Perspective

Tyre industry over the years has had a steady growth and by market estimates, nearly two billion tyres, of various

categories, are expected to be produced in 2015 alone. This is primarily fuelled by the industry’s growth drivers such as the vast replacement market and OEM segment. The Tyre industry is expected to grow about 4.3 per cent year on year in 2015, according to Tyre Study. We have observed in the tyre sector, manufacturers are setting up new plants and increasing capacity in existing ones to meet rising demand. This optimistic outlook is not surprising given that there are a number of market trends which impact the tyre industry, one of which is the growth of automotive industry in general and

The pressure to reduce cost, manage shortened order-to-delivery cycles, and still ensure a highly efficient logistics network to store and distribute tyres are some of the key challenges that the industry faces

By Madhu Bhaskar Thirikode*

Supply ChainChallengeS in

tyre industryanother is the rising urbanisation that we see in Asia, the emerging markets in Latin America and Russia in particular.

A quick observation on Asia alone - China’s car market is now the largest in the world after it overtook the US in2009. Car ownership is expected to grow with the economy. With rising disposable income, better infrastructure and roads, and ever increasing new model roll-outs by car manufacturers eager to tap the potential of the market, analysts have forecasted that by 2020, total sales of cars in China alone may exceed 30 million, assuming an annual sales growth of 5.3 per cent in the next decade (source : DBS 2020 report)

For Indonesia, Malaysia and Thailand, demand for cars and vehicles are also expected to increase by about 10 per cent per year during this decade, fuelled by rising urbanisation and better road infrastructure in these countries. The rise of the middle class and increased domestic consumption is evident in Asian economies and this phenomenon will translate into more demand in an industry such as tyre.

Supply chain challenges Supply chain management for tyre industry is getting more complex today. Volatility of market demand and supply adds to the complexity. The pressure to reduce cost, manage shortened order-to-delivery cycles, and still ensure a highly efficient logistics network to store and distribute tyres are some of the key challenges that the industry faces. Tyres now come in an ever increasing range of types, sizes and weights with the associated pressure of storage and handling. On top of that, managing inventory with the right technology support to provide tyre manufacturers with better control and visibility, on a real time basis, is also a major pain point. Cross borders handling and safety issues for many of these global manufacturers with worldwide footprint is also a big concern.

Paradigm shift from distributor model to manufacturer owned distribution network where deliveries are done till dealer

points by the manufacturer themselves have caused the tyre companies to focus their attention on their supply chain for cost saving and logistics efficiencies.The driving factor for this being the challenging lead times from order to delivery placed by the market demand and the pressure for cost savings and supply chain optimisation.

Tyres may not be the most expensive product category when it comes to

warehousing and therefore needs solutions that can justify cost to deliver to market.This also differentiates the Tyre warehouses in terms of their need for cheaper rental compared to normal consumer goods warehouses .The need for long term leases or fixed rental is very crucial to keep their supply chain costs under control for tyre distribution.

The following table lists some of the common issues and challenges that we

Technology• Lack of integrated, centralized planning and operating tools

Information Visibility• Lack of global supply chain visibility

• Lack of reporting and information sharing on a real time basis

Globalization and Network Complexity

• Centralizing key supply chain planning decisions

• Integrate and manage multiple supply chain components and partners

Flexibility and Scalability • Need to adapt to changing end user demand and technologies

• Specialized needs of products and materials

• Scalability and warehousing capacity

Supplier Management• Sub-optimal supplier rationalization and management

• Inconsistency in suppliers’ performance (on-time delivery, production and quality standards)

Financial Management• Understanding and control of all costs along the supply chain

• Need for improved cash flow

• High fixed and variable costs

• Aggressive working capital reduction goals

Inventory Management• Uncertain demand forecasts and rapid technology changes lead to inventory build-up or stock-outs

• Product obsolescence and product life cycle constraints

Regulatory and Security• Risk migitation

• Regulatory and compliance issues

• Security and safety issues

Operations Excellence• Inefficient supply chain and store processes

• Returns/reverse logistics

• Flawless implementation and start ups

• Seamless transitions from in-house to outsourcing

have come across with our customers in the Tyre sector.

Logistics service providersGiven the myriad of challenges in this sector, it is clear that logistics providers who have strong experience and in-depth knowledge of the sector and its supply chain requirements will stand to gain. Most logistics companies will be able to support the Tyre sector from warehousing and storage solution to didstribution, import and export handling, raw material warehouse management and production line feeding.

However, logistics providers who are able to provide industry best practices to deliver more value-driven services are in a better position to be the Tyre companies’ logistics partner of choice. These include :

• Outsourcing of warehousing &distribution

• Innovations on storage methods

• Innovations on storage mediums ( Eg Stiilage design)

• Multi user facilities only for Tyres which provide economies of scale and cost benefits

• Warehouse Management System designed only for Tyres

• EDI connectivity of Warehouse Management System to customer’s ERP systems

• Import related services from port of arrival to warehouse

• Plant finished goods warehousing management

• End of Life (Tyres) management

• Integrated approach for Air, Ocean, Trucking solutions

The increasing complexities of the Tyre industry requires 3PLs with strong expertise in this sector, such as CEVA, who are able to provide end to end logistics and supply chain solutions, while mitigating risks and increasing operational efficiency to be trusted to keep their tyres rolling in the market.

*Madhu Bhaskar is Director – Global Tires Sub-Sector, Business Development, CEVA Logistics, Singapore.

Perspective