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Plant special: Flexible friends

Plant manufacturers have been hit hard by the recession, but Volvo Construction Equipment is focusing on customers’ changing needs as a way of escaping the worst of it, as the company’s managing director tells Margo Cole.

If any link in the supply chain is best placed to act as a barometer for the current economic climate in construction, it is surely the plant manufacturers and suppliers. When there is work out there, contractors will buy machines. When there isn’t, they stop buying − immediately.

Volvo Construction Equipment, one of the leading players in the UK civils plant market, has seen orders fall by 60% in the last 12 months. “It came on really quickly,” says the company’s managing director Val Ledden. “Cancellation rates went from zero one month to 75% the next.

“If I go back to any period over the last five years, in July I would be talking to customers about their programmes for the next five years. Now they’re not even talking about next year.”

“It came on really quickly. Cancellation rates went from zero one month to 75% the next.”

Val Ledden, Volvo Construction Equipment

Although the speed at which the recession arrived was a bit of a shock, Ledden is not surprised that the plant market has suffered so badly. “There is too much equipment in the UK market,” he says. “Demand is low and capacity is high, so rental rates are low.”

At the same time, with banks reluctant to lend at the moment, contractors are finding it difficult to raise finance to buy new equipment, so suppliers like Volvo are suffering.

Ledden − a self-confessed glass-half-full man, who says it’s unlike him to spread doom and gloom − does not anticipate any improvement in the market until early 2011 at best “unless something dramatically changes”.

And, even when things do pick up, he is not expecting demand to reach pre-recession levels. “That was not sustainable,” he says. “We’re looking at a completely new landscape now.” According to Ledden, this may well include a degree of consolidation in the plant market to counteract the oversupply.

Within this new world order, Volvo’s plan is “not to chase volume for volume’s sake”, but to add value for existing and potential customers. “We’ve set our stall out,” says Ledden. “We made adjustments early on, and our objective is to see it through, maintain high customer satisfaction levels and come through strong.”

The post-recession world

The post-recession world − with volumes of new sales ticking along at a more sustainable level − will involve a permanent shift in the business, not some temporary firefighting, according to Ledden.

“We use the saying ‘it’s not a diet, it’s a lifestyle change’,” he notes. “This is not just about cutting back, and then saying ‘when we see the green shoots we go back on a spending spree’. It’s a new reality, and it will take a change in behaviour and working in a different way.

“We’ll be more efficient, but we will maintain our high quality and customer service.”

“This is not just about cutting back, and then saying ‘when we see the green shoots we go back on a spending spree’. It’s a new reality, and it will take a change in behaviour and working in a different way.”

Val Ledden, Volvo Construction Equipment

Ledden’s plans for getting through the recession include investing in training and developing employees to be even more responsive to customer needs. Although the company put a freeze on recruitment last year, it still has an active apprenticeship scheme, and is committed to creating a new training academy at its Cambridgeshire HQ. “Our people are our differentiator,” says Ledden, who started with the company as a mechanic 21 years ago. “That’s why we invest a hell of a lot of time and money in training.”

Those people are set to become even more of an asset, as Volvo looks to maximise income from its “after market offers” − like maintenance and support. “The emphasis has shifted very quickly to that,” says Ledden. “Customers will be using their machines for longer, so they will require servicing support.

“There’s a recognition in the company that that’s what’s going to see us through. We have a good reputation for servicing customers, and we’re going to build on that.”

These days, it appears, customers expect Volvo to deliver more than simply a machine that will do a job for them. Ledden says that, at a recent meeting with a new customer from a major aggregate company, machines were not even mentioned. Instead, the customer was much more interested in issues like quality, reducing accidents and carbon footprint.

“That’s the first time I’ve sat with a potential customer and never once mentioned the product,” says Ledden. “If you ask me if anything has shifted in the industry in recent years, that’s the area. Increasingly customers are coming to us asking what we can do in terms of mitigating their liability for things like quality, safety and the environment.”

Security and guarantees

The company’s response is to point to an ISO-accredited integrated management system that manages and audits those three areas − all core values for the Swedish-owned Volvo group.

As contractors are faced with an ever higher burden of legislation and compliance, this management system can offer them security and the guarantees they need to demonstrate they are meeting their obligations.

When it comes to environmental issues, for example, Ledden points to the road construction sector. “Everyone in the supply chain is reducing their carbon impact and working towards a project reduction in carbon,” he explains. “Our integrated management system can prove that we’re focused on it. “The environment is a big issue and it’s becoming an even bigger issue every month. Our customers are becoming more aware of the environment and their responsibilities.”

“Environment is a core value at Volvo, and we’re good corporate citizens, but equally we’re a business, and we can turn the investment we made in the management system into a competitive advantage.”

Val Ledden, Volvo Construction Equipment

One contractor has recently asked Volvo to take on servicing its entire plant fleet, because it knows the firm can deal with issues like waste oil disposal and has the audit trail of the management system to back it up. “Environment is a core value at Volvo, and we’re good corporate citizens, but equally we’re a business, and we can turn the investment we made in the management system into a competitive advantage,” says Ledden.

As well as helping customers with their safety, quality and environment issues, Ledden says Volvo also has a role to play in improving efficiency − despite being a few stages removed from design decisions: “The wider engineering community is already demanding efficient solutions. That drives behaviour further back down the supply chain, which means our customers are demanding that of us.

“There’s been a definite shift in the last 12 to 18 months of really questioning how you’re going about the job. ‘Is there a better way of doing it?’” he adds. “That’s a really good discipline for us because it makes us look at what we’re doing.”

People and processes

One way in which the firm can contribute to demands for increased efficiency is through its site simulation tool, which can work out the best combination of machines for the job in hand. “Everybody’s looking at what they’re doing and optimising resources,” says Ledden.

“Our customers are talking to us about issues like carbon footprinting, fuel consumption, productivity and wear and tear. It’s all about reducing the cost of ownership for customers.

“What we’re finding is that they’re much more open to sitting down and talking about the challenge they’ve got. In those conversations the machines are pretty much a given,” he continues. “It’s about an assumption that the machines have got to be world class, and it’s about the people and processes as much as it is about the products.”

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