Just finished reading “No Hands, The Rise and Fall of the Schwinn Bicycle Company, an American Institution.” First, it’s out-of-print and I had to get it at the library, but it was well worth the effort. The story basically goes through how Schwinn went from being THE American bike that everyone bought, to complete bankruptcy.

Schwinn was a family company that had one of the most well-known brands in the country, having produced those really cool bikes for kids in the 50’s with the banana seats, headlights, and steel contours that looked like a motorcycle. They sold only through bike dealerships or smaller hardware stores, and fought hard not to go the route of Sears or Montgomery Ward. Over time, they did give in to some of the latter, but that’s not really what caused their downfall.

Several mistakes brought for their failure. First, they always believed they were a manufacturing company, and not a sales or product company. Their manufacturing was in Chicago, and they were resistant to either move to a less expensive US location or overseas. Second, they got stuck thinking that as long as they built what they were good at, they could continue selling it forever. This is typical of manufacturing people, thinking that they are just printing money that will never stop coming in. Third, they didn’t jump on the BMX or mountain bike craze quickly enough. There’s nothing to really say there, except that they blew it.

On the manufacturing piece, though I’m just an IT guy, I have worked in factories for about 1/2 of my career. I’m the first to admit that folks in the factory really do work inside a bubble, and believe that they are printing money. “Cash cow” is a term that they love to say. I worked at one factory that was eventually shut down, where they literally had people stuffing instructions inside the boxes and others taping them shut. No automation whatsoever. When they were getting ready to close, no one could believe it because they were making so much money on the products they were making. THAT DOESN’T MEAN MORE MONEY COULDN’T HAVE BEEN MADE. Which is exactly why the site was closed, unfortunately.

According to the book, one fact really jumped out. In 1982, Schwinn could get fully built bikes from Giant Manufacturing in Taiwan to their own distribution centers for cheaper than even buying raw materials for the Chicago plan to build the same bikes. There was no degradation in quality, either, and after years of ignoring the facilities in Chicago, their own plant was outdated and couldn’t produce the bikes they needed. Schwinn did eventually open a new plant in Mississippi, but this didn’t really help. In MS, they had to get the parts from Asia to them, off a boat on the West Coast and then shipped to the plant. They never could get their purchasing or supply chain together to have the parts needed to build the bikes at the plant. They ended up even shipping bikes with missing parts, giving dealers IOUs for them. In other cases, they’d get too many of one part and have to scrap them out. Totally ineffecient and expensive.

That was 1982. 35 years ago. Not last year, not 5 years ago, but an entire generation ago. This is why American manufacturing is at such a disadvantage today, and why the Chinese economy boomed over the same generation. It’s unfortunate for Schwinn, but failing to move manufacturing caused them to fail. Even if one competitor takes advantage of the lowered cost, the others have to join in. Specialized was building their bikes in Asia from their beginnings, and Trek was having their entry-level models built in Asia, too. Schwinn simply couldn’t compete.

One final thought. There is a chapter on Shimano, another family-owned company in the bike industry. Shimano had the vision that the components of the bike were the important parts, and that they needed to get bike snobs to look at component sets when they judged bikes, not just the bike maker or frame. This vision actually came to be. I have seen roadies look at each other’s components and talk about them, without even discussing the frame or color of the bike. Basically, Shimano made much of the bike interchangable between the manufacturers, as they all ran Shimano component groups. THAT IS BRILLIANT!

Overall, this was a great book that provided a ton of insight into American manufacturing. It’s not just interesting because I work for “The Bike Company”….it should be required reading for anyone interested in manufacturing failures.