As a small manufacturer, Cobra Motorcycles faces many of the same challenges as its larger counterparts: We strive to continuously improve our internal operations, we push to find the best and lowest cost global suppliers, and most importantly we attempt to design and develop the best products for our customers. To these ends, the company is currently facing a "Lean Conundrum": Cobra’s internal manufacturing operations are well developed. Finished goods inventory of motorcycles and ATVs turn many times per year, and in fact much of our volume is delivered on a make-to-order basis. Furthermore, our machining operations are consistently becoming leaner through big improvements in set-up reduction and likewise reduced batch sizes. In contrast, our supply chain – which we rely on for both volume and expertise – has become very bloated as we have followed current trends and outsourced many commodities to Asia. Large minimum order quantities, long and highly variable transport times, and quality issues are the realities we struggle with daily. To combat these issues we have developed a complete way of looking at the total cost of outsourcing, and as a result we have begun to in-source and home-source many of the components on our new CX65 model. This presentation will focus on lessons learned from that experience through case studies and cost data, and it will hopefully open good dialog on how other companies and industries are handling complex global supply chain issues.

1. Small Volume Manufacturing in a
Global Economy
Sean Hilbert – Cobra Motorcycle Mfg.
2009 IndustryWeek Best Plants Conference
April 2009

2. Cobra…
Is the world’s smallest powersports OEM.
Designs and assembles all of its products.
Is relatively vertically integrated (engines, chassis,
and some suspension in-house).
Has enjoyed 250% growth over the past five years.
Has won over 225 national championships in the US
over the past decade.
Is branching out to overseas markets (Europe,
Australia, Middle East, Latin America, South Africa).
Struggles like hell to manage the complexity of a
large company while trapped in the body of a small
one.

3. The Numbers
4000 Part Numbers (3000
engineered, 1000 commodity).
~1000 Total Units in 2008
150 Global Suppliers
100% of Final Assembly In-House.
60/40 Units to PG&A Sales Split
33 Employees

4. What is Cobra Motorcycle Mfg.?
The Market:
Hardcore Recreation
Motorsports
Motorcycles / ATVs
Competition Use Only
Youth
A niche within a niche within a niche…

5. What is Cobra Motorcycle Mfg.?
Our Customers:
Young, relatively affluent families
Racers 5-12 years old
NOT risk averse
Adventurers…full of life
VERY competitive
Largest cohort: “Blue Collar Chic”

6. Our Kids!

7. What is Cobra Motorcycle Mfg.?
Our Products:
Five unique models
Priced from $2200 - $8200
Sold through a worldwide network
of dealers (some PG&A direct)
Heavy on service
Coaching & Information!

10. Cobra’s Conundrum
Internally, we are making great strides
toward Lean. Externally, however, we’re
going backward as our supply chain
becomes more global.
Central Question: How can we make better
decisions around the true cost of
outsourcing?

11. Supply Chain Strategy
* Framework borrowed from Charlie Fine – MIT Sloan School of Management

12. Homesource vs. Offshore
Improved Communication Over Supplier
Processes
Reduced Inventory Throughout System
Reduced Shipping and Logistics Costs
Reduced Overall Risk (1-2 more
iterations)
Vastly Improved Cash Cycle
Higher Piece Cost

13. Building A Cost Model
NA Data Off-Shore Data
Price $1.88 $1.25
Order Period 91 365
Payment Terms -60 42
Low High
Total Cost Factors Range Range
Transport & Logistics 3% 15%
Hard Costs
Cost of Capital 9% 13%
Holding Costs 15% 24%
Risk Premium* 10% 25%
Soft Costs
Communication -2% 2%
Risk Premium (Sources of Variability)
Transportation Time
Processing Time
Currency Fluctuation
Quality/Product Variation
Intellectual Property

14. Cash Cycle Comparison
Offshore
$
42 Days 365 Days
NA
$
60 Days

15. End Result
Total Cost Comparison
Low High
Offshore Hard Costs $1.44 $1.58
Offshore Total Costs $1.54 $1.91
NA Total Comparitor $1.81
This type of analysis was completed on a wide range of parts
(injection moldings, castings, forgings, extrusions, upholstery,
machined components, etc.)
The end result was that Cobra in-sourced and home-sourced
38 parts (nearly 10% of the CX65) that we were considering
outsourcing to Asia (2008 MY)
For the 2009 MY, we have in-sourced another 22 parts
allowing further improvements in cash flow, total cost,
performance and quality.

16. Looking Back and Forward
Home sourcing allowed us to be much more
aggressive with our product development…Making more
iterations on certain components before launch.
Using our model to project a cost range is much more
objective than comparing on piece price and then
subjectively trying to finalize a purchase decision. The
model works!
Keeping more suppliers closer to home will give us the
opportunity to closely work with them in their Lean
journey.
NA based suppliers are figuring out how to become
cost competitive and better utilize their intrinsic
advantages of being local to the market.

17. Case Study
CX65 Top & Bottom Triple Clamp
FCC60002
FCC60003

18. Cost Comparison
Insource Off-Shore Data
Price/Cost $44.81 $31.51 each
Order Period 90 500 days
Payment Terms -45 45 days
Low High
Total Cost Factors Range Range Acutal
Transport & Logistics 3% 15% 5%
Cost of Capital 9% 13% 13%
Holding Costs 15% 24% 24%
Risk Premium* 10% 25% 15%
Communication -2% 2% 2%
Total Cost Comparison
Low High
Offshore Hard Costs $36.11 $39.42 $38.73
Offshore Total Costs $38.63 $47.93 $44.09
NA Total Comparitor $44.81

19. But wait…There’s more!
Two other important factors to take into
consideration:
1) Scrap reclamation (4.9 lbs = $0.60/set)
2) Overhead absorption ($22/set)

20. H. Sean Hilbert
President – Cobra Motorcycle Mfg.
seanh@cobramotorcycle.com
(517) 437-9100