Nokian Tyres' value chain

From raw materials to tyres and all the way to recycling

A tyre is a truly global product whose value chain extends to all over the world: rubber sourced from Indonesian and Malaysian rainforests is merged with industrial components in our factories, and finished tyres are then shipped internationally. Extending a tyre’s service life by retreading is one example of circular economy and how the lifespan does not end with the first user.

In the following diagram, we have combined our special sustainability topics with our value chain. The diagram also shows how the ten UN Global Compact (UNGC) principles align with our value chain. The principles are numbered in the diagram. 

We have defined our value chain as follows:

Value chain

In the following diagram, we have combined our special sustainability topics with our value chain. The diagram also shows how the ten UN Global Compact (UNGC) principles align with our value chain. The principles are numbered in the diagram. The items marked with * are the topics of special significance in the Nokian Tyres’ materiality analysis.

 

1. Raw materials (UNGC principles 1, 2, 3, 4, 5, 7, 10)
The main raw material groups in tyre manufacturing are synthetic rubbers, fillers, chemicals, reinforcing materials and natural rubber, which forms one fourth of a tyre’s raw materials. We use more than a hundred different raw material suppliers that all follow the same rules. All our suppliers must pass the company-specified approval process. The raw materials for tyres come from everywhere in the world, and all our suppliers are committed to our purchase terms that require compliance with international human rights, labour rights and anti-corruption measures. In 2016, 67% of our raw material suppliers had the ISO14001 certification. In order to improve the sustainability of the purchasing chain and the coverage of our supplier assessments, we stared partnering with an external auditor. We aim for more detailed supplier assessments especially in the natural rubber purchasing chain. Moreover, all of our raw material suppliers must conduct a sustainability self-assessment in 2017. Here is an example of the natural rubber value chain.

Supervising the production of crude rubber and the UNGC principles

We supervise the activities of our raw material suppliers by audits and require all the suppliers to commit to our purchasing terms. We set specific terms for the chain up until the raw material processors.

The large number of wholesalers and family farms and their operating model prevent us from applying to them the same terms that we apply to other suppliers in our value chain. The crude rubber sourced from various farms is mixed together already at the wholesaler level, which makes it practically impossible to trace its origin before the processing stage. Especially the UNGC principles that apply to human rights and labour play a key role in all the stages of crude rubber production. We recognise the challenges with the process and are developing our purchasing practices and auditing processes for complying with the principles better. At the same time, we help the processors improve their own operation and promote compliance with the UNGC principles through international partnership with the International Rubber Study Group (IRSG).

1.1. Rubber production (UNGC 2, 3)
Natural rubber forms one fourth of a tyre’s raw materials. As an agricultural product, its production differs from the other raw materials. Most of the natural rubber that we use comes from Malaysia and Indonesia. Natural rubber is cultivated in forests, often on small farms. More than 85% of the world’s natural rubber is produced on farms smaller than two hectares in size whose daily output may be just a couple of kilogrammes of crude rubber. The crude rubber that Nokian Tyres purchases from traders comes from family farms and some larger plantations.

1.2. Wholesalers
Family farms sell crude rubber to local wholesalers. Rubber is produced on a day-to-day basis: wholesalers go around small farms to buy their daily production. To get an idea of the number of these small streams, consider that natural rubber production in Indonesia exceeded 3 million tonnes in 2016*. Wholesalers, in turn, sell the crude rubber to processors. (* Source: Association of Natural Rubber Producing Countries http://www.anrpc.org)

1.3. Processors
Processing plants purify the natural rubber, process it as specified and pack it for further use.

1.4. Traders
From the processors, the rubber is taken to the international market via traders from whom Nokian Tyres purchases its rubber. The price of rubber is determined, among others, by the Singapore Commodity Exchange. Nowadays, even family farms are using their mobile phones to check the daily market rate.

2. Transportation (UNGC 10)
Most of the raw materials for tyres are transported by sea to large ports in Europe – Hamburg and Rotterdam – from where they are shipped to Finland and Russia. Both our factories use similar raw materials from the same sources. This allows us to ensure the quality of our tyres regardless of the site of manufacture: we market our tyres everywhere in the world, and we can only guarantee the same high level of quality to consumers anywhere in the world through consistency in the raw materials and manufacturing methods.

3. Subcontractors (UNGC 1, 3, 8, 10)
We work globally with several subcontractors in various fields, such as construction, security, cleaning, data administration, maintenance and logistics. Especially our factories in Nokia and Vsevolozhsk are frequented by dozens of subcontractors. All of our subcontractors agree to comply with our sustainability policy and ethical principles. Moreover, all subcontractors that work in our factories in Nokia or Vsevolozhsk undergo induction training on safe working practices. We compare and select our subcontractors carefully. Close partnership with our subcontractors ensures strong relationships that benefit everyone.

4. Group functions (UNGC 1, 3, 6, 7, 8, 9)
We produce tyres in two locations: Nokia, Finland and Vsevolozhsk, Russia. In addition, we have sales companies in our key markets, such as the Nordic countries, Central Europe and North America. Every day, our more than 4,400 employees contribute to our continuous development efforts with their competence and ideas according to the Hakkapeliitta Way, our way of doing business.

5. Society
Our impact is directly seen in our factory locations of Nokia and Vsevolozhsk. There, we are locally a significant job creator and a permanent part of the surrounding community: in Nokia, we offer work practice and thesis opportunities, and the Hakkapeliitta Village is a concrete example of our impact in Vsevolozhsk. The financial stream in the report illustrates Nokian Tyres’ economic impact. Our purchases, salaries and taxes and the dividends to shareholders contribute to well-being all over the world.

6. Transportation The expansion of the Vianor chain and the requirements of the car market have led us to change our tyre logistics and consumer insight. We used to deliver tyres to large wholesalers but, nowadays, distribution is more divided into smaller product lots and smaller warehouses. As the number of individual transport operations increases, logistics planning becomes increasingly important.

7. Dealers (UNGC 10) Our group-owned Vianor tyre chain is the largest and most comprehensive dealer in the Nordic countries, Russia and the CIS countries. By the end of 2016, it comprised a total of 1,501 outlets: 212 Nokian Tyres-owned outlets in addition to partner and franchising outlets. The Vianor chain has expanded to 27 countries in Nokian Tyres’ main markets. Vianor builds a foundation for the permanent market share of the group’s products and spearheads the group’s growth along with our Nokian Tyres Authorized Dealers (NAD) network. Our tyres are also sold by car dealerships and tyre outlets around the world.

8. Consumers
Consumers – the users of our tyres – are the most important link in our value chain. The purpose of the safety features, top quality and unique innovations of our tyres is to ensure consumers trouble-free and safe trips in all road conditions. More than 85% of a tyre’s carbon footprint is generated during its use, which means that our product development efforts for improving the tyres’ safety and reducing their environmental impacts are measured during their use by consumers.

9. Recycling
Most of the recycled tyres are utilised for their material; they are shredded or granulated to replace rock materials in various road construction and civil engineering applications. Rubber chips are light, insulate moisture and maintain their form. They support the road surface and make asphalt quieter. The flexible properties of rubber are put to use once more when it is reused as a base material for sports arenas, such as horse riding arenas.

Retreading is one of the best recycling methods. If the carcass of a tyre is undamaged, it can be retreaded – bus and truck tyres up to two or even four times. Another way to utilise recycled tyres is to combust them for energy, as the thermal value of tyres is close to that of oil. We are constantly looking for new ways to recycle and utilise tyres.

This page is included in KPMG’s assurance scope. Assurance report can be found here.