TUCSON, Ariz.—Phelps Dodge Corp., one of the world's largest mining companies, used to negotiate with tire suppliers in the typical win-lose fashion. The company's mine managers would meet independently with tire makers once a year to hammer out the best one-year contract they could get. There would be bickering back and forth, lots of mistrust, feelings would get hurt.
This was a very narrow, short-sighted approach to business, said Steve Holmes, general manager of Phelps Dodge Sierrita Inc., Phelps Dodge Corp.'s copper and molybdenum mine in Green Valley, Ariz., outside Tucson.
"In the long run, everybody loses," he said. "It took us a while to learn that as a company, but we're learning that."
Today, Phelps Dodge prefers to establish long-term alliances with key dealers and suppliers to manage its tire needs, and is doing so at most of its mines. "We recognize we're mining people," Mr. Holmes said. "We're not tire service support experts, so we depend on you folks to provide that support to us."
Mr. Holmes shared his thoughts on "How to sell OTR tires and service to mines" Feb. 18 in a speech to tire dealers and suppliers attending the Tire Association of North America's Off-the-Road Conference in Tucson.
Phelps Dodge manages its tire business through a tire team approach at most of its mines. This is different than five or six years ago, when each mine manager independently handled his tire program.
Tire teams consist of the mine manager and corporate level buyers, who work in tandem with dealers and suppliers.
The tire team's mission, Mr. Holmes said, is: "To develop and implement the best supply strategies that will maximize value to Phelps Dodge," but not necessarily at the expense of the supplier.
Mining companies, he said, must reduce costs to stay competitive because they can't differentiate their products.
Tires, which account for at least 20 percent of a mine's costs, are one obvious area to examine.
Large OTR tires can run a mine upwards of $25,000 apiece and typically provide between 3,500 and 6,000 hours of service depending on type and size as well as the road conditions and environment in which they are used.
Phelps Dodge maintains about 2,600 giant OTR tires at its nine mines with a total value of about $40 million. It has another $10 million worth of smaller sizes, Mr. Holmes said.
Reducing tire costs involves more than simply negotiating the lowest buying price, he said. The tire team, in cooperation with the dealer and tire maker, also looks at ways of improving tire performance through technology and developing efficient operating practices.
Air pressure, for example, is critical to the life of an OTR tire, Mr. Holmes said. "If we can get a tire to run longer, (by maintaining proper inflation pressure) that builds value for the mine and for the tire supplier."
How many times during the week or month do you check the pressures in your big tires? he asked his TANA audience. "A lot of mines don't because they don't have people there servicing the tires who know exactly what they are doing," he said.
But finding those situations that provide value requires cooperation by the dealer and customer, Mr. Holmes said.
Low profile tires, advanced belt packages, changes in tread design, computerized "smart" chips and new compounds all impact tire performance.
"We're involved in all these issues in our mine site," he said.
Building better roads in the mine also can impact tire life.
Tire disposal, too, is another area of concern. So far, it is permissible to bury worn out and junked OTR tires, Mr. Holmes said. But the day is coming when that won't be allowed. Then mines will have to pay for off-site disposal.
"I don't know how we're going to handle these massive four-ton and three-ton tires," Mr. Holmes said, "but somehow we're going to have to solve this problem."
He sees technology driving further advancements in OTR tires.
Today, new tread designs are providing the most significant performance improvements in tires, he said.
But technology keeps changing. Eighteen months ago it was the introduction of low-profile tires that generated excitement.
In the future, Mr. Holmes anticipates advancements in tire compounding and the use of computerized chips inside tires for monitoring air pressure and operating temperatures to contribute significantly to better tire peformance.
He also envisions the day when OTR tires will be designed for a specific mine site. "Technology is driving a lot of that," he said.