GLOBAL RUBBER CONFERENCE 2000.

Global Rubber Conference 2000: A Vision on Mobility

In mid-September Rubber World Magazine and Bayer's North American Rubber Business Group were joint sponsors of Global Rubber Conference 2000, an invitational symposium held to discuss key issues facing the rubber industry. This year's theme was a Vision on Mobility Through Technical Innovation, bringing together representatives from all tiers of the industry for two days of presentations and discussions. The following pages are a summary of those proceedings.

The Plenary Sessions

Saying that the industry is undergoing a "profound transformation", Dr. David Cole, keynote speaker for the Global Rubber Conference 2000 set the tone for two days of presentations and discussion about industry trends, changes in the automotive sector, technological advances and educational influences.

In his address, Dr. Cole, Director of the Office for the Study of Automotive Transportation (OSAT) at the University of Michigan Transportation Research Institute, pointed to the auto makers' need for "faster and better" product development as one of the principal transformation drivers for rubber.

Adapting to a new business model

Like many other manufacturing sectors, the rubber industry is undergoing what Cole calls "accelerating change". Driven by a new business model where companies are expected to be fast, agile, flexible, global and virtual, this is a sharp contrast to the slow, structured bureaucracy of the models that helped establish the automotive and rubber industries. Not only is the tempo and structure of business changing, the industry is also affected by changes in financial markets that strike at its ability to attract investment capital. As analyst David Strickler from Heartland Industrial Partners pointed out, financial markets have shifted from the objective measures of real profit and growth towards the more subjective "perceived growth" familiar in the technology sector, well-known for its "better never than late" business approach. "In 1998 and 1999, investors liquidated stocks in rubber, automotive and industrial sectors in order to participate in the higher perceived growth of the tech sector," he recalled. In 2000, however, some rationalization occurred as investors began to retreat back to traditional measures and technology stock prices softened. "This is actually a very healthy sign," explained Strickler, "because it indicates that real earnings per share growth does matter, and that's something you can control."

Closely related to earnings is the growth outlook for rubber - an industry that investors perceive as being mature - with low to moderate growth prospects at best. Steve Teslik, Vice President of Market Information Services for the Rubber Manufacturers Association pointed out that tire shipments - over 50 per cent of synthetic rubber demand - will likely set records in 2000, thanks to a robust economy. But he cautioned that over the next two years, the RMA forecasts only 2.1 per cent overall industry growth. The high cost of energy, noted Teslik, "may weaken the economy as a whole, which will eventually trickle down to tire sales." Another market driver for rubber is the expected life of the Sport Utility Vehicle (SUV)/light truck market. "In general, the SUV market is slowing down, experiencing a more established growth pattern," he said. "However, there are all those SUVs that were sold in 1994 and 1995. They are just beginning to enter the replacement tire phase."

Creating new opportunities

In an address that challenged conference delegates to take a critical look at the state of the industry, John Quinn, President of PolyOne Rubber Compounding (formerly M. A. Hanna), shared his views for creating a new competitive edge for rubber materials. "Rubber faces several challenges," he said, "because it requires a longer, more labor-intensive manufacturing process than competitive materials, it is slower, more costly, less productive and unattractive to investors and new recruits alike."

He argued that these problems are largely due to technology that is highly - and perhaps unnecessarily - complex. Comparing ten year data where durable goods grew 49%, non-durables by 18% and the GDP 25%, non-tire rubber grew only 2.3%, he argued that these facts make it difficult for the industry to attract new capital or new talent. "Complexity makes us slow for product development and it makes us costly when compared with other competing material systems," Quinn said. As part of its response to these trends, PolyOne has begun working with customers to reduce the number of industry recipes and recipe ingredients, ultimately resulting in reduced complexity. Quinn suggested that the industry should be formulating completely new recipes, utilizing contemporary technology, rather than "tinkering" with existing formulas. identifying what he feels is one of the biggest challenges facing the industry, Quinn quoted Dee Hock, founder of Visa saying, "the problem is never how to get new, innovative thoughts into your mind, but how to get the old ones out."

E-commerce

Globalization requires office applications like logistics, sales and purchasing that can reduce transaction costs yet keep pace with increased customer demands for information and efficiency. Both peer-to-peer and internet-based applications have made significant inroads on this front over the past few months. E-business, a group of applications well positioned to reduce both supply-side and sales transactions for globalized industries like automotives and rubber, has begun to achieve wide acceptance as a business-to-business platform. Susan Zelicoff, Managing Director of ElastomerSolutions, LLC introduced conference delegates to ElastomerSolutions.com, an industry web entity that is expected to grow to include buyers and sellers of elastomeric ingredients, polymers and parts, as well as equipment and services. Formed earlier this year to serve a potential global market estimated at $40 billion U.S., ElastomerSolutions.com began operations in October. "While an exchange is generally a platform for transactions only," said Zelicoff, "ElastomerSolutions.com will offer a broad range of content and features to the elastomers community in addition to supporting purchase and sales transactions. Not only is it more cost effective than building a stand-alone website," she said, "it is more convenient for the customer than having to use 25 different sites with Z5 passwords."

Technologies for tomorrow

Development of new technology was also the topic picked up by Dr. Ron Commander, Bayer's Vice President of Technology, who spoke about how Bayer is responding to automotive industry needs for new rubber performance properties. There are two principle trends in the automobile industry that are shaping rubber research and product development. In tire production it is a demand for fuel economy by reducing rolling resistance and weight - the latter factor a key driver behind the run-flat and puncture sealant technologies being developed by the major tire-makers. The second trend is an accelerating requirement for industrial rubber goods that can withstand higher engine compartment temperatures and pressures.

He explained how tire-makers attempt to balance three features: rolling resistance (fuel economy), wet grip (safety) and abrasion (tread wear). Nearly one-fifth of tire energy loss is from rolling resistance - 75% of that is due to tread composition. Overall the trend has been to replace emulsion SBR with more chemically versatile solution SBR grades. He discussed Bayer's development of high-performance HL Grade S-SBR, which presents properties that will reduce rolling resistance and improve wet skid resistance. For silica compounds, HL Grade S-SBR's greater functionalization helps lower production cost by reducing the amount of silane required to couple silica into the polymer. "Nothing comes free," Commander said, "there are disadvantages. !t compounds and mixes differently and gives a lower tear resistance in silica compounds." He reported that Bayer is working with customers in Europe to overcome the processing changes required for HL solution SBR.

For industrial rubber products, "higher operating temperatures under the hood are becoming the norm today," said Commander. "Peak temperatures are going up above 170 degrees C, and longer-term temperatures are probably around 145 degrees C." Bayer has responded with a new formulation of Therban[R] that has significantly higher heat resistance over time and presents a substantially improved modulus over standard Therban[R].

Bayer has also developed an anti-reversion agent - a bifunctional crosslinker - that improves the thermal stability of crosslinks and overcomes reversion problems encountered with a typical curer. Benefits of using the Vulcuren[R] system include significantly improved reversion resistance of NR compounds, improved aging/overcuring behavior, better static and dynamic vulcanizate properties compared to conventional systems, longer lifetime of rubber goods due to superior stability of crosslinks, and improved productivity resulting from higher possible cure temperatures.

Education - a crisis for recruitment

Both John Quinn and William Johnson, Parker Goshen, Chairman of the Board, pointed to an industry wide need to encourage innovation in order to attract bright new recruits. "In the rubber industry," said Quinn, "a co-operative, strategic approach is required to attract and retain talented chemists and mechanical engineers." Johnson referred to the success of the Ferris State University co-op program, which has received over $2 million support from the rubber industry. "We just need to get behind these programs with good teachers, good mentors, good co-op programs and get young people back in the industry," he said.

Dr. Robert Schuster, a professor with Deutsches Institut fur Katschuktechnologie (DIK) (German Institute of Technology), agreed with Quinn's assessment. "The rubber industry needs employees with a good cross-disciplinary technical education, in addition to rubber-specific expertise," said Schuster. Both agreed that on-the-job training is needed, but Schuster went further, saying that the complexity of rubber technology requires a training period of at least five years. "By then," he cautioned, "the employee has reached his/her mid-thirties. The time factor is an increasingly serious problem for university graduates who are to be recruited as tomorrow's executives." Schuster said that in the short term educational institutes should offer specialized one year studies in rubber technology like the one offered by DIK at the University of Hanover. Since its inception in 1985, it has graduated 268 students. "Most of these people have become executives or maintain leading positions in the rubber industry," Schuster told his audience.

Integration and consolidation in the auto industry

Car makers are passing change down to their suppliers as competitive pressures in their industry increase, argued William Johnson as he positioned 1st and 2nd Tier suppliers for further change in the automotive industry. "Competitive pressure from the automotive industry has been intense," he said. "There's over-capacity, there's cost reduction, there's the shortened product life cycle. Vehicle manufacturers have achieved big cost reductions by rethinking car design procurement, assembly and production techniques. The integration of suppliers in product development and the outsourcing of modular assembly has done a lot to bring about the price decreases that vehicle manufacturers need."

As David Cole pointed out, cost reduction is an ever-present requirement for the auto industry and a factor that puts mounting pressure on downstream suppliers, making it more difficult to do things faster and better. "Lean is everything," Cole explained. "We just can't afford waste with systems that are this complex."

John Quinn agreed, saying that scrap and recycling are major issues. "If we don't help the car companies with materials and consistency and getting the scrap factor down, the TPE producers are going to move in on our weather stripping business," he said. "There are actually companies out there that are proud of the fact that they are reducing scrap from 25 to 15 percent - we're talking 20 pounds per roll."

Consolidation is another trend auto makers are rolling out to suppliers. As automotive manufacturers consolidate - they are reducing the number of vendors they deal with. Why?

Globalization is part of the answer. Anticipating flat North American auto sales over the next few years, growth is expected to come from Central and South America, Eastern Europe, the Middle East and Africa. "As auto makers take their platforms global," explained Johnson, "they will want their suppliers to follow. Traditional suppliers will continue to be squeezed. You will be expected to do more for less and do it globally."

"Suppliers and manufacturers are increasingly finding that the boundaries are disappearing," Cole added. "Technology, people and capital are flowing across those boundaries as if they're not there." William Johnson went further to add, "The goal is to have one supplier for one platform around the world. The benefit is to amortize investment, engineering and design costs over a larger number of units."

As they build their global operations, the larger Tier 1 suppliers will be taking a broad approach, integrating many parts into sub-assemblies, Johnson argued. "They will be looking for competent system partners to develop and test these larger more complex systems. They won't have the people to provide innovative technological problem-solving solutions. They won't have the resources to handle development and testing of the growing number of product niches." The result will be that suppliers will need to make large capital investments, raising the stakes in what Johnson calls "the cost to play the game." Many small companies will not be able to raise the capital to ante up.

And don't get too comfortable with your status as a Tier 1 automotive industry supplier. According to Johnson, a different breed of automotive suppliers is emerging - what Johnson says will be "technical specialists" providing expertise and innovation in a narrowly defined technical area. "These companies do not follow the traditional horizontal structure of tiers as we have come to think of them," explained Johnson. "They do not fit neatly between Tier 1 and Tier 2 levels. In reality they are vertically focused and they serve all tiers. They cut across the tiers and ship to everybody." Working within their core competencies, the technical specialists will bring innovative, cost-effective products. For example, Parker Goshen's specialty is seals - an expertise that can serve all of the tiers.

All about time - the virtual prototype

Time and speed are critical to automotive suppliers. "Today, we're looking at a product development goal of 12 months," said David Cole. "That requires real-time collaboration between individuals within a company and between companies, manufacturers and suppliers. It also requires the use of math-based tools. You cannot escape to the prototype building shop and survive in the kind of world that is emerging."

Computer generated virtual prototypes save time and costs, says Cole. Simulation software has advanced dramatically. "Now instead of doing one real prototype, you can do a thousand virtual prototypes or a thousand analyses of the performance of a vehicle's suspension/tire combination. You can look at ride, durability - things that we just dreamed about a few years ago."

"The future is going to be exciting!" David Cole exclaimed. "Fasten your seat belts, because it's going to be a very interesting ride."

An open letter to rubber industry colleagues

With my colleagues at Rubber World Magazine, I am particularly pleased with the successes that marked the conclusion of this meeting. Overall, this year's Global Rubber Conference was successful in focusing attention on global business challenges. Basically I think that, motivated by the presentations, we were successful in discussing the tough questions that will face the industry over the months to come. And I believe that these questions stand as a testament to the intellectual energy of the people who gathered for these two days to focus, rather than answer, the significant challenges presented to us.

While each of us brought a slightly different perspective to the industry's challenges and opportunities, and certainly to the answers that must emerge for our respective businesses, I sense that we also walked some common ground together. Speakers like John Quinn of PolyOne and William Johnson from Parker Goshen gave fair warning that together we must create synergies that will generate new ideas, new methods and new products. David Cole was very clear that the demand is urgent. Whatever we do and however we do it, we need to be quick because our customers are not only changing, they are accelerating change at a breathtaking rate. I, for one, fully agree with John Quinn's assessment that we must cease being "tinkerers", moving slowly, one adjustment at a time, through our own scientific landscape. If there ever was a time when that approach was appropriate, that time is long past.

Personally, I came away from the meeting more determined than ever not to be simply swept along in another wave of change, but to make sure that we have a direct hand in authoring it. At Bayer we are committed to run at, not from, the opportunities that change will create. Our investment strategy, both globally and in North America, already reflects that commitment with expansion and improvements in our halobutyl, Therban[R], solution SBR and BR facilities this year alone. Research and technical support are working more closely than ever to reduce our customers' development cycles. And we have tried to take an industry lead in reducing back-office costs by developing e-business applications to improve the quality and reduce the cost of customer transactions. While I can't speak for the other Global Rubber Conference representatives, I am aware of other centers of excellence and strong leadership throughout the rubber industry and am proud to be in their company as customers and friends.

Once again this gives me the opportunity to publicly thank everyone who participated in the Global Rubber Conference 2000 for their efforts in bringing about what is the beginning of one of our industry's more analytical and introspective annual gatherings. As conference co-sponsor with Rubber World Magazine, Bayer views this first gathering as a significant start to an ongoing journey to stimulate an industry that will become more economically vital and creatively competitive.

Gunter Hilken
GRC Program Chair
President, Bayer Fibers, Additives and Rubber Division