EXPLAIN TO TED WHAT A SUPPLY CHAIN MANAGEMENT (SCM) SYSTEM COULD DO FOR HIS BUSINESS
OLD DOMINION TRAIL BIKES
In 1985 Ted Thomas took $6,000 of his savings, borrowed another $4,000 from his best friend, and opened a bike rental business in Vienna, VA, adjacent to the Washington & Old Dominion Trail (W&OD) that goes from Purcellville to Old Town Alexandria (45 Miles) and connects to the Mt Vernon Trail (18 Miles) and ends at George Washington’s Mt Vernon Estate. He rented a location, bought 10 bikes and opened his first store in Vienna near an entrance to the W&OD Trail, where there is also parking, and near the historic Vienna Inn and a number of food and drink establishments. He has since opened stores in Old Town Alexandria and Reston, VA, where he sells, rents and repairs bicycles. The Vienna store is now his anchor store, and at 5,000 square feet, it is three to five times larger than his other stores. Ted estimates he sells around 3,000 new bikes a year. Because of the high use of the W&OD trail, especially on weekends, he also provides tune up and maintenance services at all of his stores for the many riders from up and down the trail.
In 2012, Ted leased a store in the heart of D.C., near the Smithsonian Museums and other tourist attractions. He uses this store to rent bikes to tourists and residents of the city, and does some repairs to his rental bicycle inventory in the back of the shop.
Although he has always made money, or he would not be in business, Ted has seen a decline in bikes sales of about 20 percent since 2008. He attributes this to the downturn in the economy and the growth in Internet sales. However, his rental and tune up and repair business has increased dramatically. Over the past few years, he realized that he must be more aware of expenses and decrease them wherever practical in order to preserve profits.
Ted has thinks that the one of the most important factors is the weather, but has no data to support that thinking. On rainy days, there are few customers in the stores, while on sunny weekends all of his locations are extremely busy. From spring through fall, Ted keeps all his stores open seven days a week, while in the winter months he opens his stores on the weekend when the weather is good for riding. Through observation, Ted figures his highest sales occur in May, and that June and September are his best months for rentals. He also sells many bikes during the holiday season in December, but in January and February, he often wonders if he should close shop and go to Florida for a couple of months.
Old Dominion Trail Bikes grosses between $5 and $8 million annually and earns Ted a comfortable six-figure income. Each year, he leaves a considerable amount of cash in the business so that he does not have to borrow money. He sells a wide variety of bikes (from tricycles for toddlers to sophisticated racing bikes) and accessories such as helmets, speedometers, bike racks, repair kits, and clothing. Bicycle sales have decreased to account for 25 percent of revenues. Accessories such as helmets, bike racks, gloves, and locks amount to another 5 percent. Rentals make up about 35 percent, and repairs make up the remaining 35 percent.
In recent years, he has noted that customers are less likely to purchase the high-end road and triathlon bikes, and are purchasing bikes in the range of $400 to $1,000. The lower priced bikes are also easier to sell and to keep the cash flow moving.
Most of the rental business is concentrated in the D.C. store in downtown and the Alexandria store, due to the tourists and university students located near those stores. Ted is excited about rentals, as they have a huge profit margin. He can charge as much as $50 a day, which means the bikes pay for themselves after just a few rentals.
Ted’s expenses include the cost of goods such as new bikes and accessories, rent and payroll. He negotiates leases for all his locations except the Alexandria store, which he owns outright. Ted has 15 full-time employees and usually hires another 15 part-time employees during the busy months and weekends.
Until two years ago, he was spending about $30,000 a year on advertising in local papers. Now he uses a simple website and has links on many of the local biking trail sites to provide information about his various locations, and his advertising budget is close to zero.
In the late 1990s, Ted over-expanded to six stores, including a store in Purcellville, VA, and one in Bethesda, MD. The expansion necessitated a warehouse in Springfield, VA, the hiring of a general manager and considerable overhead expenses. In a subsequent cost-reduction effort, Ted closed the Bethesda store, gave up the warehouse and moved his inventory to the Vienna store, and let the general manager go. Now, he handles all the general management tasks himself, which affects the time that he has available to plan and develop strategies.
Ted further reduces his expenses by working in the Vienna store two days a week. Since he has only one staff person in some of his stores, he has to make special arrangements if that person does not come to work, or takes a day (or week) off.
He is trying to expand the bicycle repair work, especially on the weekends, so he will be able to increase revenue from this profitable aspect of his business. He needs to have repair capability at each store to maintain the rentals, prepare the new bikes for sale, and perform the periodic maintenance for the bikes that he has sold, as well as provide the breakdown repairs and adjustments for the riders on the Trail.
In an effort to increase profits, Ted tries to get good deals from his suppliers so he can realize a good margin on bike and accessory sales and repairs. He looks for situations where suppliers have more bikes in a line than they need and buys those bikes at a discount for rentals and low-end sales, while maintaining a rapport with high end suppliers so that he can offer his customers the best at reasonable prices. By doing so, he can sell bikes at a lower retail price with on-the-spot delivery while still realizing a nice profit.
Ted has no bank debt, and has long since repaid the $4,000 he borrowed from his friend to start the business. He feels that, because he has a diverse business strategy that addresses the many different aspects of the local bike business, he will do well in the many different economic climates as long as he is able to manage his varied business. He also feels that he is insulated from “substitutes” from the Electronic world, due to the rental and repair aspects of his business.
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