Since its founding in 1950, NAGATSU has pursued thorough quality control and advanced technology as a parts manufacturer focused on collaboration.
Could you give us a brief description of your company profile and where the majority of your sales come from?
We currently have seven plants, five in Japan and two overseas. Our head office is located in Kyoto, and we have four plants in Ishikawa prefecture, as well as one in Thailand and Vietnam. We currently employ almost 500 workers with an average age of 38.5. The average length of service is over 10 years.
Direct workers account for 74%, and indirect workers account for 26% of our workforce. Our main customer is Komatsu, and we provide them with various parts for construction and mining equipment, such as undercarriages, transmissions, hydraulic parts, and sensors for ICT on vehicles.
In 2022, our sales volume reached almost ¥30 billion, with half of our sales coming from undercarriages, 25% from transmissions, and the others. Our plant in Thailand produces assembly for Bangkok Komatsu Co., LTD. together with machining parts. The other plant in Vietnam produces hydraulic parts, and sensor parts.
88% of our products are related to construction and mining parts, and almost all our customers are in Komatsu and related companies which is a unique position for us.
We emphasize a type of procurement process by Komatsu that supports our QC activity, and Komatsu increases our manufacturing engineering capability. We maintain a good relationship with Komatsu as our supplier and are thankful for their support.
Japanese manufacturers have drifted away from finished goods and more towards B2B markets as part makers focused on quality, service, and advanced technology. In previous decades, regional competitors in places like China, Korea, and Vietnam have made significant advancements in their quality and technology. Where does the competitiveness of Japanese manufacturers come from today, in comparison to its regional rivals?
I think the biggest strength of Japanese monozukuri lies in the interconnectedness, or collaboration, among Japanese companies. In our case, we provide parts and components to companies, and we have a close relationship with Komatsu, a major Japanese company producing finished products.
We work with them in every aspect, from designing components to manufacturing and technology development. This has enabled us to accumulate high development and improvement capabilities on the manufacturing side.
One example of this is our sensor business. The chairman started a small department on sensors, and we collaborated closely with Komatsu to produce a new type of sensor required in their products. Initially, the turnover was only one or two million per year, but now it has grown to 70 million yen per month. That small department has grown so much.
During the development phase, we established quality and cost guidelines. Komatsu was actively involved, and we set guidelines before going into mass production. International competitiveness depends on the currency exchange rate, and with ¥130 per dollar today.
When we met with Komatsu, they were focused on two main themes: digital transformation and sustainability. I’m curious to know what impact the shift towards a more digital and sustainable model for construction machinery is having on your own operation.
For our digital transformation activities centered around IoT, we have the Nagatsu smart factory, and we use TPiCS as software for MRP. We incorporate digital tools within the production scheme. We receive the order through TPiCS, and the scheduling is done. We can also make improvements using software made by Komatsu. We are making our procedures more visible and our connections smoother.
We use software called T-Pics in ERP for MRP processing on the orders received from customers. Automatic scheduling of production and procurement of material, and instruction of manufacturing is given to the site.
Our scheduling is done based on standardized rules, and the computer does this automatic rescheduling by FLEXSHE. The chief on the production side views it and, if necessary, makes changes for optimal outcomes. Workers on site are given instructions via tablets according to the production scheduling. Each worker can see the quantity of production, and the record of the production is kept in the system.
The real-time production process is reflected in the scheduler, so the scheduling of production can be modified in real-time. We use Microsoft software to see the record of production, and we can see the color difference between the initial plan and the actual outcome. The discrepancy between the scheduled quantity and the actual quantity produced can be an issue, but by understanding and unveiling this issue, we are able to make improvements.
To make Kaizen improvements on-site, We use software called Kom-mics from Komatsu, but how we apply it at Nagatsu is this way. Units of our production and machinery are connected in real-time, and we can understand which is in operation and which is not.
The accumulated and gathered data can then be analyzed. We also monitor the longevity of our tools through an operability monitor and time chart. This software has many features that can visualize the situation, so we can check real data as you can see in the video. We can also see the program and virtual production while monitoring the actual physical production. These are some of the attempts that we make to connect and make our activities more visual to increase efficiency of production.
I'm very curious to know more about how the role of your engineers is changing given the adoption of these digital tools, and more generally about the impact of Japan's aging population on your company. It seems that you have, by and large, been able to avoid some of the more negative consequences of that declining demography. Could you speak to us a little more about how?
The role of engineers has changed as we have introduced new technologies, and it has attracted young engineers to our company. We are making attempts in the company, Nagatsu DX, to fully utilize the advantage of digital tools, including those like Power Apps and Power BI in Office 365. It's not only important for the production site, but also for our office workers to be up-to-date.
For example, we created a new application for the daily checklist on the machinery, which conventionally was done manually on paper. Now, we keep records using this application that we developed in-house.
Once a month, we have an opportunity to discuss and learn about the latest DX technologies and tools. Our transformation and production site is encouraging younger generations to come to our company and stay, and we have a very low turnover rate. That is because we have introduced many types of digital tools and optimized production, such as with CAD and CAM.
Before, it was manual drawing and the engineer had to insert all the information into the computer. Now, the required skill for engineers has changed, and these new digital tools are attracting engineers to our company. The utilization of these tools is not just for specialized engineers, but also for workers on-site. The leaders on-site are now able to operate cam software called Mastercam.
You talked about how you are increasingly integrating your capabilities and processes, from design through manufacturing, and even welding, painting and design, your scope of abilities and services are continuing to grow. Can you talk to us about the key motivators to become more integrated? Is this something coming from inside the company, or is Komatsu or another customer asking you to provide these new kinds of services?
Regarding our company's background, our original production was the manufacture of links for undercarriages, we have a history of overseas expansion, which is now called KUI and is owned by Komatsu. The company's name is Komatsu Undercarriage Indonesia, and we provided the technology and supported the establishment of the factory. Our production was going down, so we decided to enter machining, welding, painting and design.
On the other hands, Construction machinery evolved considerably during this period, and there was a huge growth in demand for commercial construction machinery, so much so that Komatsu had to outsource work and we took over Komatsu Osaka plant's role to do undercarriage assembly, and brought it to our factory. Thanks to that and the growing demand, we elevated and strengthened our department of undercarriage assembly, as well as other parts and components.
As for how we acquired the technology, we dispatched five or six engineers to Komatsu's factory, and we were able to learn and relocate Komatsu’s facility to our factory. Komatsu’s production manager joined us. Our staff learned under his leadership, and we increased the number of workers on the production line while enlarging the facility. We repeated this process, which allowed us to make a big leap in a short period of time.
You talked about the importance of the collaboration with Komatsu as part of your own international expansion. You opened facilities in Vietnam, then in Thailand. Since the early 2000s, Komatsu has become a dominant global force, and there's not a construction site anywhere in the world you can go without seeing a piece of Komatsu machinery. I'd like to know more about your own strategy to continue to support Komatsu, as it becomes more and more global. Are there any new frontiers, whether that be markets or types of machinery, that you're exploring?
As we explained, we discussed the importance of collaboration with Komatsu and our strategy for supporting its global expansion. We have factories in Vietnam and Thailand, and we are looking to expand these facilities further. We hope to strengthen our relationships with suppliers there.
We have material suppliers in Vietnam and Thailand, as it would be important to us to strengthen our relationship as there is a growing market demand for machine parts, which are our main strength.
To mitigate the impact of the population decline, we have two pillars of production. One is focusing on production overseas, and the other is increasing efficiency domestically through automation.
Given the population decline in Japan, it's essential that we have overseas factories to sustain our business. We have three Japanese staff in Thailand and two in Vietnam, and we encourage our new employees to consider working there as a means of personal growth, regardless of their age.
We have introduced labor-saving machinery and plan to install more, such as an automatic measurement device and automatic changers. Conventionally, it required two people for each day and night shift to operate six units of machinery. Now we require one person per shift, and how we did that was through automation such as the automatic pallet changer.
We are also designing a new production line which will reduce the required human labor by half. This September will see the automatic measurement device and the automatic changers launched. We are hoping to reduce the number of people required on our machines, from 10 to 3 by the near future. We plan to have two systems called Flexible Manufacturing System (FMS) and four cells called Flexible Manufacturing Cells (FMC), which will optimize our production using multi-purpose machinery.
The other example is that we have automated the undercarriage assembly process, which was previously done manually. We collaborated with a company to create an automatic assembly system, which has proven to be successful. In my personal opinion, Japan will be the most competitive in the world in ten years, but each supplier must take active steps and invest in automating their machinery.
The biggest challenge is not the cost of production, but whether we can retain the capability and capacity of production. In order to maintain the possibility of continuing production in Japan, we are automating our facility, making investments in the facility, as well as trying to hire new staff by providing attractive welfare and working environments. If you have a look at our factories, they are all new because within the last 10 years, we've done scrap and build, and they have been renewed.
To compensate for the diminishing labor force, we are trying to incorporate the active involvement of all classes of workers. We are asking them in our company to provide ideas for improvement so we can make a more comfortable working environment. This is not only for the office workplace but also for the production site.
Can you tell us more about the role that partnerships or collaborations play in your company? Are you looking to find new collaborative partners, not just here in Japan but perhaps in your Southeast Asian operations as well?
The dominant collaboration and partnership we conduct is with material manufacturers, since we don't have the capability for material manufacturing. As with the forging and casting manufacturers, collaborating and producing the optimal product is necessary, especially in Thailand.
Let's imagine that we come back, say, five years from now, and have this interview all over again. What would you like to tell us? What is your dream for this company, and what goals would you like to have accomplished by then?
I myself have a deep affiliation and interest in overseas business, especially since I was in Thailand at the establishment for over one year, so in five years' time, I hope that our factories in Thailand and Vietnam will be utilized more as a resource, as there is still a lot of potential to exploit. This expansion is something we seek to promote in the near future.
Domestically, we are investing a significant portion of our profits into automation and energy-saving measures in our production line, which will continue to improve the quality and productivity of our production both domestically and overseas. It's important for the company to provide a platform for young employees to perform at their best.
Over the past ten years, we have invested 75% of our sales cash flow from sales into investment, which has expanded the capabilities of the younger generation to perform. Most of the ideas we have implemented have come from the young generation. The role of top management is to just say “Go!”.
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