KOBE, Japan — Sumitomo Rubber Industries Ltd. (SRI) has published a five-year business plan that calls for overhauling its operations in a bid to increase profitability and performance.
Among the provisions proposed is the possibility of additional production capacity being built in North America starting in 2026 or later, the company said in its Mid-Term 2023-27 Plan.
"With efforts to enhance our investment capacity already under way, we are actively looking into our options for a new production base in the region beyond 2026," it stated.
This initiative would be part of efforts to address falling profitability. The efforts also would include revamping its profit structure in North America and expanding local production with the aim of becoming the No. 1 mid-tier tire brand (Falken) in the region in medium term.
SRI also noted that its plan to overhaul local production is designed to mitigate, among other factors, the risks of tariffs and freight shipping costs.
While "continually working to improve profitability" at its U.S. factory, SRI said it will "consider all possible options" to overhaul profit structure in the region toward achieving profitability by 2025.
Sumitomo's manufacturing in North America is concentrated at its 100-year-old factory in Tonawanda, N.Y., where it's in the midst of a $130 million expansion and modernization project designed to nearly double the plant's daily capacity to over 14,000 units.
SRI published its Mid-Term Plan Feb. 14 along with its fiscal 2022 results, which showed the company reporting double-digit drops in operating and business profit for the year ended Dec. 31 despite 17.4% higher sales.
Operating income fell 69.5% to $114.2 million on revenue of $8.37 billion, cutting the operating ratio four points to 1.4%. Net earnings fell 68% to $71.6 million.
In addition to the planned measures in North America, SRI said it aimed to optimize its business portfolio through other measures such as "selection and concentration".
The group's "transformation project" is designed to address a $425 million decline in business profit within its tire business during the 2016-22 period.
The primary factors behind this decline, SRI said, have been "worsening business profits in North America" as well as a worsening break-even point due to increasing fixed costs and variable costs.
SRI explained that over the past decade, it invested heavily in expanding manufacturing and sales bases with the aim of establishing a global business framework.
"However, these investments have yet to produce commensurate returns, resulting in a steady decline in our overall profitability," the Kobe-based firm said.
The situation, it added, has been further compounded by the recent unforeseen changes in the business environment.
These, it said, will include a 30% reduction in the number of consolidated SKUs in order to achieve more efficient production, sales and inventory.
The group will also look to optimize raw material costs "to swiftly and flexibly cope with soaring market prices."
Groupwide, SRI said it will be revamping production allocation for optimized production and logistics.
As part of that the group will be "shifting personnel and resources toward and actively investing in growing/profitable lines of business."
"We will free up and shift resources toward achieving a new period of growth by promoting IT literacy education and more efficient operational design," it concluded.