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Timbuk2 Outsourcing to Asia
James R Williams
Northcentral University

INTRODUCTION

In 1989 Rob Honeycutt a San Francisco bicycle messenger took two hundred dollars of his own money and through this was able to make 50 black handlebar bags that he sold through a local bike shop called the Freewheel. In 1990 he named the business Timbuk2 and received his first wholesale order from the Bike Gallery in Portland, Oregon and by 1991 his company’s logo the famous swirl was created on the back of a cocktail napkin. Yet the future of the company looked grim from the rippling effects of the dot-com bust and when Marc Dwight purchased the company in 2002 it was said that the company was in survival mode. Dwight had a somewhat different vision for Timbuk2, one that went beyond just creating jobs for the locals and though he was committed to keeping the San Francisco factory open for as long as it was economically feasible, he still immediately started manufacturing a new line of products in China. During that time there were several conflicts that was tearing at the heart of the company. Could they still be consider local or made in the USA if they outsource their product to China? How should they market their product? Bike shops? Specialty Stores or strictly over the internet? At the time the company was being pulled apart, certain factions didn’t want to abandon the traditional channels of selling to retail outlets while others wanted to expand to the Internet with the possibility of becoming purely consumer direct. Sadly people left the company without that ever being resolved and Dwight made it clear that retail was vital to the company and would remain a part of the business model and that the company would not be able to build their brand solely on the Internet. Also the economic winds were blowing and it was becoming increasing harder to maintain a competitive edge manufacturing in America. Cost of labor was steadily on the increase and there was an increasing number of manufacturing jobs that had already left the United States. Outsourcing was the thing everyone seemed to be doing! Right or wrong it seemed to hold the key to maintaining the competitive edge in a global market. Or could the make/buy decision be better served by a deeper look into product and process redesign. This report will investigate the decision made by Timbuk2 to outsource to China and the effect it will or has had on the key competitive dimensions of quality , delivery, cost, flexibility, new product development/innovation (Gray, Roth, & Tomlin, 2009).

LITERATURE REVIEW

QUALITY

Manufacturing quality of a product is an issue that requires constant looking after and Timbuk2 has spent time and monies fine tuning their production line in there San Francisco plant, making it lean and as perfect as possible in order that it may yield the highest quality of messenger bags available (Michael, 2010).

DELIVERY SPEED

One key advantage of Timbuk2’s outline ordering system is its ability to manufacture its products rapidly, in some cases as little as 12 to 15 minutes (Sarkar, Pia, 2004). Giving them the ability to have the product shipped to the consumer within 2 or 3 days and for a custom product that phenomenal.

COST

Timbuk2 seeks a low-cost positon in manufacturing and distribution through investing in cost minimizing facilities and equipment. The products are sold on the basis of cost after considering the price of other similar commodity in the market (Nagle & Holden, 2002).

FLEXIBILITY

Timbuk2’s flexibility allows customers to not only have more options that a plain bag may have but also the ability to create a bag and add personal details. Things like specialized logos or even additional accessories sewn onto the bag.
NEW PRODUCT DEVELOPMENT/INNOVATION Although Timbuk2’s bags were initially created for bike messengers, they are now designed for a larger audience - the mobile community. From laptop bags with built-in battery packs to diaper carriers with a place for warm milk and bags for the frequent fliers, there’s a bag to satisfy any need. Timbuk2 was able to broaden their offerings because they’ve innovated within their brand, allowing them to continue to grow their market share.
ANALYSIS
Timbuk2’s decision to develop some of its products in China was with some fierce opposition from some of it management and long term customers. The decision was one of cost of production verses closing down the San Francisco plant and moving totally to an overseas manufacturing company. The question is what are the long term effects of this decision on things like quality, sales and employee welfare? One thing for sure is that China has a very large work force, some 800 million people and with its low labor rates and a plentiful supply of unskilled workers trying to make a better life for themselves quality will be hard pressed to obtain. Since many workers will be paid by the number of units completed a “good unit” is any unit finished. It will be important to obtain a third party to monitor quality and this could increase the unit cost by one to eight percent (Dewhurst & Meeker, 2004). Although Timbuk2 decision to outsource to China face opposition at the first the strategy to keep the custom made products in the San
Francisco plant and outsource the less custom ideas seems to have paid off in sales. Revenues have double under the new management. Probably one of the largest concern about outsourcing is employee welfare. There are many reports of the conditions in foreign lands and how the workers have little to no rights. This is a major concern that Timbuk2 must address and keep on top of when dealing with China. There are several issues that can arise one of this are compliance with labor laws. China has laws governing the treatment of workers, such as minimum wage laws and laws that govern overtime and overtime pay. Ignoring these laws can cause them to be held legally responsible. It will be necessary to understand and comply with all China’s laws and that means having legal representation to keep Timbuk2 in compliance.
SYNTHESIS
There are several key strategies that Timbuk2 has started and needs to continue to improve. The first is environmental stewardship. When operating the San Francisco plant there was the drive to use product that were considered environmentally safe by the world community. This will be an issue that will be harder to control when working in China so there will need to be some type of provision in the contracts that protect Timbuk2’s desire to be a sustainable company. The second would be that of social responsibility. Once again in this area the local plant in San Francisco does a variety of community outreach programs but as it moves into the country of China it should seek to improve the conditions of the community in which its products are being manufactured. Whether that is through better working conditions for it employees or better wages. Improving the workers conditions will also have an impact on the quality to workmanship received on the products made.
CONCLUSION
The decision to outsource effects all the key competitive dimensions and it is not a decision that should be entered into lightly. These factors along with things like legal ramifications and currency rates need also to be carefully examined when considering outsourcing to any foreign country. There may even be other solutions besides outsourcing, things like redesigning the product or possible even the process. And it would be wise to look hard into the decision to outsource because if it fails to have to expected results bring it back home can and will be very costly.

References

Dimension of competitive strategy
Improved Product Design Practices Would Make U.S. Manufacturing More Cost Effective: A Case to Consider Before Outsourcing to China2004
Sarkar, Pia;Facing economic reality/Popular S.F. messenger bag firm finds cheaper labor overseas
The Influence of Cost and Quality Priorities on the Propensity to Outsource Production2009Decison Sciences697-726
The Strategy and Tactics of Pricing2002LondonPrentice Hall

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