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.

GLOBAL

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 cost 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.

DOMESTIC

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 GLOBAL SOURCING

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,
an 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 increase 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 competencies, 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.

RE-ENGINEERING OPERATIONS

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.

GLOBAL STRATEGY

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
achieveda 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.

PRODUCTS DIFFERENCE

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.

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, 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.

_REFERENCES_

Martin Christopher (2005), 3rd Ed '' Logistics and Supply chain management creating Value-adding Networks'' Great
Britain: Person Education Limited 2005, p194,p212-213,p235

Geoff Buxey, Deakin University, Geelong, Victoria, Australia (2000) '' Strategic in an era of global competition''
International Journal of Operaions & Production Management, Vol. 20 NO. 9 2000, pp.
997,1003

Vollmann/Berry/Whybark/Jacobs( 2005), 5th Edition '' Manufacturing Planning and Control for Supply Chain Management''
McGraw-Hill/Irwin: The McGraw-Hill Companies, Inc., p.20-21

Porter, 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 1997),
p.105-116.

Donald F. Wood Anthony P. Barone, Paul R. Murphy, Daniel L. Wardlow (2002) International Logistics 2nd Edition.
AMACOM: American Management Association
p.368-371

Huang, 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 Report of Michelin in 2006, pP.4,5,8,16,20,22,25,26, 31-36,43, 49,61 The Bridgestone

Group, Annual Report of Bridgestone in 2006, pp. 1, 2-7, 10, 13-15, 18-20

Fortune 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 2007]

Charles J. Murgiano (no date) Short Lead Times = Tall Profits [online] Available at:
 http://www.waterloo-software.com/leadtime.html [Accessed 7th November 2007]

Thomas A. Foster (2004) The Trends Changing the Face of Logistics Outsourcing Worldwide [online] Available at:

http://www.supplychainbrain.com/archives/06.04.3pl.htm?adcode=90 [Accessed in 8th November 2007]

Neil Shister (2007) Manufacturer of the Year for Global Supply Chain Excellence [online] Available at:

http://www.worldtrademag.com/CDA/Articles/Cover_Story/BNP_GUID_9-5- 2006_A_10000000000000095846 [Accessed in

11th November 2007]

_Koo, Sunglim(2005) Tire industry strategy [online] Available at:_

_http://www.kumhotire.com/download/TireIndustryStrategy_Aug05.pd f_ [Accessed in 20th October 2007]

Bob Ulrich (2007) What vehicles? O_E tires stole the show in Cleveland_ [online] Available
at:http://www.moderntiredealer.com/t_pop_pdf.cfm?link=research/April%20OE.pdf [Accessed in 18h November 2007]

Africa, the Middle-East, South America and Asia Pacific 16% Europe 49%

North America 35%

Donald F. Wood Anthony P. Barone, Paul R. Murphy, Daniel L. Wardlow (2002) ''International Logistics ''2nd Edition.
AMACOM: American Management Association p.368-371

US-based Bandag, Inc., a leading manufacturer of tire retreading materials and equipment.

Don't know where to start with your assignment? HIRE VERIFIED EXPERT
Let our experts help you