Highlight from Integrated Report

Chairman
Nisshinbo Brake Inc.
Koji Nishihara

President and Group CEO
TMD Friction Group
John Hudson

It’s now been five years since TMD joined the Nisshinbo Group.
What have your companies gained from the relationship so far?

John Hudson: Before Nisshinbo Holdings became our principal shareholder, TMD had around 12 years in the private equity investor community, which tends to be focused more on the next one to two years. It was very good coming back under the ownership of a strategic investor. With the Nisshinbo Group, we now have the support of a large organization, and together with our Nisshinbo Brake (NISB) colleagues, we’re able to look at a much longer timeframe of five to seven years, and sometimes 10 years or longer, when developing strategies for growing the business.
The benefits of that approach are numerous. The employees feel part of a much larger family, and that’s important when we explain our long-term vision to them. We’ve been able to discuss openly with our NISB colleagues about common product development projects and share ideas and approaches on how to develop next-generation manufacturing technology.

Koji Nishihara: In the fiscal year ended March 2013, the first year after TMD became part of the Nisshinbo Group, the automobile brakes business reported an operating loss of ¥4.3 billion after goodwill amortization costs. In the most recent fiscal year, profits were almost back to breakeven. That ¥4.3 billion improvement in operating income over the last three years was driven by profits of ¥3.0 billion from TMD and profits of ¥2.5 billion from NISB, partly offset by an increase of ¥1.2 billion in goodwill due to a drop in the value of the yen. That illustrates just how important TMD has been in turning round the segment’s earnings in recent years.
NISB made its first move into overseas markets in the late 1990s. After building several plants overseas, NISB appeared to be transforming itself into a more global company. But once we started working with TMD, it became clear that our overseas operations were merely an extension of our domestic business, retaining a strong Japanese business culture. With its different customers, origins and business approaches, TMD gave us a valuable insight into how to make NISB a truly global company.

To what extent have TMD and NISB integrated their businesses?

Koji Nishihara: Even before we completed the acquisition of TMD in November 2011, we were talking to their management team about our corporate mission, values and vision. We knew it was vital to create a common set of principles in order to bring together two companies with completely different backgrounds. Of course, it wasn’t all plain sailing. It took time to work out how to combine our Japanese approach with TMD’s Western business culture.
The main principles of the Nisshinbo Group’s Corporate Philosophy are Public Entity, Consistent Integrity and Innovation.
To help TMD employees understand our philosophy, we introduced PASSION, a catchword from a book written by Kazuo Inamori, founder of Kyocera Corporation.

John Hudson: PASSION stands for Profit, Ambition, Sincerity, Strength, Innovation, Optimism and Never giving up. We have created a related pamphlet and distributed it to all TMD employees to encourage them to think about the Nisshinbo Group’s corporate principles.
One of the really positive aspects of the discussions we’ve had over the last five years is that both sides have identified processes and approaches they would like to adopt from each other. That sharing has highlighted different skills and different strengths that both parties can benefit from. To give an example, TMD and NISB took different approaches to strategic planning and long-term business planning. We combined the best parts from both companies to create a new NISB-TMD long-range planning process, in the same way that we shared understanding and knowledge in the joint development of next-generation, copper-free materials.

Koji Nishihara: After the merger, our first step was to create an Opportunity Team. TMD and NISB each selected several experts to join the team. Together they embarked on a global tour of TMD and NISB business sites to help them kick-start the process of integration.
In R&D, we developed a common set of green guidelines, including environmental standards on the type of base materials we should and shouldn’t use in our future friction materials.
In procurement, probably the easiest area to make shared progress, we established a joint team to find ongoing cost savings in procurement.
We have taken several steps to integrate logistics operations, including relocating TMD Japan to NISB’s Tatebayashi Plant.
We also created the Global Management Team (GMT), comprising myself, John Hudson, Seo In-Seok, who is President of Saeron Automotive Corporation (SAC) in Korea, and other key individuals. The GMT is a forum to share common challenges and discuss and decide the strategic direction of the business.

John Hudson: I think one of the most important aspects of the GMT is that it allows us to sit in the same room together and talk face to face about common topics. It’s part of how we build the long-term working relationship inside the NISB-TMD organization.
Without that forum, I think we’d lose a lot of opportunities.
We also run cultural awareness training sessions. Our organization is global, spanning Japan, Korea, Europe, China, Brazil, and Mexico, all home to different cultures. We have a lot of international business people in senior management roles at TMD, which has helped us support the Nisshinbo Group in its desire to become a more international business. But we still need to keep reminding our people that there are different cultures, as it’s easy for them to automatically revert to what they understand and remember. So, we have to keep talking. We have to keep meeting. And by doing that, we steadily build a unified team approach.

Koji Nishihara: One German employee from TMD and a Korean employee from SAC currently work with us at NISB head office. We are also about to launch a joint CSR training program for TMD and NISB personnel, and every year we hold global meetings for each function in our operations, such as R&D, quality assurance and manufacturing technology.

John Hudson: And we do this also for HR and IT, so nearly all of the functions have regular meetings. Inside TMD, we hold a number of international conferences. We have an HR conference, an R&D conference and so on, and we invite NISB colleagues to attend.
NISB itself has similar conferences, and we send people from TMD to participate. It’s all part of a learning process to understand each other better, but it also helps us develop the next generation of products and manufacturing technology.

Koji Nishihara: 2In 2016, we launched a new project called Mission Zero, Step by Step to drive improvements across all business sites operated by TMD, NISB and SAC.

John Hudson: The goal is to reduce the accident rate to zero and quality issues to zero. At every business site in the NISB-TMD world, we’ve been running Kaizen improvement projects. Some of them are focused on safety, some on quality assurance, and others on efficiency in the factory. Drawing on the best of those Kaizen projects, we invite about 20 people from Kaizen teams across TMD to attend a joint event – this year it was in Tatebayashi. We then select the best Kaizen project in the whole NISB-TMD organization. But the greatest reward from bringing the teams together is that they start to understand what colleagues in Tatebayashi have been doing compared with their colleagues in Queretaro in Mexico, or colleagues in Romania, helping to share best practice around the group.

What progress have you made in realigning manufacturing in Germany and Brazil?

John Hudson: Both projects are on time and progressing well. In Brazil, we have a factory that is 50 years old. It’s in the middle of a very desirable residential area with narrow streets, which makes it hard to bring in raw materials and ship finished goods. Local people also don’t want to have a factory next door. So, with support from Nisshinbo Holdings, we set up a project to relocate the factory to a dedicated industrial area around 20 kilometers away. We plan to complete the move by the end of 2017. The existing site will undergo remediation before being sold.
In Germany, we have two factories less than 75 kilometers away from each other supplying original equipment (OE) parts for passenger car automakers. For a number of reasons, we decided to merge them into a single site. One site, like our existing Brazilian factory, is close to a residential area, but the main reason is to reduce costs, as running two factories is more expensive than one factory with a larger output. We’ve started building new facilities at our site in Essen and we plan to complete the project by the end of 2018.
We’re installing next-generation manufacturing technology at both our new sites in Brazil and Germany. That should generate significant benefits, as the new technology will help us reduce headcount in manufacturing processes. We’re bringing in the NISB philosophy on raw materials storage, raw materials handling, and raw materials mixing as part of efforts to further improve the quality of our products. We’re making big investments and taking big steps in technology for both Brazil and Germany, in line with our agreed roadmap for next-generation manufacturing.
So, there are big improvements in the pipeline for manufacturing in terms of both unit cost and quality. Our employees will also have the opportunity to learn new skills. More computer and IT technology will be needed to automate the equipment but also to carry out online quality control checks.

What steps will you take to deepen cooperation between TMD and NISB?

Koji Nishihara: The most important thing is to maintain momentum in existing areas of cooperation. After studying numerous M&A deals, I’m convinced that basic business mergers are not the best way to ensure the Japanese approach to manufacturing takes root across a global organization. In my view, the easiest way to integrate two business entities is to retain the best parts of each company and gradually increase the scope of cooperation. However, management structures will, eventually, need to be combined. We plan to do this but the timeframe has not been finalized yet.

John Hudson: I think there are some areas where we’ve already made good progress. For example, in the independent aftermarket, we’ve agreed that the TMD independent aftermarket team will grow the business for NISB-TMD. So that’s already under way. In sourcing, we have set up a project team to use the skills and processes within the TMD world and spread them across the whole organization.

Koji Nishihara: The emergence of regenerative brake systems* and automatic brake systems could lead to significant changes in our business. In the face of change, the most important thing we need to remember is that we have to leverage our technologies and problem-solving capabilities to keep our customers happy. We will enhance those strengths while also adding capacity and building networks to ensure our global customers worldwide are satisfied.

John Hudson: I think if we can keep communicating, keep the learning process going, and keep exchanging personnel, then we have a very strong future together.

* Hybrid and electrical vehicles are fitted with regenerative brake systems. Energy generated during braking is recovered as electrical energy, which is used to power the vehicle.
Friction materials used in hybrid systems that use a combination of regenerative and conventional hydraulic brake systems are likely to last longer.

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