LSC803 Assessment 3

Supply Chain Strategy Scenario:

Swift Tyres

Swift Tyres' slogan: 'Swift and Sure'

This case is fictitious and therefore there is no need to

contact the named companies.

Background

A decade ago, New Zealander Matt Swift, a keen competitive cyclist, decided he had had
enough of losing race-time by changing tyres as a result of punctures and loss of pressure.
He remembered his first bike – a tricycle – that had been fitted with solid rubber tyres that
never needed changing. “Why isn't there a solid bicycle tyre for adults?” he asked.

He was aware that there were products in the market that, by injecting foam into flat car tyres,
would re-inflate the tyre and allow it to be driven to a garage without the tyre needing to be
changed at the roadside. He recognised that this system, while obviously a temporary
emergency repair, could provide the basic idea for a bike tyre that would never go flat. He
thought of all the advantages a competitive road or trail cyclist would have if they never had
to change a tyre during a race.

Further research and discussion with manufacturers of foam products convinced Matt that a
non-deflating bicycle tyre could be manufactured with a foam-filled core. He lost no time in
applying for an international Patent for his non-deflating bicycle tyre and he leased floor space
in an industrial estate in south Auckland near Auckland International Airport. After importing a
production rolling machine and vulcanising mould from Europe, Matt then modified the mould
so that, rather than using water pressure to squeeze the tyre into its tread-pattern, foam was
used instead. Thus Swift Tyres was born.

The special foam, produced by Do Punt Technologies (DPT), a company based in Cambodia,
quickly solidifies after injection and forms a flexible, incredibly lightweight core. The core can
simulate any tyre pressure required depending on the time the tyre remains cooking in the
mould. This is the system that has defined the Swift Tyres product and provides the foundation
of its success, until now. (DPT also produces the colourful foam tubes and children’s' toys
used in swimming pools world-wide)

Unfortunately the international Patent application was declined – solid tyres are nothing new,
nor is the concept of filling tyres with foam - however Matt figured that he would have several
years to establish market share for Swift Tyres, and so it turned out. Matt had targeted New
Zealand and Australia as his initial 'test' market because he is a known name there and
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because there are no trade barriers between the two countries. The success of Swift Tyres
caught everyone by surprise.

The 'Salad Days'

By 2014, Swift Tyres were manufacturing tyres for mountain bikers and road racers. Though
50% more expensive and 15% heavier than regular air pressure tyres, the Swift Tyres product
has proven to be very popular in New Zealand and Australia because the customer sees value
in the convenience of not having to change tyres until they are fully worn out, and because
they gain competitive advantage during races. Soon it became apparent that even non-
competitive cyclists were buying the product.

By 2016, Swift Tyres were producing thousands of tyres a month, 80% for export, from its
plant in south Auckland. It now uses multiple machines and employs hundreds of staff on the
production line in a multi-shift five-day per week operation. Manufacturing floor space is at full
capacity, with tyres stacked everywhere. Rubber, beads, chord, and the foam are all imported
from South-East Asia, the production machinery is European*, and the product is distributed
nationally and overseas via whatever transport method appears appropriate based on the
order quantity and urgency at the time. Currently, all of the product is sold wholesale to cycle
shops and cycle manufacturers.

* Rubber, tyre beads, and chord are supplied by Tee Rubber Performance Tyres (TRPT),
Thailand. The foam is supplied by Do Punt Technologies (DPT), Cambodia, as stated
above. The manufacturing machinery is produced by Hurnshel STP, Germany. (Note, all
company names are fictitious).

Issues and Problems

Swift Tyres has a declining reputation for product quality and reliability based on customer
feedback. There have been issues related to the quality of the rubber sourced from TRPT in
that its elasticity and durability varies depending on the shipment. Swift Tyres has had to recall
more than one production run of finished tyres due to this problem and now employs quality
control staff who test the rubber before it is used for manufacture. TRPT have indicated that
it will 'take steps' to improve the quality of its product, but currently Swift Tyres has no visibility
of the problem or what these steps might be.

The foam supplier, DPT, is hinting that it will be putting its price up when the contract is
renegotiated later in 2018, citing increasing storage and staff costs due to irregular demand
from Swift Tyres as the reason. Because the foam is contained in high-pressure cylinders, it
cannot be transported by air due to flight safety regulations. Even transporting the foam by
surface is problematic, involving special handling, approvals, and clearances, and so Swift
Tyres tends to limit these overheads by ordering a large quantity of cylinders per shipment.

To add to his supplier worries, Matt has heard an unconfirmed rumour from one of his
customers that DPT may be treating its staff badly, to the point of slave labour, and if this is
true and it becomes common knowledge then it will undoubtedly affect the reputation of Swift
Tyres. Separately, TRPT has informed Matt that political turmoil in Thailand is affecting its
ability to meet its recent orders on time and, though it is a temporary problem, it is impossible
to predict how long this situation will last.

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Swift Tyres has increasingly struggled to meet its own orders in a timely fashion. Demand for
bicycle tyres is high in the summer and low in the winter. Retailers like to stock up in early
spring in anticipation of high summer demand. Retailers know that if they don't stock the item,
be it a bike or tyre, then the customer is likely to go elsewhere on the same day rather than
order a product and wait for it to arrive. Cyclists tend to leave their bike maintenance to the
last minute and then purchase parts when they are urgently required – so every order is urgent
from the customer's point of view and any undue delay engenders an emotional response.
Unfortunately orders have occasionally gone missing or been unacceptably delayed in transit
for no apparent reason. A number of orders have been incorrect and had to be returned,
usually as a result of staff errors at Swift Tyres.

The result of the foregoing problems has resulted in increasing inventory 'just in case'.

Matt has not been blind to these problems. His own analysis has found that Swift Tyres'
forecast accuracy is about 50%, it takes five to 10 days to respond to customer delivery
requests; sourcing globally has extended lead times to 10 to 12 weeks in a market that
demands short lead times; and financial returns for the business are well below industry
averages. “Only engineering appears to know what dates it will hit in terms of new product
introductions” (usually new tyre tread patterns and sizes), and “When I ask Sales why a
forecast was missed I would be told “Because customers didn't order!”, but why didn't they
order? That we don't know.” By asking questions, Matt has also found that 'walls of silence'
are restricting the flow of information between supply, engineering, marketing and sales in the
company. Refer to Figure 1, below. This is probably compounded by the old software that
each department uses, but the software itself does not explain the 'blame culture' that appears
to exist.

Figure 1. “Walls of Silence”

All this is hurting the bottom line.

Worse still, disturbingly similar products have recently come onto the international market.
Competitors are no doubt leveraging off the success of Swift Tyres and intending to meet
increasing worldwide demand for non-deflating bicycle tyres. It appears the 'salad-days' are
over – a time of serious competition is about to begin.

Crisis Point

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Matt the competitive sportsman and entrepreneur is not going to give up in the face of these
problems. He is aware that many employees have helped build the company, they and their
families rely on him for their livelihood, and he is convinced that the future should be bright for
Swift Tyres. Matt has reviewed his company's situation and determined the following:

To meet international demand for product and break into the huge European, American and
north Asian markets, Swift Tyres needs to increase capacity; and to compete successfully,
Swift Tyres needs to enhance the performance of its supply chain in order to improve customer
service. Failure to achieve these two goals will most likely result in bankruptcy, within six to
eight years. If Swift Tyres can achieve the goals, then the sky is the limit.

The problem for Matt is that he is unable to increase Swift Tyres' capacity, given the limit on
the company's finances, unless he can first dramatically improve its efficiency and overall
performance. Given that Matt knows that the product is 'good', he has concluded that the first
step towards achieving the required improvements is to design a supply chain strategy which
will focus on assessing and managing the risks specific to the Swift Tyres’ supply chain and
which includes proposals for management of customer market demand uncertainty in terms
of demand-and-supply along multiple stages of the supply chain.

Taking Action

As a first step, Matt Swift, Managing Director of Swift Tyres, has contracted you, a recently
qualified supply chain consultant, to design a supply chain strategy in support of the
company’s goals. Refer to the ‘Your Assignment’ section of this assessment.

To give you some further context to this scenario, you may want to watch the following You
Tube video: How bicycle tyres are made

http://www.youtube.com/watch?v=JM_x0qPM8Ok

LSCM803 Assessment 3