2002 Global Rubber Conference: strong relationships--strong businesses. (A Special Report).

The Plenary Session 

Again, Rubber World Magazine and Bayer's NAFTA Rubber Business Group combined forces to stage the 2002 Global Rubber Conference. The two-day invitational conference was held at the Maumee Bay Resort and Conference Center outside Toledo, bringing together about 100 guests from across the rubber industry.

Strong relationships, and building strong businesses became a discussion focus for speakers. The following pages summarize those proceedings. Originally scheduled for September 12th, 2001, both Rubber World and Bayer cancelled the conference in the wake of the September 11th tragedy. In his opening remarks Dr. Gunter Hilken, President of The Fibers, Additives And Rubber Division of Bayer Corporation said that "out of that terrible chaos has come a real desire to return to normal--to have our lives and our working goals in order."

Exploring the theme Building Prosperity into Our Business Culture, the plenary sessions covered some of the current challenges in the rubber industry in search of solutions for competitive survival. "Just as we are partnering with Rubber World to present this conference, Bayer views working co-operatively with customers as one of the main pillars for prosperity," Dr. Hilken told the audience.

Challenges in the Supply Chain

Dr. Gunter Hilken helped to set the tone for the gathering by asking the audience to look at struggling markets where supply-chain behaviors can begin to drive true competition, innovation and quality from the market place. He said we must closely examine supply relationships to ensure that they are focused on improvements to the quality of our products, the implementation of sustainable production efficiencies and supply flexibility for customers. Make certain that you are "not engaged in a self-destructive behavior that is masquerading as competition while, in reality, it pushes you to make lower quality products, choke off capital improvements, deplete your employee talent pool, and generally drives you to cut corners just to supply a market at, or below, the cost of production," he said.

Hilken claims that this type of supplier-customer relationship is a doomsday strategy for all parties concerned. "The player with the biggest bankroll will be the last person standing but there are only losers as manufacturers leave the business, quality declines, innovation is stifled and supply becomes inflexible. It is customers who seek quality and security that encourage truly creative competition," he told the audience. When the demand side becomes a virtual auction, the result is customer and supplier behaviors that put the entire supply chain at risk.

He said that in Bayer's view the terms for the future successes of producers and their customers are synonymous, Organizations cannot simply depend on the fortunes of prosperous traditional customers. In order to build and sustain a culture of prosperity, enterprises must work actively to engineer success by virtue of their roles as suppliers.

The Lean Journey to Profitability

In his keynote address, Joseph C. Day, Chairman and CEO of Freudenberg NOK G. P., walked the audience through his organization's decade-long journey to apply the principles of Lean Manufacturing across its businesses. One key has been an attack on vendor-driven waste through the creation of dynamic strategic partnerships. "When you get Lean, you don't need three competitive suppliers to see who is cheapest," Day told his audience, "because vendor selection is no longer just about competitive pricing. It is about the quality of the product, the timeliness of delivery and getting at the vendor-influenced waste in your system." Vendor-driven waste has a multitude of impacts on manufacturing efficiency, including increased scrap, input inspections, testing, expediting, the need for dual or multiple vendor sources and idle machine time as a result of slow delivery.

Day continued by outlining the chief characteristics of a single-vendor Lean partnership. "I want our vendors to speak and think like I do. I want to know that their costs are going down like mine are and the expectation in a single vendor environment is that they get 100 per cent of my business. In return will get an opportunity to share in the cost savings that they enjoy as a result of the incremental business that I give them, together with the costs-down results that flow from Lean practice. It is very counter-cultural, but that is the way that the world is going to work in the future." He said that he wants Freudenberg NOK vendors to be financially viable, something he will work to help them to achieve. The key objective is to leverage the cost position of the entire manufacturing system, including his vendors, to pursue market share.

The Lean Journey

Freudenberg NOK became determined to achieve industry cost leadership and to seek fair value for its products and services. "Selectively growing partnerships with both vendors and customers-is an important part of the Lean journey," Day cautioned. "Find partners who recognize the value you bring to the relationship," he emphasized, echoing earlier comments about vendor selection. Leadership is key, he said. "We sought out customers who recognized the value that our products brought to the relationship. Also, we did things that seemed counter-intuitive at the time, like raising some of our prices:" Day summarized five stages in the pursuit of Lean manufacturing.

Stage 1: Classic batch manufacturing--The starting point where a product goes through multiple value-added steps. Movement and dock to dock distances are significant and high inventories are required.

Stage 2: Polishing the classic batch process--The first step to becoming Lean involves bringing various value-added steps closer together. Significant reductions (30 percent or more) can be achieved on labor hours per day, inventories, distance traveled, and labor productivity in terms of pieces per labor hour.

Stage 3: Developing manufacturing cells. This is the first move towards developing U-shaped cells, where all the value-added steps are brought together with no inventory between the steps. One operator controls the value-added process from the receipt of raw materials to the time it goes into the box. Post-cure and trim after post-cure are also factored in. Labor content can drop significantly, along with the distance the operator moves inside the cell, the scrap rate and clock to dock time. Labor productivity can improve dramatically.

Stage 4: Product-dedicated factories--A modification of Stage 3, where multiple cells are combined into a product family, creating product-dedicated factories--factories within factories.

Stage 5: Complete redesign--Completely rethink and redesign the product production process. You will give up all the capital invested in Stage 3 as a result of finding a cheaper and better way. The manufacturing costs and capital (per unit manufactured) should drop significantly between Stage 3 and Stage 5. Pieces per labor hour can increase exponentially.

"If you don't have a method for achieving cost leadership, said Day, "then your customer is going to continue squeezing the margin out of your product lines and you are on a death spiral."

He asserted that Lean systems could be self-funding. "You can make improvements that will completely fund the cost of Lean and Six Sigma programs, as well as the pricing that you will give up to your customers and wage demands from employees. Getting through it requires some very strong leadership and some very, very hard decisions, but our experience is that there is a way out of this `quagmire of red ink' that so many of our industry colleagues are suffering today."

FreedomCAR and "Co-opetition"

In an address that showed how future technologies can become tomorrow's consumer products, Bob Culver, Executive Director, USCAR, said that research and development is being propelled forward by a number of forces. The United States Council for Automotive Research (USCAR) is a venture of DaimlerChrysler, Ford and General Motors that was formed in 1992 to create, support and direct U.S. cooperative research and development to advance automotive technologies. "Societal concerns, customer wants, government demands and corporate pressures all push us to make improvements in the auto industry," Culver said. But even if there are plenty of good reasons to move forward with research, the penalties for failure are high, he cautioned, so there is merit to combining industry R&D efforts wherever possible.

"USCAR is a business model that we call `Co-opetition'--co-operation or collaboration among competitors," explained Culver. "Our R&D efforts are responsive to the needs of both the environment and society. We also try to include the appropriate public and private stakeholders." With 30 research teams, hundreds of projects and thousands of researchers, USCAR has learned about the pros and cons of collaboration among competitors. "On the positive side, common needs and overlapping resources provide substantial opportunity for leverage," Culver pointed out. "Consensus on technical issues is relatively easy where data exists. And actually, there is very little truly proprietary information--98 per cent of what you know is common knowledge."

On the negative side of the co-opetition equation, the competitive spirit is intense. "It takes time to build trust," said Culver, "but the benefits are there." For example, USCAR has made inroads in the development of lightweight materials. Innovations include high-volume liquid molding technology, structural adhesive bonding and the ability to mold large structural components. Thanks in part to this research, General Motors is using new structural polymer composites in an SUV box and tailgate that is 25 per cent lighter than steel.

USCAR is also participating in the FreedomCAR initiative. FreedomCAR isn't an automobile--it's a new approach to powering the cars of the future. "The C-A-R in FreedomCAR stands for Co-operative Automotive Research," explained Culver. "FreedomCAR is a public-private partnership between the Department of Energy and U.S. automobile manufacturers to promote the development of hydrogen as a primary fuel for cars and trucks, as part of our effort to reduce American dependence on foreign oil," he said.

The rubber industry can make a significant contribution to the FreedomCAR work, noted Culver. "Hydrogen is a very small molecule and escapes easily. We will need excellent seals to prevent leakage--an area where rubber can certainly make a contribution. Also, because hydrogen is a more expensive fuel, we need to make cars of the future much more efficient than they ever have been. This means that work on reducing tire rolling resistance will continue to be extremely important."

E-Business Delivers Efficiencies

Seeking out opportunities to reduce costs in a highly competitive business environment, Elemica is an e-business marketplace that aims to improve supply chain inefficiencies in the chemical industry.

Dennis Campbell. Elemica's Chief Operating Officer, explained the need for the company's services. "The chemicals industry is characterized by a cyclical business environment, increasing raw material prices, increasing asset costs, low utilization rates and slow inventory turns," he said. "These challenges set the stage for business process improvements."

In the 1990s, cost savings were achieved by integrating plant sites and business processes and by aligning business units. With much of that work accomplished, today's cost-saving measures have turned to integrating business planning and operations with those of customers and suppliers.

Enter Elemica, which was developed by 22 leaders of the global chemical industry to deliver order management and supply chain services in an electronic business-to-business marketplace. "For the chemical industry we estimate that the e-commerce potential savings opportunity is in the $15-20 billion range."

For buyers and suppliers, said Campbell, the ultimate result is lower costs. "The technology avoids the costs associated with unique setups or multiple connections," he stated. "Trading partner upgrades are easier, there is minimal integration with our scalable platform, and operational support is available."

With 18 active members and commercial or technical engagements with 140 companies, Elemica is certainly the way of the future. Subsequent to the Global Rubber Conference, on June 10, 2002, Elemica and RubberNetwork--the strategic sourcing consortium for the tire and rubber industry--announced an agreement to create a hub-to-hub connection. This linkage will facilitate more efficient commerce between the tire companies participating in RubberNetwork and their chemical suppliers in the Elemica trading network.

Legislation and Lessons Learned

Calling the year 2000 "a profound shock to our industry," Donald Shea, President and CEO of the Rubber Manufacturers Association (RMA) spoke about new legislation and its long-term implications for the tire industry. His presentation to the Global Rubber Conference dealt with the new Transportation Recall Enhancement, Accountability and Documentation Act--known as the TREAD Act.

Following the huge tire recall announced on August 9, 2000, "the industry experienced an immediate metamorphosis", said Shea. "It was transformed from a below-the-radar-screen sector of the business community to a main feature in prime time news and of Congressional interest."

While the repercussions of the recall were enormous, the incident provided an opportunity for the tire industry to help design legislation and to reaffirm its commitment to consumer safety. "Through co-operation, we steered Congress away from a focus on draconian criminal penalties, by working to craft provisions that would be safety-related--and thus more consumer focused," explained Shea.

Not only was the TREAD Act enacted in record time, but the legislation set an equally exhaustive pace to finalize the accompanying regulations. However, the process is far from over. Shea urged continued vigilance since this new regulatory framework will put the tire industry "under close scrutiny from government bodies, the public and the legal profession."

All of the TREAD Act rules should be final by the end of 2002. "August 2000 changed the industry forever," said Shea. "The tire industry must be a strong consumer safety advocate. The perception of putting costs ahead of safety will be hurtful.

Tire safety education has been, and will be, a continual effort for the tire industry," he emphasized. "We have a huge opportunity to talk positively about our products and to demonstrate our continuing concern for consumer safety."

Education and Research--The Keys To Tomorrow's Prosperity

In a wide-ranging address. Dr. Frank N. Kelley, Dean, College of Polymer Science and Polymer Engineering, Professor of Polymer Science, The University of Akron, looked at the challenges facing the rubber industry and how educational and research solutions are being sought to rectify them.

Dominated by a single product--tires--Kelley said the highly competitive rubber industry "Suffers from slow growth, lagging profitability, a tack of innovation and few new markets." Many students, he added, "think that workplaces in the rubber industry are dirty and smelly, due to the use of carbon black and sulfur. All of this makes it difficult to attract new talent," he said.

The University of Akron is combating these perceptions with the largest polymer education facility in North America, boasting 240,000 square feet in laboratories and classrooms, advanced instrumentation and equipment and enrollment of 300 graduate and post-doctoral students.

Technology is a key factor at the university's highly regarded Rubber Research Center, which is currently focusing on the reinforcement, adhesion and cut growth of rubber. He said that this facility is vital to the industry, since "federal labs show little interest in studying polymer/rubber chemistry, or tire mechanics." With the help of powerful information technology, "research is making advances in molecular, process and performance modeling," said Kelley, adding that research is also being done in the fields of catalysis and "combinatories, which has applications in screening."

"A great deal of money is being poured into biotechnologies," observed Kelley, who pointed out that rubber can make significant contributions in biomedical applications. For example, the Rubber Research Center has contributed to the development of a spinal disc replacement. As well, new work in nanofibers--developed from polymers--"will allow us to develop flexible, bioabsorbable bandages that encapsulate active agents to promote healing," he said. These fibers, which are 100 nanometres or less in diameter, can also be used for fine filters.

To close his presentation Kelley described a new patented process for detecting high temperatures in tires. "The three factors--load, pressure and temperature--combine to determine a tire's safety," he said. "But the most significant factor is high temperature because heat affects the compounds that are right next to the steel belt. Those compounds are good for adhesion, but they are very temperature sensitive." Looking for an inexpensive way to signal the presence of an overheated tire, Kelley developed a heat-sensitive material that can be seen on the tire sidewall. When the tire exceeds a certain temperature--usually due to a low pressure--the material on the sidewall turns bright red, alerting the user. "At 30 cents a tire, this is a user-friendly alternative to an expensive infrared sensor," he said.

The Elusive Nature of Quality

At the heart of the rubber industry is the pursuit of quality--an elusive ideal that is constantly evolving. In his presentation to the conference, Job Lippincott, Publisher, Rubber World Magazine, argued that quality is not a single standard. "There are degrees, and grades of quality," he said. "Quality is actually a moving target; what an organization wants must intersect with what they need."

Bad business practices can hinder the pursuit of quality. Lippincott told his audience that the introduction of the radial tire in the 1970s was a prime example of just how poor business decisions effect quality. "The presence of radial tires in the U.S. market raised the bar for domestic tire companies. In the rush to bring competing radial tires to market, one company adapted their existing conventional bias tire equipment rather than spending the time or money to ensure they shipped quality products. It resulted in tragic consequences."

In other instances, producing products to merely achieve standards wanted by the customer can have disastrous outcomes, "For the Challenger space shuttle, NASA specified that the O-rings be produced for use in normal Florida temperatures," said Lippincott. "The quality was fine for the specified temperatures, but not for the unseasonable drop in temperature that preceded the doomed launch. The product delivered was what NASA wanted but as it turned out they didn't get what they needed."

He characterized quality as a "long-term goal" that can conflict with the "short-term perspective of a marketing department or with the "financial interests" that put companies under pressure to maximize earnings, each and every quarter. "Yet quality" he said, "is the very standard on which companies grow or perish. It can make--or break the reputation of an organization."

Calling it "a two-way street between suppliers and buyers," Lippincott stressed that information sharing and an open dialogue can only enhance quality. "That should be established as a priority in organizations," he said.

For Rubber World Magazine itself, the 113-year old institution needed to continue its reputation for providing quality technical information, while meeting customer demands to deliver even more information in newer and faster electronic formats. The magazine's Blue Book and Rubber Red Book are available on compact disc through its Electronic Publishing division. In addition, the company's website, www.rubberworld.com, has become an important information hub for buyers and suppliers in the rubber industry. "Today, Rubber World's online site is available in six languages," noted Lippincott. "Our website receives more than half a million page views a year from rubber industry viewers around the world."

"The demand for quality," concluded Lippincott, "is like an express train. It just keeps picking up speed." He added that as competition gets fiercer, and as the rubber industry becomes increasingly international, quality becomes even more important. "The rubber industry now has no borders," he said. "As the pace of change accelerates, we need to communicate more, in forums such as this Global Rubber Conference. I believe that communication is the first step in building industry-wide quality."

Managing Change and Transition

Saying that his organization is the "pre-eminent automotive standards organization in the world," Raymond Morris, Executive Vice President of the Society of Automotive Engineers (SAE) spoke about change and transition within the Society. Stressing that the SAE has "a long history and good working relationships" within the rubber industry, Morris said that over the past 25 years, "the best examples of automotive rubber accomplishments in SAE are in the areas of rolling resistance, snow traction, and speed ratings."

However, Morris added, the SAE's activity in the rubber industry isn't limited to tires. "The SAE's Rubber Committee is currently considering several different issues, including obsolete gaskets and seals," said Morris. "In addition," he noted "our Plastics Committee is preparing a new standard entitled Recommended Practice for Developing Specifications for Automotive Thermoplastic Materials." In fact, the military recently cancelled several of its own standards for rubber hoses in vehicles in favor of SAE standards.

Recently, SAE has been instrumental in the push to institutionalize sustainable development across the mobility industry. "We have worked both nationally and abroad to develop relationships with like-minded organizations and provide dynamic, neutral forums," said Morris. SAE has recently partnered with the OIAV, the engineering society of Austria, to host the Environmental Sustainability Conference and Exhibition in Graz, Austria. Also, SAE recently established a Sustainable Development Program Office, which will address all sustainable development issues, most importantly the recycling of automotive materials.

Ohio Industries of the Future

Partnerships with government are a key to growth in the polymer industry, said Larry Boyd, Business Development Manager, Energy Industries of Ohio Industries of the Future. The Ohio IOF program addresses the needs of industrial sectors that are major energy consumers, facilitating their access to the resources available through the IOF program. Ohio IOF is funded by the U.S. Department of Energy (Office of Energy Efficiency). The Program Manager is Energy Industries of Ohio.

Industry sectors involved are glass, metal casting, steel, chemicals/polymers and a "future sector" that includes aluminum, agriculture, forest products, mining and petroleum.

Boyd pointed out that the IOF program has delivered many benefits to industry participants. "For example," he said, "Ohio IOF is active in helping industries share best practices in energy conservation, particularly in the areas of compressed air, motors, steam, process heating--all large consumers of energy." He added that IOF also helps companies access the services of Industrial Assessment Centers at the University of Dayton and the University of Michigan, which will review industry processes and identify potential improving processes and saving energy. For larger assessments, IOF will help companies apply for government funding support. And for research projects, IOF can facilitate access to national laboratories.

Building Relationships with Customers

In the closing address, Larry Johnston, Vice President, NAFTA, Bayer Rubber Group, spoke about the importance of lasting customer-vendor relationships."l want to stress the importance of something you already know-how much our businesses depend on one another to remain healthy, competitive and successful," he said.

Johnston reminded the group that, as automotive suppliers, their businesses were characteristically squeezed between customer price demands and the bottom line and also blamed for quality problems--sometimes justifiably and sometimes not. The newest challenge is adapting to a business that is now truly global and where some of the most aggressive challenges come from competitors who are working on a much different cost basis. "All of these factors demand that we draw a clear bead on the value that we add to our customers" businesses with our knowledge, experience and vigilance," said Johnston. "So somehow we've got to figure out how to better utilize all the assets we have to focus on the customer."

A paramount measure of success in this enterprise should be in the relationship's durability--its ability to withstand and grow deeper in the face of both internal challenges and external pressures. Johnston cautioned that enduring corporate relationships, like marriages, grow from independently strong, healthy cultures. Citing Frederick Reicheld's Loyalty Rules! How Today's Leaders Build Lasting Relationships, Johnston pointed to data showing the impact of employee loyalty on profits in corporate America. One study found that 5 percent swings in retention rates resulted in 25-100 percent fluctuations in earnings in corresponding directions. Another concluded that U.S. corporations lose half of their customers in five years, half of their employees in four years and half of their investors in one year. By working to foster loyalty it is clear that companies can boost productivity, attract more talented staff and, along the way, encourage customer loyalty and referrals.

"If your organization lacks credibility and trust internally, there is very little chance that your people will be successful in generating those values in relationships with customers," Johnston concluded. "The bottom line is that if the people in this industry are able to sell their products better and create more loyalty and trust, we can become even more mutually beneficial partners."

TREAD Act Regulatory Process--Key Rules

Early Warning Reporting Requirements

NHTSA * to establish an early warning reporting system of information that allows NHTSA to truck tire performance.

Tire Testing & Performance Standards

NHTSA to update the passenger car and truck tire testing standards.

Tire Pressure Warning System

NHTSA to complete a rule-making requiring dashboard-warning systems in new motor vehicles to indicate tire under inflation beginning in model year 2004.

Tire Labeling

NHTSA to enact regulations to assist consumers in identifying tires subject to a recall.

* National Highway Traffic Safety Administration 

PolymerOhio

A key participant in the Ohio IOF is PolymerOhio, a statewide association dedicated to enhancing the growth and competitiveness of the polymer and plastics businesses. Ohio is a leader in the polymer and plastics industry, and the association works diligently to ensure that the industry has access to state government resources. More information about the association can be found on its Web site, www.PolymerOhio.org.