Tag: parts suppliers

OM in the News: The Challenge for Made-in-America Bikes? Made-in-China Parts

In 2022, Brian Riley (shown in photo) opened a bicycle factory in Seymour, Ind., shifting production of his Guardian Bikes brand to the U.S. from China. The problem for him now: Nearly all the parts still come from China.

Almost all of the bicycles sold in the U.S. are imported, and most of those are made in China or assembled from Chinese parts, writes The Wall Street Journal (Jan. 7, 2025). A typical bicycle is made of 30 to 40 parts, most of them from different Chinese manufacturers.

For now, components from China represent about 90% of the total cost of Guardian’s parts. By the end of next year, Riley hopes that figure will be about 20%. Guardian is starting production of its own bike frames and is working to source parts such as grips and reflectors stateside. As a result of Guardian’s new manufacturing, American-made parts could represent about 60% of the cost.

Riley decided to locate his factory in Indiana because it was close enough to most places in the U.S. for 2-day shipping and because it was near steel mills where the company could source material when it eventually made its own frames.

Opening a factory in the U.S. wasn’t easy. Riley was able to hire a group of skilled workers because a local manufacturer went out of business. At first, workers were slow to build the bikes, putting together 100 a day. It took time and constant tweaking of the assembly line to improve their speed and efficiency. Guardian’s labor costs shot up, though they were partially offset by the lower freight costs of shipping individual components from China rather than mostly assembled bikes.

The factory’s 250 staff can churn out up to 2,700 bikes a day, and Guardian has the scale to begin contracting with U.S. parts manufacturers. Guardian plans to begin making bike frames at the factory this year, using American steel. It has asked its Brazilian rim supplier to consider a facility in Indiana, and is also considering making rims itself. Guardian has approached U.S. suppliers that could provide grips and reflectors. Other labor-intensive parts such as hubs or cranks may be harder to source in the U.S.

Classroom discussion questions:

  1. How did the U.S. lose the bicycle industry years ago?
  2. What will it take for the U.S. to reclaim leadership in this industry?

OM in the News: The Auto Industry Embraces Vertical Integration

The auto industry is once again embracing elements of vertical integration (see Chapter 11), a strategy that traces its roots to its early days when manufacturers owned or acquired much of the supply chain necessary for production. Ford, at one point, owned mines and a steel mill. In recent decades, car companies had largely shifted away from vertical integration, spinning off parts-making operations and relying more on outside suppliers to provide components. Vertical integration can be capital-intensive and risky, and in the past, auto manufacturers have struggled to bring new competencies like software development in house, leading to delays and dented sales.

But now, auto makers are trying to control more of the supply chain for electric vehicles, forging new partnerships with raw materials producers and investing in facilities that make chemicals for batteries, writes The Wall Street Journal (Jan. 4, 2022). GM, VW,  and other major car companies have already been spending heavily on joint-venture factories to ensure their own supplies of EV batteries. Now, they are also looking to expand further as they seek to lower costs, secure sought-after components and exert more control over battery quality and performance.

Tesla was among the first to insource more of its EV-battery making. The push by auto makers to control more of their supply chains also comes as a semiconductor shortage has hampered vehicle production. GM is investing in a new North American factory with a Korean firm to produce cathode materials, a critical component of the battery that accounts for a big chunk of its cost. VW has plans to build a similar cathode-material factory of its own with Belgian materials company Umicore. “Everybody wants to secure the supply chain and not repeat the very painful experience of the semiconductor shortage,” says Umicore’s CEO.

The change also comes as electrification threatens to disrupt the industry’s normal hierarchy between auto makers and their suppliers. Traditionally, auto makers have been able to improve profitability by pitting suppliers against one another. With just a handful of players making the highest-quality batteries and chemicals, auto makers have diminished pricing power. Relying solely on suppliers to develop their battery technology would be akin to not making their own engines.

Classroom discussion questions:

  1. Explain the concept of vertical integration.
  2. How has the move to EVs impacted supply chains?

OM in the News: Ford Discovers a Damaged Supply Chain

“Ford expects to lay off several thousand workers temporarily at a Michigan factory that assembles its top-selling F-150 pickup truck after a fire last week damaged the premises of a parts supplier,” reports The Wall Street Journal (May 9, 2018). The blaze, which occurred at a Michigan plant operated by Meridian Lightweight Technologies, has already disrupted production of Ford’s pickup trucks at a factory in Missouri. Meridian is an automotive-interiors supplier owned by China’s Wanfeng Auto Group, which makes components for Ford and other car makers. Ford’s F-150 factory in Dearborn, Mich., is expected to run out of Meridian-supplied parts and halt production as early as Wednesday.

Ford’s other main F-150 plant, in Kansas City, Mo., would be idled this week because certain parts are in short supply after the fire. The two plants, which together employ 7,600 people, could face several weeks of down time as the auto maker seeks ways to make up the parts shortfall.

The F-150 is Ford’s best-selling vehicle and generates the bulk of its global profit. A prolonged shutdown of the plants could dent revenue and profit. The two plants combined produce 10,000 to 15,000 F-150s a week. The company would face cost pressures from paying workers during idle time and while ramping back up to offset lost production. The fire also disrupted production at a Fiat-Chrysler Automobiles minivan plant in Windsor, Ontario, and a BMW sport-utility factory in South Carolina.

Classroom discussion questions:

  1. What are the advantages and disadvantages of a single-source supplier?
  2. What strategy (see Supplement 11) might Ford employ?

OM in the News: Amazon’s Attempt to Upend the Parts Supply Chain

“A growing number of plumbers, electricians and other contractors starting to buy industrial parts online,” writes The Wall Street Journal (Aug. 22, 2017). As part of its business-to-business marketplace offering, Amazon now sells everything from light switches to hydraulic valves, and last month boasted it had one million customers across fields that also included health-care and office supplies.

Amazon is joining a host of online sellers shaking up the $130 billion U.S. market for items that keep factories humming and the plumbing working. They threaten a business largely still conducted via salespeople and national distributors that cater to large businesses, as customers are lured away with instant comparison shopping and free delivery. While parts accounted for a sliver of Amazon’s $136 billion in 2016 sales, the company is a proven disrupter of industries ranging from apparel to video to cloud-data services.

Like retailers before them, industrial suppliers risk getting caught in a race to the bottom on prices, where online-only sellers have an advantage because they don’t maintain costly networks of branch offices and salespeople. Amazon is shaking up the traditional format for selling industrial parts by allowing distributors and manufacturers to sell products directly to businesses on its marketplace, eliminating middlemen and often undercutting traditional local suppliers. It also offers one-click ordering and transparent pricing, features that are the norm in online retail but less common in the industrial world.

Industrial distributors do offer extra services, which would require significant investment from Amazon to match. For example, United Electric Supply will work off a customer’s blueprints to determine the parts needed to build a $10 million electrical system. W.W. Grainger embeds employees in manufacturing plants to manage inventory. MSC Industrial cuts or dyes metal to meet customer specifications.

Classroom discussion questions:

  1. Why is Amazon a threat to traditional supply chains?
  2. What are the advantages that traditional distributors like Grainger have?