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Long Lead Times Reflect Complex Supply Chain

Published September 6, 2011

By Matt Wiebe

NEWBURY PARK, CA—Over the years, long lead times have changed the industry’s dynamics—and those lead times show no signs of getting shorter.

A key factor driving lead times is the technical complexity and high quality of most bikes sold today by independent retailers. Manufacturing carbon fiber frames and parts, electronic shifting and composite rims—along with painting frame finishes and cutting elaborate decals—takes time.

These well-marketed and technically superior bikes spur consumer interest. But the system tends to pressure dealers into ordering months in advance of their selling season so they have bikes on hand when they need them. On the other hand, long lead times tend to complicate in-season orders, which can strain relationships between suppliers and dealers.

“Lead times are mostly a problem in late spring when the selling season is ramping up and both retailers and suppliers have to gamble on quantities without knowing when the weather will turn favorable or if any economic setbacks will affect buying,” said Elysa Walk, general manager at Giant Bicycle.

“For suppliers, by the time the season actually kicks off, it is often too late to react to spikes in demand since the factories have already begun the transition to the next model year,” Walk added.

Lead times grew as this economic uncertainty raised the risk of suppliers holding excess inventory. Why bet on demand that may never materialize?

Consequently, bicycle orders now start with components made from scratch. OEM suppliers like Shimano and SRAM avoid stockpiling a large inventory of parts in anticipation of future orders.

Suppliers also point out that few companies order off-the-shelf parts. Many of the hundreds of parts on a typical bike are unique and require specific setups that take more time than using generic parts.

“The industry is manufacturing increasingly technical components. It’s not a matter of inserting a die into a stamping press and letting it run. There are increasingly complex steps that go into the manufacture of frames and components today,” said Stan Day, SRAM’s president.

Why can’t suppliers just increase or slow down production to meet market demand? A major problem is matching the 10-month selling season for bikes with the advantages of maintaining a stable labor force in Asia.

“It is important that we level-load our factories and have enough work for our employees all year around or they will leave. We need skilled and knowledgeable workers,” said Bob Margevicius, executive vice president of the bicycle group at Specialized.

Having the same employees build Roubaixs, Anthems, Di2s and Red cassettes year after year maintains consistent, high-quality production.

The same is true for carbon frame production, and it is one reason carbon bicycle inventory always seems behind the curve. Laying carbon fiber in the right sequence in a mold, managing hot presses and working at full efficiency requires retaining experienced employees.

Depending on a frame’s size run, suppliers can tie up to $500,000 in molds and even more in presses. So among suppliers the question becomes: If carbon bike supply is 5,000 shy of demand, is it worth investing $1 million to chase those buyers?

Keeping factories running throughout the year and retaining good employees means suppliers will tend to undersupply peak demand and oversupply weak markets, but good forecasting helps minimize the issue.

On the other hand, longer lead times have pushed forecasting further from market realities, compromising the reliability of early forecasts. Suppliers now must rely on a variety of data to plan production scheduling.

“We forecast and order based on lots of inputs—history, market conditions, dealer forecasts, media and product manager insights,” Margevicius said.

Summer-season introductions also are a necessary part of the forecasting equation, allowing retailers to preview new models and gauge consumer interest while there’s still time to tweak production numbers over the winter.

Early introductions also allow suppliers and retailers to gauge consumer interest in bikes already on the market. Will they sell against new models or will demand for older models drop off?

One question that often comes up is whether extended lead times have added more cost into the pricing of bikes. Components are not produced until needed, cutting some risk in pricing. Instead, the supply chain is more dependent on components arriving according to a precise timetable.

“Taking the broad view, the real cost of extended lead times is not having the right inventory in the market. This means lost sales and disappointed customers for understocked product and margin loss for markdowns on overstocked product,” said SRAM’s Stan Day.

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