Good supplier business: Pirelli CPO talks to T&A
Following the announcement of Pirell’s 2013 Supplier Awards on 10 April, Tyres & Accessories spoke with Luigi Staccoli, Pirelli’s chief purchasing officer (CPO), to find out more what makes a good supplier.
First, Luigi Staccoli offered his appraisal of the awards event itself: “It was a very successful presentation of the awards with an event demonstrating the performance of Pirelli products running in parallel.” The parallel event is said to have offered representatives of the winning suppliers the opportunity to drive some of the most exciting vehicles available such as the Ferrari California and Lamborghini Galliardo on a test track near Milan.
And why not? “The companies which won the award are those seen as being above the level of mere conformity, transforming themselves into true partners in quality and innovation,” Staccoli explained, adding: “and so also achieving a competitive advantage on international markets”.
With this in mind T&A asked what kind of a difference leading suppliers make when it comes to the production of premium and UHP products. According to Staccoli it makes all the difference: “You can only make premium products from premium suppliers.” And for this reason Pirelli has what are described as “very strict assessment process made by a cross-functional team.”
Of course there are differences in the approach taken by companies such as Pirelli and that taken by the even larger premium manufacturers such as Michelin and Bridgestone. In this case the advantages of size are clear, but Pirelli doesn’t need relationships with every supplier – says Staccoli – but rather with the right suppliers. In order to be the right partner in Pirelli’s eyes, suppliers have to go through a procedure not dissimilar to the OE homologation process that Pirelli itself has to pass in order to enter relationship with some of the world’s leading car manufacturers. This means research and development questions, safety audit, supply consistency assessments, risk assessments as well as laboratory, factory and tyre tests before volume trials. All in all the procedure can last over a year. According to Staccoli, this means that it is very difficult to get on board and rather easier to get off.
Some suppliers – and perhaps we are referring to Pirelli’s rubber and carbon black requirements here – are described as being “the Pirelli’s of their industries”, demonstrating a mutual respect which only serves to strengthen relationships. However, the fact that Pirelli is not buying in the quantities of some other manufacturers means it is at some degree of disadvantage as far as economies of scale are concerned. “Price is only one parameter,” Staccoli countered. What is important is the overall value supplier partners create for Pirelli. And to this end total cost of ownership is becoming more important than simple costs per se. In addition, Pirelli appears to be able to sidestep the disadvantage of its size relative to the top one or two by offering suppliers a bigger piece of their pie – so to speak. But isn’t there an inherent risk with such a strategy? And isn’t this an issue associated with commodities in general?
Staccoli acknowledged the fact that there will always be risks, the object is to negate risks wherever possible. This is done by virtue of some hedging, either directly or through suppliers. In addition risk can be insulated through joint activities with suppliers such as improving efficiencies and offering support with know-how and the supply chain. In a further demonstration of this process, Pirelli’s award winning suppliers are said to be exhibiting a trend towards creating tailor-made products and sharing expertise with customers like Pirelli. This results in original and patentable technology, which helps premium firms like the Italian tyre maker continue to differentiate its products despite the enormous proliferation of brands available on the market. This is especially said to be the case in Pirelli’s area of speciality – top end tyres for high performance markets.
Getting greener
The company is also increasingly verifying levels of green materials in its sourcing processes. Materials already used include versalis, guayule, rice husk ash and recycled rubber in new tyres. And the company’s suppliers are also said to be working towards offering increasingly “green” components in the ingredients they provide. Nevertheless, while the proportion of green materials is increasing this still represents a relatively small part of Pirelli’s overall purchasing spend. Currently green materials represent around 8 per cent of this budget. But when you compare this to the situation just five years ago – when virtually nothing bearing such characteristics were sourced – this is clearly a vast improvement.
Corporate restructuring?
In what was either great politeness or something of an understatement, Staccoli characterised the current tyre volume slump in Europe as meaning the market is “not exactly booming”. However, he also pointed out that the premium sector in which Pirelli specialises is growing. Nevertheless premium competitors Goodyear and Michelin have both recently either made restructuring efforts or announced their plans to reduce European tyre production capacity in a bid to better match output with demand. In Goodyear’s case this mean closing the Amiens plant and exiting the agricultural tyre production business in Europe. In Michelin’s case the plans are more wide ranging, with truck tyre output seen as closest to the chop.
However, while Staccoli said he didn’t have a great deal to add on the subject following Pirelli’s decision to delay publication of its industrial plan, he did say that this may mean covering the output of requirements of fast growing regions with products manufactured in relatively underutilised European factories. This is of course in contrast in what some may have expected – namely reducing or closing European production in favour of Eastern European, South American or Asian production.
While not suggesting the two subjects are linked, Staccoli also observed that the global spread of the company’s supply chain is moving east, a trend that has become increasingly noticeable in the last five or so years. However, with production facilities on every continent, Pirelli is said to be “pretty well balanced” and has a supplier in every major region too. In this respect Pirelli does not subscribe to a local for local policy, instead looking to leverage global value. And value is described as the balance of quality with price, deliverability and risk. The increasing quality of Asian suppliers (a number of which are honoured in this year’s suppliers awards) is of particular importance, with quality standards having significantly increased over the years – especially since around 2007. And this trend does show any signs of abating.
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