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Nokian Tyres' value chain

From raw materials to tyres and all the way to recycling: the life cycle impacts

A tyre is a truly global product whose value chain extends throughout the world: the 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 the circular economy and how the product life cycle does not end with the first user.

In the following diagram, we have combined our material 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. The impacts from the activities of Nokian Tyres and its value chain members are presented under the diagram.

Value chain

1. Raw materials (UNGC principles 1, 2, 3, 4, 5, 7, 10)

The main raw material groups in tyre manufacturing are synthetic rubber, fillers, chemicals, reinforcing materials and natural rubber, which makes up for approximately one fourth of a tyre’s raw materials. We use more than a hundred different raw material suppliers that all follow the same rules. The raw materials for tyres come from all over the world, and all of our suppliers are committed to our Supplier Code of Conduct, which requires compliance with international human rights, labour rights and anti-corruption measures. All raw material suppliers must, at a minimum, have an ISO 9001-certified quality management system in place. We also prefer suppliers with an ISO 14001-certified environmental management system.

In order to improve supply chain sustainability, we started a partnership with an external auditor in 2016. Our separate sustainability auditing process has been developed together with an expert company and it is based, among other things, on Nokian Tyres’ Supplier Code of Conduct and principles that comply with the UN Global Compact goals.

We have set a goal to audit all of our major natural rubber processor partners by 2020, comprising at least 80% of our natural rubber purchasing volume. Audits support and facilitate the improvement of occupational safety and the development of activities. In addition to the audits by external parties, we track the sustainability of our raw material suppliers in connection with quality audits by our in-house personnel and raw material suppliers’ self-assessments.

The cultivation of natural rubber, which mostly takes place on small farms, and its complex path to becoming a raw material for tyres have a significant role in terms of the producing countries’ social structure. Here is an example of the natural rubber value chain.

1.1. Rubber production

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 who companies, including Nokian Tyres, purchase the 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.

Read more about sustainability in procurement here.

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 of our factories use similar raw materials that come 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 terms of 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. Furthermore, before subcontractors’ employees are allowed to start working in our factories, they must pass 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 4,600 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 as well as the dividends to shareholders contribute to well-being throughout the world.

6. Transportation

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

7. Dealers (UNGC 10)

Nokian Tyres’ products are sold globally via our branded distribution network as well as through car dealerships and tyre stores. Our branded distribution network covers the Vianor and Vianor Partner chains, Nokian Tyres Authorized Dealers (NAD) network and the N-Tyre network. By the end of 2017, the Vianor network included a total of 1,466 service centers, with 194 of them owned by Nokian Tyres and 1,272 operated by Partners. The Vianor chains operate in 26 countries. Vianor is building a foundation for the permanent market share of the group’s products and it spearheads the group’s growth along with our Nokian Tyres Authorized Dealers (NAD) partner network. The business model drives entrepreneurship and affects society in all areas.

8. Consumers 

Consumers – the users of our tyres – are the most important link in our value chain. The purpose of the safety, premium quality and unique innovations of our tyres is to ensure consumers trouble-free and safe trips under all 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 

A part of recycled tyres is 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 venues, including 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 can be retreaded up to two or even four times.

Another way to utilise recycled tyres is to combust them for energy, as the heating value of tyres is close to that of oil. The use of recycled tyres as an energy source has been growing for years and, today, approximately half of the tyres recycled in Europe are used in waste-to-energy applications. 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.