How tire giant Michelin uses innovation to drive an efficient supply chain
For tire giant Michelin, the supply chain is a vital competitive weapon in an increasingly challenging global market.
In September 1891, Charles Terront won the first edition of the Paris-Brest-Paris bicycle race. At almost 1,200 kilometers, the event was more than twice as long as any attempted before. Competitors were required to ride unsupported, using a single bicycle and carrying their own food and equipment.
Terront’s winning time of 71 hours and 21 minutes was a formidable physical achievement, but it was also a technological triumph. The rider’s British Humber bicycle was equipped with prototype pneumatic tires produced by the Michelin company of Clermont-Ferrand. The Paris-Brest-Paris race demonstrated the decisive superiority of air-filled tires. Despite inevitable punctures on the poor roads of the time, the few riders equipped with pneumatic tires easily outpaced their rivals on solid rubber.
Today, Michelin manufactures around 190 million tires every year in 68 plants. Its products are still fitted to bicycles, as well as motorcycles, cars, trucks, buses, tractors, metro cars, construction machinery and aircraft. The company is active in 170 countries around the world and employs around 110,000 people. Its €21.9 billion ($25.28 billion) annual sales in 2017 make it the largest tire manufacturer in Europe, and the second biggest in the world.
Since that first move into a radical and unproven technology, continual innovation has remained a core part of Michelin’s ethos. The company pursues innovation across all parts of its business. Its restaurant guides were first produced as a promotional gift for drivers in 1900, for example. Their famous star rating system still has the power to make the career of an aspiring chef today. The company is the market leader in energy-efficient tires, an increasingly important category as owners and manufacturers seek to reduce fuel consumption and extend the range of electric vehicles. It employs 6,000 people in its internal R&D centers and runs innovation partnerships with numerous universities, external businesses and suppliers. Its aim is to generate or gather 100,000 innovative ideas every year.
Sending them around
Global transportation is wholly dependent on the availability of tires. Tires are a consumable product: wear or damage means every vehicle requires periodic tire replacement during its lifecycle. And as a vehicle without tires can’t go very far, tires must be available everywhere those vehicles are used. That means an efficient supply chain is fundamental to the commercial success of any manufacturer. And because tires are large, heavy items, those supply chains are significant operations.
Pascal Zammit is Senior Vice President, Global Supply Chain at Michelin. His organization is responsible for the company’s global inbound and outbound supply chain and logistics operations. And those operations are significant. Alongside its plants, Michelin runs around 100 warehouses and stocks 200,000 finished product SKUs, along with thousands of spare parts and semi-finished products. The network handles an average of 40,000 orders every day, and Michelin is one of the world’s top 50 buyers of maritime cargo space and one of Europe’s Top 10 users of truck transportation. Overall, says Zammit, Michelin’s logistics costs are equivalent to 6 to 10 percent of total revenues.
Running a supply chain of that scale and complexity might be considered challenging enough, but Michelin has also set itself demanding targets for performance improvement. Those targets, says Zammit, include “100 percent on time in full deliveries to our customers, a 40 percent reduction in material inventory, and a 30 percent reduction in controllable supply chain costs.” Moreover, the supply function also has a central role to play in the organization’s sustainability goals, which include a target reduction of 10 percent supply chain carbon emissions by 2020 against a 2013 baseline, and a transition to zero emissions during the second half of this century.
Achieving the impossible
Meeting all those goals requires the company to “achieve the impossible,” says Zammit, especially given the inevitable tradeoffs involved, such as the need to increase service levels and product availability while pushing inventories down. To get closer to its goals, Michelin is addressing all areas of its value chain, from product design to last mile delivery. “We are working closely with our peers in different business units to improve forecast accuracy, and we have projects underway to standardize the components used in our tires, which will simplify the inbound supply chain.”
Elsewhere, the company is placing great emphasis on the power of digital technologies. “We want to optimize the internal flow of material throughout the supply chain,” says Zammit, “And that requires full visibility: Every component has to be managed individually.” Improving visibility to that level will help, he adds, because it enables smarter inventory management, for example allowing stock to be moved across the supply chain rather than just along it to match availability with demand.
Despite the scale of Michelin’s own operations, Zammit notes that its supply chain improvement efforts are an intensely collaborative effort. “This is not something we can do alone. By value, most of our supply chain activity is outsourced to third-party logistics providers and other partners. We rely on our partners to achieve the level of speed and cost we need, but we also look to them for innovative ideas, and for a willingness to adapt their service to meet our needs.”
Michelin also collaborates closely with supply chain technology providers to develop and optimize new solutions that meet its requirements. And when it finds something that works, the company sees no reason to keep the benefits to itself. As an example, Zammit cites a new technology for real-time tracking of shipping containers, which Michelin developed in partnership with two external technology providers. “That product provides full visibility of containers throughout their journey, at half the cost of competitive offerings, and we are looking to make it available for other users,” he says.
Technology is progressing so rapidly and on so many fronts, however, says Zammit, that a collaborative approach is essential. “We have to prioritize our efforts, and we need to be honest and humble about what we can do. When we decide to invest in a new approach, we make sure we are working with multiple partners.” Even then, he notes, not every investment pays off. “We test many new ideas on the market, sometimes they fail and we learn, then we try a new one.”
Tricky terrain ahead
The company’s ambitious supply chain improvement plans aren’t just about the pursuit of progress for its own sake, however. Michelin is acutely aware that its 120-year-old core business faces disruption from all sides. “Our traditional routes to market are being shaken by the growth of e-commerce and by the rise of new competitors who focus on low-cost products,” says Zammit. “That means we have to work hard to communicate the performance benefits of our innovative products, and we have to become more cost-competitive too.”
The company is also preparing for other supply chain challenges. “Europe is still one third of our total market,” notes Zammit. “And in Europe we have an aging population. Over the long term, that may mean we have fewer people who want to be truck drivers, for example, or who want to work manually with heavy tires in a warehouse environment.”
Michelin is already taking proactive steps to mitigate possible shortages of key supply personnel, he says. “We are working with our transport partners to find ways to reduce driver attrition. We recognize that it’s not all about money, sometimes it’s about changing the way we work so the driver has a better quality of life. Ensuring their schedules are easier to manage, for example, or they know there will be somewhere to rest and have a shower at the end of a trip.” In its warehouses, meanwhile, Michelin is exploring the potential of robotics or even powered exoskeletons to make jobs less physically demanding.
So what advice would Zammit give to a successor in his role? “That’s easy, I’d advise them to develop their leadership, to ensure they know exactly where they want the organization to go, but to be flexible in the way they get there. We are living in chaotic times, but as long as you have your polestar you will always be clear about your destination, even if the route has to change along the way.” — Jonathan Ward
Published: November 2018
Images: Sebastien Boudot for Delivered.; Sven Simon/ddp images