Case: The Tao of Timbuk2

Draw two diagrams, one depicting the supply chain for those products sourced in China and the other
depicting the bags produced in San Francisco. Describe in brief the two supply chains of Timbuk2.

Question 1

Comparison of the competitive dimensions of the messenger bag and new laptop bag ex-China

Competitive Dimension Messenger Bag New Laptop Bag

Price Higher Lower
Quality Competitive Competitive
Delivery speed Overnight 3 to 5 business days
Delivery reliability Reliable Risk of late delivery
Other dimensions (color, customization, size, Customized Standard
weight)
Manufacturing costs High Low
Durability “Bags that are tough as hell and are High High
build to last a life time”
Philosophy “Its not a brand, it’s a bond” High Lower
Sustainability 1 – 20% discount if you return your High High
old bag
Sustainability 2 – “fantastic work environments”, High Lower
“work environment like 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 San Francisco Plant

Volume / rate of production High Low
Required skill of the workers Medium-High High and Diverse
Level of automation High Low
Amount of raw materials Lower Higher
Finished goods inventory 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

Orders Customers
Receipt
Suppliers

Production Control Ground

transportation to
local customers

Manufacturing Manufacturing
Ship Product Airfreight to
Supply of Raw Pack the Finished
based on Delivery regional
Material Cutters Sewers Product
Method customers

Airfreight to
International
Customers

Supply Chain diagram – China Plant – laptop bags

Orders
Receipt Customers

Suppliers

Production Control Ground

transportation to
local customers

Manufacturing Manufacturing
Pack the Finished Airfreight the Ship Product Airfreight to
Supply of Raw
Product and Finished Product based on Delivery regional
Material I Cutters Sewers I Dispatch to DC in the USA Method customers

USA Distribution
Center

Airfreight to
International
Customers

Safety Stock
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.