Pedal Pushers

Dec. 21, 2004
Green Gear Cycling adopts big-company, lean-manufacturing principles to produce custom bikes.

Across the street from the Fred Meyer store, behind a NAPA Auto Parts outlet in Eugene, Oreg., lies one of those gems you'd surely miss if you weren't looking for it. It's Green Gear Cycling Inc., manufacturer of Bike Friday, the largest-selling custom-made folding bike in the world. The bike fits into a car trunk, a tight storage space, or an optional suitcase to travel on a plane like regular baggage. (The suitcase even can be converted into a trailer to haul gear.) "Like Robinson Crusoe's man Friday, the Bike Friday is always there when you need it," says Alan Scholz, CEO. Green Gear's operations are as distinctive as its product. A relatively small company ($3 million in sales, 30 employees, 17,000 sq. ft. of production space), Green Gear uses advanced manufacturing principles-adopted from Toyota Motor Corp. and others normally associated with considerably larger facilities. Management is split between Alan Scholz, who handles the business side, and his younger brother Hanz, product design and development manager. Because of the uniqueness of its products, the company is able to command a premium price for them, and customers pay in advance. "It's not unusual for someone to call us with plane ticket in hand and say they are going on a trip, [and] can we have a bike ready for them in so many days," says Alan Scholz. "We can accommodate those kinds of requests, with decision-to-buy to riding in three days. Most bike manufacturers have terrible margins and huge leadtimes. They have no levers. We give people what they want, when they want it. If you do that, people are willing to pay you for it." This year the company will build about 2,000 bikes to customer weight, measurements, and equipment specifications, at an average selling price of $1,700 including the optional case. Twenty-five percent of sales are to overseas customers, primarily in Japan, the UK, Australia, and Europe. On the list of Bike Friday riders are a nuclear weapons inspector who ordered a cycle specifically for his assignment in Iraq; David Robinson, the center for the NBA's San Antonio Spurs; comedian Dick Smothers; Tour de France winner Greg LeMond; and a woman who is only 52 in. tall, demonstrating the range of vehicles produced. Bike Friday can be offered about 2.5 million different ways depending on size, components, and color. Folding, custom-made recumbent and tandem bikes also are available. Natural Entrepreneur Alan Scholz began running his own business while just a teenager, following the lead of his father who repaired radios and TVs in the mid-1950s while studying for his Ph.D. in entomology at Iowa State University in Ames. By age 16 the younger Scholz had begun selling and repairing bicycles out of the family garage. "It might not be genetic, but there was an expectation in the family that it was OK to have a small business." His brother Hanz grew up in the bike shop as well, where his mechanical and perceptual skills became apparent. "He thought it was natural for every family to have a welding machine," says Scholz. At age 21 Scholz moved his bike shop into its own building and added pannier and handlebar bags to his product line, sewn by his girlfriend Burley. In the '70s Scholz followed her to Oregon where they established Burley Design Cooperative, which made bike bags and later added cycling clothes and kid carts to its product line. While the co-op was a business success, Scholz considered it a personal failure. "The co-op didn't value innovation. It preferred to operate on its core competencies, but it didn't like to do new things, it didn't like to be first," he says. He moved to Atlanta and started a business making commercial and residential awnings. There, Scholz reunited with Hanz, who at age 18 was hired to run the frame shop, bending and welding tubing. After five years, when relationships with partners in the shop went bad and the business soured, Alan Scholz looked westward again. Returning to Oregon with Hanz in the late 1980s, Scholz was eager to apply the production principles he had been reading about in books such as World Class Manufacturing (1986, Free Press) by Richard J. Schonberger. "The just-in-time buzz was in the air, Chrysler had just gone through its reemergence, and auto companies were beginning to realize they had to be leaner and less batch builders," says Scholz. "When we came back to Oregon it was to create a build-to-order, just-in-time, world-class manufacturing company. We didn't care of what. "We felt we could borrow from the world's best processes, tools, and understanding of efficient manufacture," he continues. "We conceived of a business that makes things you could be proud of, that did not put a load on the Earth's system [hence the name Green Gear] -- a long-term business that would add value to the community, pay good wages, and didn't just run on quarterly profits but rather on getting some root things right, even if it takes a little longer." Backpedaling Gravitating back to bicycles, Scholz approached his old Burley Design colleagues and offered to make reasonably priced tandem-bike frames for them to assemble into bicycles-built-for-two. The bikes then could be marketed through the channels they had established for their other biking gear. In fact, Scholz had been given a custom-made tandem as a wedding present. The bicycle was stolen in Atlanta and cost upward of $2,500 to replace. "I had the epiphany that an average person couldn't afford a tandem bike," he says. He conceived of a quality tandem design that could be offered at retail for $1,000, and Burley came up with $30,000 of initial funding. Over the next five years Alan and Hanz Scholz built about 8,000 tandems, making them the largest manufacturers in the world. Nevertheless, the brothers went through some tough times in the early years of tandem manufacturing. They disagreed about the potential success of the business, and Hanz wondered if he'd made the wrong choice. "We had several periods when we didn't pay ourselves," says Alan Scholz. "I went one full year without being paid at all, and Hanz got just a small amount. But I'm a survivor. I'd learned how to live between the cracks from my earlier businesses." Meanwhile, another opportunity was emerging. In the mid-'80s Hanz Scholz bought a folding bike and took it to Europe for a cycling vacation. An avid rider, he was unhappy with the bike and eventually designed and built a prototype of his own. The co-op wasn't interested in selling folding bikes, however, and the idea and bike gathered dust for a time. Then at an open house for the brothers' tandem frame shop, a local dentist noticed the folding prototype, took it out for a spin, and convinced the brothers they could launch a business selling the bike. A few magazine ads in 1992 were converted into first-year sales of 200 bikes. In 1993 the brothers turned tandem-frame production over to the co-op and concentrated on Bike Friday full time. Sales grew 70% per year through 1997 to about $2.5 million in revenues. A City of Eugene development program loaned the company about $200,000 and helped power the company's growth. Sales over the next two years, 1998 and 1999, were relatively flat; the company had outgrown the management systems that worked when it was smaller. Green Gear hired an information-systems person to work on its database and to network company functions; new talent was brought into the marketing department; and customer service was beefed up. "We're now ready to grow another $3 million to $4 million and not have to make significant changes," says Alan Scholz. In high gear again, the company's sales already are 50% ahead of last year, and should crack the $3 million barrier by yearend. Build-to-Order Basics Built individually, each Green Gear cycle begins its life as a bundle of tubes, components, and other structures. These are processed through a build-to-order, flow-manufacturing configuration that is organized in a series of cells, a production system the company deployed from the very start. "If you are a batch manufacturer, it's like pulling teeth to get lean and build in production cells," says Scholz. "If you start off that way, the people you hire just think that's the way it's done." In the first cell, a U-shaped configuration, an operator works multiple pieces of dedicated equipment, all set to run automatically so that he can multitask. Here tubing is cut and shaped into frame members before moving to a welding cell. The cells are designed so that any one cell can do some of the work of the previous or next cell if production runs behind or ahead. "It works like a track relay with a transition area," says Hanz Scholz. "We've set up everything with single-process-specific tools so there is no process changeover time, which is part of the Toyota Production System (TPS)." The flow motto is "touch it once, do it now." Once work on a bike has begun, it flows through the process without hesitation at any point. Takt time, the time between completion of bikes at the end of the process, is adjusted based on how sales are going -- another TPS concept based on producing to demand, not projection. "We look at sales velocity and set the takt time to deliver units at that rate," says Hanz Scholz. In May of this year the rate averaged one bike every 1.5 hours across the mix of different models (it takes about nine hours to build one bike). When a 50-bike order came in from a Japanese distributor, however, takt time was slashed to 27 minutes. Takt-time reductions typically are accomplished with personnel from sales, service, and management departments supplemented with temps brought in to assist production. Operating in a one-at-a-time flow system rather than in batches maximizes the chances for continuous improvement, according to Alan Scholz, who applies kaizen principles of continuous improvement to each bike. "For us, every bike is a batch, so we have 150 to 200 chances per month to make process improvements. A small manufacturer operating in a large-batch mode can be put out of business if he ruins just one. If you can make improvements as you find them, you can survive as a small manufacturer." When a quality problem is discovered, the operator switches on a red light and all procedures stop until the production cell is adjusted to eliminate the problem. Stocking parts to cover the many variations of the bicycle would be far too costly for the company so, in lean-manufacturing style, inventory is handled kanban fashion, with parts reordered as they are used and minimum buffer stocks maintained based on vendor response time. Parts are pulled one bike at a time, three days before the ship date established by the customer, "just like Dell," says Scholz. "In fact the only difference between us and Dell is that you can't design a Bike Friday on the Internet . . . yet." (Michael Dell's wife Susan is a Bike Friday owner.) "What's unique is that a company our size is handling inventory this way," says Scholz. "Many small companies feel it is too risky to operate like this, but we are proof that it can be successful." The kanban system replenishes inventory a little more often, "but it's a system that doesn't just order parts, it orders the right parts." Replenishing often so the company can operate at low inventory levels is an integral part of the cash-flow management expertise that helps make the company a success. The company is in the process of moving to a "perpetual inventory" system that is expected to save thousands of dollars more in inventory. Parts will be reordered based on bikes sold, much as Kmart reorders based on sales rung at the cash register. "It's based on an MRP-type system, but without a lot of the things MRP requires," says Scholz. "Again, small companies tend not to have MRP because it costs too much." Green Gear's IS person is creating a system, based on a Microsoft Access database, to allow sales to "talk" to production. "The way it talks to production is through inventory. We'll be replacing inventory with information," Scholz notes. Customers For Life Lessons from Green Gear's success with lean manufacturing are applied to customer service and sales as well. Each sales consultant sits at a highly customized computer workstation, but with no desk. "That way it can't get cluttered up," says Hanz Scholz, "and for whatever they are doing, it encourages the 'touch it once, do it now' philosophy." Formerly housed in walled offices, the sales force now works in an open-office area. "If you have walls, you have barriers to the learning process," he adds. "Since we made the move, a lot of the fluctuations disappeared. Now all are selling in a similar way." And, since the change in September, sales are up 50%. Green Gear practices a "Customers for Life" strategy it adopted from a luxury car dealer in Dallas. The dealer figured a customer that bought exclusively from him would spend in the neighborhood of $300,000 over his or her lifetime. "So," says Alan Scholz, "why nit-pick a $10 part?" A study of Bike Friday customers who have owned their bikes for more than three years shows there were repeat buys for other family members, adding a mountain bike or recumbent to the original "road" purchase, or upgrading to new technology. The company predicts a value of $10,000 to $25,000 for a lifetime customer. Therefore, it provides extra service at no cost when a bike comes in for repairs, or replaces a tire for free. Green Gear's profits are divided among stockholders (about 25 people including employees and some Bike Friday owners who invested in the company), 30%, and employees based on their pay, 30%. The remaining 40% is returned to the company for growth.

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