Case Study: Michelin’s supply chain strategy Essay
Case Study: Michelin’s supply chain strategy
Michelin is the forefront of the radial tire as well as a leader on the world tire market; they occupied almost 20% market share in the world. It’s realized that the trend towards globalization as more intense competitions that obtain to lower cost and improve the efficient operations. Meanwhile, Michelin have its strong vision, because they have already established a global mission since 1900s, and built 35 factories around the world between 1960 and 1975.
Michelin can be gain the competitive edge in the global market through various manufacturing strategies, refer to (2000, Geoff Buxey) indicates that it’s generally classify into a several evolve levels, _Domestic, Market access, Low cost and Global ._Furthermore, in order to cope with the challenges under several competitions such as Goodyear and Bridgestone, they have setting a position as successful in the ”Quality assurance.” Also there are comparison and contrast the global operations between Michelin and Bridgestone in the latter sector.
Q1. _THE MANUFACTURING STRATEGIES ADOPTED BY MICHELIN IN ORDER TO GAIN COMPETITIVE ADVANTAGE IN GLOBAL MARKET._
Michelin have 69 production sites in19 countries and their commercially available in 170 countries. This successful is not only base on the ability to coordinate the whole entities in the global supply chain network, but also depends on their manufacturing strategies to obtain Michael Porter (1985) a sustainable Competitive advantage.
In 1906, Michelin built its first plant outside of France in Turin, Italy and United States, that’s implicated that they begin to develop and access to the international market. More recently, Michelin have dispersion to six target markets: Europe, North America, South America, Asia Pacific, China, Africa and the Middle-East.
MICHELIN’S MANUFACTURING STRATEGIES TO SUPPORT THE COMPETITIVE ADVANTAGES
Michelin’s Tire manufacturing is consist the nature of labor-intensive and capital-intensive, therefore they need to adopting different strategies between advanced countries and emerging countries, mix of _low cos_t and _market access_ strategies to enter into the global market, as (2000, Geoff Buxey) points out that the _global manufacturing strategy_ is consist of low cost and market access strategy.
Europe is the industrial base of Michelin, their products are provides to two main markets to the world: Original Equipment Market and Replacement market. In Europe, they keen to keep its competitive advantage in providing high technical products and offer a high-quality and innovative products and services; also a R&D department act as a major role in providing a continuous support to their manufacturing strategy. Besides, Increase the productivity can be directly reduce their operation cost, as the case mentioned, Michelin tend to be through reduced the production size to increase the productivity in Europe.
FOCUS ON HIGH QUALITY & TECHNICAL PRODUCTS PRODUCED IN EUROPE.
This is no doubt that, Michelin is leadership in advanced technologies, not only in _Safety_, _Energy efficiency_, but also in _Environmental friendliness_. For instance, develop a low rolling resistance tires for the purpose of reducing vehicle fuel consumption as the public is more consider about environmental friendliness.
The powerful evidence to prove that the quality of Michelin’s products are recognized, World trade Magazine to award of ”Manufacturer of Honor” to Michelin in 2007, because they provide vehicle tires to U.S. military throughout the world.
ACCESS INTO THE EMERGING MARKET AND DIFFERENTIATION
Meanwhile, the increases in the demand of emerging market and the y realized that the transportation cost is involves a large percentage of their net sales, therefore, establishing a plants in the oversea market and let the production close to the marketplace, it can not only reduce the inventory and transportation cost, but also able to fulfill the customer needs immediately and response to the market change.
From the annual report in 2006, there are 3 fields of strategies need to be implement, that including ”_Differentiation through innovation and expansion in emerging countries to stimulate growth_.” Martin Christopher (2005) discusses that, in today’s marketplace where customers seek individuality and where segments are getting smaller, a major source of competitive advantage can be gained by linking production flexibility to customer need for variety. It’s agreed that provides a diversity of products might grab the market share in the emerging market. Moreover, Michelin establishes more plants in different areas can be fulfilling the sharp increases in demand.
SPECIALIZED /FOCUSED FACTORIES
To achieve the major strategic productivity gains, Michelin concentration on industrial capacity and specialization of plants. Michelin expect to through ”_The Michelin Manufacturing Way_ (MMW) ” to increase their productivity, which is a management tool shared by all Group plants and able to reduce their purchasing costs
Besides, owing to cater for specific and unique local demands, Michelin adopted specialized/focused factories strategy as so to fulfill various customer needs and achieve local customization . Martin Christopher (2005) points out that, Focus Factories means ” limiting the range and mix of products manufactured in a single location the company can achieve considerable economies of scale.” It allows Michelin to enjoy lower operation cost because the significant scale economics can be achieved in manufacturing if greater volumes are produced on fewer sites and it allow each factory on a specific product range.
As a global company, Michelin adopting a different strategy in various markets and fulfill the customer needs at full steam. Through achieve a products differentiation to capture the new customer in the emerging market; also, they have its strong local presence to adapt to the specific features of the world markets. In addition, further develop the technical products which depend on their ability to offer a high-quality and innovative products and services can be maintaining a sustainable competitive advantage in the global market.
Q.2 EVALUATE MICHELIN’S GLOBAL SUPPLY CHAIN MANAGEMENT STRATEGY (GSCM), ANY ISSUES THEY NEED TO COPING WITH AND PROVIDE RECOMMENDATIONS FOR THE FUTURE DEVELOPMENT.
With increased globalization, GSCM strategy is becoming an important issue for Michelin, the flow between and among all firms engaged in offering a good or service to the final customer.
FROM UPSTREAM TO THE DOWNSTREAM OF THE GLOBAL SUPPLY CHAIN
The GSCM in Michelin is very complicated, because different markets also have its own characteristics in the customer needs and the sales network is covering over 170 countries.
From the upstream supply chain, Michelin adopted a _Global sourcing_ as a strategic approach to reduce the raw-material cost and mix of the manufacturing inputs available anywhere in the world and gain access to the oversea markets, which supported by ”The Factor-Input Strategy” and ”The Market-Access Strategy”
OEMS AND REPLACEMENT
From the downstream supply chain, Michelin have established 11 specialized business units to monitor and co-ordinate the operation among entities into the GSCM. Besides, they have two different business models, OEMs and Replacement market. But it’s interrelated, because the original equipment sector sales will make a direct contribution by boosting demand for replacement tires.
The tire dealers obtain the inventory of new replacement tires through Michelin’s Distribution Centres and the demand is come from different customers and it’s less certainty than OEMs market. Therefore, the Lead time in the OEMs can be reduced, because the orders are placed by the major vehicle manufacturers in a short period of time. For instance, Michelin was also OEMs supplier to _General Motor’s_ and _Honda’s_ vehicles Bob Ulrich (2007) until recently. Therefore, these two types of market segments have to using different strategy to control the downstream supply chain.
EFFICIENT SUPPLY CHAIN AND RESPONSIVE SUPPLY CHAIN
Fisher (1997) suggested two distinctive strategies, Efficient supply chain (ESC) and Responsive supply chain (RSC), and presented a model which links supply chains to products.
There are two distinctive supply chain approaches; Replacement products represent an ESC and the lead time is longer, the OEMs products represent a RSC because it’s able to flexible in handling variance in customer demand. Huang, Uppal et al. (2002) presented a _hybrid supply chain_, demonstrate that some automobile components may contain innovative features, and the hybrid supply chain may therefore be appropriated in Michelin.
Nonetheless, Michelin also tend to integration of the global supply chain network to maximum their profitability and the core factors to determine their global supply chain strategy is depending on the market and product’s characteristics.
POTENTIAL ISSUES FACING BY MICHELIN
The increases in the cost of raw-materials and which are resulting in a negative overall impact on operating income. The OEMs market is growing show in advanced market, however, there are growing rapid in emerging market in both OEMs and Replacement, and it has increased 15% tire sales from 60% in 2005 to 75% in 2006 in Replacement market.
As the sharply increase the demand in Replacement market, Vollmann(2005) states that ”the Customer order decoupling point” which position in the ”Finished stages” of the supply chain in replacement market, therefore, achieve an optimize inventory and avoid stock out is very difficult, meanwhile, product life cycle become shorter and the product variety continuous increase will force the demand more difficult to forecast.
Michelin need to face several potential issues,
Increases in the cost of Raw-Material( rubber),
OEMs market growing slow,
Increases in lead time,
Increases in the inventory related- cost,
It takes a high cost in transportation because of shipping across boundaries,
The supporting activity to develop in the emerging country, especially in technological aspects.
Replacement products require a forecast driven supply chain, the demand is variety and the inventory will be increase continuously, because the lead time is very long, dealers have to make a buffering stock to reduce the risk in stock out, also, a increasing in distribution cost is a considerable issue as well.
RECOMMENDATION FOR THE FUTURE
VENDOR MANAGED INVENTORY (VMI) PRACTICES AND VERTICAL INTEGRATION
Working closely with key supplier can be reduce the in-bound lead times, that’s allow the upstream supplier planning and monitoring the inventory control systems for the downstream parities. There are allow information sharing between both parties, inventory could be replaced by information, the more accurate information you obtain, the less the inventory you hold. Meanwhile, it ensures the raw-material supply certainty and the reduction of the procurement cost to offset the increased in the price of raw-material.
The major benefits will be gained from a great deal of reduction in inventory and the reduction of lead time, not only in the ordering processing stages but also in the distribution stages. In addition, although Michelin have its own natural rubber plantations, and there are only supplies a part of the raw-materials, moreover, a dual supplier to reduce the risk in disruption of supplies is necessary.
STRATEGIC ALLIANCES WITH THE THIRD-PARTY LOGISTICS PROVIDERS (3PLS)
To cope with the increases in the distribution cost, the global tire company decided that outsourcing its distribution network was the right way to leveraging new capabilities for competitive advantage, because Manufacturing firms and 3PLs can specialize on there area of competences, Thomas A. Foster (2004) points out that, Michelin decided to transform its North America business to TNT in 2004 based on their well local experience. It’s suggested that, Michelin can be take the same action in the emerging market to directly reduce their operations costs, transportation costs as well as handling costs, additionally, Michelin can increase the cash flow because running a DC will tied up a million of dollar.
Actually, OEMs is a best approach to reduce the total lead time and reduce the inventory as well, therefore, they should more concentrate on this market. Charles J. asserts that ”manufacturers can obtain the largest decreases in lead times through _re-engineering operations.”_ Many new terms describe the re-engineered production methods that companies are adopting, for instance Just-In-Time manufacturing, lean/agility manufacturing. And there are two major benefits gain from re-engineering operation, Company can use the short lead times to drive down its costs as well as generate increased sales. Nevertheless, before implement this approach, it’s very important to synchronize and standardize the technological standard so as to transfer the high technical product line to the emerging market.
Q 3. COMPARISON AND CONTRAST THE GLOBAL OPERATIONS BETWEEN MICHELIN AND BRIDGESTONE
Michelin is a French company and Bridgestone is a Japanese company, both of them also got award in the Fortune global 500 in 2006, former ranked in 335, and latter ranked in 245. Nonetheless, if based on the market share, Bridgestone is currently ranked as the second company in the global tire market, Michelin is the first.
The global strategy in both companies is very similar; they also serving two major markets in the worldwide: Original Equipment Market (OEMs) and Replacement market. In the previous stage, they strengthen their operation in domestic market (France and Japan) and gradually access into the different countries and the production belt shifting from host countries to new areas.
Owing to penetrate the advanced-market such as United-state, Michelin acquires a U.S. tire manufacturers B.F. Goodrich in 1988 and Uniroyal Company in 1990. Meanwhile, Bridgestone acquires the second largest tire manufacturer in United States in 1988 and acquires a US-based Bandag, Inc., in recently. They can directly grab a part of market share in U.S. market, and achieved a synergy effect.
To allow an effective to implementation of the global operation, Michelin have establish 11 specialized group services to make sure that they are consistent on a global scale, meanwhile, Bridgestone also have 8 strategic business units (SBUs) to support their global operation, Each SBU has substantial autonomy to focus on satisfying customer needs within the policy framework.
GLOBAL SUPPLY CHAIN
Michelin is adopts a global sourcing strategy in the upstream of the supply chain, in contrary, Bridgestone adopts vertical integration with the raw-materials suppliers and maintain the sources steadily. In the sales networks, there are totally different; Michelin through dealer to sale the products, and Bridgestone combines dealer operations together with company-owned facilities, and acquires Bandag, inc., to capture the global network of about 850 franchised dealers in over 86 countries. However, in the distribution network, Michelin have outsourced the U.S. distribution operation to TNT and layoff the own-DCs in 2004, it can reduce the cost directly.
LOCATION OF PRODUCTION AND THE TARGET MARKETS
The global distribution network is very sophisticated in both companies, and there are the comparisons between two companies.
The target markets also focus on six geographic areas; however, there is little bit difference. Because Bridgestone is a Japanese company, therefore, the domestic market (Japan) capture a great deal of percentage of their total sales, in contrary, the total sales of Michelin have 49% is account for Europe’s business.
Generally, their geographic coverage is almost similar, it covering Europe, Japan, North America, South America, Asia Pacific, China, Africa and the Middle-East. In Michelin, the Group’s growth in Asia will be significant, and along with the increase volume in demand and they have ability to enhance industrial performance at their plants to achieve cost reduction. But in the Bridgestone, they increase the capital investment in Europe and increase the production capacity in strategic product line while keen to develop in the emerging markets.
Michelin represents a leader of advanced technologies in safety, energy efficiency, as well as environmental friendliness. Also, they have offering a tour guide books and online mapping services. In contrary, Bridgestone is emphasis on high-value added products and it’s divided into two types of products, Tires and Diversified Product. Tires account for 80 % of sales in 2006 and the rest is the others.
Michelin based on persistent strong brands, quality and services, to pursuing a targeted growth strategy that is worldwide, until now, the global footprints has been significant increased, as a leader in an advanced technological and providing high quality products, Michelin need to balance and co-ordination their operation between industrial base countries and the emerging countries for the purposes to maintain a sustainable competitive advantages.
In the emerging market, with the sharply increase growth in the replacement sector, Michelin need to concentrate on this sector as well as increase the productivity to fulfill the large volume in demand, meanwhile, the supply chain performance always is a critical element to achieve the cost reduction as the main objectives in Michelin in recent years is focus on raising their productivity and implementing the cost reduction programs, it enable sufficient to compensate for any sharp increases in raw material costs. Last but not least, it’s recognized that that, Michelin is a very successful tire manufacturer in providing a high quality products and which are beyond to its value.
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Africa, the Middle-East, South America and Asia Pacific 16%
North America 35%
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