Dirt Bikes Management Asked Briefing Involved Making Decision Need Understand Several Things

Dirt Bikes management has asked for a briefing on what is involved in making this decision. They need to understand several things:

What is needed to implement such a system as an infrastructure investment, and how do they determine the total cost of ownership if Dirt Bikes wants to do everything itself?

What are the advantages and disadvantages of owning versus outsourcing for each of these components (staff, computer servers, software licensing, and data storage)?

What are the trade-offs? For example:cost versus reliability; ease of use versus control.

Of the 4 key system components staff, servers, software and data storage are there other combinations of outsourcing (for instance, can they own the server but outsource data storage to a cloud company?)

What other future infrastructure needs might be relevant in this decision, forexample will Dirt Bikes be needing other software applications and databases? Will they need internet servers to host the company's web site and e-commerce services?

Company History and Background

Dirt Bikes USA was founded in 1994 by Carl Schmidt and Steven McFadden, two young but experienced bikers with engineering backgrounds who saw that dirt bikes were becoming very popular in the United States as both sporting and racing motorcycles. They developed frames for dirt bikes that were more suited to off-road handling and started using these frames to build their own dirt bike models using motorcycle engines manufactured by other companies, such as Honda and Rotax Motors of Austria. Riding on one of their customized dirt bikes, Steven finished first in the famous Barstow to Las Vegas race. There was so much interest in Carl and Steve's bikes that they decided to open a production facility that could manufacture large numbers of their dirt bikes for the retail market. They opened a small production facility in Carbondale which has since expanded to house 120 workers involved in production, design, and engineering and a corporate sales and administrative staff of close to 20 employees. Over the years Dirt Bikes USA has enhanced and expanded its product line to include dirt bike modelsoptimized for racing and for off-road recreational use. Its racingmodels have placed well-and often placed first- in the many dirtbike races staged throughout the United States, including theBarstow-Las Vegas race and competitions at Daytona Bike Week.

Organization Chart and Employees

The organization chart is illustrated in Figure 1.

Dirt Bikes USA is still privately owned with Carl serving as CEOand Steven as President and Chief Operating Officer. About 120employees work in design, engineering and production, including 3full-time product designers and 3 engineers. In addition to a4-person Parts department, Dirt Bikes maintains a ten-personservice department to service warranties and customer problems withparts and motorcycle performance. Five employees work in DirtBikes' shipping and receiving department. Dirt Bikes' sales staffconsists of a marketing manager and 5 sales representatives, twofor the West coast and Western United States, one for the Midwest,one for the Northeast and one for the South. The corporateadministrative staff consists of a controller, one accountant, oneadministrative assistant, two human resources staff members, threesecretaries, and two information systems specialists to supportsystems servicing all of the business functional areas. The datafile Dirt Bikes Org Chart shows Dirt Bikes's organizationchart.

The company maintains a very friendly family atmosphere,encouraging teamwork, attention to detail and quality, andcontinual learning and innovation. Employees, distributors, andretail customers are urged to contribute ideas on how to improveDirt Bikes' products and service.

Products and Services

Dirt Bikes' founders realized that the most popular dirt bikeswere foreign brands and wanted to capitalize on their proximity tothe dirt bikes racing circuit and market in the United States. Carland Steve hoped they could develop bikes that performed and lookedbetter than the competition by using the best custom partsavailable. Dirt Bikes does not hesitate to use quality componentsfrom all over the world. The engines for Dirt Bikes are Rotaxengines from Austria and tires are from Dunlop, but many of theirparts, such as shock absorbers, front wheel forks, exhaust pipes,and headlights, are from the United States. Dirt Bikes makes itsown frames, shaping them to give them the unique spirited style forwhich the company is noted. The company's parts and servicebusiness accounts for about 15% of its total revenue.

Manufacturing and selling dirt bikes is a complex business. Dirtbike racing has many forms, including racing specifically fordifferent size bikes, for short distances, long distance, and evenfor up to six days. Enduro bikes are for cross-country racing andmotocross bikes are specially designed for racing in an encloseddirt course that can consist of a variety of terrains; uphill,downhill, corners, jumps, and so forth. Dirt Bikes currentlyproduces four models: the Enduro 250, the Enduro 550, the Moto 300and the Moto 450. The two Enduros are endurance racers, while theMotos are for motocross racing. All four are very modern, with suchtechnology as both kick and electric starters, steeringstabilizers, and liquid cooling. The large majority of these bikesare sold in the United States for between $3,250 and $9000 retail.(The Enduro 250 retails for $3250, the Enduro 550 retails for$7600, the Moto 300 retails for $4295 and the Moto 450 retails for$8995.) Dirt Bikes has appealed primarily to serious trail andEnduro riders, although it is making inroads into the motocrossmarket.

Sales and Marketing

Dirt Bikes does not sell directly to retail customers, relyingon a network of 40 distributors concentrated in the Western andMidwestern United States. A small percentage of Dirt Bikes are soldin Europe using independent distributors that sell other brands ofdirt bikes and motorcycles as well as Dirt Bikes. Dirt Bikes'motorcycles, parts, and service, including warranty repairs, canonly be obtained through an authorized Dirt Bikes dealer. Allmotorcycle and spare parts sales, shipping and set-up must behandled by a certified dealer. If a potential customer lives morethan 50 miles from the nearest authorized Dirt Bikes dealer, thecustomer can purchase a Dirt Bike or Dirt Bike parts through acertified independent motorcycle dealer. Retail customers canpurchase spare parts directly from Dirt Bikes only by verifyingthat they live more than 50 miles from an authorized Dirt Bikesdealer.

Dirt Bikes' sales department works closely with Dirt Bikes'distributors. One of its key responsibilities is to aggressivelypromote Dirt Bikes at dirt bike racing and other events. Many DirtBikes employees are dirt bike racing enthusiasts themselves.Several are official company racers representing the company indirt bike racing competition. Dirt Bikes recently established aDirt Bikes USA Owners' Group to promote stronger relationships withcustomers and to make it easier for them to share their Dirt BikesUSA experiences. Dirt Bikes also advertises in magazines devoted tomotorcycle racing and dirt bikes. It uses a small public relationsfirm to place articles about new company products or racingvictories in these magazines. Dirt Bikes also pays for ads in thesepublications.

The income statement and balance sheet are the primary financialstatements used by management to determine how well a firm isperforming. The income statement, also called an operatingstatement or profit and loss statement, shows the income andexpenses of a firm over a period of time, such as a year, aquarter, or a month. The gross profit represents the differencebetween the firm's revenue (or sales) and the cost of goods sold.The gross margin is calculated by dividing gross profit by revenues(or sales). Net profit (or loss) is calculated by subtracting allother expenses, including operating expenses and income taxes fromgross profit. Operating expenses are all business costs (such asexpenditures for sales and marketing, general and administrativeexpenditures, and depreciation) other than those included in thecost of goods sold. Net margins are calculated by dividing netprofit (or loss) by revenues (or sales).

A balance sheet provides a snapshot of a company's financialassets and liabilities on a given date, usually the close of anaccounting period. It lists what material and intangible assets thebusiness owns and what money the business owes either to itscreditors (liabilities) or to its owners (shareholders' equity,also known as net worth). We have included here are only the mostimportant pieces of balance sheet data for you to review. At anygiven time a business's assets equals the sum of its liabilitiesplus its net worth. Current assets include cash, securities,accounts receivable, or other investments that are likely to beconverted into cash within one year. Current liabilities are debtsthat are due within one year. Long-term debt consists ofliabilities that are not due until after a year or more. If toomuch debt has been used to finance the firm's operations, problemsmay arise in meeting future interest payments and repayingoutstanding loans.

By examining a series of financial statements one can identifyand analyze trends in the financial strength of a business. Whenexamining Dirt Bikes' income statement and balance sheet data, payspecial attention to the company's three-year trends in revenue(sales), costs of goods sold, gross margins, operating expenses,and net income (or loss). Pay attention to whether the company'sshort and long-term liabilities are growing and whether they exceedassets. If a company has more current assets than currentliabilities, it is a sign that it probably has enough workingcapital to fund investments in new equipment or informationsystems.

The two other spreadsheets present motorcycle unit sales databetween 2010 and 2014, which can be used to gauge motorcycle sales.When examining these spreadsheets, pay attention to the trends insales. This includes the sales trends for each product Dirt Bikessells, overall sales trends, and the proportion of international todomestic sales.