California, Here We Stay
As part of a new supply chain management and logistics strategy, Yokohama Tire decides to roll with its current operations in the Golden State.
At the start of 2015, Yokohama Tire Corporation (YTC) relocated its corporate headquarters and distribution center from Fullerton, Calif., where it operated for 28 years.
But rather than leave the state, YTC, whose product line includes tires for high-performance, light truck, passenger car, commercial truck and bus, and off-the-road mining and construction applications, stayed in California. It moved its headquarters to a 57,000-square-foot building in nearby Santa Ana, and its distribution center to a new 658,000-square-foot facility in Chino, about 22 miles away. The moves were part of a massive supply chain management and logistics plan, according to Jeremy Kahrs, YTC senior director, supply chain, logistics, and corporate quality assurance.
Kahrs discusses the reasoning behind the plan, and how it will help Yokohama and its dealers grow business further.
Q: Why did Yokohama decide to move its southern California distribution center and headquarters to two separate locations?
A: The DC and headquarters are expanding, and we simply outgrew our facility in Fullerton. They're two different operations, with a different equation behind the ideal location for each. The real estate cost of a DC, and its proximity to customers, rules that decision. The location of employees and proximity to vendors that service the headquarters, among other factors, dictate where to site offices.
Q: Why did you choose Chino as the location for the western region DC?
A: We receive tires from manufacturing plants in Salem, Va., and Mount Vernon, Ill., and in the future will receive them from West Point, Miss., as well as our offshore facilities. We had to look at how the products ultimately moved from these facilities to our customers, and the cost of logistics.
We scrutinized both the inbound and outbound flow, examining all means of transportation involved in the tire deliveries. We use intermodal to move tires east, so transportation plays a big part in the equation. We knew putting a large DC close to the port would be cost-prohibitive. Ultimately, Chino provided the best business case.
Q: How will dealers and end users benefit from the move to Chino?
A: One of our biggest goals with the move is to elevate customer service to the next level. Given its expansive size, and innovations we are introducing to our operations, the new location will accomplish that.
For example, given the DC's larger size, not only will we be able to hold more inventory, we will also be able to have the facility function as a hub. We'll process inventory that comes from various sources, and allocate it to our other distribution centers as demand requires. This allows us better control over having the product in the right place at the right time. For dealers, this means having the right product mix when they need it.
Situations could arise where we have heavier than predicted sales in one DC and lighter than predicted sales in another. The end result might be a back order. If we bring inventory into Chino, hold it there and then redistribute it, we will have appropriate levels of products where they are needed.
Q: What are the benefits of the new Chino DC in terms of modernization?
A: Besides having it function as a hub, we will introduce an entirely new demand planning system and warehouse management system (WMS). Both systems will bring about higher levels of precision and efficiency.
Inside the Chino DC, we installed numerous wireless access points where equipment on the floor constantly talks to the network. This results in delivering real-time information to operators for increased efficiency. The operators perform all their work via a scanner, which, in turn, increases accuracy and saves time.
We piloted the use of the new WMS at our DC in Columbus, Ohio, while the DC in Chino was being built. We will roll out the WMS to other DCs, including Chino, later in 2015.
We also switched from wooden to steel pallets. Not only are steel pallets more durable, they also allow us to stack products higher given our expanded capacity.
Q: How many loading docks at the Chino DC, and how many tires will you store there?
A: The DC has 116 loading docks. We performed many calculations on the number of tires we needed to hold. Interestingly, the size of the building is almost exactly what we targeted. The facility's capacity is about one million tires.
Q: Will the move to Chino create more jobs?
A: Yes, it will create more jobs due to growth over time, and we will need workers to handle the increased volume of containers coming into southern California.
Q: Do you expect Chino to be a 24-hour operation?
A: We are considering a three-shift operation, which helps mitigate congestion at the port and the ability to get containers out. Sometimes it's easier to move containers out in the middle of the night.
Q: Will overseas tires still go to Chino when the Mississippi plant opens?
A: Yes. We want to hold product as close to where it's manufactured as we can. We'll hold some of the offshore product that comes to the West Coast in Chino until the DCs in the East need replenishment.
Q: Why is logistics and supply chain management so important to Yokohama?
A: Yokohama is focused on customer service, so we try to minimize the time from when an order is placed to when we can deliver it to a dealer. The other piece of the equation is that it's expensive to ship tires. We don't want to ship a tire from southern California to Columbus, then turn around and ship it back to Albuquerque. Our new logistics strategy continuously evolves to minimize the number of miles that those tires move across the country.
Q: Talk a little about Yokohama's U.S. supply chain as a whole. From manufacturing to distribution, how many facilities do you operate, and where?
A: Yokohama's supply for the U.S. market comes from both domestic and offshore plants. Our single largest source is our plant in Salem, Va., but we have significant supply from Japan, the Philippines, and Thailand. In recent years, we increased supply by expanding our off-shore plants, most notably our parent company's (The Yokohama Rubber Co.) plant in the Philippines. Production in our new Mississippi plant will allow future growth in truck and bus tires. We operate four distribution centers: Chino, Calif., Columbus, Ohio, Winder, Ga., and Louisville, Ky. The Louisville facility is dedicated to truck, bus, and over-the-road tires.
Q: How has Yokohama's network changed over the past decade, pre- and post recession? What accounts for this change, if any?
A: Ten years ago, we opened a DC in Columbus. Since then, our network has been stable, with only tweaks to the areas serviced by each DC to adjust for demand and supply shifts. Our recent move in southern California was to accommodate growth and a new inventory replenishment strategy that we are implementing. Columbus and southern California (now Chino) are the right places to be in every scenario we analyze. A few key regions, such as Texas and the New England states, are driving up transportation costs, but they haven't reached a point yet where we can justify a network shift. With production in West Point, Miss., poised to begin, and ongoing growth in Texas and New England, we anticipate the need to make adjustments within two to four years.
Q: Apart from the DC relocation, what other changes is the company making as part of its "massive supply chain management and logistics plan?" Why?
A: We have a rolling five-year plan. Each time we update it, the level of sophistication we aim to achieve notches up. Compared to five years ago, our current plans are more aggressive for updating our technology to facilitate more complex strategies. For example, the idea of operating hubs that will replenish the other DCs isn't unique, but to do this efficiently, we needed to implement new demand planning and warehouse management software. We will continue to expand on this inventory deployment logic as our manufacturing footprint evolves.
At the same time, we have to get better at how we allocate or promise inventory to customers, and how we ship to them. We need to expand the use of pooling and consolidation strategies in Texas and New England, but again, we need to improve systems to do this efficiently. In this case, our order-to-cash system presents some limitations. That will change. Although the logistics plan isn't the driver for a new order-to-cash system, we will take advantage of that change when it occurs. So, we are looking at a plan that changes the way we deploy inventory and service customers, re-engineers our network, and requires new demand planning, WMS and order-to-cash systems. S&OP improvements are in there as well.
Q: The automotive industry's attention to demand-driven logistics and JIT manufacturing is well documented—especially as industry rebounds. As an OEM and aftermarket supplier, how does this impact the way you manage your supply chain? Does the DC operating as an inventory hub reflect this?
A: The major benefits of operating the hub are to pool safety stock and minimize inventory imbalance between DCs. The result is improved fill rates with the same or less total inventory. This generally isn't effective for supply to the OEMs because the majority of original equipment (OE) parts are shipped to only one or two assembly plants. We currently are not using this strategy for OE.
The OEMs want flexibility and quick reaction time in their supply chain without the risk of obsolescence costs potentially resulting from excess inventory. The automakers have competing objectives: Yes, they want the flexibility of JIT manufacturing, but they also need a diversified supply base and low-cost supply, which has pushed them toward global sourcing. The longer lead times associated with sourcing parts globally are counter to the need to reduce cycle times to become more demand driven. Fortunately, the tire world has strong aftermarket demand for most OE parts, so the risk of carrying enough inventory to ensure supply and provide some flexibility to the assembly plants is low.
Q: Transportation is a considerable cost. In addition to rail/intermodal, how is Yokohama trying to drive out cost?
A: Yokohama strives to accommodate our customers' day-to day-needs, which tends to drive up transportation costs. The plan I discussed earlier is all about building upon a service mentality while mitigating some of the cost. Some of our objectives are aimed at reducing waste, such as repositioning inventory, or having tires criss-cross the country as they go from plant to DC to customer. Other objectives are more process or systemic improvements that will, for example, help reduce total LTL miles.
Q: Has Yokohama been impacted by recurring West Coast labor strife? What type of contingencies do you have in place to circumvent these problems?
A: I can state unequivocally that the problems, especially between about September and March 2015, resulted in lost sales and increased logistics costs. Early in 2015, we took actions to increase inventory and ship more product through East Coast ports. This was effective for parts for which we weren't capacity constrained. Sales for parts that were in the highest demand, those for which we had no ability to build inventory, suffered. For the most part, the alternative routes either provided minimal improvement in transit times, had unacceptable costs, or were suffering from congestion as everybody looked for a better route. I anticipate that during the next five years, Yokohama will continue to improve its distribution network throughout the United States, Canada, and Mexico, providing more opportunity to use alternate ports at reasonable cost.
Q: You talked about the selection process for the Chino DC. Why did you choose Santa Ana for the new headquarters?
A: That was a different equation than the DC. We're more concerned about the driving distance for our employees, vendors and for our customers flying in who need to be close to the airport. Employee commute time was a huge factor. We looked at every single employee, how long their commutes were to Fullerton and how long their commutes would be to a new office.
Q: Many companies have moved out of California. What made Yokohama stay?
A: We're a California company and that's part of the Yokohama culture. We have a strong workforce here, and we believe the future is bright in southern California.
Q: Will there be more job openings in the new headquarters?
A: We've added a number of employees over the past year, and I expect that we'll continue to hire this year.
Q: Yokohama prides itself on being a green company. What are some environmental aspects of the new buildings?
A: In Chino, we installed a solar panel system on the roof and a highly efficient, energy-saving lighting system. And in Santa Ana, in addition to more efficient lighting, we've put in two EV charging stations for employees to plug in hybrids or electric vehicles.
We're also focused on minimizing paper waste. We introduced an electronic content management system, which allows employees to digitally archive instead of printing paper. We continue to look for ways to help the environment.
Q: What concerns and challenges keep you awake at night?
A: I'm continuously reviewing the feasibility of our long-term strategies and commitments in light of variables that we don't control, such as port issues, drayage costs, chassis shortages, rail congestion, and driver regulations. If you optimize based on the assumption that you'll have a dysfunctional situation at the port, you are likely to have a less than optimal solution for the majority of the time when the port is operating smoothly. It is nice to have flexibility, but flexibility has a price.