National Bicycle

September 7, 2017 Business

Executive Summary As National Bicycle transitions to the production of a customized bicycle, employing a concept of mass customization, the Company must ensure that its supply chain is responsive enough to handle the characteristics of an innovative product. Demand will be highly unpredictable and the final product, with over 2 million options, will also be unpredictable. Given National Bicycle’s current high level of automation, the transition to the POS system should be smooth. Its current supplier and delivery arraignments will accommodate the product switch.

The final critical factor to the success of the customized bicycle is a business decision: determining how much order lead time to incorporate into the production of the bicycle that will both match the production requirements and capabilities of the Company and also satisfy the demands of the consumer. After careful analysis of National Bicycle, examining its production capabilities and business goals of the product, a lead-time of 10 days will help the Company achieve its goals.

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It is long enough to provide the Company some flexibility in production and delivery without straining its resources. And it will meet customer expectations of providing them a unique product in a relatively short time period. To meet this goal, National Bike will have to amend some of its supply chain, including requiring all dealers to use fax machines to facilitate bicycle orders. In addition, the Company will have to develop a more robust delivery process to ensure the reliable delivery of its bicycles without straining company resources with regular single item deliveries to the Honsha.

In addition, the Company should seek better relationships with its suppliers in an effort to mitigate some of the business risk associated with the imperative of having the right parts available. However, with these slight modifications to its supply chain, National Bicycle should have few difficulties transitioning to more responsive manufacturing. The Company has an excellent opportunity to innovate the Japanese bicycle market. Analysis and Recommendations Misuru Komoto, the new president of National Bicycle, has proposed dramatic innovations to Company operations in an effort to resurrect its flagging sales.

Komoto has directed National Bike to expand the Company’s high-end sport bike business, moving the Company from building traditional, functional bikes to an innovative custom bike. To make the transition successful, National Bike must consider the fundamental differences between the product characteristics. At the center of Komoto’s new initiative is the concept of mass customization, building a large volume of high-end, custom-made bicycles featuring over 2 M different options, while avoiding the high manufacturing costs and high lead times traditionally associated with customized products.

In addition, National Bicycle must avoid the costs associated with keeping large inventories of parts on hand. THE POS SYSTEM The POS system gives National Bicycle the opportunity to innovate the bicycle market by allowing the Company to offer a true customized product to the public. The POS system is perfectly tailored to supporting an innovative product: ?Uncertain demand ?Inventory Obsolescence ?Stock outs ?Short product lives To achieve the goals of the customized bicycle product, National Bike must examine its supply chain and achieve some fundamental changes in order to achieve better efficiencies.

The key consideration is order lead time: To make mass customization work, National Bike must deliver its products within a reasonable amount of time. People will wait for customized goods, but the Company must be wary of their customer’s patience threshold. Currently, the critical factors for lead-time include: ? Order receiving and processing ?Production capability ?Supply chain responsiveness, including stock outs ?Delivery ORDER RECEIVING AND PROCESSING Currently, it takes National Bicycle an estimated 10 days to receive and process orders from its dealer network.

National bicycle needs to improve the efficiency and reliability if the customized bicycle product is going to be successful. PRODUCTION CAPABILITY Attached in the Appendix of this document is a detailed calculation of National Bicycle’s current customized bicycle production capability. The current capability of 53 bicycles per day, based on a three-hour per bike estimate, should be sufficient to meet current internal forecasts of 250 per week during peak seasons. SUPPLY CHAIN RESPONSIVENESS

Current supply chain responsiveness seems adequate to support the customized bicycle product. The short production time required for the bicycle lends greater production flexibility to the Company. Parts can be ordered and received in one week. The related issue of stock outs is a significant consideration. The success of the customized bicycle is predicated on having timely availability. As such, current supply flexibility should make the risk of a stock out very small, less than 5%. Stock outs should not affect the order to delivery schedule of the Company.

DELIVERY National Bicycle relies on Hansha to deliver its bikes to the Company’s dealer network. They have proven to be efficient and reliable, and should be able to accommodate customized bicycle delivery. However, the Company will have to revise its process and scheduling to avoid multiple single item deliveries to the Honsha. RECOMMENDATIONS Based on this analysis, National Bicycle should continue its reengineering to the POS system and offering its customized bicycle to the public as soon as possible.

To that end, National bicycle should immediately begin to prepare both its dealer network and its suppliers for the transition. In addition, the Company must begin to develop and implement its own internal process and procedures so that disruptions to production will be kept to a minimum. It is recommended that National Bicycle’s supplier network be required to purchase facsimile machines to facilitate orders for customized bikes, in addition to the required display samples, fit kits, and other material related to the sale of customized bikes.

Such a policy will help ensure the Company meet a reasonable order to delivery time, critical to generating customer demand. While there may be some reluctance to such a large upfront commitment, both the Company and the dealers will be better served in the long run, ensuring the success of the customized bicycle product. After analyzing National Bicycle’s production facility, the Company should be able to produce 53 bikes per day, within the internal forecast of 250 bikes per week. Given that capacity, National Bicycle should offer an order to delivery time guarantee of 10 days.

Such a lead-time should give the Company enough flexibility to respond to the orders while giving sufficient cushion to account for minor disruptions. In addition, the 10-day policy will be viewed as reasonable in the eyes of the consumer, increasing the overall attractiveness of the customized bicycle. Finally, it recommended that National Bicycle revisit its relationships with its current suppliers and determine if each will be able to meet the increased expectations associated with the POS system.

Additionally, National Bicycle should begin to look for ways to improve communications with its suppliers to facilitate improved efficiency. Implementation To implement National Bike’s POS system, the Company must improve efficiencies in its supply chain, creating a more flexible, system that will enable the company to handle the challenges of producing an innovative style of product, especially unpredictability. Implementation is critical to meeting the Company’s 10-day order to delivery commitment to its customers. ?Order time.

The time its takes National Bike to receive orders from its dealers has to be dramatically shortened from its current 10 day order processing time, even as the actual order gets dramatically more complicated. National Bike will require all orders for its customized bikes to be delivered via facsimile machine to reduce order time to nearly instantaneous. In addition, National Bike will be able to institute some order standardization through a common order form, easing the difficulties of interpreting custom orders. ?Production Time.

It is estimated to take 3 hours to manufacture a custom bicycle from start to completion. National Bike incorporates a substantial amount of automation in the production of its bicycles, maximizing both consistency and productivity. However, significant skilled-labor has to be applied to finish the product. National Bicycle needs to develop and implement process and procedures such that the required skilled-labor is standardized and minimized. ?Delivery Time. National Bike will rely on its dealer network to deliver the finished bikes to its customers.

The Company will use trucks to deliver the bikes to the dealers. Given the cushion of time in its 10 day order to delivery commitment, National Bike should be able to aggregate its orders and realize some efficiencies of concentrating delivery. Risks and Contingencies RISKS National Bicycle’s conversion to the POS manufacturing system will generate significant business risk for the Company. Those risks include: ?Given the inherent variability of the Company’s custom bikes, the Company must contend with uneven production demand and obsolescence. The Company will require its dealers to make a significant investment in the Company’s products for the system to work. ?The Company will increasingly have to monitor trends in the bicycle industry to retain its innovative image. ?The Company will increasingly have to rely on its suppliers to provide timely and accurate part deliveries. Failure from any one of its suppliers will now cause disproportionate harm to the reputation and profitability of the National Bicycle. CONTINGENCIES To mitigate some of these risks, National Bicycle could employ the following contingencies: Failure to deliver on its 10-day order to delivery promise, the Company could employ a discount plan on its bicycles to retain customer loyalty. ?The Company can employ an overtime system to help maintain its 10-day commitment during peak production times. Additionally, the Company can consider adding a second shift if customer demand makes achieving its targeted 10-day promise increasingly difficult. ?The Company can offer financing arrangements to its dealer network to ensure the widespread adoption of its customized bicycle. Appendix PLANT CAPACITY CALCU


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