from anywhere else in the world. In fact, the quality of NCAP's products remains a benchmark for Nissan casting plants in emerging nations. Yet it's all done on the cheap, but without asking major concessions from the workforce.

NCAP is living proof of that oft idealised but rarely realised paradigm – a niche automotive manufacturer based in Australia but successfully exporting to the world.