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Conference tackles supply chain issues on eve of Eurobike show

Published August 30, 2016

FRIEDRICHSHAFEN, Germany (BRAIN) — Changing consumer behaviors are forcing the European bike industry to take a good look at its supply chain and where it can shorten lead times and respond to market demands and changes more quickly, said Jack Oortwijn, editor of Bike Europe, as he set the stage for a conference addressing the major challenges suppliers face in bringing production back to Europe. 

“The internet has brought about major shifts in almost all sectors that distribute through dealer channels,” he said, forecasting that the industry will have fewer but stronger and bigger dealers. “Speed is the tool to attract customers and buyers today.”

Oortwijn, who has been following the growth of bike production in Portugal, drew speakers from Europe’s largest suppliers and retailers to the first-time conference. He said the European bike industry has much to gain from investing in European production. Chief among them:

• Increased speed to market, with shorter lead times;

• Reduced inventory obsolescence, fewer clearance sales, more price stability;

• Faster resale

• Higher turnover rates

• Less working capital tied up in stock

Oortwijn said companies like Accell Group and Decathlon, which represent 15 percent of the bicycle market in Europe, want to reduce lead times for parts like aluminum frames from 26 to eight weeks, and that Portugal is rising up to the challenge. Triangle’s — Cycling Equipments S.A. is a new fully automated robotic frame factory coming online this fall. It was formed when partners from Portugese parts makers Rodi, Ciclo Fapril and Miranda, all with backgrounds in aluminum production, came together.

They hope to produce 150,000 alloy frames in 2017, and to scale up to 500,000 frames annually by 2019. And they’re investing upwards of 20 million euros in expanding factory capabilities. Price differences will be small for e-bike frames, and minimal on alloy mountain frames compared to Asian-produced frames. 

Oortwijn said that aside from Triangle’s, several Asian companies are setting up production in Portugal including Fritz Jou from Taiwan, whose factory will be close and will have a capacity to make 300,000 bikes, and Cronus from China.

“By 2020, Bike Valley Portugal aims to have production capacity at 3.5 million bikes and e-bikes,” he said. “The country is becoming a major production center for bicycles and e-bikes in Europe and they’re offering financial incentives for new businesses. On top of incentives for businesses from the EU, Portugal is putting up 25 billion euros for encouraging investments leading up to 2020.”

Several bike companies are already producing in Portugal, including Orbea, BH, Avantisbike, Orbita, and that number is likely to grow as more component and process suppliers relocate or open facilities there, Oortwijn said.

“The pressure is on to be able to operate faster and be more flexible,” said Accell Group’s chief supply chain officer Jeroen Both. “It’s all about the consumer. It’s the consumer who decides how to buy, where to buy and also when to buy. The internet is reinventing the way we do business.”

Both said the future of supply chain management relies on collaboration, sharing of information and being close to markets. He said long lead times are only part of the problem. The solution is having an “agile” supply chain.

“We’ve looked at cost drivers in the past, but now we’re looking for high reliability of delivery and consumer fulfillment rates,” Both said. “In the past we focused on lean manufacturing, and in an environment with low variability, that would work. But moving forward with millennium behavior, variability will be high.”

Both is referring to a buyer that demands more customized product and options.

Still, hurdles to European production remain, such as the high investment costs to set up manufacturing, higher labor rates, higher freight rates, and the possibility of Chinese anti-dumping duties expiring in March 2019, which would make competing against lower-priced Asian imports difficult.

“Bringing production back to Europe only makes sense for certain product groups, such as framesets, wheelsets, etc.,” argued Benno Messingschlager, CEO of Messingschlager Gmbh & Co.

Frederic Van Steirteghem, strategic buyer for the Decathlon retail chain, said that with more than 1,000 stores across 29 countries, the company’s philosophy is to produce the bicycle where it sells it. The company has 27 warehouses to deliver bikes daily to its stores. Its strategy is to maximize production in Europe to remain competitive with just-in-time ordering, better stock management and closer quality management.

At its factory in Northern France, for example, Decathlon takes into account all of its sales the prior day as it manages daily production. Bicycles are fully assembled there to free up time at its retail locations. “We try to deliver the bicycle at the last minute to the final user,” Steirteghem said.

“In Europe we sell 21 million bicycles and we produce 13 million bicycles,” he added. “And Romania and Portugal are two main [production] areas that are important for Decathlon.”

Decathlon, which purchases parts and does final assembly of bikes, owns certain factories and also subscontracts to others in an effort to be closer to the final customer and to offer customization of bikes including paint and decals.

“We need to increase investments in Europe,” he said. “In China costs continue to increase. There’s toxicology constraints and transportation costs. In Europe, if you’re able to use automation, you can balance the cost difference.”

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