OPINION

The Pandemic Effect – how one bike brand is responding to unprecedented challenges facing industry

Damian Hackett, Orbea’s country manager for the UK and Ireland, outlines how Covid, components shortages, soaring shipping costs and Brexit have created a perfect storm – and how it is meeting the challenge

These are unprecedented times for the cycling industry both in the UK and globally. The coronavirus crisis has led to booming demand for bikes worldwide, but with retailers selling out of stock often as soon as it arrives, the industry is struggling to keep up with demand; local lockdowns have impacted production facilities, components needed for the finished product are in scarce supply, shipping costs are soaring and, in the UK, Brexit is also having an impact.

Here, Damian Hackett, Orbea’s country manager for the UK and Ireland, outlines the challenges the Spanish brand has faced over the past year or so, and explains what it is doing to overcome them.

We’ve been hearing a lot lately from cyclists and cycle retailers about how frustrated they are with how the lead times on bicycles have grown throughout the Covid pandemic. Bike orders that used to take a few weeks, or a month or two, have now started to take upwards of a year or more. I guess the industry has not really done a great job of communicating the full extent of the obstacles that have needed to be overcome, and how many factors are affecting its capacity to deliver. Well, I’d like to address some of the hidden elements of the current industry crisis, and how we, as one brand, are trying to mitigate them.

In March 2020, we had closed our factory and warehouse due to the Covid regulations in Spain and Portugal. We were about to enter into emergency meetings with our suppliers to cancel or defer some of our orders, but following a review of regulations and some intervention with the Basque authorities, we were given the status of an 'Essential Industry' which allowed us to operate a skeleton staff to keep the market supplied.

In the UK and in some of the other markets where cycling was a permitted activity, the demand went through the roof, so rather than meeting our suppliers to try to reduce our forecasts we actually started to increase our forecasts to try to support the anticipated demand.

Remember, bicycles are made up of many components, and everything from Hubs; Rims; Rim Tape; Bars; Grips; Stems; Saddles; Hydraulic hoses; cables and casings … (you get it ...!! ) had to be re-forecast from our supplier factories across the globe – many of whom were themselves in lockdown or were frantically trying to move production from one of their locked-down facilities to another in order to meet their unexpected demand. Trying to forecast delivery dates during this period (and ever since) was nigh on impossible.

During this time the dates for all our bikes (and for every brand in the market) began to move backwards, and backwards. We also had to operate with anything from 30% - 60% maximum workforce at any one time to comply with Covid safe-space requirements. This demanded a complete overhaul of our workflow and an entirely new approach from our operational and fabrications teams. Instead of one daily shift we had to introduce second and third shifts to allow adequate space and yet still try to meet demand. We needed to recruit, train and certify new talent in assembly, paint and engineering which doesn’t happen overnight. We invested enormously in our factories and with our new warehouse just functional, we moved everything we could to there and installed two new assembly lines, with another on the way. So with builders and engineers needing to work alongside our production teams, even trying to improve our capacity in the long term can itself reduce our capacity in the short term.

However, our capacity itself was not the only factor that needed bearing in mind. With so many third-party suppliers being themselves affected by Covid regulations locally, we saw unprecedented delays in components coming from these affected locations. So rather than waiting for regular land-transportation Orbea began to air-freight components to speed up delivery and support our markets better. This, although exorbitantly expensive and contrary to our carbon neutral objectives, was something we felt compelled to do in order to ensure our retailers had some stock to sell during an insanely busy period. We had no way to anticipate this situation nor did we have any other means of managing it. We cannot produce any bikes if we don't have the components – simple!

A unique response

Orbea has been the leader in customisation in the cycle market for a number of years, and being a customising specialist we have to be considerably more flexible in our workflows than many brands. During this pandemic surge we have used this to our advantage. If we were delayed in receiving certain components (which was the case almost every day) we shifted production to the bikes where we had received all the components that were next in the order queue. Where we had run out of certain carbon frames, we quietly built the bikes with the higher grade frame and said nothing. If we had to change the specification of bars, stems or saddles, we reduced the price of the bike where the component cost less than the specified component, but we didn’t increase the price if the replacement component was of a higher specification. We made a huge effort to keep our retailers informed as we received new updated information from our suppliers. We updated our B2B every time we had a new ‘relatively solid’ date for components and tried to keep everyone abreast of the situation as it changed.

To put some of these issues in context; we would usually have forecast orders with most of our suppliers for up to six months ahead and would be placing new orders every quarter for two quarters hence. This system worked pretty well and meant that we were able to react quite quickly to moderate surges in demand, but didn’t have huge levels of surplus inventory at the end of the season. However this model became broken within the second quarter of 2020. Some models of suspension forks went from six months’ lead time to almost 19-20 months’ lead times. Simple things like saddles (every bike needs one) went from four months to nearly 18 months. Some, more dominant suppliers were telling the market that they would have to order their entire 2022 inventory by the end of October 2020, and in some cases pay in full, or at least pay a large deposit to secure their orders.

In order to alleviate the pressure on our retailers and to increase our capacity, Orbea outsourced some of our fabrication to a handful of the very highest quality third party suppliers. Only the absolute best suppliers were considered and when we were able to get their support and facilities it was an enormous relief as the one thing we could not do was compromise on the quality of what we were delivering to the market in order to increase our capacity. Unfortunately, one of our suppliers (VIP) had programmed some of our production in their facility in Myanmar which endured a period of civil unrest recently. Our first consideration was for the people of Myanmar, and our colleagues there, but additionally, they now had to try to reassign our components to be manufactured in some of their other facilities in other countries.

This has resulted in further delays on certain models using these parts and until we had absolute dates confirmed we thought it better to err on the side of caution, and assign a date of December 2021 for any bikes affected by this unfortunate situation. We do anticipate this date being considerably foreshortened but we cannot commit until we have absolute certainty of that. This has seen some customers wait for an incredibly long time for their bikes, but the circumstances around these delays are ubiquitous in nature and unavoidable in the current situation. By the way, as VIP also manufacture parts for some of the other biggest and best brands in the market, we are not the only manufacturer affected by this particular supply chain delays.

Later last year we were also advised that due to a global shortage of containers, we would have to endure a two-three month further delay on some components being shipped. That is product we have ordered and in some cases already paid for that cannot be shipped until a container has been made available. So even if the suppliers could get us components as ordered, they could still be delayed.

Price Increases

In February of this year, we had reached the point where our supply chain had been affected by enormous inflationary forces. We absorbed these increases for as long as we could, but when we went from paying around $1,800 to ship a container of parts to our factories in Spain or Portugal, to having to pay almost $12,000 for the same container this became untenable. And this was only ONE of a raft of price increases we tried to absorb, but at the end of the day, we had to eventually join our market competitors and increase our pricing to compensate. However, we did give our retailers a number of weeks to identify any orders that had been already sold to an end user (with either a deposit paid or paid in full), and we exempted these bikes from any industry price increase, and we let them remain at the price they were when ordered. Unfortunately, any bikes shipped into the UK after January 1st were subject to duties, which were not optional nor are they applied by Orbea, but by HMRC as a result of the Brexit trade deal. This was unavoidable and not part of our commercial plan in any way or form. 

So, in a nutshell, since February 2020, Orbea and the industry at large have been faced with Europe-wide lockdowns affecting our own manufacturing facilities; locked-down supplier factories; unprecedented demand being placed on these already-stressed facilities; civil unrest forcing support factories to close; a global shortage in containers; lack of shipping facilities into the UK due to Brexit and government policies in some countries that pays one of the earners in a household to stay at home to look after children while schools are closed. This last point has seen our workforce in Portugal reduced by nearly 45% - meaning our capacity has been reduced by that same amount. To describe the situation as challenging would possibly rank as one of the greatest understatements of all time.

The situation now …

Orbea has almost doubled the supply of bikes into the UK in 2020 vs 2019, and are set to do similar in 2021. So people are aware, we have only done so due to a virtual super-human effort from our logistics team finding creative ways to get our components from point ‘A’ to point ‘B’; by our finance team managing to balance our investment in inventory with our investment in developing our plant and facilities to handle the increased demand; by our operations teams finding creative new ways of working that saw our factories improve efficiency and still maintain appropriate employee safety protocols and by our management teams keeping everyone on the same frequency … ensuring we never lost sight of the fact that people needed bikes now more than ever.

In saying this, the circumstances have not always allowed us to deliver exactly the levels of service we would like. However, we depend heavily on our network of retailers, who have borne such a huge brunt of this challenge on their shoulders and who do their best to keep their customers up to date with the ever-changing landscape we are operating in. So many of them are working around the clock to support their customers and picking up the slack where we and their other suppliers are unable to support them properly. We ultimately try to partner with the very best retailers in the market and I have to say that so many have adapted to this new reality with extraordinary professionalism and grace – we couldn’t have delivered a fraction of our service without their cooperation and support.

As an organisation Orbea has a co-operative soul (being a worker-owned co-operative), with people always at the core of our motivation. The investment we have made in our business was more than financial. It was an investment in a new way of thinking and a new way of operating and hopefully will lead us to a future business model that will offer assurances to our partners and end customers that we will be there for them whatever the challenges. For now, we will continue to try to make the best of the situation and deliver as good a service as is possible under the circumstances.

All pictures courtesy Orbea