Sometimes it just isn’t possible to build on a brownfield site, so those building on greenfield sites must do so in an environmentally sensitive way
As you might expect of a country as environmentally sensitive as Canada, the major OEMs and Tier Ones – most of which are concentrated in Ontario – face pressure to meet both national and provincial guidelines. While brownfield sites might be preferred by some of the smaller players for their expansion plans, companies such as Toyota, with its planned Woodstock, Ontario facility and Denso, in Guelph in the same province, have decided to build on greenfield sites. Toyota’s will be the first new plant in Ontario for the past 20 years.
By 2010, the Denso plant will be making radiators, condensers, engine fans and engine cooling modules, creating 300 new jobs in the process. President of Denso Manufacturing Canada (DMCN), Joe Stich, explains why the firm recently decided to expand a nine-year old HVAC facility to triple that of its former size (to 300,000 sq ft), ruling out a brownfield site.
AMS: Why has Denso chosen to expand, rather than go the brownfield route? How does this fit in with the environmental guidelines of the company’s Eco Vision 2015 project?
Joe Stich: This facility had extra land that we could build on. That was one of the advantages of setting up there, but we had to compete with other facilities in North America to be awarded the expansion. Denso analysed what the best opportunity was, and the costs of the choices we had. We felt this facility was best suited for the expansion we need to grow with our local customers. We are closely located to our customers, which is one big advantage we have. The workforce is highly skilled, so to go over to a new location – a brownfield site in another part of the province – made no sense to the company. Something else we look at closely is how we keep attracting the best people. We have an excellent education system in Ontario and and OEMs and Tier Ones work closely with educational facilities to ensure the right opportunities are in place to keep meeting the needs of companies like Denso. Another key factor in expanding in Guelph was the support we received from the regional government. We’ve had good cooperation in getting the permits to expand the business (which can present major difficulties in rival locations) and we work closely with the various ministerial departments who are keen to make sure we have the best business environment in which to operate successfully.
AMS: Did Denso look at cheaper sites that needed largescale funding to clean up?
JS: No, and the reason is that we made the decision in the 1990s that this was the right location for us, with room to expand. We also saw no need to take any risk in a brownfield site.
AMS: Wouldn’t the idea of cleaning up a HAZMAT site fit within Denso’s Eco Vision 2015 project?
JS: Traditionally – and this has been consistent – when Denso goes into an area looking to build, or expand, the company likes to know the facility, to know the land. There are specific ways in how buildings have to be put together, how locations need to be laid out, and once you start buying existing plants or brownfield sites, it’s difficult to follow through on some of these criteria. That is a decision that comes from Japan where there is a lot of experience in these issues on a global level. Under its Eco Vision 2015 project, Denso has specific goals; by working closely with our environmental rules, we can control and limit our impact at a site. For that reason, a greenfield site works best.
AMS: Has Denso learned from observing its rivals and the difficulties they may have encountered with brownfields?
JS: I have certainly seen some rivals get bound up with major difficulties – I’m talking about companies in the US – trying to overcome some of the major contamination obstacles at a location. This becomes a major distraction for the company, to have to spend so much time trying to solve these issues rather than spending that time focusing on making products and servicing its customers.
AMS: What are the main problems in these cases?
JS: Time is a big problem but there is usually a major financial commitment to be made. The total costs are not always obvious when you begin to look at a brownfield location, but these can quickly escalate, depending on the history of the site and what you are planning to build there. This is why Denso has a policy of avoiding these sorts of locations, where we can.
AMS:What are Denso’s environmental policies regarding its manufacturing plants?
JS: Denso has a strong belief in the Eco Vision 2015 project worldwide and we are looking at key activities that make sure our carbon footprint is as minimal as possible, no matter where we manufacture.
We have a long-term vision, to get us to our goals by 2015, and Guelph plays a role in that, with targets to be achieved by 2010 and 2013. So our expansion has to work with those goals. We’re in the middle of our expansion. We’re adding about 200,000 square foot (18,580 square meter of manufacturing space and we are doubling the population here, growing from about 300 to 600 people.
AMS: Why does Denso not simply supply the Ontariobased customers from any or several of its US operations? Surely the cost of adding capacity at Guelph is prohibitive? JS: Denso used to ship HVAC components to our customers in Canada but a decision was made that saw us setting up this greenfield plant in 1999. While we have high costs on a superficial level, when you look at how expensive freight has become – which is just one factor - our local operations can certainly compete.
Our customers are also concerned with us being able to supply their plants in this area. With Toyota adding a plant in Woodstock, which is about 60 kilometres from our site, Denso felt it needed to provide better opportunities to support the Toyota expansion as well as that of other OEMs in Ontario.
AMS: What products will be supplied to Woodstock and when will this start?
JS: The plant will be producing the Toyota RAV4 and Denso will supply the HVAC system for that vehicle from 2009. Our expansion will also allow us to expand our product base into engine cooling modules. Denso will make radiators, condensers, and electric fans and motors, combining these in modules, which will be shipped to Woodstock. This is a technology that has been used for several years, and one that we produce globally.
AMS: Toyota’s Cambridge facility is the only one outside Japan that makes Lexus vehicles. Is Denso involved in new products for that plant where a replacement for the RX 350 crossover is scheduled for 2009?
JS: The next-generation Lexus RX will come off the line in January 2009. That’s when Denso will start producing the engine cooling module as well as continuing to supply the HVAC system from Guelph.
AMS: What percentage of your business is with Toyota and Honda?
JS: The combination is about 60 per cent of our total business. We feel that some of our greatest growth potential is with GM, Ford and Chrysler in Ontario.
AMS: In spite of the downsizing that is currently gripping the Detroit Three’s local plants in Ontario, GM only recently announced its intentions to shutter Oshawa Truck, for example, ending build of the Chevy Silverado and GMC Sierra pick-ups. Can Denso expand and, if so, how?
JS: Yes, even with that, we feel that we can expand our business.
From a quality perspective. These companies demand the highest-quality products and they know our reputation for that. By having our operations at a local level – this is where the expansion into the greenfield location at Guelph comes into it – we have a cost advantage over some of our foreignbased competitors.
AMS: In terms of your competition, you’re up against US-based Tier Ones. So how can you compete when they now have what is increasingly an emerging market level of wages in some parts of the US?
JS: You need to take into account the total cost package. We work closely with the province and they are very supportive of our operations.
Denso is also a company that traditionally takes a longterm view. It is a competitive business environment but again, it is our local location, the stability of our operations and the whole package of government-funded healthcare costs for workers in Canada – these all play a part in helping us keep business and also put us high on OEMs’ lists when they tender for new business.
AMS: Why doesn’t Denso simply import parts from its US plants – after all, Canada now has a far stronger currency than the US dollar and Michigan is so close?
JS: With Toyota adding their plant in Woodstock, which is about 60 kilometres from our location, we really felt we needed to provide better facilities to support that expansion. The Ontario area produces about 1.6 million vehicles a year, so it’s a major part of North America’s total manufacturing. To have a Tier One operation in Ontario is essential for supporting not just Toyota and Honda, our main customers, but others such as Ford, for its Edge crossover, and also Chrysler.