The Korean tyremaker has just had a record year and is looking to extend its reach in both mature and emerging markets, with logistics playing an essential role in maintaining service levels to OEMs and dealers
Hankook Tire Company was founded in 1941 but it is only within the last 20 years that the Korean tyremaker has pushed beyond the markets of the small peninsula nation of South Korea. With Korean cars gaining ground in developed and developing markets alike, Hankook Tire has seen its sales jump. For its logistics team, this means venturing into new markets with a web of logistics networks to make sure tyres are accessible to all whether in Angola, America or Antwerp.
A key driver of Hankook Tire’s successful business last year was the establishment of solid footholds in diverse regions, embracing the economic downturn as an opportunity to capture market share. Hankook Tire’s global sales hit a record high of KRW 4.8 trillion ($4.1 billion), an 18% year-on-year increase. The operating profit for 2009 was nearly five times greater than 2008. Markets such as China grew 54% with sales in the Middle East jumping 25%.
The man making sure that Hankook’s tyres are in every nook and cranny of the planet is the soft-spoken Changhee Han, team manager in charge of logistics. With the company since 1990, Han’s international experience includes five years in Spain as country manager for Spain and Portugal, a stint as sales manager for the Middle East and Africa as well as six years as warehouse purchasing manager in the United States.
In January Han was summoned back from Spain to Hankook’s global headquarters in Seoul. He now manages transport from Korea to all of Hankook’s roughly 150 foreign markets with the exception of China. His logistics team has a wide remit, including door-to-door transport, managing every angle of the logistics network, from trucks to ships to networks across the oceans, although, as we will see later, inland transport in some markets is outsourced to shipping lines. “In some countries it is hard–but most countries we service a ‘door-to-door’ delivery which means we are delivering our tyres directly to our dealers or shops or warehouses,” says Han.
In 2009 Hankook sold 80m tyres across the globe made at production plants in Korea, China and Hungary. To facilitate the company’s motto of “Same Day Delivery”, Hankook has central warehouses close to its main customers across the globe. In developed markets such as the US and Europe, Hankook has two types of warehouses: one for the replacement or aftermarket and a separate one for each OEM customer. Warehouses for carmakers are often close to the vehicle production plants.
While warehouses are currently only maintained in North America and Europe, Hankook is considering opening more warehouses in emerging markets to help make distribution quicker.
Hankook has five main warehouses across Europe–in Germany, UK, France, Italy, and Hungary. In Spain there is another warehouse solely for Seat. In Hungary the plant supplies Hyundai in the Czech Republic and Kia in Slovakia.
On the strength of Korean sales in Europe, this plant is now running at full capacity, producing 15,000 tyres per day. The company has already announced a €230m ($312m) expansion project for the plant in Hungary which will double production to 10m tyres annually by 2011.
Meanwhile, the logistics team back in Seoul must make sure there are sufficient quantities of tyres available for sudden growth spurts. Since 2009 Hankook has had to send a greater number of container loads to Europe to meet demand. “That’s why our company is currently focussing on expansion,” says Han.
Hankook’s European production has reduced delivery times from one month to just five days. “This effect will be increased after the completion of the plant extension as more sizes and specifications designated for the European market are produced there,” says Han.
In the meantime, container loads of tyres from South Korea are sent to Hankook warehouses across Europe to supplement European production. For smaller markets, such as Portugal, Hankook moves either full truckload from the warehouse in Hungary or a full 40ft container from Korea, according to Han. Hankook is currently shipping an average of two containers a week to Europe.
Recognising the potential of the Chinese market, meanwhile, Hankook set up two production plants in China in 1999. Currently, Hankook’s tyres account for about 20% of China’s passenger tyre market. Hankook also opened up the first overseas T-Station shop in Shanghai in April 2007. The T-Station concept is an aftermarket service shop that has enjoyed huge success in Korea. The company plans to expand the T-Station network to 300 stores in China’s four major cities of Shanghai, Beijing, Guangzhou and Tianjin by 2013. In 2008 Hankook signed over its in-land logistics in China to Sinotrans for the period from July 1st 2008 to summer 2010.
Overall, delivering to OEMs for production represents only 40% of global sales, while the majority of business comes from the aftermarket. For Hankook this poses significant logistics problems if it wants to maintain its same-day and door-todoor delivery criteria, particularly in markets across Asia or South America, for example, which tend to have undeveloped ports and logistics systems, as well as different consumer preferences.
“Our main export markets are currently North America and Europe so we have warehouses there, but we are preparing warehouses in emerging markets,” says Han. Until then, however, the tyremaker exports directly to dealers in these markets. To effectively manage the supply chain, Hankook has a minimum order policy of one a full 40ft container load, or about 900 passenger car tyres.
Hankook has dealers in many of the emerging markets but frequency of delivery depends on the volume the customer requests. “Normally shipment frequency depends on customer volume–sometimes we deliver on a weekly basis but in the case of a small dealer it depends on their request,” says Han.
These volumes depend on the market share that a tyre dealer has in the country. For example, a dealer in Mozambique might control more than 50% of the tyre market in the country and so their volume is higher than a single dealer in South Africa, an otherwise larger market. “Some countries are smaller but the dealers have more influence,” explains Han.
In South Korea there are two main ports that Hankook uses: Pusan (also called Busan) and Gwangyang (also called Kwangyang). Gwangyang is on the south-central coast of South Korea in South Jeolla Province. The port of Pusan is about 125km northeast of Gwangyang.
Pusan is the largest port in South Korea and touted as the fifth largest port in the world. In 2007, more than 13,000 vessels entered the Port of Pusan, and it handled 13.3m TEUs of containerised cargo. Expansions are currently underway with further facilities to be completed by 2015.
Hankook uses a range of both Korean and foreign shipping companies. The main crux for choosing companies is delivery time. “Normally we choose the shipping company based on some kind of ‘fast delivery’–so not just freight but also delivery time,” says Han.
From South Korea outbound logistics is 100% by vessel but when the container reaches foreign ports it often depends on the shipping line as to which mode of inland transport is used, as they are contracted to deliver to Hankook warehouses or dealers. Once a container arrives in Los Angeles, for example, responsibility remains with the shipping line. “We have a contract with the shipping company for the final destination to, say, Dallas–so we cannot choose the inland transportation method,” says Han. It often depends on the lay of the land, so in the US rail is usually used whereas in Europe trucks are more common.
For customers in South Korea, Hankook uses trucks to deliver tyres to carmakers and dealers. “In the domestic market we have our own logistics centres in the main parts of Korea and we use special trucks to deliver to our dealers and OEM manufacturers in Korea,” says Han.
Carmakers send in weekly and monthly production plans to the tyremaker. Hankook then plans the volume of tyres to be manufactured at its different plants, while the OEMs send in same-day delivery orders. “So that’s why in the case of foreign countries our warehouses are close to the OEMs,” says Han. In some cases next day delivery is allowed, but this is rare, he says.
Hankook uses a supply chain management IT system. “The SCM system covers all processes,” says Han. Currently some Hankook customers use a web-based ordering system as well as a container tracking system to check when the containers will arrive, as each container filled with Hankook tyres is fitted with a tracking system that both dealers and Hankook can check. “The important thing is that we can supply real-time information to our dealers,” says Han.
So what types of regional problems and challenges does the tyremaker face in moving tyres across the globe? Dealers in some countries can have very unique requests.
“Some dealers in the Middle East and Africa want their tyres wrapped,” says Han. To be precise, more like gift-wrapped. Why? “Some countries think that a wrapped tyre is a new tyre–without wrapping they think it’s a used tyre,” says Han. In countries with vast deserts dust storms are frequent and dealers in these regions need to keep tyres dust free. For them the easiest way is to ask the tyremaker to wrap them in plastic with an official Hankook sticker on the package like a gift tag.
And as these markets offer immense growth opportunities for Hankook’s OEM and aftermarket business, it is only too happy to comply. “So of course we are definitely wrapping the tyres before loading up,” says Han with a big grin.