Which activities at dirt bikes create the most value

Initial Management Analysis Case Study

You will be using the Dirt Bikes case study for several of the written assignments in this course. Your first task is to do a general management analysis. Review Dirt Bikes’s company history, organization chart, products and services, and sales and marketing in the Introduction to Dirt Bikes.

Then complete and submit responses to the following three points. Your paper should be 2-3 pages, double spaced

1. Company summary. Write a ½ page summary of the Dirt Bikes organization. You will re-use this summary for any case analysis on Dirt Bikes, so spend some time creating a succinct description of the company’s mission, products, customers and market, its relevant features (number of employees, volume of business, etc.) and its company culture. What are the competitive and market forces it faces? In a consulting case, this paragraph demonstrates to management that you understand the organization and their business. (you will be able to use this summary for context in future assignments related to the Dirt Bikes case.

2. Give a brief overview of what kinds of information systems and technologies would be the most important for a company such as Dirt Bikes to support its business processes? Explain each item and tell how it could be used and would benefit the company.

3. Using applicable economic analysis tools you’ve studied (such as value chain, core competencies, competitive forces, and network economics) outline the strategic and competitive position of the firm. Identify ways that technology and information systems might support their strategic position and competitive advantage. You might want to consider some of the following. Which activities at Dirt Bikes create the most value? How does Dirt Bikes provide value to its customers? What about the competition (How do their products compare in price to those of Dirt Bikes? What are some of the product features they emphasize?)? What are the competitive forces that can affect the industry? What competitive strategy should Dirt Bikes pursue? What information systems best support that strategy?

Dirt Bikes: A running case file
Text for this case was provided by Pearson Publishing, in conjunction with the course textbook (Kenneth C. Laudon and Jane P. Laudon. 2016. Management Information Systems: Managing the Digital Firm, Fourteenth Edition. Upper Saddle River, New Jersey: Pearson Prentice Hall.). It was modified (charts and tables from separate files were incorporated into this document) and uploaded to Empire State College’s Management Information Systems course (SMT 273754) with permission.

During this course, you will have assignments related to this case. You should start by reading about the company and developing an understanding of its business model, its organization and its financial condition.

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Contents

Dirt Bikes: A running case file 1 Introduction to Dirt Bikes 1 Company History and Background 2 Organization Chart and Employees 2 Products and Services 3 Sales and Marketing 3 Selected Financial Data 4 Figure 1 Dirt Bikes USA Organization Chart 6 Figure 2: Sample Bill of Materials 6 Table 1: Consolidated Statements of Income (in thousands) 2012- 2014 7 Table 2: Summary Balance Sheet Data from 2012 to 2014 8 Table 3: Sales By Model 2010-2014 9 Table 4: Domestic Versus International Sales 9

Introduction to Dirt Bikes
Dirt Bikes USA is a small company headquartered in Carbondale Colorado that manufactures and sells its own brand of off-road motorcycles. It was founded in 1994 to product dirt bikes that could be customized for racing and off-road recreational riding using the best quality components and parts from all over the world. The company has continued to grow and now faces a new set of challenges and opportunities. You have been asked to serve as a consultant to apply your information systems knowledge to help Dirt Bikes solve some of the problems it is encountering.

In order to complete your assignments, you should familiarize yourself with Dirt Bikes. To learn more about the company and how it works, review each of these topics in this document:

Company History and Background

Organization Chart and Employees

Products and Services

Sales and Marketing

Selected Financial Data

Company History and Background
Dirt Bikes USA was founded in 1994 by Carl Schmidt and Steven McFadden, two young but experienced bikers with engineering backgrounds who saw that dirt bikes were becoming very popular in the United States as both sporting and racing motorcycles. They developed frames for dirt bikes that were more suited to off-road handling and started using these frames to build their own dirt bike models using motorcycle engines manufactured by other companies, such as Honda and Rotax Motors of Austria. Riding on one of their customized dirt bikes, Steven finished first in the famous Barstow to Las Vegas race. There was so much interest in Carl and Steve’s bikes that they decided to open a production facility that could manufacture large numbers of their dirt bikes for the retail market. They opened a small production facility in Carbondale which has since expanded to house 120 workers involved in production, design, and engineering and a corporate sales and administrative staff of close to 20 employees. Over the years Dirt Bikes USA has enhanced and expanded its product line to include dirt bike models optimized for racing and for off-road recreational use. Its racing models have placed well-and often placed first-- in the many dirt bike races staged throughout the United States, including the Barstow-Las Vegas race and competitions at Daytona Bike Week.

Organization Chart and Employees
The organization chart is illustrated in Figure 1.

Dirt Bikes USA is still privately owned with Carl serving as CEO and Steven as President and Chief Operating Officer. About 120 employees work in design, engineering and production, including 3 full-time product designers and 3 engineers. In addition to a 4-person Parts department, Dirt Bikes maintains a ten-person service department to service warranties and customer problems with parts and motorcycle performance. Five employees work in Dirt Bikes’ shipping and receiving department. Dirt Bikes’ sales staff consists of a marketing manager and 5 sales representatives, two for the West coast and Western United States, one for the Midwest, one for the Northeast and one for the South. The corporate administrative staff consists of a controller, one accountant, one administrative assistant, two human resources staff members, three secretaries, and two information systems specialists to support systems servicing all of the business functional areas. The data file Dirt Bikes Org Chart shows Dirt Bikes’s organization chart.

The company maintains a very friendly family atmosphere, encouraging teamwork, attention to detail and quality, and continual learning and innovation. Employees, distributors, and retail customers are urged to contribute ideas on how to improve Dirt Bikes’ products and service.

Products and Services
Dirt Bikes’ founders realized that the most popular dirt bikes were foreign brands and wanted to capitalize on their proximity to the dirt bikes racing circuit and market in the United States. Carl and Steve hoped they could develop bikes that performed and looked better than the competition by using the best custom parts available. Dirt Bikes does not hesitate to use quality components from all over the world. The engines for Dirt Bikes are Rotax engines from Austria and tires are from Dunlop, but many of their parts, such as shock absorbers, front wheel forks, exhaust pipes, and headlights, are from the United States. Dirt Bikes makes its own frames, shaping them to give them the unique spirited style for which the company is noted. The company’s parts and service business accounts for about 15% of its total revenue.

Manufacturing and selling dirt bikes is a complex business. Dirt bike racing has many forms, including racing specifically for different size bikes, for short distances, long distance, and even for up to six days. Enduro bikes are for cross-country racing and motocross bikes are specially designed for racing in an enclosed dirt course that can consist of a variety of terrains; uphill, downhill, corners, jumps, and so forth. Dirt Bikes currently produces four models: the Enduro 250, the Enduro 550, the Moto 300 and the Moto 450. The two Enduros are endurance racers, while the Motos are for motocross racing. All four are very modern, with such technology as both kick and electric starters, steering stabilizers, and liquid cooling. The large majority of these bikes are sold in the United States for between $3,250 and $9000 retail. (The Enduro 250 retails for $3250, the Enduro 550 retails for $7600, the Moto 300 retails for $4295 and the Moto 450 retails for $8995.) Dirt Bikes has appealed primarily to serious trail and Enduro riders, although it is making inroads into the motocross market.

Sales and Marketing
Dirt Bikes does not sell directly to retail customers, relying on a network of 40 distributors concentrated in the Western and Midwestern United States. A small percentage of Dirt Bikes are sold in Europe using independent distributors that sell other brands of dirt bikes and motorcycles as well as Dirt Bikes. Dirt Bikes’ motorcycles, parts, and service, including warranty repairs, can only be obtained through an authorized Dirt Bikes dealer. All motorcycle and spare parts sales, shipping and set-up must be handled by a certified dealer. If a potential customer lives more than 50 miles from the nearest authorized Dirt Bikes dealer, the customer can purchase a Dirt Bike or Dirt Bike parts through a certified independent motorcycle dealer. Retail customers can purchase spare parts directly from Dirt Bikes only by verifying that they live more than 50 miles from an authorized Dirt Bikes dealer.

Dirt Bikes’ sales department works closely with Dirt Bikes’ distributors. One of its key responsibilities is to aggressively promote Dirt Bikes at dirt bike racing and other events. Many Dirt Bikes employees are dirt bike racing enthusiasts themselves. Several are official company racers representing the company in dirt bike racing competition. Dirt Bikes recently established a Dirt Bikes USA Owners’ Group to promote stronger relationships with customers and to make it easier for them to share their Dirt Bikes USA experiences. Dirt Bikes also advertises in magazines devoted to motorcycle racing and dirt bikes. It uses a small public relations firm to place articles about new company products or racing victories in these magazines. Dirt Bikes also pays for ads in these publications.

Sales data is shown in Tables 3 and 4.

Selected Financial Data
The data tables at the end of this document provide three worksheets containing Dirt Bikes financial data for you to review:

· Income statement data from 2012-2014 (Table 1)

· Summary balance sheet from 2012-2014 (Table 2)

· Annual sales (units sold) of each Dirt Bikes model between 2010 and 2014 (Table 3)

· Total domestic vs. international motorcycle sales (units sold) between 2010 and 2014 (Table 4)

The income statement and balance sheet are the primary financial statements used by management to determine how well a firm is performing. The income statement, also called an operating statement or profit and loss statement, shows the income and expenses of a firm over a period of time, such as a year, a quarter, or a month. The gross profit represents the difference between the firm’s revenue (or sales) and the cost of goods sold. The gross margin is calculated by dividing gross profit by revenues (or sales). Net profit (or loss) is calculated by subtracting all other expenses, including operating expenses and income taxes from gross profit. Operating expenses are all business costs (such as expenditures for sales and marketing, general and administrative expenditures, and depreciation) other than those included in the cost of goods sold. Net margins are calculated by dividing net profit (or loss) by revenues (or sales).

A balance sheet provides a snapshot of a company’s financial assets and liabilities on a given date, usually the close of an accounting period. It lists what material and intangible assets the business owns and what money the business owes either to its creditors (liabilities) or to its owners (shareholders’ equity, also known as net worth). We have included here are only the most important pieces of balance sheet data for you to review. At any given time a business’s assets equals the sum of its liabilities plus its net worth. Current assets include cash, securities, accounts receivable, or other investments that are likely to be converted into cash within one year. Current liabilities are debts that are due within one year. Long-term debt consists of liabilities that are not due until after a year or more. If too much debt has been used to finance the firm’s operations, problems may arise in meeting future interest payments and repaying outstanding loans.

By examining a series of financial statements one can identify and analyze trends in the financial strength of a business. When examining Dirt Bikes’ income statement and balance sheet data, pay special attention to the company’s three-year trends in revenue (sales), costs of goods sold, gross margins, operating expenses, and net income (or loss). Pay attention to whether the company’s short and long-term liabilities are growing and whether they exceed assets. If a company has more current assets than current liabilities, it is a sign that it probably has enough working capital to fund investments in new equipment or information systems.

The two other spreadsheets present motorcycle unit sales data between 2010 and 2014, which can be used to gauge motorcycle sales. When examining these spreadsheets, pay attention to the trends in sales. This includes the sales trends for each product Dirt Bikes sells, overall sales trends, and the proportion of international to domestic sales.

Figure 1 Dirt Bikes USA Organization Chart

Figure 2: Sample Bill of Materials
Bill of Materials: Moto 300 Brake System

Component

Component No.

Source

Unit Cost

Quantity

Extended Cost

Brake cable

M0593

Nissin

27.81

1

Brake pedal

M0546

Harrison Billet

6.03

2

Brake pad

M3203

Russell

27.05

2

Front brake pump

M0959

Brembo

66.05

1

Rear brake pump

M4739

Brembo

54.00

1

Front brake caliper

M5930

Nissin

105.20

1

Rear brake caliper

M7942

Nissin

106.78

1

Front brake disc

M3920

Russell

143.80

1

Rear brake disc

M0588

Russell

56.42

1

Brake pipe

M0943

Harrison Billet

28.52

1

Brake lever cover

M1059

Brembo

2.62

1

Table 1: Consolidated Statements of Income (in thousands) 2012- 2014
2014

2013

2012

Revenue

Net sales

60,144

64,063

61,529

Cost of goods sold

45,835

43,155

41,072

Gross profit/(loss)

14,309

20,908

20,457

Gross margin

Operating expenses

Sales and markering

4,733

4,537

3,944

Engineering and product development

3,141

2,992

2,339

General and administrative

1,913

1,601

1,392

Total operating expenses

9,787

9,130

7,675

Operating income/loss

4,522

11,778

12,782

Other income/expense

Interest income/expense

1,747

175

80

Other income/(expense)

(6,254)

(2,914)

(3,080)

Income before provision for income taxes

15

9,039

9,782

Income taxes

1,459

1,729

535

Net income/(loss)

(1,444)

7,310

9,247

Net margin

Table 2: Summary Balance Sheet Data from 2012 to 2014
At December 31

2014

2013

2012

Current assets

Cash and cash equivalents

6,994

7,197

6,891

Accounts reveivable

13,083

12,981

12,872

Inventories

6,315

5,931

5,843

Total current assets

26,392

26,109

25,606

Property plant, and equipment

36,920

34,515

32,002

Other assets

1,765

1,903

1,834

Total assets

65,077

62,527

59,442

Current liabilities

Accounts payable

8,943

8,694

7,592

Accrued expenses and other liabilities

10,877

9,382

8,654

Total current liabilities

19,820

18,076

16,246

Long-term debt

9,772

9,338

8,890

Total liabilities

29,592

27,414

25,136

Shareholders' equity

35485

35113

34306

Total liabilities + shareholders' equity

65,077

62,527

59,442

Table 3: Sales By Model 2010-2014
Sales by Model

Model

2010

2011

2012

2013

2014

Enduro 250

1201

1663

2291

2312

2195

Enduro 550

2832

3290

3759

4078

3647

Moto 300

1755

1932

2454

2615

2627

Moto 450

463

598

661

773

823

TOTAL

6251

7483

9165

9778

9292

Table 4: Domestic Versus International Sales
Domestic vs. International Sales

2010

2011

2012

2013

2014

Domestic

5723

6843

8254

8889

8530

International

528

640

911

889

762

TOTAL

6251

7483

9165

9778

9292

% International

8.4%

8.6%

9.9%

9.1%

8.2%