Is there such a thing as too much travel?
Last autumn, the CEO of the newly-public company FOX Factory mentioned in an earnings call the planned shift of bicycle suspension component production from the company’s long-time California facility to Taiwan, prompting Singletrack to get in touch for additional details. The result was a telephone conversation with CEO Larry L. Enterline describing the rationale for the move and its expected benefits. Our conversation was wide-ranging and open, providing insight into not only the products themselves, but the many ways in which they reach the end user. Below is a description of the rationale behind the move and some of the company’s future plans- with only a handful of details withheld at FOX’s request.
While it is not unusual for companies to shift production from the United States or Europe to Asia in order to reduce labour costs, Enterline stressed that FOX’s decision to establish and shift production to a facility in Taichung was not driven by dollars. Though FOX has recently become a public company, issuing an IPO (initial public offering) last August, “going public has not impacted how we run our business” or created additional pressure to show profits, according to its head. Given Taiwan’s rising cost of labour, savings in that area alone would not be sufficient to justify what has been a costly move.
The location of FOX’s current manufacturing facility in Watsonville, CA creates a number of challenges from logistics and supply chain perspectives. Today, Asian-sourced piece parts make their way across the pacific, pause in US customs, are assembled into forks and shocks, and then take a second cruise and customs break before being delivered to Taiwan-based OEMs. The result is that most FOX products are extremely well traveled before ever seeing a trail. This situation creates long lead times, adds transportation costs, and makes it difficult for FOX to respond to the bicycle manufacturers that purchase some 80% of their forks, shocks, and dropper posts.
The establishment of a FOX-owned factory in Taichung is “all about shortening the supply chain,” reducing the time from order to delivery by as much as eight weeks. This reduces the amount of capital that is tied up in seagoing product while allowing production to be adjusted as bicycle companies’ and distributors’ needs change.
As well as it has served the company, the Watsonville facility has gradually evolved into its current state, and “the way we’re doing things today is not the way you’d design it.” Staffed by FOX employees, the Taiwanese production line uses the same tooling and equipment as is in California- but arranged on a blank sheet for improved efficiency. With 700,000 suspension subassemblies (and every single DOSS dropper post) delivered to date, FOX Factory is confident in the quality of work emerging from the new plant. Last month saw the first complete suspension fork deliveries from Taiwan- full scale fork production should be reached by this August. Taiwanese rear shock production will trail forks by approximately one year.
Meanwhile, the Watsonville plant will retain fork production capability, building forks and shocks to US-based boutique brands as well as for aftermarket sales. Process development and manufacturability studies will also be performed Stateside, providing the company’s engineers with critical insight into and information about how their products can best be built. While most quality control functions will be duplicated between the sites, samples from each line will be evaluated and tested at FOX headquarters. With the shift of much bicycle production overseas, the California facility will be reconfigured to better serve the company’s powersports and motor vehicle customers, which represent roughly one third of sales and who largely take delivery in the USA.
While anything wearing the FOX badge will remain a premium product, the company also sees greater efficiencies bringing the opportunity to extend the fork range down a notch, for eventual spec on complete bicycles in the $1,500 – $2,000 range. Establishing the Taichung facility has taken a good deal of work on FOX’s part- but the company now has a template (if not immediate plans) for establishing satellite production facilities in other locations as needed. With US and EU sales strong, the company is now looking towards South American and mainland Chinese markets for future growth.
Posted on: February 13, 2014