Using the concept of the bullwhip effect to explore how Pedego Electric Bikes can tackle harmful effects

Fantastic news! We've Found the answer you've been seeking!

Question:

Using the concept of the “bullwhip effect” to explore how Pedego Electric Bikes can tackle harmful effects of the pandemic and post-pandemic period on its operations. (25 marks)

case study

Impact of Covid-19 on e-bike market and supply chains

“The rising interest of e-bikes has been well-documented for a number of years now, with more and more people discovering the benefits of cycling but with a less strenuous option. And this has increased further since the outbreak of COVID-19 – with a new Shimano report of over 2,100 people in the UK revealing that 11% are more likely to use or buy an e-bike now than they were before the pandemic.” (Morley, 2021)1

Although e-bike market growth exploded during the pandemic, manufacturers of e-bikes, as in many other sectors, have experienced several global supply chain disruptions (Ivanov, 2020; OECD, 2020). Sources of these disruptions range from shortage of supply, factory closures, transportation failures, increasing cost of shipping to demand fluctuations (Ivanov, 2020). Some examples of these, particularly in the e-bike market, are presented in the article by Bushey (2021). As mentioned in the article, e-bike manufacturers need to reorganise the way they manage their supply chains due to the COVID-19 global pandemic. Difficulties on balancing supply and demand, handling inventory, maintaining relationship with the current suppliers, and/or switching to new ones had a huge impact on their supply chains. Yet it is envisaged to have great consequences in the future.

The e-bike that encapsulates the global supply chain crisis

Manufacturer switches suppliers but cannot do anything about log-jammed ports

When a new owner rides a Pedego electric bike for the first time, it has already travelled thousands of miles through a global supply chain snarled by the pandemic. The California company’s most affordable model, the Element, dubbed “the pandemic baby” by chief executive Don DiCostanzo because of when it was launched, is built in Shanghai, shipped to the Port of Los Angeles-Long Beach, and then trucked to nearly 200 dealerships around the US. Like many other companies struggling to weather the supply chain crisis, Pedego has had to try to keep its bikes rolling as it contends with a tight market for lithium-ion battery cells, suppliers in Malaysia closing factories due to Covid-19, the skyrocketing cost of shipping, containers trapped in log-jammed ports and a semiconductor shortage. It has employed a range of tactics to cope, from shipping batteries and bike frames separately to quickly switching suppliers when there is a shortage of parts. Yet feeding the growing US demand for electric bikes is still a challenge. The Pedego dealership on the main street of Winnetka, Illinois, a wealthy Chicago suburb, carried nine Elements earlier this month in a range of colours. But the model ran out from July to late August, said owner Scott Radliff. “It’s been so popular there was going to be an accordion effect somewhere,” he added. The US bike industry imports nearly 100 per cent of inventory, said Jay Townley, co-founder at the consultancy Human Powered Solutions. Most of that is manual pedal power: historically, electric bicycles have accounted for just 200,000 to 300,000 of the more than 17m bikes sold annually in the US. But when the pandemic fuelled a boom in cycling, sales of electric bikes increased disproportionately. Townley said some estimates place the number of e-bikes sold in the US last year as high as 1m. Inventory was already running low in the first quarter of 2020, as bicycle manufacturers reduced imports in response to tariffs imposed by former President Donald Trump. When consumer demand surged in the second quarter, Townley said, “then the try [was] on, . . . the pipe started to fill, but as the pipe started to fill, the supply chain started to creak”.

Shipping the Element e-bike can now take up to three months

Pedego uses eight factories located across Asia. Once an Element bike order is placed, its more than 50 components are assembled at a plant in Shanghai...

Pedego uses eight factories fanned across Asia, with five in China, two in Taiwan and one in Vietnam. The company ordered these factories to produce 37,000 bikes for the year across all models, DiCostanzo said. When it later tried to increase this order by 10,000, it was unable to do so because the parts were unavailable. Pedego made the Element’s first pre-production prototypes in the spring of 2020, then placed an order for 5,000. The bikes shipped in early July from Shanghai and arrived in California six weeks later. A year later, that same journey can last twice as long. It takes up to two weeks to even find a shipping container at the Port of Shanghai, DiCostanzo said. The company has started shipping bikes and batteries separately, because when packaged together they must go in a container for hazardous materials, which is even harder to source. Crossing the Pacific Ocean adds another two weeks, but moving through the Port of LA-Long Beach can take up to six weeks. In one instance, a shipment of wicker bicycle baskets rotted in a container while it was waiting to be processed and moved out of the port. The e-bikes then go to a warehouse in Orange County before travelling another one to two weeks to a dealership. In addition to delays, prices have gone up throughout the supply chain Pedego’s spending has increased from $4,000 per shipping container to $23,000. Meanwhile, shipping a pallet with four bikes by truck from the company’s warehouse to a dealer has gone from $8 to $18 after freight operators raised their rates. Pedego also made changes to the Element when it was unable to source parts, swapping out one brand of gear shifter for another and changing its sprocket supplier. It also changed its battery maker from Panasonic to Samsung because of a shortage of lithium-ion cells.

Throughout the industry, lower-profile brands have prospered during the pandemic and supply chain crunch due to substitution, Townley said. For a less expensive bike — the Element sells for $1,895 — it is easier to switch components. Pedego’s priciest product, the $5,495 Elevate, will be out of stock throughout all of 2022 since the manufacturer cannot obtain the necessary high-end parts from Japanese manufacturer Shimano. “We’ve been begging for them,” DiCostanzo said. “The more expensive the bike, the harder it is to get parts.” The Element has been unaffected by the worldwide semiconductor shortage, even though it includes chips in three components: the LCD display panel, the battery and the controller that regulates the machine’s power. But Pedego has five new product lines that it now plans to launch in June instead of January as previously planned because of difficulties procuring the chip needed for the LCD display.

Last year, the company began divvying up inventory and assigning dealers certain days to place orders to try to avoid disappointment. “I’ve got 200 dealers,” DiCostanzo said. “I get a container of 155 [bikes] . . . What am I supposed to do? We do the best we can to allocate them fairly.” Pedego is now trying to stock up before the spring selling season. DiCostanzo said he has ordered 100,000 bikes and hopes to get 60,000 of them. One of the Elements in Radliff’s shop in Winnetka already had a “Sold” tag hanging off the handlebars earlier this month. The shop’s owner, himself an avid cyclist, offers free shipping and expects to play Santa for customers by personally delivering their bikes on Christmas Eve. But the new year is looking uncertain. Bikes ordered months ago have been packed on ships and are heading towards the US. If demand falters, an inventory overhang could force retailers into a price war, Townley said. If it stays robust — and sales remain historically high, despite decreasing from the peaks of 2020 — frustrated shoppers may outnumber the bicycles and e-bikes available. “We have enough supply to take us all the way to the end of January,” DiCostanzo said. “After that, there’s no guarantees because nobody knows what the supply line is going to look like.”