A Supply Chain That Tires Easily
Hankook Tire is on a roll, finding help to complete the final leg of its global supply chain.
Executives at Hankook Tire Company celebrated in 1999 when the South Korean company landed its first U.S. original equipment (OE) supply contract. With Ford Motor Company’s agreement to buy more than a half-million tires annually, Hankook knew it had snared an important new customer.
Almost as satisfying was the knowledge that it had already figured out how to roll its tires from Asia to Ford’s U.S. Midwest production lines efficiently and cost effectively.
Headquartered in Seoul, Hankook is the world’s eighth-largest tire manufacturer. Founded in 1941 as Chosun Tire Company, Hankook has grown into a $2.5-billion company that produces some 58 million tires annually. Hankook’s U.S. subsidiary, Wayne, N.J.-based Hankook Tire America Corporation, distributes and markets passenger car, truck, SUV, bus, and high-performance tires throughout the 50 states and Puerto Rico.
When Hankook entered the U.S. market in 1981, “it dealt mostly with aftermarket replacement tires,” says Philipp C. Rathgeb, logistics manager, Hankook Tire America. “But in the last five to 10 years, original equipment has become a growing segment of the business.”
When the Ford deal was signed in 1999, Hankook was poised to become an even bigger player in the global tire industry. “The Ford contract was, in many ways, the start of a new era at Hankook,” says Rathgeb.
Getting a Jump Start
Hankook operates manufacturing plants in Geumsan and Daejon, South Korea, as well as in Jiangju and Jianxing, China. Executives realized there would be no problem moving tires from its Asian plants to distribution sites on the U.S. East and West Coasts because Hankook is highly experienced in ocean transportation, shipping to more than 200 countries worldwide.
The trick would be meeting Ford’s just-in-time (JIT) delivery requirements, a concept that was unfamiliar – and somewhat daunting – to Hankook.
Hankook knew it had to seek outside help. “If we have a core competency in-house, we perform that function ourselves to keep control and gain cost efficiencies,” says Rathgeb. “In some situations, however, we don’t have the expertise, systems, or manpower in-house and need to contract with the best possible third-party logistics provider.”
As Hankook and Ford were finalizing their deal, Ford alerted Evans Distribution Systems, a 3PL located in Malvindale, Mich., to Hankook’s likely need for a JIT specialist.
“We received Hankook’s original request for quote in July 1999,” recalls Leslie Ajlouny, Evans’ vice president of business development. “We gathered all the information from Hankook regarding the program and its requirements, and we met face-to-face the next month.”
The deal was quickly wrapped up and Hankook began shipping its tires to Ford that September.
Containers Come Rolling In
Hankook tires destined for U.S. customers begin their journey at the company’s Asian plants, where they are transported by truck or rail to nearby ports, then loaded onto ships. The company uses an array of marine carriers and manages its ocean transportation without the help of a 3PL.
“We maintain about 10 contracts with various shipping lines,” says Rathgeb, noting that in 2005 Hankook was the 45th-largest U.S. importer in terms of container volume.
The containers, holding both OE and replacement market tires, arrive at U.S. East and West Coast ports. Tires destined for the replacement market are transported to Hankook warehouses located in Edison, N.J.; Portland, Tenn.; Portland, Ore.; and Rancho Cucamonga and American Canyon (Los Angeles), Calif.
“We’ve deployed a hybrid model of self-managed warehouses and outsourcing to run these facilities,” says Rathgeb. “We manage our own warehouses in Edison and Los Angeles; third parties manage the others.”
OE tires, destined for installation on Ford vehicles such as F150 pickups and Escape SUVs, are loaded onto railcars and shipped to Evans’ Detroit warehouse.
“The containers come into the West Coast, are moved by rail into Chicago, then drayed,” says Ajlouny. “The containers then are taken off the rail, put on chassis, and brought into the warehouse.”
Good communication is critical to maintaining an adequate and organized tire inventory. “We know what tires are coming in and when they will arrive,” says Ajlouny.
Evans works closely with the drayage companies to schedule and coordinate container deliveries. “Some containers take priority over others, depending on part numbers and inventory levels,” Ajlouny says.
Evans also keeps in constant contact with Hankook to find out what tires are en route from South Korea. “We have about two weeks’ visibility into the containers, their contents, and expected delivery time,” Ajlouny says. Communication between the companies is efficient, with each firm electronically recording tire shipments and receipts.
Enterprise resource planning software, developed by Walldorf, Germany-based SAP, helps Hankook track its outbound tires, then update Evans on each shipment’s status.
“The SAP system provides information on each SKU inside the container,” says Rathgeb.
Evans operates several facilities in southeastern Michigan, all strategically located near automakers’ manufacturing sites. The warehouse handling Hankook’s Ford tires is located “close to the container yard, and right on I-75, making it very accessible,” says Ajlouny.
The 540,000-square-foot building is a multi-client, shared logistics facility. “Evans serves several customers from this warehouse,” notes Ajlouny. “The facility handles tires as well as other automotive and robotics products.”
All Hankook tires delivered to Evans’ warehouse arrive floor-loaded within the containers; tires are loosely loaded in the container to maximize capacity. Evans unloads all the containers by hand.
One of Evans’ key tasks is to carefully check each tire for its condition and part number as it is unloaded from the container. “We also inspect for DOT markings, which are required by law and represent production date information,” says Ajlouny. The markings allow specific tires to be located in the event of a government or manufacturer recall.
Evans also assesses each tire’s “kineticity” – its tendency to pull in one direction or another. Manufacturers seek to equip their vehicles with tires that have a complementary kineticity, and the inspections allow Evans to organize tires to accommodate this preference.
As soon as the inspections are completed, the tires join the inventory in the warehouse, which is designed for optimal speed and organization. “We transfer the tires to custom-built mobile storage racks so we can move them around the warehouse efficiently,” says Ajlouny.
To track its inventory, Evans affixes multiple 2-D bar-code labels to each tire. This value-added service provides manufacturing information critical for assembly sequencing and accountability.
Inventory accuracy is also essential to keeping the tire delivery sequencing process running smoothly. The system allows Evans to anticipate the manufacturer’s needs, and fill orders quickly to keep assembly lines running at optimum speed. “Typically, we have five to six weeks of inventory on hand,” says Ajlouny.
Tires Go Rolling Out
Communication also plays a major role in coordinating tire deliveries moving from Evans to Ford. Just as Hankook alerts Evans to tires headed to its warehouse, it also tells the 3PL when it’s time to ship tires to Ford’s production lines.
“The communication is excellent and we have great inbound and outbound visibility so we can plan accordingly,” says Ajlouny. “Hankook gives us about one week’s visibility on orders.”
Once Evans receives an order notification from Hankook, it pulls the tires needed to meet the shipment’s requirements using a double-check system: the warehouse workers pull and stage the orders, while another team checks and loads the tires on the trailers.
In addition to Hankook, Evans is the JIT intermediary for several other tire makers, delivering to General Motors plants as well as Ford facilities. Evans loads the tires in a specific way to meet each customer’s needs.
“One GM plant, for example, requires its tires to be delivered banded, so we developed a mechanism that bundles eight tires together,” explains Ajlouny.
Other plants want tires delivered “stovepiped” – stacked straight up and down – but most companies require that their tires are “laced,” or overlapped, in the trailers.
The different loading configurations reflect the myriad ways different facilities handle tires. “Loading configurations depend on how close the tires are unloaded to the production line, and how they’re transferred from the docks to the line,” says Ajlouny. “Also, some tires go right to the plant, while others go to assemblers who fix the tires onto the rim in a sub-assembly process.”
Leave it to the Experts
Although Hankook already had a great deal of experience managing its own U.S. warehouses, it decided to seek outside assistance with its Ford deliveries because JIT was not a core competency.
“Hankook performs a lot of functions in-house – we’re very cost-driven and run extremely lean,” says Rathgeb. “But the OE market is better managed by a dedicated third-party provider.”
Asking Evans to provide local JIT logistics services turned out to be a pivotal move for Hankook’s North American OE operation. “Evans has a core competency in a specific area -delivering just in time to Ford,” Rathgeb explains. “The more cost-effectively a company can manage its supply chain, the better.”
It can be difficult for companies such as Hankook to replicate the services that Evans provides. “That includes the relationships we have developed with customers and their plants, and our experience serving the automotive industry,” Ajlouny says.
Although Evans had never worked with tires before signing with Hankook, the 3PL had handled various types of auto parts for tier one and tier two suppliers. The knowledge Evans gained during those operations proved useful when it was called to act as the touchpoint between Ford and Hankook.
“Selecting a partner with experience and regional expertise serves Hankook well,” notes Ajlouny.
While outsourcing turned out to be the right decision for Hankook, companies in a similar position should carefully investigate all available options, Rathgeb suggests. “The choice boils down to one question: do you want to manage the process yourself or through a third party?” he says.
Regardless of the approach a business takes, it can’t expect to simply slough off all its logistics management concerns to its 3PL. “No matter how a logistics process is handled – in-house or outsourced – a company must actively manage the process or major problems and issues are just a matter of time,” says Rathgeb.
In a JIT environment, where the customer is situated far from the production source, it is vital to have a warehouse located near the customer. “If you don’t want to build the capability yourself, a third party is the way to go,” Rathgeb notes.
Hankook believes in tailoring its logistics strategy to each of its operations, rather than trying to force all the functions into a corporate-wide logistics program.
“Examine every segment of your logistics operation to see if you can perform better than a 3PL,” Rathgeb advises. “Advantages and disadvantages exist for both outsourcing and insourcing; the decision is a matter of weighing the risks and benefits, and determining the impact on cost.”