Ontario-based Hitachi Construction Truck Manufacturing has a strong customer base in mega mining trucks around the world but receives surprisingly little recognition in Canada. Executive VP Bruce Murray explains to Gay Sutton how the company is preparing to raise its profile in the North American market.
In 2000, when Japanese company Hitachi acquired sole ownership of construction equipment company VME—itself a joint venture between Clark Michigan and Volvo of Sweden—there was little hint that the newly formed Hitachi Construction Truck Manufacturing (HTM) would evolve to become a significant player in the global mining equipment industry. Today, HTM stands alongside Caterpillar and Komatsu as a manufacturer of mining trucks.
Significantly, the production site in Guelph, Ontario, is the sole manufacturing site for Hitachi mining trucks worldwide, and its role within parent company Hitachi Construction Machinery Co. Ltd. (HCM) is different. “The company underwent considerable reorganization in 2000 when we became a wholly owned subsidiary of Hitachi. Our headquarters were moved to Guelph while the engineering, sales and marketing responsibilities were assumed by our Japanese parent,” explains executive vice president Bruce Murray. “Since then we have acted primarily as a manufacturing facility, while John Deere has taken over the sales and marketing as North American dealers with HCM. Our focus, therefore, is on processes, quality and delivery, and our main customer is in fact our Japanese parent.”
The Guelph plant has the capacity to produce some 300 units a year—a mix of construction, quarry and mining equipment models—and when operating to capacity it employs 500 staff. And though to the untrained eye the products appear to be part of a range of standard equipment, each is highly individual. “We customize pretty much everything we do. This may be adaptation for the type of mine it will operate in, or to comply with local regulations, or even to suit specific operating conditions. For example, in high altitudes we have to customize the machinery to enable it to run with less available oxygen. We therefore have a strong contingent of engineering staff at the plant,” Murray says.
These enormous mining trucks can cost several million dollars each, and when a new mine is being equipped it will require not one but a fleet. “This is a significant investment for the mine,” Murray says. “The due diligence alone could take up to a year from the time we receive a request for information to the signing of the purchase order. Then once we receive that, the investment for us is also huge. A fleet of 10 mining trucks can require as much as $20 million in new working capital. Therefore, managing the financial side of the business is critical, and inventory is one of the key elements that we control.”
Where possible, inventory is kept to a minimum, not only to keep costs down but also to prevent stock becoming obsolete as product designs are constantly evolving. “Although we don’t operate just-in-time to the same degree as the automotive industry,” says Murray, “we nevertheless follow those principles in many areas. Tires are a good example. We only need them during the last week of a 16-week assembly cycle, so that’s when they’re delivered.”
Procurement, however, is complicated by the extremely long lead times on some critical components—12 months in some cases. To manage this, the company runs forecasts on each product model and calculates when to order critical components and in what quantity.
Suppliers obviously play a significant role in HTM’s success, and in many cases work in close partnership. About 80 percent of the typical mining truck, by value, is sourced externally. “We procure the highly complex drive systems from Siemens, for example, who are then involved in significant customization,” Murray says. “Siemens also then provides us with on-site assistance to ensure the products perform as required.”
In common with most businesses, HTM has felt the effects of the global recession, particularly in the construction equipment line. At its height, capacity at the plant fell from 250 units a year to just 60. However, the robust aftermarket parts side of the business along with sluggish investment in mining helped to ease the situation. “On the manufacturing side at that time, our only option was to adjust the workforce,” Murray says. “However, on the salary side we employ a number of highly skilled people, most of them specialists in their fields. And we made the conscious decision to hold on to these people, believing that the situation would be relatively short-term in nature.” It turned out to be a good decision. Business is now beginning to pick up, and the company is starting to recall some of its manufacturing workers. “We’re seeing that highly skilled technical staff are now in short supply across the industry.”
The company is now focusing on a strategy for growth. “Our products are shipped around the world. We have major customers in the US, South Africa, Colombia, Australia, Singapore and Indonesia. But, strangely, we don’t do a huge amount of business in Canada,” Murray says. “There are enormous opportunities for expansion in North and South America. We have the quality of product; we just don’t have the history in the region yet.”
To support this strategy, a new sister plant is under construction in Japan to bring production for the Far East and Australia closer to the customer and to liberate capacity at Guelph for expansion. Meanwhile, the company is developing its own customer service offering, transferring the knowledge and experience gained through achieving a world-leading construction equipment industry and delivering this into the mining industry through its extensive dealer network. “For our mining customers, what really matters is equipment availability, and each of our competitors has a unique approach to this,” Murray explains. “What we’re offering is a complete service package—an integrated system that includes the maintenance of the vehicles.”
The global mining industry is certainly active at the moment, but Murray is realistic about the future. “Like many industries, it can be feast or famine,” he says. “As long as the demand is being created by China and India it will be robust, but it can quiet down as well.” However, with a strong portfolio of products that includes world-leading construction equipment and a robust aftermarket parts business, the company is well placed to adapt to fluctuations and changes in the marketplace.
