Chap.2.Case Tao 2

Case: The Tao of Timbuk2

Question 1 Comparison of the competitive dimensions of the messenger bag and new laptop bag ex-China Competitive Dimension Price Quality Delivery speed Delivery reliability Other dimensions (color, customization, size, weight) Manufacturing costs Durability “Bags that are tough as hell and are build to last a life time” Philosophy “Its not a brand, it’s a bond” Sustainability 1 – 20% discount if you return your old bag Sustainability 2 – “fantastic work environments”, “work environment like

Messenger Bag Higher Competitive Overnight

Customized

New Laptop Bag Lower Competitive 3 to 5 business days Risk of late delivery Standard

High High

Low High

High

Lower

High

High

High

Lower

Reliable

no other”

Whilst the quality, customization, and price are maintained in the new laptop bag made in China; from the table, it is visible that delivery speed and delivery reliability could be compromised in view of the fact that a highly organized logistics system has to be put in place to ensure a reliable delivery schedule. Because of the distance factor, the overnight delivery option will not apply with bags sourced from China. Because of cultural and statutory holidays (e.g. Chinese New Year), there could be periods when Timbuk2 would be less responsive and customers might not be able to place and receive their orders on time. However, from the company’s point of view there is a benefit in terms of low manufacturing costs through lower labor costs, guaranteed high production volumes, and these act as trade offs to maintain competitive prices in the market, although clients have to get used to a slightly longer delivery time compared to the messenger bag produced in San Francisco. The company also stresses that the bags “imported” from China are still designed in San Francisco and all materials and construction details are specified by Timbuk2 to ensure that the manufacturing in China uses the highest quality goods possible and meets the superior quality

standards customers expect, allowing Timbuk2 to offer the highest level of service possible as well. According to Timbuk2, the additional business is allowing the company to hire more people in all departments creating even more jobs locally in San Francisco. Question 2 Comparison of the China and the San Francisco Plants Criteria

China Plant

Volume / rate of production Required skill of the workers Level of automation Amount of raw materials Finished goods inventory

High Medium-High High Lower Higher

San Francisco Plant Low High and Diverse Low Higher Lower

From the analysis on the table, it is seen that China would have a high volume / production rate compared to San Francisco due to the fact that labor costs are lower (more workers); unlike San Francisco where the number of workers is 25, labor costs being high, and therefore the production of laptop bags in this plant would render the company to be less competitive in pricing. The Chinese plant is producing more Units / $, presenting lower manufacturing costs regardless of the higher number of labor and equipment hours combined. On the other hand, the amount of finished goods inventory will be higher in the China plant as compared to San Francisco which applies lean manufacturing processes. Because of the distance factor, this is unavoidable; the trade off is on the high volume/high production rate and lower labor costs. This also enables the China plant to reduce shipping costs by air freighting bulk cargo to the North American receiving point (Distribution Center), after which the cargo will be broken down and rerouted to their relevant destinations. The San Francisco plant uses ground and overnight air freighting to regional customers and international customers to specified delivery times. When compared to volumes output versus transportation costs, the San Francisco plant would have a higher ratio.

Question 3 Supply Chain diagram – San Francisco Plant – messenger bags

Supply Chain diagram – China Plant – laptop bags

S u p p lie r s

Other than manufacturing cost, when making the sourcing decision Timbuk2 also has to consider the costs of transportation / shipping from the foreign country to the US, paying special attention to the lead time / transit time; and also the customs and taxation costs incurred all along the chain on the product landing in the US. It is important that Timbuk2 fully assess all these costs so they have a correct picture of the cost of the product landed in the US. Other factors that also impact on the sourcing costs and that Timbuk2 has to consider are: – – – – –

the high supply material quality cost and availability. environmentally friendly raw materials. reliability and long-term relationship with suppliers. the compliance with Timbuk2’s policy on ethical working conditions at the manufacturing plant. dealing with fair trade suppliers that would also provide ethical working conditions for their employees.