The Bridgestone/Firestone Perspective: Betting on the Supply Chain
By John Lampe and Robert W. Gray -- Supply Chain Management Review, 3/1/1998
Bridgestone/Firestone believes that supply chain excellence can give our company a substantial competitive advantage. As testament to that belief, we have launched "Business 2000," a comprehensive plan to build state-of-the-art supply chain capabilities. This is a critical initiative in cementing our relationships with customers and business partners. In fact, as we look toward the next century, Bridgestone/Firestone in many ways is betting the future of the company on its ability to create and sustain supply chain excellence.
Bridgestone/Firestone came to this realization about the supply chain's importance through a long, and somewhat arduous, change process. The company went through an acquisition, a major structural reorganization, a physical plant consolidation and modernization, a complete sales channel restructuring, a painful labor strike, and numerous other challenges. Emerging from these events, the new Bridgestone/Firestone Company is far stronger and wiser—especially when it comes to charting our future. In particular, we've begun an aggressive course of change with respect to our supply chain practices and systems. Here's the story behind those changes.
A History of ExpansionBridgestone/Firestone, Inc. was formed in 1990 following the acquisition in 1988 of Akron-based Firestone Tire & Rubber Co. by Bridgestone Tire Corp., headquartered in Japan. Firestone was founded in Akron in 1900 by Harvey S. Firestone. Over the next 70 years, the company grew steadily, and in the early 1970s was battling Goodyear for the number one position in the U.S. market. Firestone also expanded internationally during this period, establishing extensive operations in South America, Canada, and Europe.
By 1980, however, Firestone's fortunes had changed dramatically. The company found itself in serious financial difficulty, and a new CEO was brought in to stop the hemorrhaging. Manufacturing plants were closed and decisions were made to improve the company's short-term financial condition. Unfortunately, some of these actions came at the expense of Firestone's long-term competitiveness.
Bridgestone, which was founded in 1931 by Japanese entrepreneur Shojiro Ishibashi, had expanded rapidly to become Japan's leading tire producer. The company also had diversified into sporting goods and a multitude of rubber products. Bridgestone entered the U.S. market in 1967 with a sales subsidiary in California. It established a manufacturing presence in 1983 with the purchase of a Firestone truck tire plant in LaVergne, Tenn.
With the 1988 acquisition of Firestone, Bridgestone went from a dominant tire company in the Far East to a truly international tire company with significant operations in North America, South America, Europe, and Africa. Today Bridgestone Corporation is the world's largest tire and rubber-products company with close to $18 billion in sales—$4 billion ahead of the nearest competitor. Bridgestone/Firestone Inc. has annual sales in excess of $7 billion.
Bridgestone/Firestone serves the OEM, agriculture, off-road, and consumer replacement markets in the Americas. It offers branded and private-label products through direct relationships with the major vehicle manufactures; a network of 1,500 Firestone retail stores; and mass merchandisers, discount stores, and a variety of dealers ranging from large retail chains to small mom-and-pop operations.
Setting Priorities: Quality Then Brand EquityBridgestone's first priority after purchasing Firestone was to improve product quality. This was accomplished through product reengineering and redesign, with most of the improvements directed at the manufacturing process. During this period, Bridgestone invested approximately $1.4 billion to modernize plant equipment and process capabilities. So much attention was devoted to the plants, in fact, that sales and marketing effectiveness suffered. We soon found ourselves in the unenviable position of having great products—but couldn't sell them.
- Combined the Bridgestone and Firestone sales and marketing efforts.
- Reorganized the company-owned retail store organization.
- Launched innovative multi-brand, multi-channel marketing strategies to better address the needs of customers and the consumer.
- Realigned the organization, establishing 21 divisional companies with individual P&L accountability.
This restructuring was designed to address a lack of clearly defined roles, responsibilities, and accountabilities—not just within the sales and marketing organizations, but throughout Bridgestone/Firestone's centralized corporate bureaucracy. As part of the organizational realignment, corporate headquarters was drastically downsized and relocated from Akron to Nashville.
The success of our newly decentralized organization, coupled with some innovative and customer-focused marketing programs, quickly absorbed production capacity. The result: Demand rapidly surpassed supply capability.
To effectively respond to that demand without large capital investments, Bridgestone/Firestone launched two major initiatives designed to increase production and plant productivity. We negotiated a new labor contract in 1994, and we launched a productivity-up, cost-down program called C-95. Both efforts were extremely successful, but the gains were not without a price. We endured a protracted labor strike, a union corporate campaign, and intense pressure from the federal government.
The next focus area was to improve the Firestone and Bridgestone brand equity through heightened consumer awareness and recognition. Perhaps the most notable accomplishment was our return to Indy car racing with the Firestone brand. This has been a huge success for our company, our associates, our dealers, and, of course, the teams that chose to race on our tires. In 1997, Firestone won its 50th Indianapolis 500 race. Indy car racing was such an important factor in the Firestone brand revitalization that we're now in Formula One Grand Prix racing with the Bridgestone brand.
By 1996, we were able to look back and see tremendous improvement in all aspects of our business. But we did not want to stop there; we knew that more had to be done. Specifically, Bridgestone/Firestone needed to re-focus on its customers and provide them with the highest-quality service in the industry. That's where the "Business 2000" effort came into play.
Initiating the Change ProcessBusiness 2000, at its essence, is an ambitious effort to enhance Bridgestone/Firestone's supply chain capabilities. Frustration with the inefficiency of our internal operations and the related implications for customers was the initial rationale for Business 2000. Yet this initiative has since evolved into much more than just an internally focused improvement program. Though we do expect significant improvement within the organization, we've come to realize that Business 2000 is critical to our remaining competitive in tomorrow's marketplace.
This realization was driven by a number of trends that have altered—and will continue to alter—the competitive landscape. These include:
- A continuing decline in profit margins across the industry resulting from significant excess manufacturing capacity.
- Accelerated rationalization of the retail and wholesale industry, coupled with a consolidation of small independent dealers. The increased competition brought on by the emergence of large regional dealers and discount store chains has accelerated this development.
- Increased industry focus on improving the efficiency between suppliers and customers. This trend is driven by the demands of the end customer and facilitated by the aggressive deployment of electronic commerce solutions across the industry to enable interaction between the manufacturer, its suppliers, and customers.
In the past, Bridgestone/Firestone competed on cost, quality, and a multi-brand marketing strategy. Going forward, we know we have to focus more on creating business relationships than on selling tires as a series of unrelated transactions. This reorientation, in turn, will require us to reliably deliver the value that our customers expect: the right product at the right place at the right time at the right price.
The creation of business relationships will require a fundamentally different focus for Bridgestone/Firestone as an organization. Today, that organization consists of two basic parts: manufacturing and marketing (or sales). To a large degree we have adopted a "make it and they will come" mindset. Manufacturing is incented to minimize unit cost. And this, in turn, results in maximized production runs that turn out many tires we don't need or can't sell. Marketing continues to play a chess game with our competitors, looking for ways to fill voids in the market through various promotions.
To change this situation, Bridgestone/Firestone has incorporated a service focus into our vision of how we will do business and relate to customers and suppliers. A central component of this visioning process was to define the specific values that are important to customers.
We aggressively sought to determine these values. In addition to the traditional forms of research such as customer interviews and surveys, we conducted cross-functional workshops with key customers. Participating in these sessions were representatives from our sales and marketing, customer service, manufacturing, and distribution functions and their counterparts from key customer accounts. The dialogue generated during these workshops offered valuable insight into how we actually do business with our customers. This exercise began the process for understanding why our customers buy from us and what we need to do to ensure that they will continue to do so.
This research generated a number of important findings for Bridgestone/Firestone. Chief among them was that customers want and need to reduce their distribution and administrative costs. And to accomplish this, they are withdrawing from the warehousing business, pursuing economies of scale in warehousing and redistribution, rationalizing product lines, and moving toward more frequent, smaller-quantity tire shipments from manufacturers. In the administrative area, customers increasingly are adopting electronic commerce and automating routine operations.
To effectively respond to these changes, we obviously had to change the way in which we did business with our customers. The focal point of our response would be the creation of a new set of supply chain capabilities.
After gathering information on customer needs, Bridgestone/Firestone turned its attention to analyzing the competitors' supply chain strategies. We learned that both our primary competitors, Goodyear and Michelin, were working to modernize their supply chains with an emphasis on improving service efficiency and effectiveness.
Goodyear's activities included realigning Kelly Springfield as a division of the company, rationalizing its North American tire-distribution system, expanding its EDI network with customers, and implementing an SAP enterprise resource planning system. Michelin was taking a number of actions that included reorganizing product groups on a global basis with an integrated focus, rationalizing its North American distribution system, deploying a new electronic commerce system called BibNet, reengineering its supply chain, and implementing an Oracle financial system. With these competitive activities well under way, we needed to put our supply chain improvement program on the fast track.
The 13 Essential ElementsWith a comprehensive understanding of current capabilities, customer needs, and competitors' supply chain directions, we then could further clarify the objectives of Business 2000. We knew that the purpose was to create competitive advantage for Bridgestone/Firestone through stronger business relationships by enhancing our supply chain capabilities. The task now was to define specific objectives in service improvements relative to the competition.
In some performance areas, we determined that we needed to provide a higher level of service than our competitors; in others, we wanted to match them. For example, we sought to beat our competition in providing customers with the products they needed within the time frame they needed them. We also felt that we needed to be better than our competitors in keeping our customers informed about our overall supply situation—and the related implications on our ability to meet their demand. In the area of customer-service efficiency, however, we believed that we only needed to meet our competitors' performance.
Using these overall objectives as a guide, Bridgestone/Firestone created the plan for developing and implementing enhanced supply chain management capabilities. This process began with the development of a supply chain strategy. The significant output of this process was the definition of 13 "essential elements" of the supply chain that needed to be built. Using these essential elements, we then developed the details of the supply chain program and assembled a team to design and implement new IT-enabled business processes and practices.
The 13 essential elements serve as the touchstone for implementing our new supply chain capabilities. These elements, which the Business 2000 team has incorporated into the company's Integrated Supply Chain Management process design (discussed below), include the following:
Ability to promise. This element enables Bridgestone/Firestone to make commitments or promises to customers. It ensures that when taking an order, customer-service representatives have sufficient information and resources to make commitments on product quantity, delivery date, delivery location, prices, and terms. Increasingly, our customers are implementing a "no backorder" policy. Thus, being able to make these commitments is critical to maintaining business relationships with customers.
Order status and tracking. Today, Bridgestone/Firestone does not have visibility across the supply chain on the status of customer orders. In response to customer expectations, we need to be able to respond to order-status inquiries and accurately inform customers when they could expect delivery of their order. We also want to proactively understand when orders are at risk of being delayed and inform the customer of any potential delay and what corrective action is taken prior to the customer's making the inquiry.
Communication of shortages. As a business partner that recognizes the value of nurturing strong business relationships, we want to be able to look into the future (that is, beyond 90 days) and predict potential shortages that might affect our ability to deliver against customer expectations. If a potential capacity problem is identified, we want to alert customers to the situation and work with them to resolve it. Informing customers ahead of time of any possible disruption in tire supply is a valuable service that will only strengthen our relationship with customers on those rare occasions when supply problems do occur. Most importantly, the customer will continue to view Bridgestone/Firestone as its preferred supplier. (Notably, we also have expanded production at existing plants and are building a new state-of-the-art tire manufacturing facility—two actions that should further minimize any shortage problems.)
Operationalized business priorities, service targets, and standards. This element will enable Bridgestone/Firestone to prioritize customers and products and meet customer demand based on defined service levels. We may need to maintain 95 percent order-fill rates for certain customers, for example, and 90 percent for others. This capability allows us to optimize the allocation of scarce resources.
Improved plan compliance. Very simply, improved plan compliance means executing the plan. In the past, executing any kind of plan was a challenge because of the functional barriers encountered. Going forward, all functions will work from the same plan and desired outcome, which is delivery of the right tires at the right place at the right time.
Identification and capture of both unconstrained and constrained demand. Understanding what customers really want and reacting accordingly is what this element is all about. Unconstrained demand is the true demand originally expressed by the customer at order time. Constrained demand is that which we accept and commit to supplying. In the past, unfortunately, we were unable to capture the true demand—that is, what the customer originally communicated to us. We captured the actual order only, leaving our view of demand clouded by the realities of what could actually be supplied. As a result, our sales forecasting processes were inaccurate and less than effective. With a more accurate view of true demand, we will be able to improve our forecast accuracy of what customers will need in the future. With this comes enhanced marketing effectiveness.
Technology-enabled customer-friendly service processes. Rather than deploying a one-size-fits-all approach to interacting with customers, we have chosen to employ various technologies to support our customer connectivity in such areas as order management, forecasting, and accounts receivables. Depending on the customer, we will use traditional EDI, Internet-EDI, or other "technologies" like the telephone or fax. What's important, however, is not so much the specific technology. Rather, it's the flexibility afforded customers in how they prefer to interact with us.
Auto replenishment. By automating the routine non—value-added activities, this element provides value in at least two ways. First, it ensures a certain degree of discipline, predictability, and reliability—both for Bridgestone/Firestone and for our customers. Second, it frees up time for us to more proactively service the customer. In addition to directly benefiting the customer, this element helps facilitate a mindset change among our associates as their focus shifts from internal to predominately external.
Single-service-point capability. This is the "six-headed dragon." Bridgestone/Firestone today consists of a number of divisions, each focusing on certain products—off-the-road, agriculture, consumer, and so forth. In many cases, our customers must interact with more than one of these divisions to order product, submit claims, pay invoices, and so on. Some customers enjoy the expertise and product knowledge that our product-focused organization provides. Others desire the greater efficiency of a single point of contact for conducting all business. We now will have the flexibility to let individual customers do business with us in the manner that bests suits them.
Customer-driven distribution network. Historically, our company has concentrated on minimizing transportation costs in its distribution network. As Business 2000 has brought greater attention to customer needs while minimizing supply chain-wide costs, however, we've developed a broader approach to managing our distribution network. It balances the ability to provide high levels of service (for example, reliable delivery within specified time horizons) and minimize both inventory-carrying and transportation costs.
Flexible, closed-loop planning. As in many functionally organized companies, plans were created, thrown over the wall, deemed unrealistic, and then re-created. The net result: Actual performance always differed from the plan. Our objective here is to create "doable" plans. With a supply chain-wide planning process in place, we will develop integrated distribution and production plans that, once validated by the organizations responsible for delivery against them, will be achievable.
Supplier partnering process. The supplier partnering process has focused on streamlining the number of suppliers and enhancing the overall relationship between them and our company. We have realized significant benefits through this supplier consolidation and the resulting buying leverage achieved. In addition, by focusing on relationships with fewer suppliers, we have been able to pursue a number of operational efficiencies by more tightly integrating these suppliers into our operations.
Integrated codes and nomenclature. Codes, codes, and more codes. Codes have become an integral part of running the business—the lingua franca of operations. Unfortunately, there are too many of them. They are inconsistent, redundant, and otherwise confusing to nearly everyone in the organization except the few code gurus. Developing a single product nomenclature that defines all products and associated components and raw materials throughout the product life cycle is central to reducing the complexity of the business and new systems. Without consolidated and simplified coding schemes, the new systems would have replicated the complexities of the past and dramatically increased the overall implementation costs.
Benefits of a Supply Chain VisionThese 13 essential elements have been incorporated into the company's Integrated Supply Chain Management process (ISCM), which is the primary deliverable of the Business 2000 effort. ISCM embodies the operational vision for how the company will be managed and serves as the basis for configuring the systems that will enable and support this process.
Integrated Demand Management (IDM) and Execution & Tracking (E&T) are the two primary business processes within the Integrated Supply Chain Management process. Essentially, IDM is a supply chain-wide planning process from customer forecasting to raw-material—requirements planning. E&T is the process that supports the execution of the supply plan (distribution and production) and supports the analysis of actual vs. plan, identifying the actions necessary to correct any variances.
These two new business processes—Integrated Demand Management and Execution & Tracking—will enable us to implement a "pull" system of order fulfillment. We believe that this approach will be far more efficient and customer-responsive than the traditional "push" system it replaces.
When the Integrated Supply Chain Management process is complete, each functional area will have visibility of the entire supply chain, including the status of each customer and order. As a result, the supply chain will be dramatically more efficient and flexible. Functions will be performed simultaneously rather than sequentially as they have been in the past.
A set of common business information systems makes this whole process possible by giving real-time, complete access to information across the company. It replaces a multitude of legacy systems that had developed over time as a complex set of inefficient, redundant systems. By implementing this set of common business systems, we not only simplify and standardize across our business, but also empower our associates with access to new supply chain capabilities.
Implementation of these kinds of enhanced supply chain capabilities does not come cheap. Yet the payback will be immense. We expect that the Integrated Supply Chain Management process will yield benefits of three to five times the costs. Customers will be the primary beneficiaries of the new supply chain processes. They will find our company easier to do business with. And through our supply chain capabilities, they will be able to achieve their most important goals: obtain high-quality service while at the same time reducing order sizes and inventories.
For Bridgestone/Firestone, the benefits will come in the form of revenue enhancements and cost reductions. When all is said and done, though, the most important long-term benefits will be the intangible ones. Principal among these are stronger customer loyalty and an energized workforce.
In the past, Bridgestone/Firestone has been product and functionally "siloed" and managed information-technology expenditures as a cost to be minimized. Going forward, we will be more customer and process focused. This change—and the significant investment in related IT—will provide our associates with the environment and the tools needed to do the job for our customers and the company.
Bridgestone/Firestone teams in the coming months will begin implementing the recently completed supply chain management process redesign and software configuration. We will work to resolve a number of significant gaps identified in the production pilot phase, which we anticipate completing in March 1999. Our goal is to complete the roll-out of these new capabilities later in that year.
As we look ahead to implementation, we do indeed face a number of challenges. Given the complexities of our Japanese/American cultural environment and history, change management at Bridgestone/Firestone is uniquely challenging. We've found that managing the emotional, political, and rational dimensions of the change process is not a simple task. We constantly struggle with balancing vision and schedule. The purist in us insists on adhering to the spirit of the process vision we've created without regard for cost. The pragmatist remains adamant that we must make measured progress sometimes at the sacrifice of vision.
The competitive landscape is an ever-changing one. Since we began the change process, we've found that our competitors have reacted to our plans. This, in turn, has prompted a response on our part in some cases. Finally, as we embark on our implementation plans, we must remain focused on the customers, minimizing any disruption to them that may occur as we evolve into a 21st century supply chain organization.
| Author Information |
| John Lampe is president of Bridgestone/Firestone Tire Sales Co. and executive vice president of Bridgestone/Firestone Co. Robert W. Gray is a partner in the Supply Chain Practice of Ernst & Young LLP. He is based in the firm's Atlanta office. |
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