When we launched OPEN, we decided to produce our first frame in China. Not that there is anything wrong with that, as we explained in this blog entry
. And it was simply the place where we had all our connections.
The results have been good, as it allowed us to go to market relatively quickly with a frame that is the lightest production frame in the world. It received rave reviews from dozens of magazines and most importantly, from you, our customers. But the dream was a different one from the start. We believe that long-term, production will be closer to us and our main markets in Europe and North America.
By having full control over production, we can push the envelope even farther while improving reliability even more. A true win-win.
And because our goal with OPEN is always to be, well, open about how we run the business and why we make our decisions the way we do, here's a bit of background on our on-shoring efforts. The problem we were facing was two-fold:
1) Finding the right partners to work with
Luckily, there still are some small companies making incredible products on-shore, and we're happy we found the right partners for our frame production. Over the past year, we have worked with AX to set up a dedicated line for that purpose. You may know them from their insanely light bike parts, but they also have experience in making parts for F1, LeMans and other motorsports. You can learn more about them in a previous blog i wrote
Now we combine the best of both worlds. On the one hand my background in composite frame production (first graduating in Composite and Polymer Technology as part of my Mechanical Engineering degree and then engineering all those Cervélo models together with Phil White and our engineering team) and everything I learned visiting carbon factories all over the world. On the other hand AX's incredible know-how in making parts to the most demanding customers you can imagine and their wonderfully skilled labor, plus a cluster of amazing suppliers.
Germany is like a candy store for engineering, there are all these small companies who are world leaders in one little thing. One company makes world-beating molds (but only one specific type), the other knows exactly how to save 0.01g off of tiny set screws and a third takes the scraps from carbon manufacturing and turns it into the basis for the monocoque shell of a BMW i3 electric car (of course they don't make the shell, they are only world leaders in one small step in the process).
Want to paint in-house? The company that sells you the equipment will also train your staff until you achieve the lightest, most gorgeous finish you have ever seen. And if they need to send in the painter from one of their automotive clients to reach the goal you set, they will. No questions asked.
To top it off, we purchased the most sophisticated frame stiffness testing set-up so we can test in-house during frame development and save a lot of time, while the most renowned German bike test labs are just around the corner for a different battery of fatigue and strength tests.
I know it's all a bit nerdier than some of you can stomach, but I don't think I've ever had as much fun as this past year working on this on-shoring project.
The cost side was a tougher nut to crack. For the past ten years, I have always said that if we could produce locally for double the costs of China, I would switch in a heartbeat. Because the costs in China aren't really the costs.
The bean counters at the big bike companies like to look at unit prices and proclaim China is the most cost-effective place to produce, but once you factor in the costs of quality control, constant travel to the factory, the long development times, the long lead-times in production, the shipping, duty and import costs, etc, etc, etc, that Chinese frame isn't as cheap as most people think.
All of these factors hurt, but the one that really kills you is the longer lead-time. Ordering three months in advance plus a month on a boat in a seasonal business is terrible. If sales start in earnest in January and sell-through gets going in March, any feedback you get from the market is useless. Even if you know right away in March that you need to order more, you won't see those frames until August when the season is over. And the most expensive frame is the one you never get to sell because you didn't have it on time.
Now, I could never figure out how to get to twice the Chinese cost price. I still can't. First of all materials are bit more expensive (mostly because in Europe you will buy carbon that is pre-pregged by yet another world-class company that specializes only in pre-pregging, while in China the frame manufacturers do this in-house).
But of course, the big hit comes from the labor costs. Count on paying at least ten times as much per hour. You can reduce the number of hours per frame a bit because the very skilled labor can work more efficiently and use more complex production tools. But in the end, it's still a lot more expensive.
Right now, we're at around 5x the cost in Germany compared to China.
That's the bad news, the good news is that the frame is amazing. Truly amazing. And the other good news is that this is only the first product, we are confident that we can slowly streamline our production process until we get to that 2x figure. It may take us ten years to achieve it but that's OK - we're in this for the long ride.
So that's a bit of the background, the next blog will talk more about the product itself.