Finding the Exception
Finding the Exception
“I remember riding my bike to school every day and seeing those two men working on their bicycles in their garage, little did I know that they would be the founders of the Trek Bicycle Corporation.” My mother told this to me a few months back when we were reminiscing on the good ol’ days. Waterloo, one of the smallest towns I have ever been too, is home to the success of French history. Its Trek bicycles are now the Tour de France winning frames that brought Lance Armstrong his victories and brought the midwest its spotlight on making the first American bike frames to win the world’s most prestigious bicycle race. By 1984, Trek was at its peak and sales were around $20,000 with approximately fifty thousand Treks being sold in the United States (Burke, 2012). However “Trek had grown arrogant, and the problems were starting to show” (Burke, 2012). Within business success lies problems and for this company the early years presented many because Trek did not like the bicycle retailers that they were dealing with, they had no brand strategy, and they had no money to advertise
It seems that the most successful businesses start with the passion of at least one person. For Trek it was the vision of Richard Burke and Bevel Hogg. Burke was a former accountant that took interest in investments. Hogg was the owner of a Midwestern chain of bicycle stores. While Burke spent 15 years perfecting his business skills with Roth Corporation in Milwaukee, Wisconsin, Hogg was growing tired of the retail business while keeping his heart with bicycles. Burke had a passion for outdoor recreation which drove him toward the bicycle market. During a meeting between the two men in 1975 when they sought to solve the issue of foreign made product. Their main competitor at the time was Schwinn bu this company dominated the specialty retail market but their bikes were Japanese made. Burke and Hogg wanted to sell American-made product for the same specialty. The company began as a five-person operation in a barn and is now a globally oriented company with distribution in 65 countries and over 1500 employees worldwide.
What made the Trek bicycle so unique? Their mission was and still is simple, build the best bikes in the world. The frame sets were handmade from steel. The style was adopted from a European brazing style with its own American flavor. Tim Issac, an early frame engineer, said that a Trek bicycle could be identified without any paint on it. The company was blessed with the right designers and tolling infrastructure to use exactly the right materials to create such unique frame sets. The company had successfully found a way to distinguish itself. “In order to succeed, you cannot just sell any brand; you need to produce something special” (Burke, 2012, p. 4). Once this is established it’s time to settle on a distribution channel to ensure customers are being reached. At the time, Penn Cycle, outside of Minneapolis, Minnesota was Trek’s dealer. What attracted this dealer to Trek was that not only did this bicycle manufacturer provide lightweight, advanced bicycles, but they were also made in the United States.
Market shares were quickly gaining from the Japanese and European competitors and the company was gaining dealers from Madison to San Francisco and sales had grown to over $1,000,000. After expanding the facility to allow for assembly lines and paint factories, reshaping the entire business, the company was able to hire its first true sales representatives and there in lies its customer service foundation. In 1981, sales doubles and again in 1982. In 1983, the company was already building additions to the factory. The business growth inspired a movements on the West Coast in corporations like Gary Fisher.
Then in 1985, sales were over $20,000,000 But, as with any fast lane growth, Trek was facing a net loss for the second year straight. The totals sales in 1984 did not meet expectations and quality control was lacking which angered retailers. The assembly line was built but it seemed as thought the company didn’t know how to keep it moving forward. On top of that the turn over rate was lacking. John Burke, the son of Richard Burke, who worked for his fathers business remembers writing orders and them showing up at the customer two weeks later but yet having other orders written on prior sales call that still were not arriving to the customers (Burke, 2012, p. 10).
The quality in the company was deteriorating. There were paint problems, frames were out of alignment, credits that were promised were not going through, etc. “I worked hard and sold a lot of product but the problems from the home office kept mounting” (Burke, 2012). Retailers were becoming more and more upset which pushed Trek even harder and the company was falling apart. Customer services makes or brakes a company in the retail world and Treks mission was to make every customer happy. It was up to their customer service department to bring this company back up and that is exactly what John Burke did. He knew that they needed to regain their focus, and that he needed to take a more active role in the companies day-to-day operations. A lot of options were being faced which included closing the operation and liquidating the business, sell the company, or turn it around. “We decided to roll up our sleeves and get it done (Burke, 2012).
There is one method in business that seems to always prevail and that is the back-to-basics approach. Build a quality product, at a competitive value, that can be delivered on time while maintaining a positive work environment for customers and employees. Most importantly, deliver profit. The company first needed to start shipping orders on the same day. Cross training is always an excellent tool and this was a perfect opportunity for the business-suited employees to start putting their hand in on the factory work. The factory would get backed up and so the office workers would go into the warehouse and make sure that orders were fulfilled. Saturdays may seem like a day of rest for some but for Trek to succeed it had to require work on the weekends. Not only were deadlines met but lousy product needed to stop making it out the door. This truly shows the customer that their needs are being met no matter what it takes.
Organizational buying process is such an important business practice. With the many years of developed partnerships Trek has established, the company now has suppliers around the world that allow the fulfillment of demands of the product line. In the 1980’s, when Trek was struggling, they were overlooking one very important aspect of their customer relationships-what is the actual value of their product? They were not going to their buyers and simply asking if they could help them find a vendor based on the value they were proposing.
One a vendor is found there is some research that is to be done as well. Does this vendor have good history? Who has worked with them in the past? Is there opportunity to save some money in the mean time? Reliable quality product is what businesses thrive on. Any product that is overpriced needs to be discontinued and new products need to be developed that hit the right price points. “When potential suppliers are identified, they’re evaluated on four criteria: quality, delivery, capability, price, and environmental impact of their production process” (Kerin, 2005).
In an industry such as bicycle production, the operational approach to management is essential. This approach is dedicated to improving efficiency, cutting waste, and improving quality (Kreitner & Cassidy, 2011). By staying in line with business ethics, the manager of Trek would have put more energy into building better product so that it would support the challenges faced today such as limited mobility, issues with the environment, and now more than ever, issues with health. Essentially the bike must work well. If the name Trek is one it then there is quality behind it and this quality needs to be adhered to in the warehouse during production. At the time, Trek probably could not have seen that the bicycle would become the simple solution to all of these things but just as we embrace the availability of such innovation, managers of any business should be at least two steps ahead as to almost predict the future, therefore focusing on sustaining the reputable quality product that the company originated from.
In 1988, Trek introduced the Model 1200 aluminum road bike. This was the turning point for the company. This was true quality at a very competitive price. The original dollar amount was $500. Originally the company planned to sell 3,000 of these models but at the end of the year 12,000 were sold. This is when a business needs to reevaluate its retail margin. What goals are being made to improve the amount of retailers and what is the target date? Buyer centers then need to help the company find vendors to find the right place to sell new product. New strategic visions for new models and components builds a better business.
Trek was learning, slowly but surely, that they needed to look at their own processes, understand how they make their product, how they source their product, and how they will continue to bring their product to the market and maybe at the end of the day, saving a dollar or two. How could Trek build bicycles that last longer, maybe even use recycles tires. Every business has room for improvement. Business owners should always be looking for ways to bring new technology and solutions into the marketplace.
By 1996 Trek was now over $300 million in sales. At this point in the time the company was expanded in Europe to include Japan. However, when there is sunshine expect rain and when there is rain expect for sun. After Trek ramped up their budgets by 20 percent in 1996, 20% more product was to be produced. Sales forecasts were starting to get missed which left inventory levels shooting through the roof. The company was yet again out of balance. There were more bikes in inventory than sales. Every year bicycle products are expected to change, therefore this high inventory of product needed to be discounted heavily in order for sales to continue. This only hurts profit margins. Basically what happened was that Trek grew too big too fast.
Just about an hour away form Waterloo is the Whitewater Trek manufacturing plant. When this plant was first opened in 1995, the goal seemed to still be manufacturing low-price point bikes.
“We got out of 1996 making a profit, but the future was no longer bright, and storm clouds were on the horizon” (Burke, 2012). Then numbers continued to look worse and worse as the years went on. Finally in 1998, Tim Callahan was hired on to Trek to take over manufacturing. He turned over Trek manufacturing that essentially saved the business, yet another time.
The concept of Kaizen, Japanese for “continuous improvement” was used first to turn the Trek factories around. “In the gift-that-keeps-on-giving department, we took Kaizen to our dealer network and it has continued to make an amazing difference to this day” (Burke, 2012). Businesses to do not There was one other thing that added to Treks new found momentum in success. Trek signed a sponsorship deal with the US Postal Service to sponsor a bike team. Thanks to Lance Armstrong, who had a good group of riders, Trek appeared in the 1999 Tour de France. Lance’s winnings gave Trek the opportunity to show up on the front of Sports Illustrated and The New York Times, as well as on the Letterman show (Burke, 2012). Business was great until the year 2006. Production needed a facelift. How do you keep a product backed for years by consumers by maintaining its quality and reputation?
For consumers of Trek bicycles, there is customer loyalty. Just like with Apple computer or Smart phones. Why such dedication from the customer? Trek figure out that to continue this relationship they would not only have to continue to build quality bicycles-the best in the world but they would provide their customers with quality products at competitive value that would be delivered on time. Just as with Apple computers, the product continues to prove itself in quality, never leaving the customer unsatisfied. IF there is a problem for whatever reason, dedication to customer sanctification shines the most by fixing whatever issue there may be in a timely fashion. When Senior Burke fired the management team and asked John to move back to Wisconsin to run Trek’s customer service department, he learned the value of maintaining relationships with retailers and customers.
University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 17 December 2016
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