This report recommends outsourcing the manufacturing of Fox Factory’s new e-bike for the domestic market. While internal production and design licensing offer some advantages, outsourcing provides the best balance of risk mitigation, cost efficiency, and speed-to-market.

The e-bike market presents a significant opportunity for Fox Factory, aligning with their existing expertise in cycling components. Outsourcing allows Fox Factory to leverage a chosen manufacturer’s capabilities while minimizing upfront investment and production delays.

A revised Balanced Scorecard reflecting the outsourcing strategy is included, outlining five key goals with associated KPIs for financial performance, customer satisfaction, internal processes, and innovation.

Situational Assessment of Fox Factory

Fox Factory Holding Corp. (FOXF) is a leading designer and manufacturer of performance-defining bicycle suspension products [Fox Factory Investor Relations, n.d.]. Their recent financial performance reflects a strong position in the cycling industry, with a 28.1% sales boost in the bike division for Q2 2024 [Cycling Industry News, 2024]. This growth indicates a favorable market for e-bikes.

Key Financial Information (as of May 21, 2024):

• Strong brand recognition and established distribution channels in the cycling industry.
• Expertise in design and engineering of high-performance cycling components.
• Limited experience in e-bike manufacturing and full-vehicle assembly.

E-Bike Production Options

1. Internal Production:

• Benefits:
  • Full control over design, quality, and brand identity.
  • Potential for long-term profitability through direct manufacturing.
• Costs and Risks:
  • Significant capital expenditure for new equipment and production facilities.
  • Increased headcount for manufacturing and quality control.
  • Lengthy lead time for setting up production lines and establishing expertise.
  • Potential for unforeseen production delays and quality issues.

2. Design Licensing:

• Benefits:
  • Low upfront investment and minimal risk.
  • Quicker entry into the e-bike market by leveraging existing manufacturer capabilities.
• Costs and Risks:
  • Lower profit margins compared to direct manufacturing.
  • Limited control over design, quality, and brand association with the final product.
  • Reliance on licensee’s expertise and production capacity.

3. Outsourced Manufacturing (Recommended):

• Benefits:
  • Lower capital expenditure compared to internal production.
  • Faster time-to-market by leveraging existing manufacturer’s infrastructure.
  • Access to expertise in e-bike manufacturing.
• Costs and Risks:
  • Some loss of control over design and production processes.
  • Potential for dependence on a single supplier.
  • Negotiation of a favorable manufacturing contract with cost controls.

Why Outsource Manufacturing Makes Financial Sense

• Reduced Capital Expenditure: Outsourcing minimizes upfront investment compared to internal production, improving short-term cash flow.
• Faster Return on Investment: Quicker market entry through outsourcing allows Fox Factory to capitalize on the growing e-bike market sooner.
• Leveraged Expertise: Partnering with an experienced e-bike manufacturer reduces production risks and learning curves.