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Bumpy roads for TYRE MAKERS

Production cost for the tyre manufacturers has increased significantly over the last couple of years. On the other hand, many global brands are venturing into Indian market and creating stiff competition for the local brands. Pankaj Lavania, general manager of Mumbai Plant at CEAT Ltd. highlights the challenges and opportunities within the tyre sector
Manufacturing Industry is the most diversified, organised and strongest segment in the world among various sectors. This sector is the back bone of all the sectors and has shown steady growth historically.
According to Confederation of Indian Industry (CII) – ASCON survey, 41 out of 121 sectors in the manufacturing industry in India are estimated to grow at 20 per cent or more in 2010-11; the top performers being tyres, air conditioners, tractors, fertilisers, construction equipment etc. The overall industrial output registered a robust growth of 8.6 per cent year-on-year in April‑December 2010-11.
The country ranked second in terms of manufacturing competence, according to report ‘2010 Global Manufacturing Competitiveness Index’, by Deloitte Touche Tohmatsu and the US Council on Competitiveness. The report states that the country’s talent pool of scientists, researchers, and engineers, together with its English-speaking workforce and democratic regime make it an attractive destination for manufacturers.
In view of fast growth of Infrastructure in the region, there has been huge potential for the transport and automobile sector and especially for tyre sector. Transportation industry and tyre industry go hand in hand as the two are interdependent. Transportation industry has experienced 10 per cent growth rate year after year. The Indian tyre industry produces the complete range of tyres required by Indian automotive industry and has substantial share in the export also. The major players in Indian tyre industry are MRF, CEAT, JK, Apollo, Bridgestone, Good Year, and Birla.
Like other manufacturing sectors, tyre sector has its own challenges. The major challenges are:High dependence on commoditised raw materialsTyre Industry is highly capital intensive and at the same time it is raw material intensive. On an average raw material constitutes nearly two thirds of the cost of the finished goods. The main raw material natural rubber is a seasonal product. Other major raw materials are nylon tyre cord, synthetic rubber, carbon black and many other chemicals. Any change in the raw material price affects the profitability of the tyre industry. Hence the major challenge is to guard the profitability loss because of volatility in the raw material prices. The possibilities lie in development of substitutes through sustainable R&D efforts, global sourcing instead of depending on local suppliers only, new product development and development of long term relationship with suppliers.
Global competitionIndian market has opened up. Global tyre majors with heavy R&D spends and good branding are entering Indian market in a big way. This has posed challenge of competitiveness with the brand and global image. Coupled with this and infrastructural development in the region, there is need for technological up gradation of the manufacturing facilities. We have to move from heavy load low speed to low load to high speed application tyres. 
Change in approach towards manufacturingThe Indian tyre industry traditionally has been labour intensive with low levels of skills. The operations had been manual and productivity of the machine and man had been at relatively very low levels. This causes the production cost going up and reduced margins. This calls for overall paradigm shift in manufacturing concept and move towards automation with high skill levels in the manufacturing facilities. Challenger mind set is expected from the managers in the Indian tyre Industry and managers are expected to aspire for competing with the tyre majors in all respects of QCDSM and meet the customer’s ever increasing requirements. In addition to this, managers must challenge the status quo and look for newer opportunities to bring the excellence and customer satisfaction by highest quality products and services at competitive costs. Jishu Hozen (autonomous maintenance) or operator based maintenance is another concept which is being practiced by most forward looking manufacturing set ups to compete in current market scenario and this is definitely helping the manufacturing facilities in improving their basic conditions and improving the productivity levels and thereby increasing margins. JH also helps in bringing the ownership on the people who are really working on the machines to deliver the quality products.
Manufacturing flexibilitiesIn automotive industry, there has been major change of moving away from mass production to single piece production and it has helped industry in increasing the manufacturing flexibility and thereby reducing overall cost of production. Likewise most tyre industries are moving towards this to increase manufacturing flexibility and reducing the set up time significantly. There is need of identifying all the opportunities for increasing manufacturing flexibility by following the concept of Value Stream Mapping (VSM) and improving production planning and control to enhance flexibility. The concept of Toyota Production system is known to most companies but the caution is that industry has to use the elements selectively based on the prevailing conditions of the equipment and culture.
RadialisationThe tyre industry in India is standing at the cusp of major change which is sure to change the way we look at the automobile sector. Based on global trend, there is always a lag in the initiation of radialisation and the change reaching the critical mass stage. In India, radialisation was initiated 15-20 years back and it is almost reaching critical mass stage where, based on empirical data, it can be safely assumed that in next couple of years there will be a major shift from bias tyres to radial tyres. Needless to say, companies with the radial capacities and technology in place will have competitive advantage over the ones who are yet to adapt radialisation. It also throws up a challenge of different kind for companies who are having lot of strengths in bias tyres, to leverage this strength, till the complete change over. One of the options could be to cater to markets which are still reasonably away from radialisation.
Ultimately, it is a good time for end customer as radial tyres do tend to give him three major advantages which he is looking for viz. cost per km, riding comfort and safety.
Capital intensive manufacturing set-upBy and large, tyre sector is high capital intensive. Initial set up and working capital requirements are high. This on one side acts as entry barrier for the new entrant but also brings in a lot of pain in changing the existing set ups. The partnership and alliances with the small manufacturing facilities in the region is another avenue to meet the challenges of the capital requirement. The opportunities lie in improving the capabilities of these small manufacturers and helping them in quick ramp up of the capacities.
End-to-end supply-chainIn view of high raw material cost intensive sector, tyre sector has to move from stand alone purchasing of raw material to end to end supply chain with SCOR (supply chain operations references) framework for defining and linking performance metrics, processes, best practices, and people into a unified structure. Purchase process has to move from commercial function to techno‑commercial function with self certified vendors for critical input materials.
ConclusionAt last, it can be concluded that, the tyre manufacturers are expected to work towards changing the mind sets from current ‘chalta hai’ to a ‘challenger’ one and enhance the skill sets of people with higher autonomy and empowerment. They increasingly need to focus on improving their manufacturing flexibilities and supply chain performance, increase radicalisation, increase product portfolios by expansion or partnerships, expanding their dealership networks and explore possibilities of tie-ups among themselves to penetrate the growing customer base. The industry is likely to expand through a combination of organic and inorganic growth i.e. raising efficiency levels of the existing facilities and entering into alliance with small manufacturers with global facilities.

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