Case Study: Michelin’s supply chain strategy Essay

Michelin is the forefront of the radial tire as well as a attractor on the man tire market they occupied almost 20% market shargon in the world. Itsrealized that the trend towards globalization as to a greater extent intense competitions that die hard to lower cost and improve the efficient trading operations. Meanwhile, Michelin have its strong vision, because they have already established a global commissioning since 1900s, and reinforced 35 factories around the world between 1960 and 1975.Michelin undersurface be gain the competitive edge in the global market through diverse manufacturing strategies, refer to (2000, Geoff Buxey) indicates that its generally classify into a several evolve levels, _Domestic, Market access, Low cost and Global ._Furthermore, in order to cope with the challenges under(a) several competitions such as Goodyear and Bridgestone, they have setting a position as successful in the Quality assurance. Also there are equality and contrast the global o perations between Michelin and Bridgestone in the latter(prenominal) sector.Q1. _THE MANUFACTURING STRATEGIES ADOPTED BY MICHELIN IN ORDER TO GAIN COMPETITIVE ADVANTAGE IN worldwide food market._Michelin have 69 overlapion sites in19 countries and their commercially available in 170 countries. This successful is non only base on the ability to coordinate the consentaneous entities in the global supply cosmic string network, but in like manner depends on their manufacturing strategies to obtain Michael Porter (1985) a sustainable Competitive advantage.GLOBALIn 1906, Michelin built its first plant outside of France in Turin, Italy and United States, thats implicated that they begin to develop and access to the international market. More recently, Michelin have dispersion to six target markets Europe, North America, entropy America, Asia peace-loving, China, Africa and the Middle-East.MICHELINS MANUFACTURING STRATEGIES TO SUPPORT THE COMPETITIVE ADVANTAGESMichelins Tire manufa cturing is consist the nature of labor-intensive and capital-intensive, therefore they deprivation to adopting different strategies between advanced countries and acclivitous countries, tittup 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.DOMESTICEurope is the industrial base of Michelin, their products are provides to two main markets to the world Original Equipment Market and rehabilitation market. In Europe, they keen to keep its competitive advantage in providing luxuriously technical products and offer a high-quality and innovative products and services also a R&D department act as a major(ip) division in providing a unvarying 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 productio n size to increase the productivity in Europe.FOCUS ON HIGH QUALITY & TECHNICAL PRODUCTS PRODUCED IN EUROPE.This is no inquiry that, Michelin is leadership in advanced technologies, not only in _Safety_, _Energy efficiency_, but also in _Environmental friendliness_. For causa, develop a low rolling resistance tires for the occasion of reducing vehicle fuel consumption as the public is more consider about environmental friendliness.The powerful evidence to prove that the quality of Michelins 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 DIFFERENTIATIONMeanwhile, the increases in the demand of emerging market and the y realized that the transportation cost is involves a large pct of their net sales, therefore, establishing a plants in the oversea market and let the production close to the marketplace, it can not only r educe the inventory and transportation cost, but also able to perform 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 yield_. Martin Christopher (2005) discusses that, in todays 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. Its agreed that provides a diversity of products force 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 FACTORIESTo contact the major strategic productivity gains, Michelin concentration on industrial content and specialization of plants. Michelin expect to through _The Michel in Manufacturing Way_ (MMW) to increase their productivity, which is a management tool dual-lane by all Group plants and able to reduce their purchasing costsBesides, owing to cater for specific and unique local demands, Michelin adopted specialized/ concentrate factories strategy as so to fulfill variouscustomer needs and turn over 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 racing shell. 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 tonic customer in the emer ging 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 MICHELINS GLOBAL SUPPLY range of a function MANAGEMENT strategy (GSCM), ANY ISSUES THEY NEED TO COPING WITH AND yield 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 CHAINGLOBAL SOURCINGThe GSCM in Michelin is very complicated, because different markets also have its proclaim 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 access code to reduce the raw-material cost and mix of themanufacturing inputs available anywhere in the world and gain access to the oversea markets, which supported by The Factor-Input Strategy and The Market-Access StrategyOEMS AND reliefFrom 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 electrical switch market. But its 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 Michelins Distribution Centres and the demand is come from different customers and its less consequence than OEMs market. in that locationfore, the Lead time in the OEMs can be reduced, because the orders are placed by the major vehicle manufacturers in a sho rt period of time. For instance, Michelin was also OEMs provider to _General Motors_ and _Hondas_ vehicles bobsled 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 CHAINFisher (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 replacing products represent an ESC and the lead time is longer, the OEMs products represent a RSC because its 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 networ k to maximum their profitability and the core factors to memorise their global supply chain strategy is depending on the market and products characteristics.POTENTIAL ISSUES FACING BY MICHELINThe 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 fast 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 iss ues,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 dispersal cost is a considerable issue as well.RECOMMENDATION FOR THE FUTUREVENDOR MANAGED INVENTORY (VMI) PRACTICES AND VERTICAL INTEGRATIONWorking closely with key supplier can be reduce the in-bound lead times, thats 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 i nformation, 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, Thom as A. Foster(2004) points out that, Michelin decided to transform its North America business to TNT in 2004 found on their well local experience. Its 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 laced up a million of dollar.RE-ENGINEERING OPERATIONSActually, 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 driv e down its costs as well as generate increased sales. Nevertheless, before implement this approach, its very important to synchronize and banalize 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 BRIDGESTONEMichelin 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.GLOBAL STRATEGYThe global strategy in both companies is very similar they also serving two major markets in the worldwide Original Equipment Market (OEMs) andReplacement 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 b elt 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 death penalty 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 digest on satisfying customer needs inwardly the policy framework.GLOBAL SUPPLY CHAINMichelin is adopts a global sourcing strategy in the upstream of the supply chain, in contrary, Bridgestone adopts vertical integration with the raw-materi als 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 work AND THE TARGET MARKETSThe global distribution network is very sophisticated in both companies, andthere 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 Europes 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 Groups growth in Asia will be significant, and along with the increase volume in demand and they have ability to advance industrial exploit 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.PRODUCTS DIFFERENCEMichelin represents a leader of advanced technologies in safety, vigour 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 its change integrity into two types of products, Tires and Diversified Product. Tires account for 80 % of sales in 2006 and the rest is the others._CONCLUSION_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, its recognized that t hat, Michelin is a very successful tire manufacturer in providing a high quality products and which are beyond to its value._REFERENCES_Martin Christopher (2005), 3rd Ed Logistics and Supply chain management creating Value-adding Networks Great Britain Person Education Limited 2005, p194,p212-213,p235Geoff Buxey, Deakin University, Geelong, Victoria, Australia (2000) Strategic in an era of global competition International Journal of Operaions & outturn Management, Vol. 20 NO. 9 2000, pp. 997,1003Vollmann/Berry/Whybark/Jacobs( 2005), 5th Edition Manufacturing Planning and Control for Supply Chain Management McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., p.20-21Porter, M. (1985) _Competitive Advantage_, Free Press, New York, 1985.Steermann, H (2003) A practical look at CPFR the Sears Michelin experience. _Supply Chain Management Review_, July/ august 2003, pp. 46-53.Fisher, M. L. (1997). What is the right supply chain for your product? _Harvard Business Review_ (March-April 1 997), p.105-116.Donald F. Wood Anthony P. Barone, Paul R. Murphy, Daniel L. Wardlow (2002) International Logistics second Edition. AMACOM American Management Associationp.368-371Huang, S.H., M. Uppal, (2002), A product driven approach to manufacturing supply chain selection _Supply Chain_ 11 _Management An International Journal_, Vol. 7, No. 4, pp. 189-200.The Michelin group, Annual overcompensate of Michelin in 2006, pP.4,5,8,16,20,22,25,26, 31-36,43, 49,61The Bridgestone Group, Annual Report of Bridgestone in 2006, pp. 1, 2-7, 10, 13-15, 18-20Fortune Global 500, 2006. From the July 24, 2006 issue online Available at http//money.cnn.com/magazines/fortune/global500/2006/full_list/ Accessed 5th November 2007Charles J. Murgiano (no date) Short Lead Times = noble Profits online Available at http//www.waterloo-software.com/leadtime.html Accessed 7th November 2007Thomas A. 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AMACOM American Management Association p.368-371US-based Bandag, Inc., a lead story manufacturer of tire retreading materials and equipment.