MILAN, Italy—Pirelli S.p.A. will invest nearly $1 billion in the coming three years to transform itself into "e-Pirelli," a company equipped to take full advantage of the revolution in e-commerce. About half the investment will be in tires, where Pirelli already has initiated more than 20 separate projects to develop e-commerce ventures that will transform the business and "revolutionize the unit's profitability parameters," Chairman Marco Tronchetti Provera said.
The bulk of the capital spending on tires will be for the construction of five tire plants using the company's new flexible manufacturing process: Modular Integrated Robotized System (MIRS).
The new plants—at least one each in Europe, North America, South America and Asia by year-end 2002—will have combined annual output of 10 million tires, primarily of the higher-value-added, high-performance type, Pirelli said.
A MIRS-based plant occupies only about one-fifth the space of a comparable conventional plant, Pirelli said, and uses one-third less energy. As a result, the initial investment is cut by half and operating costs by 25 percent. MIRS-based manufacturing also opens up opportunities for streamlining the development process and speeding up product development cycles, the company said.
Also under development are so-called "intelligent" tires, which will be capable of interacting electronically with a vehicle's security systems, with the car owner, with dealers or with the car makers.
Pirelli's short-term goal is to generate about $1 billion of its annual sales revenue via internet transactions, counting both business with suppliers and customers, a spokesman said. In Europe, Pirelli expects half its replacement tire orders from dealers to take place electronically by year-end, double what they are currently.
In fiscal 1999, the company's tire unit sales fell 5 percent, to $2.73 billion, largely because of eroding prices, unfavorable currency swings and the loss of sales from the agricultural tire business, now operating as a joint venture under the control of Trelleborg A.B.
The sales decline, coupled with sales gains in cables, shifted the cables-to-tires business ratio from roughly 50:50 to 60:40.
Pirelli has made some major moves in cables lately—including five acquistions in the past year and the creation of a strategic business alliance with Cisco Systems—and continues to push investment in optical cables and underwater fibers technologies, markets with high double-digit growth rate projections.