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DENSO SANKYO, the best providers of cooling solutions

Interview - December 5, 2023

DENSO SANKYO has been a reliable partner over the last decades to provide EGR coolers, intercoolers (CAC) as well as radiators to cool down engines and HVAC for interior air conditioning.

MASAMI TAGUCHI, PRESIDENT OF DENSO SANKYO
MASAMI TAGUCHI | PRESIDENT OF DENSO SANKYO

It is our view that Japan is at a very exciting time for manufacturing. On one hand, we have had major supply chain disruptions in the last three years, caused by the COVID-19 pandemic as well as tension from the China-US decoupling situation. As a result, we are seeing many multinational groups try to diversify their supply chains with a focus on reliability. This is where Japan can enter; a country known for decades of high reliability, trustworthiness, and short lead times when it comes to production. Now, with a depreciated JPY, it is our view that there’s never been a more opportune moment for Japanese manufacturers to meet the pressing needs of this macroeconomic environment. Do you agree with this premise, and why or why not?

My answer is yes and no. The reason why I say yes is because diversifying the supply chain is a positive thing. Japan has a long-standing history with its engineering skills, capabilities, and high-quality assurance. On the other hand, if you ask me if the weak yen is an opportunity, my answer is no. In terms of diversification, we have been procuring parts from overseas, and as a result, the cost has been high. Therefore, we are trying to counteract this situation by increasing the ratio of parts made in Japan, which are produced by multiple companies.

There is no depreciation impact on the Cambodian plant because the market for the EGR coolers it produces is limited to the Asian region.

Our company’s strategy is to diversify supply chains, but when I speak on the reality of the situation there is a challenge when it comes to maintaining the same quality as Japan overseas. Therefore, it is true that we are actually experiencing the goodness of the made-in-Japan quality,

 

How do you manage to get the same level of quality in Cambodia when compared to your production in Japan?

We procure components from Vietnam and China and when we select suppliers, we are not only looking at price competitiveness but also the quality and the stableness of delivery. As for quality assurance, DENSO has very stringent standards when it comes to production. There is a checklist that the Cambodian factory follows as well as our suppliers, but we also dispatch personnel from Japan to actually go and visit the company to ensure that production and quality meet our own standards and are equivalent to those of Japanese production.


This on-site auditing is conducted once a year with suppliers and we have thorough communication with them so we can elevate and ensure high quality.

 

You mentioned suppliers, and to some extent these are partners. How do you select partners and what in your opinion makes a good partner when selecting a supplier domestically or overseas? Are you currently looking for any new partners overseas?

Currently, we are looking for new partners overseas, however, with the depreciation of the JPY the situation has changed, thus overseas products have become more expensive than Japanese-made ones. In order to strengthen our international competitiveness, we will continue to search for new overseas partners who can provide us with high-quality, cost-competitive, and stably supplied components for the future, but we are now also looking again at domestic production. The positive of made-in-Japan is that it doesn’t endure extra costs so we are looking inwards for domestic production.  

 

Japan is widely known for its aging and shrinking population. This is creating two prevalent issues; the first being a labor crisis, and the second being a declining domestic market. What are some of the challenges being presented to your firm by this demographic shift and how is your firm reacting to them?

In our company, the retirement age is 60, but we have been allowing employees to work until they are 65 if they wish. I’m expecting this extended work age to increase more and more as domestic problems continue to persist.

On the other hand, there are many employees who think they are still active even though they are 60 years old because the health condition are better nowadays. However, in terms of work style, we are reallocating and shifting roles so that we can be more conscious of the need to nurture younger employees. Compared to the US and German work cultures that I personally experienced, the Japanese work culture treasures the training of young employees. It is a tradition to pass on skills and training to the younger generation, and in that sense, I have high hopes for our younger employees.

Our company has established a structure where we emphasize middle-aged workers so that they can play a dominant role in the operations of the company. At the same time, with the COVID-19 pandemic happening when it did, we are now behind in recruiting a new, young generation.

As for our technicians, we do have good connections with local high schools and colleges. We were able to hire 5 technicians in 2022, and another 5 technicians in 2023. In terms of actual engineers who have graduated from university, we have actually held back from recruitment for the past four years. Fortunately, in 2023, we were finally able to hire 1 engineer. Also, starting this year, we have conducted an internship program aimed at trying to rejuvenate the company as a whole.

 

Does your recruitment of younger technicians and engineers extend to foreign recruitment? Are you interested in using foreign labor to mitigate the challenges presented by Japan’s demographic decline?

Yes, this is something we are interested in. Unfortunately, however, there are many obstacles in place when it comes to welcoming overseas workers including accommodation, the language barrier, and cultural differences. If we were to use foreign recruitment we would be responsible for providing all of these aspects to the employees. Being able to provide all of these aspects to new foreign employees is necessary for us to welcome foreign labor.

We are a small-scale company so we would need to complete preparations before accepting anyone from overseas. Talking about our parent company, DENSO, has a support system for employees from DENSO's overseas offices to come to Japan to work and study the language. DENSO provides the dormitory, the training program, and the Japanese lessons, basically full support. The idea is that they can learn about DENSO in Japan and then take that knowledge back to their own countries. Currently, DENSO SANKYO only hires foreign employees who have studied in Japan and know about Japanese culture.

 

A good way to transfer knowledge and ensure the legacy of a company is through the use of new technologies. Japan is very well known for its automated manufacturing capabilities but it is also known for being rather slow when adopting new digital tools for everyday life. The former Prime Minister Suga’s administration introduced a new digital agency to provide incentives to companies such as yours that are introducing cloud-based and other digital solutions. How do these digital tools benefit your business operations and what technologies would you like to start integrating in the future?

First we believe the advantages of introducing digital technologies are to increase business efficiency and drive improvement. DENSO is taking active steps in enforcing the use of digital tools such as AI, automation, and DX, with an emphasis on deepening the development of these software applications.

A major focus is placed on software, AI, and DX, but in terms of manufacturing, DX is also implemented for business efficiency and productivity. In the company there are two types of DX; one is utilized for development and production preparation, and the second one is used for mass production. The advantage of using DX for development and the production preparation is that by solely using digital data you are connected to            your customers, suppliers, and production sites. This is not partial data, it has to be holistic. Of course, communication speed is increased as well as quality and precision when utilizing and sharing the same digital data.

Challenges come however when we and a customer use a different CAD system where the agreed size is different. This happens when customers need to have multiple data loaded on the system and they want to keep each CAD data light, whereas, from a manufacturing standpoint, you want to have as much resolution and detail as possible in order to replicate a high-quality product. At different production phases, the resolution of the CAD changes from a technical level to a production level. By having all the data in a digital form and integrating them into one system we are able to shorten the development time, namely reducing the number of evaluations or prototypes required for production. We believe that the use of this digital data as a base has also changed the field of development and production preparation

I personally have a technical background and I visited Germany as an engineer. In the past, I discussed with DENSO customers based on data. At that time customers requested digital data that had been collected by all suppliers. This data could be reflected by CAD but not by CAM. Nowadays, however, CAD and CAM data are connected.

As for DX for mass production, digital tools are embedded to increase productivity. This is achieved by visualizing management in a much more easy to understand manner. Ever since we relocated to Sayama, carbon neutrality has become a big focus of our firm. We are currently able to acquire more precise data and leverage that data. In terms of our approach to carbon neutrality, we have placed two-megawatt panels on the roof of the factory. At this moment we are able to reach the phase where we can precisely monitor the amount of power generated by those solar panels and the amount we purchase from the grid, and this can be seen in real-time with an accuracy of merely seconds. We are actually showing this on our signage so people can see and understand the importance of carbon neutrality. This is all in the pursuit of creating a new culture for environmental sustainability. As for power generation, we are able to monitor the amount we generate and the amount we purchase as I mentioned, so it means we can immediately tell if there is any issue in power generation. On the other hand, although we have been able to visualize it, we still have room to improve and implement new digital tools, and we feel that we would like to take on the challenge of further improvement. 

 

One of the key challenges of the automotive industry is the conservation of energy, and firms all across the world are looking to become more environmentally friendly. One way of reaching this goal is to make cars lighter by using lighter components. In terms of your products, how are you helping the automotive industry reach these environmental goals?

From my own experience, making automobiles lightweight is very important. These lightweight measures used to mainly be focused on internal combustion engine (ICE) vehicles, but these days EVs also rely on lightweight materials and components to offset the weight of heavy batteries. This requirement is likely to continue even for EV vehicles. Rather, however, the focus is on how to use electricity more efficiently. This is my perspective, at least as the president of a component manufacturer.



The great change to EVs is another key aspect of this industry. Many components are no longer needed as ICE vehicles begin to be phased out. What do you consider the threats and opportunities that are coming about due to this industrial shift from ICEs to EVs?

The threat of EVs comes from the fact that they do not use conventional parts or products, meaning that certain components are going to have to be discontinued. Our company produces EGR coolers and intercoolers (CAC) as well as radiators to cool down engines. In addition, we also produce HVAC for interior air conditioning.

For common cars, there is a shift to EVs, but that shift is yet to take place for commercial or business vehicles. An example might be with long-haul trucks as well as agriculture and industrial-related machinery. Their purposes aren’t always to run for long distances so therefore they will take a different form than common cars. I personally believe that not everything will convert to EVs. New options such as biomass and hydrogen fuels will become viable options, therefore there will still be a demand for engine-related components. BEVs and FCEVs do not need EGR-C and CAC, and FCEVs require greater cooling due to the characteristics of the stack, which increases the performance requirements of the radiator. In addition, although the engine is eliminated in BEVs, cooling issues are still not zero, and radiators for MGs, DC-DC converters, and other exhaust heat are becoming necessary. This radiator is already used in HINO DUTRO’s Z EV.

In other words, although it is still uncertain, we are positively discussing changing our business and product portfolio while anticipating the needs of our customers in the EV transition.

To the question of how he intends to overcome this situation, he answered, "To be close to customers, to understand their needs and problems, and to be able to propose products and eventually systems that will enable EVs."

The shift to EVs for commercial vehicles is in its infancy, and all customers, including trucks and agricultural and construction equipment, are facing cooling issues. We are determined to face these cooling issues, identify customer problems and potential needs, and realize them in order to link them to our business and ward off the threats.

In terms of converting commercial vehicles to EVs, I see the long driving range of working vehicles as a difficulty in converting to BEVs. In addition, although all solid-state battery are said to be on the way, I believe that recharging time will still remain an issue. In this context, although there are issues such as infrastructure and hydrogen production, I believe that FCs have a wide range of roles to play. The cooling challenge of FCs is significant due to their characteristics, and many customers are wondering how to deal with this cooling challenge. We at DENSO SANKYO would like to participate in the development of such cooling systems and contribute to commercial customers and the world by proposing solutions.

 

Japan is known for its R&D spending; approximately 3% of the nation’s GDP, compared to 1.5% for the US and 2% for China. What is DENSO SANKYO current focus in terms of R&D? Do you have any new products or technologies that you would like to showcase today?

DENSO, our parent company, has a comprehensive R&D scheme with a current focus on autonomous driving and DX software development. EV is another field with a particular emphasis. In terms of challenges in the shift to EVs, cooling is one thing, but in terms of eliminating heat sources, In this regard, we believe that thermal management will be the most important issue. From this perspective, the partnership with DENSO, the parent company, is important.

Thermal management of EVs means creating heat as needed (heat creation), storing that heat (heat storage), and transferring the heat to where it is needed (heat distribution). Effective use of limited heat is the key, and exhausting heat, or dropping heat into the air and disposing of it, is the last resort. But especially for commercial or business vehicles because of high power there is much heat and need to be exhausted. And as a goal for the future the heat should be used completely, instead of dropping heat into the air exhausting. In such a business environment, DENSO SANKYO is not going to go it alone in the international market, but will play a role in the overall thermal management in close cooperation with DENSO.

 

It seems your firm is very married to DENSO, and there is a great synergy and benefits to that. Traditionally the Japanese automotive industry is very hierarchical, with each company almost exclusively relying on a parent company. This has been a source of strength for Japan’s auto industry for the past 50 years with Japan becoming the number one automotive nation in the world. However, as you’ve discussed, there are huge disruptions taking place in the industry. With all of this taking place, to what extent are you looking beyond Japan to acquire customers? Is finding new customers in the industry a big goal for your company? 

In the future, we have high hopes for the expansion of thermal management business in the future. Currently, there is a long-standing business trade relationship with European, US, and Chinese companies, but as for our main domain of cooling it has yet to go abroad in the EV field.

 

Your firm has had your Cambodian factory since 2019, and with your integration into the DENSO​ Group, you must have some dynamic power in terms of international expansion. What are your expansion plans overseas for the coming years? What kind of strategy will you employ to expand overseas?

At this moment we don’t have a definitive strategy and our focus is mainly pointed at the domestic market. For M&As and joint ventures, this might be a possibility in the future if there is a new business domain for our company. I think that our parent company might be looking to expand, and we would like to participate the expansion accordingly.

I actually received a question from you about the strengths of Japanese manufacturing. I believe that the advantage of Japanese suppliers lies in the quality cultivated in manufacturing.

As mentioned earlier, there are cases where cost is not the only factor that gives a company an advantage. However, in terms of quality, we believe that our superiority lies in our "culture of valuing superior skills and our on-site strength to continue to produce good products. Furthermore, we believe that our "commitment to the ideal quality of products from the perspective of vehicles and end-users" is also an advantage.

In Europe and the United States, there is a concept of giving titles and qualifications to those with excellent skills, such as "Meister" in Germany and "Maestro" in Italy. In Japan, the word "Takumi" is a term of respect for a person who possesses superior skills. This term refers to the traditional skills of crafts such as swords, ceramics, sake, and Japanese paper. The culture of valuing craftsmanship, which is similar to Takumi, is also found in industrial products and parts. In industrial products, it is important to minimize tolerances. Every piece of equipment, every product, and every component that supports them are all a combination of tolerances. The quality and precision of each and every part supports the quality of the product and the equipment. High quality is the result of a culture that values craftsmanship and the skills of artisans.

Another strength that supports the automotive and parts industries is the ability to work onsite. In the case of our company, for example, there is a place for thorough discussions on whether or not it is possible to complete a requirement onsite, which is then put into drawings and reviewed, and the drawings are changed. Then, the drawings are checked and completed. The high level of “Genbaryoku”, on-site capabilities and the reflection of on-site opinions under superior skills result in products that are easy to produce and stable in quality. Our company has a system called "Early Stage Control (ESC)," which is used as a routine for development and quality assurance.

ESC: A system that manages the product development process through 9 gates, and at each gate we check not only quality, but also performance, productivity, and profitability, and after mass production we evaluate the degree of achievement and determine whether the product meets customer expectations and whether there are any business feasibility issues, and if there are any issues, we determine whether the product can be continued in mass production. System to determine whether or not to continue with mass production.

The latter is a commitment to the ideal quality of products from the vehicle and end-user's point of view, i.e., based on knowledge based on experience, not just supplying products that satisfy the customer's SPEC, but understanding what is behind that SPEC, sometimes requesting the customer to change the SPEC, and incorporating that into the inspection specifications. This is done to deliver better quality to end-users. I think it is no exaggeration to say that this is due to the fact that delivering better quality to end-users is embedded in our DNA. This is also incorporated into our development routine as part of our initial flow control (ESC).

To digress somewhat, I have experience as an engineer on assignment in Germany and the US during my DN days. In competition for new business, price competition is based on strict SPECs. Unfortunately, quality is a secondary evaluation. In other words, quality is a point deduction, but not an addition. However, as our relationship with them lengthened, I was pleased to see their understanding and appreciation of the high quality of our products. I also remember that they listened sincerely to my proposals for SPEC changes and we were able to discuss them.

It may be an overstatement to say that this is an advantage of Japanese suppliers, but we have at least had the experience of being told by customers that they had never been able to have such a discussion with a competitor.

 

Imagine that we come back in 2029 and interview you all over again. What goals or dreams do you hope to achieve by the time we come back for that new interview?

My goal as president is to create this company as one that is sustainable for the environment, focusing on the achievement of carbon neutrality by 2035. I believe that the most important thing is the values and actions of our employees that support this goal. We want all employees to be environmentally conscious and proud to work for DENSO SANKYO, and to work "cheerfully," "happily," and "energetically" to make the company a reality. Achieving this vision is my goal.

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