Research Paper on Polaris: A Dominant Player in the Power Sports Market

Polaris is a manufacturing company located in North America. It was established in 1954 as a manufacturer of high- performance motorsport products (Krieger, et al., 1993). The main products of Polaris Industries Inc. were Side by Sides, snowmobiles, and ATVs. By 2010, Polaris was a significant player in the power sports market with a dominance of 20% of the entire market (Sunsdahl et al., 2010). It recorded sales of 2 billion dollars with the whole selling of the market, adding up to 10 billion dollars. Yamaha, Honda, Ski-Doo, Arctic Cat, and Harley Davidson were the direct competitors of Polaris. A large proportion of Polaris customers were located in North America, having a percentage of 85 while the other 15% was from international markets, which was Europe. Selling was through partner distributors with 1500 distributors in the United States and 1000 distributors responsible for the rest of the market.

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Polaris has a history of its developments of products up to today's products. As it specialized in the power sports industry, Polaris introduced its first snowmobile in the 1950s, and the first ATV was brought to market in 1985(Eck, 2007). More than two million ATVs were sold between 1985 and 2010. Polaris entered the personal watercraft market in 1992 but exited from the market in 2004 due to nonsustainable distribution system. At the end of the 1990s, the company introduced Side by Side off-road vehicle with expectations to exceed ATVs sales by 2011. The introduction of ORVs lead to the growth of sales by 2010 and still was expected to grow further in 2011 by a rate of 8% - 11%. Polaris became the dominant of the ORVs market, outshining its competitors occupying 69% of the sales in the company. The potential growth of Polaris was the emerging markets, and the primary was saturated. All over Latin America, Asia, and other potential markets, Polaris began advertisements to create awareness of their products. In Latin America, it tries utilizing its brand to venture into utility vehicles and shine the agricultural industries (Cruijssen, 2007).

In 2010, the economic slowdown in the United States exerted pressure on the productivity of Polaris, and essential strategies had to be considered for its long term survival. There was an option of following industry peers and open facilities in countries with low cost of labor. The possible location to build a new factory was China and Mexico. They were to be the first site to be suited outside the Midwestern United States and needed robust informed decision making. By the end of 2010, Suresh Krishna, vice president of operations and integration at Polaris Industries Inc., had to recommend whether to build a new plant abroad or retain manufacturing in American facilities. The recommendations were to be issued to CEO Scott Wine and the board of directors.

In implementing the strategies, Polaris had several problems that needed solutions. The first problem was raw material sourcing from the global suppliers to the warehouses. The second challenge was redesigning the supply chain in considering the tradeoff between manufacturing and transportation costs for Side by Side products, which had a large market. The third problem faced by Polaris was choosing a manufacturing location. The best two options were stabling new plants in Mexico or China and continue production of the Side by Side products within the existing factories allocated in America. However, to find solutions for the problems, the dilemma of keeping production United States or shifting the operations to Mexico and China was the determinant of solutions. Therefore the prime challenge of Polaris was on choosing a manufacturing location.

In recommending the appropriate solution, several facts ought to be considered. The aim was to optimize the manufacture of Side by Side vehicles and proper supply chain, which results in low production and operating cost considering the stagnation of the American economy. Some of the facts to consider before developing the final recommendations included; the highest demand for Side by Side vehicle was in the southern United States, and they were low value to weight products leading to high ship costs (Sunsdahl et al., 2010). Polaris management had placed a high value on ease of communication with all manufacturing sites and had trust that the direct interaction of managers, design engineers, and production staff was a good plan for long term innovation and was to be considered too. If the new plant was to be built abroad, Polaris was to lay off sixty employees from the Roseau plant and be compensated $20,000 each. The last consideration was the assumptions that demand for Side by Side would remain the same for the next five years from 2010.

In mind with the considerations, each option had to be evaluated, and the results compared to select the most productive option. The qualifications of choice will be transportation costs, the availability of cheap labor, and ease management. One of the possible solutions was building a manufacturing plant in China. China had advantages and disadvantages too for considerations. Labor costs were low in China although it was increasing in the manufacturing s area in the eastern region of the country. This rising labor cost would lead to looking for little cost labor further inland, which would increase distance and transport challenges. Again partnership with Chinese plants was exposed to time zone gap and cultural differences.

To operate a new plant in China would require Polaris to hire sixty workers from the location. Besides, a one-time charge of ten million dollars for capital expenses, transport costs for equipment, and set up fees will be needed. Five percentage tariffs on all production and transportation costs would be required when exporting products from China to the United States. The products to be manufactured will be Side by Side vehicle and be transported in container vessels. Each container vessel will be carrying twenty-six vehicles. The cost of shipping one vehicle from China was 190 dollars, and the entire container will cost $ 4940. The shipping time would vary from nineteen to thirty-three days.

Using 2010 exchange rates, production cost per unit in China will be roughly $ 293. With 14500 units demanded annually, the production cost will total to $4.2 million. Hence operating will require 4.2 million dollars for producing Side by Side annually, 10 million dollars for capital expenditure, equipment moving, and set up costs. Transport from China will be by shipping, and the costs yearly shall add up to 2926 thousand dollars. The tariffs are calculated from the production and transportation costs by 5%; thus, assuming the totals of the expenses were 7176 thousand dollars (addition of production cost of $4200 thousand and transport cost of $2926 thousand), it will be $356.3 thousand. With assumptions of annual wage growth of 16% each year from 2008, during the year 2011, the yearly, monthly wages in China will be $473. Considering the new sixty employees will be hired, then the cost of labor in 2011 will be $ 340.692 thousand. For the successful running of the China factory in 2011, 7.8 million will be used, except for the relocation cost of $10 million.

Assuming that the demand for Side by Side vehicles will remain flat for the next five years, then the operating costs of China plan will be $7.8 in 2011 and stay almost at the same range with small increments being brought by raising the rate of labor rates in China annually. China is located in Asia, and it was close to the emerging markets for Polar in Asia. It will be a strategic location for the future development of the company. Supplying products from China plant to the emerging markets in Asia would save on fuel for being near to customers. However, 2.9 million dollars for shipping is high for transportation, and it would thus increase the prices of the Side by Side vehicles.

The other place in consideration for the relocation of the Roseau plant was in Mexico. It would be operated in Monterrey, which was relatively close to the United States. Mexico has more qualitative advantages compared to China. Being near to the United States allows the secure collaboration of the new manufacturing factory and Polaris management. Due to cultural similarities, Mexican workers shall easily interact and collaborate with the staff from Polaris. The other advantage of Monterrey was that management believed that should be the growth of demand in the Southern United States shortly, and thus, it will ease transportation challenges.

The new plant in Mexico would require sixty new employees from the location. Assuming that the annual wage rate in Mexico remained 3% from the year 2008 to 2011, the cost of hiring the sixty workers will be 255 thousand dollars. (Cypher, 2011). The transportation will be by road to the United States. The Side by Side would be shipped in batches of twenty-six by truck companies. It will cost an average of $2.30 per mile per batch. The trucking companies acquired that it will take two days to cross the United States border and deliver the goods, but in practice, it will take between two and seven days. Unlike in China, products from Mexico will be free from tariffs when entering the United States due to the provisions of the North American Free Trade Agreement (NAFTA).

Operating costs of a new plant in Mexico would involve and production cost of 4560 MXN. Using the exchange rates of 2010, it will cost $367.7 per unit. For the capital expenses, the movement of the machine and set up costs would require a total of $9.5 million. With the production cost per unit in Mexico being $367.7, for the annual demand of 14500 units will need $5.3 million. The ground transportation from Mexico to the United States will apply to the three warehouses Tacoma, Los Angeles, and Irving. The costs need to be calculated depending on the number of units transported to each store. Tacoma, WA, has an annual demand of 3650, Los Angeles CA requires 7050 units, and Irving, TX, would need to be supplied with 3800 units annually. Again, the length of the distribution centers will affect the cost to transport. From Monterrey, its 2261 miles to Tacoma, WA, 1505 miles to Los Angeles, and 437 miles to Irving.

The transportation costs will then be $733.242 thousand for movement of the units to the Tacoma distribution center. Los Angeles warehouse would require $941.528 thousand to transport the Side by Side vehicles from Monterrey proposed plant in Mexico. Irving distribution Centre is the only store close to Monterrey and will cost only $147 thousand. When the total transportation costs are summed, they add up to $1.8 million. From the respective calculations, Monterrey plant will need $1.8 million for transportation annually for the next five years, assuming the demand for Side by Side vehicle will remain flat. The operating costs will be profoundly affected by the average wage rates in Mexico. So a plant in Mexico will spend $7.1 million for its annual operation, not including the one- the cost for shifting services from Roseau to Monterrey.

The third option, apart from shifting operations abroad, was remaining in the United States. By continuing in the United States, additional costs shall be avoided, for instance, capital expenditures, equipment movement costs, and set up charges. Moreover, Polaris had established a culture of being an American company and products branded as made in America products. The Polaris employees and customers were motivated by the fact that the goods were manufactured inside United States boundaries. Also, the closeness of headquarters and produ...