High tech complex Vs. simplified production in the bike industry

In my recent travels I had the chance to visit two very sought after bicycle and e-bike assembling factories in one day. Both of them are very respected for their quality and great competitiveness in the market.

BUT

Interestingly they are very very different in their approach to production and the investment strategy. This got me thinking, which one of these two is actually a better factory ? Which system works better ?

Factory A looks very nice and clean, all of the machinery and tools are very expensive and high tech, there are lot of computers on the production floor, charts, signs, rules, many workers in preparation of components for the production line, many workers in the offices that are following the data and preparing the documentation to feed the system. It is very complex to be able to cooperate with them due to specific requests on compatibility with their system which impacts the price of the suppliers.

Factory B looks very nice and clean as well, machinery and tools are average professional tools we see in shops, only computer in production is the one of production leader and printers, few signs, instructions and charts, more workers on the production floor than in factory A, less workers in preparation for the production, very few people in the offices and purchasing as there is no complex processes. Suppliers find it very easy to cooperate with them due to narrow product use and bigger quantities of single unit without the need for special processes, packings and codes making the price more competitive.

So in comparation what is the output difference between these two factories :

1. Investment in factory B is much much lower than in A, my guess at least 30% lower. Huge difference.
2. Factory B workforce on average has lower qualification hence the monthly cost for labor is lower.
3. Maintenance cost and software costs are lower in factory B
4. The quality of factory A should in theory be more stable due to better tooling and system of tracking the quality. There are some very good examples of B factories and systems in place to have stable quality but traceability of A is not achievable.
5. Factory B depends on specific people in work force to maintain the system of quality in place, while factory A is system in itself. Factory A is by this definition more attractive for investors.
6. The products coming out of factory B have lower price but products coming out of factory A may have better image.

In conclusion both of these factories are very successful business models but they are attracting two very different types of customers in the market.

Usually factory A customers are big multinational companies where managers make the decisions. They feel more comfortable in high tech companies and have less risk of being responsible for problems. Of course the company pays the higher price for that.

Factory B customers are usually companies which are family or individually owned and where the owners makes the decisions. They are willing to take the responsibility on them selves and to be in common low tech companies to finally have higher profit margins.

Future

Many companies are going in the direction of A factories and I see more and more of these kinds of factories being built although it is a risk due to a small number of big customers. This is rapidly changing the bike industry and the component suppliers these days. The entire industry around these factories will have to change in order to survive here in Europe and in Asia.

Factories B will still be present but finally making lower cost products and servicing rising smaller customer as there will always be a need for a cheaper mass produced products on the market. They will be more resilient to change and have many smaller customers making their portfolio diversified.

Cocnlusion

This topic is very interesting in terms of strategy and which direction to choose if you are in the production business.

The question these days is : Do you follow the fashion or go the other way?