From the rainforests onto the riding arenas:

Nokian Tyres' value chain

A tyre is a genuinely global product. Its journey begins deep in the rainforests of Indonesia and Malaysia, and at the manufacturers of industrial components from everywhere in the world. The different parts are then assembled by the tyre manufacturers which send their products back out into the world. During the last stage of its life, a tyre may be recycled for use as foundation for riding arenas, where it provides a flexible ground for the horses to run on.

In the following diagram, we have combined our special responsibility topics with our value chain. We have defined our value chain as follows:

1. Raw materials
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. We only use suppliers that have passed our demanding approval processes. The raw materials for tyres come from around the world, and all our suppliers are committed to our purchase terms. In accordance with our purchasing policy, our raw material procurement process includes determining the suppliers’ commitment to environmental issues. In 2015, 60 per cent of our raw material suppliers had the ISO 14001 certification. Here is an example of the value chain of natural rubber.

1.1. Rubber production
Natural rubber forms one fourth of a tyre’s raw materials. As an agricultural product, it differs from the other materials by its means of production. Most of the natural rubber that we use originates from Malaysia and Indonesia. The production of natural rubber is forestry, and the farms are often very small. Over 85 per cent of the world’s natural rubber originates from small farms that are less than two hectares in size; their daily output may be two kilograms of crude rubber. Some of the crude rubber that Nokian Tyres purchases from traders has been produced by larger companies on their plantations.

1.2. Wholesalers
Local wholesalers purchase the crude rubber from the family farms. Rubber production is an everyday process: the wholesalers travel from farm to farm and buy their harvest each day. You can try to put these small streams into perspective by comparing them to the natural rubber production in Indonesia in 2015, which amounted to over three million tonnes*. The wholesalers sell the crude rubber to the processors. (*source: IRSG, International Rubber Study Group)

1.3. Processors
The processors wash the incoming raw materials, after which they refine and package the rubber for further use.

1.4. Traders
From the processors, the rubber passes into the international market via traders that Nokian Tyres also uses to purchase rubber. The price of rubber is determined in commodities exchange in Singapore and other locations. Nowadays, even the family farms are using their mobile phones to check the daily market value.

Supervision of natural rubber production and ethical principles

We supervise the activities of our own raw material suppliers with audits and a Supplier Code of Conduct that the suppliers must commit to. We set specific terms for the chain up until the raw materials processors, but some of our long-term plantation farmers also commit to them. The large number of wholesalers and family farms prevents us from setting terms for their operations. Furthermore, the natural rubber from different farms is already mixed by the wholesalers, which makes tracing its origin practically impossible before the processing stage. We also help the processors further develop their activities.

2. Transport
Most of the raw materials for tyres are transported as sea freight to the large ports in Europe, Hamburg and Rotterdam, from where they are shipped to Finland and Russia. Both of our factories use similar raw materials from the same sources, which allows us to ensure the quality of our tyres regardless of the site of manufacture: the tyres are marketed everywhere in the world and, therefore, it is only by using similar raw materials and methods of manufacture that we can ensure that the consumer can experience the same level of quality anywhere in the world.

3. Subcontractors
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. We require our regular subcontractors to sign a contract by which they commit to our sustainability policy and ethical guidelines. We compare and select our subcontractors carefully. Close partnership with our subcontractors ensures strong relationships that benefit everyone.

4. Tyre manufacturing
We manufacture tyres at two locations, in Nokia, Finland and Vsevolozhsk, Russia. Each day, our employees, who number more than 4,000, share their expertise and ideas in the interests of continuous improvement. The Hakkapeliitta Way is our way of working, and it can be seen in how we do our jobs.

5. Society
Our effect on the surrounding society is most visible at our factory locations in Nokia and Vsevolozhsk. We are a large local employer, and we operate as a stable part of our surrounding communities: We offer tyre industry training in Nokia, and in Vsevolozhsk, the Hakkapeliitta Village is a concrete example of the effect that we are having. The cash flow diagram in the report visualises the financial effects of Nokian Tyres. The purchases, salaries, taxes, and dividends paid to our owners contribute to well-being all over the world.

6. Transport
The expansion of the Vianor retail chain and the requirements of the car dealer business have brought about changes concerning the logistics chain for our tyres as well as our consumer insight. Previously, we delivered tyres to large wholesalers, but nowadays, distribution is increasingly divided into smaller product lots and smaller warehouses. Logistics planning becomes even more important as the need for individual transport increases.

7. Resellers
The Vianor chain of tyre retailers that we own and operate is the largest and most comprehensive business in its field in the Nordic countries, Russia, and the CIS. At the end of 2015, it included 1,475 sales outlets, of which 198 were owned by Nokian Tyres, while the rest operated on a partner or franchising principle. The Vianor chain has expanded to 26 different countries in Nokian Tyres' main markets. Vianor is building the foundation for the permanent market share of the group's products and it spearheads its growth; in these tasks, it is assisted by the new partner network Nokian Tyres Authorized Dealers (NAD). Our tyres are also sold by car and tyre dealerships all over the world.

8. Consumers
Consumers – the people who use our tyres – are the most important link in our value chain. The safety characteristics, premium quality and unique innovations of our tyres are designed to ensure trouble-free trips under 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 tyres are recycled as materials, i.e. they are crushed and ground and then used to replace rock in different road construction and landscaping projects. Ground tyres form a light material that seals off moisture and maintains its physical shape; it works well in supporting road foundations and reducing asphalt noise. The flexible properties of rubber can give it a new life as foundation for sports arenas, where it puts more spring in the steps of horses.

Retreading a tyre is one of the best forms of recycling. A tyre with an intact body can be retreaded, and for bus and truck tyres, the process can be repeated up to 2–4 times. Tyres can also be incinerated in order to produce energy, since the thermal value of tyres is nearly equivalent to oil. New recycling methods and means of utilisation are constantly being sought.

Read more about Finnish Tyre Recycling Ltd

 

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