Interview with Kumho’s Dave Hudrlik

(Akron/Tire Review) Dave Hudrlik is vice president of sales for Kumho Tire USA Inc. During the recent Kumho Dealer Meeting, he sat down for an interview with David Moniz, publisher of Tyres & Accessories’ American partner magazine Tire Review.

In the past, Kumho has expressed interest in Formula One racing. Is that still of interest?

“Sure, but that is a lofty goal. We have a desire to go to Mars, and one day we might get there. We have done the development work and we have created a tyre, but there are many other things that go into Formula One. You have to have a lot of infrastructure to support it, not the least of which is brand. So, once the brand gets to a certain level, you can support it. The cost of actually participating in Formula One is huge. So, it’s a work in progress.”

In terms of your fill rate, which you said was around 62%, you want to bring it back up to 97%. And during the meeting you mentioned Kumho is building additional plants in China and Vietnam, and projected how they probably help improve fill rates. What is the timeframe for all of these plants to come on-stream?

“Actually, those are two separate issues. We just opened our Tianjin factory. It was scheduled to open in June 2006, but the factory actually opened in August. Our plan was to consolidate molds for products from other factories. But, when we transferred the molds we started building, we had some technical issues. It was brand-new, ground-up construction, and we had some technical problems within our factory for the first 30-60 days. So, the capacity we had expected to come out of there for the U.S. didn’t happen for an additional 30 to 60 days.

“Our original plan was to build up our inventory levels in the U.S. to make sure we had an adequate time frame to be able to ship molds to the factories. But, we didn’t anticipate that we would have 30 days’ worth of problems. As our inventory levels dropped, we were not getting enough production out of our Tianjin factory, so our fill rate came to about 60-plus percent. The reason I say we want to go from 62% back up to 97% is because now we aren’t going to have an issue that will prevent us from producing more tyres. With all facilities running 100%, inventory is either arriving in our warehouses, is being produced, or is in customers’ hands. So, we don’t anticipate fill-rate problems after the first quarter.

“The other reason I brought it up is that we want our customers to know that we know our fill rate is 62%. And, we are sure that this is a very short-term problem. For the most part, we have had one-on-one conversations with our customers, and they all understand the situation we went through. And, we consistently supply them with information and ETAs on when the product is coming in so that they can better plan their business.”

What is the scheduled time frame for your other new facilities in China and Vietnam to begin production?

“One of the factories will open December 2007, and the TBR factory, which will address commercial tyres, will open in the third or fourth quarter of 2008.”

You have now split your sales force between passenger and commercial. How many sales people are on the commercial side?

“There will be four. It is in process right now.”

Will any of those people handle OE or strictly replacement market?

“Strictly replacement.”

You outlined some pretty lofty goals for next year – $610 million in sales, ramping up marketing and promotions and increasing your sales force and support teams. Is there a set number of dealers that you have in mind to put in place as Kumho dealers?

“We don’t have a target for number of points of sale in the U.S., but as I mentioned in the meeting, Kumho believes that we have the best customer base. We are not actively seeking to sign more distribution. We want to work more closely with our current customer base. That’s really our strategy. We realise we need to support them more than we have. Hence, we’re coming out with an associate dealer program that helps support our distributors. That will also help us know who is selling our products. We want to be able to use all the things we spend money and time on in the marketplace.

“We already had a direct relationship with many of our dealers. But we had no relationship at all with associate dealers. We had to rely on the distributor to promote the brand or talk to them. Once we have created a three-way partnership between Kumho, the distributor and the associate retailer, then we can communicate with each other directly on promotions and things we will come out with to help them sell.”

Talk a little about your new dealer-training program. It seems the other manufacturers are pulling back on this kind of thing.

“Our strategy was to create the best-possible program and start incorporating things that may even be non-tyre related that the tyre dealer has to deal with. There is a void on some of those things.

“When things get tough, when the profit margin isn’t where it is supposed to be, stuff like training is an easy place to cut. Right now, the other guys are just sitting back, going with what they have already created. We are trying to create something that is easier and somewhat entertaining to train the people in something they want to do. And because of that, they will remember us. We want to create a total knowledge base and a training program on everything there is to know about traction control, for example.”

Can you go through your relationship with Snap-on and how that will work?

“Basically, we have a three-year agreement. We are sponsoring their tech magazine, an in-house publication. They reach 1,000 mobile dealers that buy delivery trucks. They are talking to them on a weekly basis and also to about 500,000 other certified techs. When the tech magazine comes out, it is distributed off the truck and then goes to the certified service tech and others. Somebody else in the shop may look at it.

“In the end, we want to drive as many of these people as we can back to the Kumho tyre dealer. Obviously, Snap-on is going to competitive tyre dealers, and the workers there are probably not going to go to a Kumho tyre dealer. But when people try our products, they like them. Those that have never tried our products don’t think very highly of them. But, once they try them, they get that value concept. Our idea is to contact the workers and influence them; then, they are going to influence others.

“When they go to buy tyres on our promotions in February and May, they have to go to a Kumho dealer to buy the tyres. The jobber will be motivated to get that message out because he’ll get a $25 coupon or free tools, etc. We’re just beginning with this company. We don’t know what will work and what won’t.”

When will the first issue launch?

“On Feb. 15. There are two other benefits to this program. One is that there are 4,000 delivery trucks out there that need tyres. Possibly, we can get some of that replacement business. Or, we can give them a motivating element to promote Kumho to be the first replacement on the trucks. Those trucks are independently owned; it is a franchise program. After that, there is always the possibility of getting an OE platform for those trucks. That could be down the road. What I’d like to see is our tyres on those 4,000 trucks. Now, the critical message is that if you are riding on anyone’s tyres, we want you to ride on Kumho’s tyres. You can draw the inferences on your own.

“These guys call on anyone that does any kind of mechanical and service work – tyre dealers, car repair, you name it. They are influencers, and this gives us the ability to influence them. If we give them a log in and they take the training, it gives them an opening because they are independent businesspeople themselves. They can use this to get more contacts.”

Looking to the commercial side of things, these last three years have been robust years for the medium truck tyre market. Now, the forecast is for OE to drop 30% to 50%. You’re not offering a national program, but you are able to hit the P&D market and the regional delivery business. Allocation has been an issue for Kumho in the past. Is that changing anytime soon?

“I don’t anticipate there being any changes in truck tyre supply until 2008. We have such lofty goals on the passenger and light truck side that it made sense for me, at this point, to separate the two organisations. There is a learning curve when we bring people in from the outside to learn our products, how we go to market, even our culture and what the organisation looks like. So now is the time. Even though we are not moving ahead with an increase in medium truck radials, we feel now is the time to get everybody up and running. In 2008, we are going to have a lot more medium truck radials. So, we have to be in a position to go into that market. We will try to stay ahead of the curve.”

‘Extraordinary value’ was a concept that transcended throughout the dealer meeting. When you talk to dealers about Kumho, you get that response: that it’s a value product, and once the customer tries it they get a good response from it, and it seems to work. That said, what are the five things you need to do to break into the upper tier and move that message forward?

“The ‘tier up’ concept is to ‘tier ourselves up,’ to do the things we need to do. When you reach a certain level, you are selling more than a tyre; you’re selling you. When you can break out of that pack, then you have more capability to do many more things – raising price, doing promotions, attracting customers. There are many things that happen when the consumer starts to recognise you. You have created a name for yourself. For us, we are not the only extraordinary value product, but we are an extraordinary value. That is our reason for being.

“To raise yourself up, you need to increase your value. And, the way you increase your value is not only through the product, but to increase your own worth, so to speak. We need to add the resources and increase our service levels. We need to focus on our customer first, and then filter through doing consumer level things at the same time. But, our first goal is to tier up ourselves and tier up the things we provide to the dealer. Focus on the point of sale and then evolve into a company that can focus more on the consumer. But, right now, it is all about making ourselves better so that we can start the process of being able to move up. Right now, we have come a long way, but we are still at the base of a mountain.”

Are there things that you just didn’t have that you now have?

“People. We are adding seven people to our customer service department. The sales department is increasing to 19. The number-one action at Kumho is to increase the operational side of our organisation. Internally, we haven’t developed as fast as we have externally. We know we need to give better service levels to our customers. If you talk to any of our customers, you are never going to hear anything about our product quality. You’re never going to hear anything about the organisation and the way it treats its customers. That is all very positive and strong. But if you talk to anyone about something negative, they are going to say that operationally Kumho needs to catch up with the amount of business we are doing in the marketplace.”

Have you felt that way for some time now?

“Absolutely. It took some time. We weren’t adding any factories, maybe one. We can absorb 5 million tyres globally without much of an issue. But the decision was that we were going to be No. 5 by 2015. If that is really your vision, you are going to need a lot of plants and a lot of tyres. You’re going to have to operate well at all of the things you do. In the past, we resolved issues one on one with the customer; we pick up the phone and do the customer right. But, when you start hitting $600, $700, $800 million, it isn’t as easy to just pick up the phone. You have to grow your internal operations.

“Another thing about the training program is that it’s not just Kumho dealers that will get this training; the internal people at Kumho will also get the training. We actually have training that is beyond the training that will go out to the field. So, we are going to upgrade internally. That is our number-one goal.”