ATLANTA (May 9, 2007) — As part of its U.S. strategy and goal of achieving $200 million in sales this year, Nexen Tire America Inc. has opened a distribution center in Atlanta, its second in the U.S.
The newly constructed 260,000-sq.-ft. warehouse, a $2.2 million investment for the company, will have storage capacity for 150,000 tires during peak operation. Nexen Tire is using less than half of the distribution center but said it plans to occupy the entire space once parent company Nexen Tire Corp.'s new tire plant in Qingdao, China, begins production in early 2008.
“Our strategy serves two purposes: Smoother delivery time for existing customers,” said Jack Oh, CEO and president of Ontario, Calif.-based Nexen Tire, “and we are trying to penetrate into the medium wholesaler/retail level.”
Mr. Oh said that prior to the March 20 opening of the Atlanta distribution center, customers in that market had to factor in lead times of up to 75 days because they could order only factory-direct container loads. The distribution center also gives the company the ability to boost business with smaller dealers who may have warehousing/purchasing issues.
The Atlanta distribution center, which serves 40 customers, has a daily delivery system, but Mr. Oh said the company is making an effort to upgrade.
The $170 million Qingdao tire plant, under construction and expected to open in October, will produce 6,000 units per day in the early stages, Mr. Oh said, with a 2008 target of 18,000 units per day. The eventual target is 60,000 tires per day or an annual production of 20 million units.
“When we reach our final goal, our Qingdao plant will be the single largest factory in China,” Mr. Oh claimed. “We are investing continuously in the Chinese factory.”
The China venture is the company's second factory—its main plant is in Yangsan, South Korea—but the rising cost of manufacturing there as well as limited space prompted Nexen to expand, Mr. Oh said. He added that the company has established a Shanghai, China, office and also is setting up a customer base there. The China plant is expected to employ 2,000.
Around the time the Atlanta facility opened, the company secured the use of two 30,000-sq.-ft. satellite warehouses—one in Chicago operated by Cassidy Tire & Auto Service and the other in Little Ferry, N.J., operated by Speed Tire Inc. Both warehouses, which serve 30 to 40 customers, will help advance sales of ultra-high-performance (UHP) tires, the company's “main focus and strongpoint,” Mr. Oh said. Dealers are often reluctant to inventory UHP tires because of the high-end cost, he noted.
“Without securing distribution centers, as time goes by, it might be difficult to sell ultra-high-performance,” he said. The distribution centers support the company's strategy to sell more UHP tires in the U.S. The N6500, an asymmetric UHP tire, will be produced at the China plant.
Despite the company's significant expansions to date, Mr. Oh is focused on future ventures. He is looking ahead to potential distribution centers in Dallas and a larger facility to replace the existing corporate office in Ontario.
“I'm thinking Dallas is optimum because we have the Ontario one in the West and the Atlanta one in the East. I want to set up one more in the middle part of the U.S.,” Mr. Oh said.
He is interested in a 150,000-sq.-ft. facility, and he estimates the cost to be about $6 million. This decision will be finalized by the end of August.
The existing 113,000-sq.-ft. California facility, which serves about 100 customers, has limited space. Mr. Oh is looking for a 300,000-sq.-ft. structure in the region.
“California is the corporate office. Furthermore, when our Chinese factory starts to produce tires, we will need a bigger distribution center so we can provide customer satisfaction in the U.S.”
Nexen Tire has experienced rapid growth in the past few years with sales jumping to $198 million in 2006 from $85 million in 2005.
Mr. Oh said he anticipates sales will hit $200 million in 2007, $250 million in 2008 and approach $300 million in 2009.