Supply chain management in the bike industry

To our customers,

Spring of 2022 is coming quickly, and it felt like a good time to write up something explaining a little bit about what the last two years have been like for us, and what the upcoming season may potentially look like.  

Basically, since March of 2020 we’ve been chasing our own tails.  I wish there was a more graceful way to put it, but we were running.  Although our overall sales increased, at many times it felt like the wheels were falling off.  A huge thanks has to be given both to our staff for keeping their heads up and to all of our customers for sticking with us and being patient.  

The question bike shops fielded most often over the past two years was ‘Where are all the bikes?’ Now, we feel like at BBB we’ve done better than the rest with keeping supply levels up, but we were nowhere near perfect.  Over the past couple of years we have been operating in unprecedented times.  COVID-19 rattled the world in more ways than one, and the bicycle and the outdoor industry as a whole seemed to be a quick solution for everybody’s sanity.  Although as an industry we were grateful to provide a way for people to clear their heads, pretty quickly we ran out of supply.  Coupled with demand increase, at the exact same time we also saw supply levels decrease.  I was watching an interesting video the other day about the overall function of the shipping industry.  It was essentially built to function perfectly at capacity, but when that capacity is overloaded, the whole system crumbles.  As I’m sure all of you read elsewhere, a massive domino effect took place which ground the shipping industry to an almost complete halt.  Since almost all of the bicycles in America come from Asia, we were straight up out of inventory.

Now the bicycle manufacturing industry usually operates at a turn ratio of about 4:1.  Essentially this means that nationally, there are about four bikes in the country in warehouses for every one bike sold.  Throughout the past couple of years this ratio was operating below 1:1.  When this happens the manufacturers obtain a lot of the leverage, and can basically call the shots of what we as dealers need to do.  Manufacturers quickly decided that they needed to be much more selective of whom they sold their bikes to.  We were lucky enough to be well situated in that algorithm, and are constantly trying to improve our shops to not only better satisfy our customers, but to also look more attractive as a dealer to different manufacturers.  

At this point, I thought it would be helpful to explain a little bit about what ordering bikes used to be like, what they were like the past couple of years, and what we’re expecting them to be like moving forward…

What Things Used To Be Like

Ahhh the good ol' days.  In the past, around September, we at bike shops used to place large preseason orders that would be approximately 50% of our upcoming season's sales.  This would help the manufacturers forecast their demand for the upcoming season, and would guarantee us the bikes we wanted, in the shapes, sizes, and colors that we wanted.  As we moved through the season, manufacturers would hold excess inventory.  If you came into the shop and wanted a small, but we only had a certain bike in a medium, 75% of the time we could order the small and have it in the shop and be built in about a week's time.  Glory days indeed.

What the Past Couple Years Were Like

As mentioned above, once COVID-19 hit, pandemonium ensued.  At first, everybody panicked, and many dealers did everything they could to cancel whatever preseason orders they had yet to receive.  Things were spinning out of control, but again, unprecedented times.  Very shortly after the mass cancellations and quarantine orders were lifted, bike shops started seeing record sales.  We weren’t quite yet hearing of supply chain issues, but we were hearing that bikes could potentially be sold out for the upcoming season.  Nobody knew what to actually do, so bike shops all over the country were then placing massive orders.  In some cases shops were placing orders for two years’ worth of product.  This essentially ‘broke’ the system.  Right about that time, manufacturers started building out algorithms that would help to control product allocation.  Essentially dealer Tier systems were built overnight to make sure the right shops got the right product.  Again, we were able to benefit from this at BBB, but a lot of smaller independent bike shops suffered.

I’m going to do my best to write out an example.  Lets just say a manufacturer decides that it is going to release a new bike this coming June.  Right about now we as dealers would get a notification that in fact we will be able to place these bikes on order March 1, at a specific time.  Usually only top tier dealers get invited to these ordering frenzies, so the smaller shops don’t even get a slice of the pie for the latest and greatest.  On March 1, hypothetically, all the invited dealers will place their orders at 12:01 to try and be at the front of the line.  Let’s just say the manufacturer is planning on importing 1000 said bikes on their first import, but oftentimes they are receiving 10,000 quantities that first hour of ordering.  The easy answer would be to just build more bikes, but right now with labor shortages and supply chain bottlenecks this just isn't possible.  Even if manufacturers were able to produce the 10,000 bikes, arguably it would cause larger issues.  Many dealers are still ordering bikes at highly inflated volumes just to try and secure some product at some point down the line.  If all 10,000 bikes were delivered, we’d see massive overstock and a different type of pandemonium would ensue.

What Things Are Looking Like Now

I will first speak for Berkshire Bike and Board specifically and say that we have a pretty strong allotment of inventory moving into this Spring season.  Although it will still be very hard to have exactly the SKU you are looking for in stock, we will have a strong selection of bicycles from different manufacturers in all categories.  Nationally, that inventory ratio is trending upwards and is at about a 1.3:1 as we speak.  Not quite 4:1 like the old days, but things will probably never reach that level again, intentionally.  What does this mean?  We are expecting shops to trim down backorder lists to start to more accurately reflect the inventory they are looking to take on as manufacturers are starting to build up back stock, but we are still probably at least a year away from new normalized inventory levels nationally.  

In closing, although we are on our way out of the woods, things still will be far from perfect this year at your local bike shop.  Not to say that we’re setting our bar low, but a little bit of dysfunction helps to make us all feel human.  As we were progressing through this past year I found myself making checklist after checklist about processes and systems to make things perfect.  Although we always have room for improvement and increased competition will continue to push us to be better for our customers, a little bit of ‘the wheels are falling off’ lets you know that in fact you are at a local bike shop, which is a beautiful thing.

Jaryn Pierson

Berkshire Bike and Board