The pull model

Pull model: The company delivers frames when the IBS agent places an order. This is the pull model and it is the opposite of the traditional “push” model where the manufacturer requires the IBS to buy an inventory of bicycles at the end of each year. The traditional model allows the manufacturer to “know” how many bikes it has to produce in the upcoming year; they find out by having a rep ask all their IBS in the fall how many bikes they are willing to buy for delivery in the spring. Once they know and have commitments to buy from the IBS, they can hit the print button at the factory and produce in a single run a huge number of bicycles; they derive economies of scale in this way.

If demand is stronger than expected, the IBS runs out of bikes and they lose customers to other brands or Internet retailers; if demand is weaker than expected, the IBS has an over supply of bicycles and ends up having a year end sale where the frames are discounted heavily. This is not good for the brand because it diminishes its value and the market begins to remember that a better savings can be had by waiting until the end of the year. This is why many brands will not allow a retailer to discount its bikes as part of a larger sale; they do not want the “premium” to be eroded. If they find out, they get upset.

The pull model is based on the demand in the market. The company carries a manageable inventory on shore and discloses it to its IBS; this allows the IBS to see how much inventory there is with the company and allows the IBS to be more proactive with its customers. The company manages an order book which allows the IBS to indicate whether or not it would like another frame in the future (much like a wish list function on a retail site). This becomes an indicator of future demand for the company and helps it determine the size of its next order. The company will have its mold in small factories so that small orders can still generate economies of scale.

The benefits of the pull model is that the IBS does not have to finance large amounts of inventory (improves cash flow) or rent large spaces to accommodate the inventory (lowers overhead expenses). The company does not have to pressure the IBS to buy inventory; the IBS also receives an agency fee on each sale which improves the IBS cash flow. The IBS is also in a position to originate a bicycle that suits the customers exact requirements (components, wheels, saddle, headsets, color maybe). This strengthens the relationship with the customer. 

The drawbacks of the pull model is that the company bears inventory risk; this could result in the company having to dump all the inventory on eBay, which would destroy the brand and the company.  The pull model also targets the smaller and more patient segment of the market rather than the much larger “buy it now”.  However, the more patient segment of the market is under served and less saturated than the “buy it now” market.  The pull model could result in mismatches between supply and demand resulting in permanent damage to the enterprise. The company could have orders in hand, but More Choice could simply be unable or unwilling to deliver the frames for whatever reason. If a situation like this were to persist for a few months (as it did with Williams Cycling earlier this year), it could be the end of the company.