OPEMAN – D12

November 18, 2009

CALLUENG, Ronan
GLORIOSO, Jolina
LITONJUA, Patrich
ZHANG, Zong Min

CASE: Timbuk2

1. Consider the two categories of products that Timbuk2 makes and sells. For
the custom messenger bag, what are the key competitive dimensions that are
driving sales? Are their competitive priorities different for the new laptop
bags sourced in China?

Quality seems to be the main competitive dimension that is driving the sales of
Timbuk2’s custom messenger bags. The company is quite proud of the fact that their
bags are very durable. This relates to the Process Quality aspect – their products are
very reliable and not prone to defects. For the aspect of Design Quality, the bags are
made very attractive to customers because they are custom-made to their
specifications. There is a sense of exclusivity in knowing that one’s bag may be the
only kind in existence. After all, in establishing the proper level of design quality,
one needs to focus on the requirements of the customer.

Another competitive dimension for their custom bags is Delivery Speed. It was noted
that a custom-designed bag reaches the customer a mere two days after s/he places
an order for it. This is quite an impressive lead time. Related to this, the custom bags
also have Delivery Reliability – Timbuk2 seems to always pull through on their
promises of a quick delivery.

For Timbuk2’s laptop bags, they still promote the competitive priority of Quality.
This competitive dimension, it seems, is central to Timbuk2’s strategy that it applies
to all the products that they offer. Firstly (on Design Quality), the laptop bags, even if
they are manufactured in China, are still designed in San Francisco, with an eye
toward features and specifications that appeal to Timbuk2’s perceived market. It is
only fair to assume that the Chinese factory in which the laptop bags are made
conform to Timbuk2’s quality specifications since they themselves routinely do
inspections. Process Quality, then, is met by ensuring the laptop bags’ durability. We
can verify the bags’ overall Quality rating by the rave reviews that they are getting.
In this regard, then, we can say that both bags qualify under Timbuk2’s focus on
Quality.

It seems, however, that in designing the laptop bags to have more complicated
features, Timbuk2 had to compromise their dedication to providing local jobs. In
order to be competitive, Timbuk2 had to acknowledge the dimension of Cost for
their laptop bags. In having them manufactured much cheaper in China, Timbuk2
were able to maintain prices at a competitive level but at the expense of seeming
disloyalty to their American customer base. By addressing the mass market,
Timbuk2 may have lost touch with their niche as a customer-intimate company – it
was mentioned that the customers somewhat felt betrayed by the new China-made
bags, implying that they held the brand in close esteem.

As far as Delivery Speed and Reliability are concerned, they hardly matter anymore
for the China-made laptop bags. Although Timbuk2 still has to assure their
customers that their orders will arrive in time, their order processing will not be as
integral to the product as it was to the custom messenger bags. The China-made
bags, however, incorporate the dimension of Coping with Changes in Demand. In
having the bags produced by the China factory, Timbuk2 may be able to much easily
adjust their operations according to the demand for their new laptop bags than if
they produced these bags in San Francisco.

2. Compare the assembly line in China to that in San Francisco along the
following dimensions: (1) volume or rate of production, (2) required skill of
the workers, (3) level of automation, and (4) amount of raw materials and
finished goods inventory.

The assembly line in China differs from the one in San Francisco in the following
ways.

(1) Volume or Rate of Production

Timbuk2 chose the factory in China particularly for its increased capacity for
production. The laptop bags require more labor and assembly, which are amply met
by the availability of Chinese workers and specialized machinery. Comparing the
capacity of the China assembly line to that in San Francisco, it is evident that the
Chinese factory can turn out more product even given the relative complexity of
producing the laptop bags. Furthermore, they can much easily adapt their output
depending on the market demand for the laptop bags.

For the San Francisco assembly line (custom bags), it would appear that they only
manufacture specifically to order. The custom messenger bags essentially go
through a cut-and-sew process, which can be handled by less specialized machinery.
Since they manufacture each bag to order, volume is largely determined by these
orders.

(2) Required Skill of the Workers

The Chinese assembly line, since it is understandably larger, will most likely involve
more division of labor. We can expect workers to be grouped together and assigned
specific tasks for each group. The nature of the work may be very mechanical and
repetitive, so technical skill is hardly necessary for the workers. For all we know,
each of these workers only perform one specific task through the course of a
production run.
The San Francisco assembly line, on the other hand, produces customized bags.
Although the skill required to make a messenger bag is not at all that intensive, the
process of putting together a different bag each time to a different set of
specifications means that the workers go through a certain variety in their work. In
this regard, therefore, these workers have more technical skills. In addition, their
work would very likely incorporate more than one specific task, as the group is not
at all that large.

(3) Level of Automation

It was mentioned in the case that the Chinese factory has specialized machines that
can handle the complexity of putting together a laptop bag (something that the San
Francisco factory does not have). The Chinese factory is somewhat more industrial
in nature. The fact that the factory produces only a particular product (perhaps with
only slight variations) means that expensive machines can be set up to help in the
production process for large production runs, noting that setup costs can sometimes
prove too prohibitive for small runs.

The San Francisco operation for custom messenger bags does not depend too much
on automated systems. If anything, the very nature of their production restricts
them from overly automating, since each bag is made to a particular set of
instructions.

(4) Amount of Raw Materials and Finished Goods Inventory

The massive requirements of the China assembly line means that raw materials are
constantly being processed to become finished goods inventory during a production
run. The factory, during a run, continually uses up raw materials in making the
laptop bags. From this understanding, raw materials for a particular make/design
are accumulated before and/or during a production run, with finished good
inventory increasing for that make/design until the run ceases.

On the other hand, the San Francisco custom-bag operation may have raw materials
stored away for longer periods. Since they manufacture only to order, the raw
materials may be composed of all the different materials that Timbuk2 offers on
their website. They may not necessarily be stored in huge numbers, but they
definitely have more variety. Furthermore, the San Francisco factory may have more
in-process inventory, especially if they have partly-assembled bags that require only
further detailing. As far as finished goods inventory is concerned, however, the
company barely has any – they quickly ship out all the finished custom messenger
bags out soon after completion.
3. Draw two diagrams, one depicting the supply chain for those products
sources in China and the other depicting the bags produced in San Francisco.
Show all the major steps, including raw material, manufacturing, finished
goods, distribution inventory, and transportation. Other than manufacturing
cost, what other costs should Timbuk2 consider when making the sourcing
decision?

Laptop Bag Supply Chain Diagram (manufactured in China)

The supply chain can be understood beginning from the left. The suppliers (which
we assume are also China-based) provide raw materials to the factory in China,
which makes laptop bags out of the raw materials. Depending on the function of the
factory, it may also serve as a warehouse while waiting for the entire order to be
completed (we assume that the warehouse and factory are situated in one location).
After the production run and the order for laptop bags has been fulfilled, the bags
are shipped overseas to San Francisco to be stored in a warehouse. We assume that
the sales office is separate from the warehouse because the warehouse should be in
a suitable location for which rental fees and other related costs are not as high,
while the sales office and/or retail outlet are located in an area more accessible for
people. Customers may either order the bags through the Timbuk2 website or they
may just purchase them directly from the retail outlet. For Internet orders, the bags
may ship directly from the warehouse.
Customize Messenger Bag Supply Chain (Manufactured in San Francisco)

The supply chain for the custom messenger bags is simpler. The factory sources the
raw materials from different suppliers and places them in storage for easy access.
Customers exclusively place their orders through the website, which communicates
the information to the factory/warehouse. Since the raw materials are stored
nearby, the factory easily assembles the custom bag according to the specifications
given by customers through the website. The factory/warehouse then ships out the
customized bags to the customers.

Although manufacturing cost may seem like the most obvious deciding factor for
deciding on sourcing, other factors are encountered throughout the supply chain.
Timbuktu, for example, incurs transportation costs every time they transfer stock
from one location to another. Looking at the laptop bag supply chain diagram,
Timbuktu incurs considerable costs in having the bags shipped from China (which
we assume are offset by the cheap production costs in that country). Aside from
transportation costs, companies are also faced with storage costs. When companies
stock items, whether raw materials or inventory, they usually have to account for
the daily expenses that are incurred by the mere fact that these items are held, such
as warehouse rental. Furthermore, there are various other incidental costs like
processing, handling fees, and taxes among others, that have to be considered in
sourcing decisions.