CASE
STUDY
Polaris
Industries
Inc.
In
Se
pt
em
ber 2
010
Suresh K
ri
shna, vice president of
operations and integration at Polaris Industries
In
c., a
manufa
c
tur
er
of
all-terrain vehicles (ATVs), Side-by-
S
id
es, and snowmobiles, s
at
in his
of
fice in Medina,
Minneso
ta, de
li
berating the recommendation he was
developing for a new plant to manufacture
th
e company’s
Side-by-Side vehicles.
The economic slow
do
wn
in
the United States had
put
co
nside
ra
ble pressure on Polari
s’s
profits, so the
co
mpany was conside
ri
ng whether
it
shou
ld
follow
th
e
lead of several of its competitors and open a facility
in
a
co
un
try with lower labor costs. C
hi
na a
nd
Mexico were
shortlist
ed
as possible locations
for
the new factory,
which would be the first Pola
ri
s man
uf
acturing fac
ili
ty
located outside the Midwestern United States. By the
end
of
the year Kris
hn
a needed to recommend to CEO
Scott Wine and the board
of
dir
ectors whether Pol
ar
is
should build a new plant abroad or continue to manufac-
ture in its American facilities.
Polaris industries
Inc.
Established
in
1
954,
Polaris was a manufa
ct
urer
of
high–per
fo
rman
ce
mot
orspo
rt
product
s,
in
cl
udin
g
ATYs, Side-by-Sides, and snowm
ob
il
es. With nea
rl
y
$2
billion
in
sales
in
20
10, it was a strong player in the
$10 billion power sports market alongside competitors
Yamaha, Honda, Arc
ti
c
Cat
,
Sk
i-Do
o, and Ha
rl
ey
Da
vidson.
Po
l
aris’s
customers were primar
il
y l
oca
ted
in
North
Ame
ri
ca (85 percen
t)
; its inte
rn
ational customers
we
re
co
ncentrated in Eur
ope
. F
ore
ign markets were
becoming increas
in
gly important to
Po
la
ri
s; interna-
tional revenue had grown 2 1 percent
in
20 J 0, and was
forecasted to grow even more
in
20
11
.
Po
la
ri
s products
were so
Ja
th
rough I
,5
00 distributors
in
the
Un
ited States
and I ,000 distributors
in
th
e rest
of
the world.
Polari
s’s
herit
age
was d
eep
ly r
oote
d in
the
power sports
in
dustr
y.
Th
e
co
mp
any introduced its
f
ir
st
snowmobile in the I
950s
and its first ATV
in
1985. Between 1985 and 2
010
Po
l
ar
is sold more than
two million ATVs. In 1
992
Po
l
ar
is en
ter
ed the per-
sonal watercr
af
t m
arke
t, but
it
lacked a sus
tainab
le
distr
ibution system and exited the
bu
s
in
ess
in
2004
. In
1998 the
co
mp
any introdu
ced
the f
ir
st
Si
de-by-Side
off
–road vehicle
(O
RV), w
hi
ch was
expec
ted to sur-
pass ATV sales du
ri
ng 20 I I. Also
in
1
998,
Po
la
ri
s
Chapter 15 • Sourcing Decisions in a Supply Chain
473
entered t
he
pa
rts, acce
ssor
ies,
and
apparel
seg
ment,
whi
ch
gr
ew
significantly over tbe next
de
cade.
Fi
nally,
Polaris al so intro
duc
ed
it
s first on-r
oad
ve
hicle
in
199
8-a
motor
cyc
le with the
brand
name
“Yictory“-
to
co
mpete with
Harl
ey
Davidson.
Combined
, th
ese
products were
for
ecaste
d to bring in
$2
.2 billion rev-
enue in 2011 . Polari
s’s
total revenue grew more than
20 p
ercent
in 2
010
and was expected to g
ro
w 8 to
11
percent in 2
01
1.
Po
la
ri
s was the dominant player in
th
e ORV mar-
ket based on market share. In 2010 ORYs accounted for
69 percent
of
Polari
s’s
sales, with S
id
e-by-S
id
es com-
prising the majority
of
sal
es
in tllis segment. L
ook
ing
ahead, the company was excited by
th
e potential growth
in
emerg
in
g
mark
ets.
From
Latin
America
to Asia,
Pola
ri
s had b
eg
un
to invest heavily in marketing to
increase awareness of its bran
d.
For example, in China
th
e company placed off-road image advertising in racing
and
ex
treme sports enthusiast publications. Similarly, in
Latin
Ame
ri
ca Polaris was leverag
in
g its bra
nd
in
the
utility vehicle space to penetrate the substantial
ag
ricul-
tural industries.
Manufacturing
In 2
010
all of
Po
lari
s’s
manufacturing
opera
tions
we
re
loc
at
ed
in
the northern Mi
dwe
st. In addition to its
co
r–
porate h
ea
dquart
ers
in
Med
ina,
Minn
es
ota, and prod–
u
ct
developme
nt
and inn
ovat
ion center in Wyoming,
Mi
nn
esota,
Po
laris
oper
a
ted
thr
ee
manufact
ur
ing
facilities in Ro
sea
u, Minn
eso
ta; Osceola, Wi
sc
on
sin;
and S
pirit
Lake,
Io
wa
. Roseau, the
bi
rthplace
of
the
Po
laris snowmobile, h
ous
ed
resea
rch, development,
and manu
fa
cturing for
the
sn
owmob
i
le
, ATV,
an
d
Side-by-Side
divi
sions. Roseau also in
cl
uded a small
state-of-the-art i
nj
ec
ti
on
mo
lding
pl
ant that produ
ced
plas
ti
c p
ar
ts for the Roseau and
Sp
irit
Lak
e factories.
As de
mand
gr
ew
for ATYs and
on-
r
oa
d vehi cles,
Pola
ri
s
es
ta
bl
ished an additional
man
ufacturing fac
il
–
ity
in
1
994
at
Sp
iri
t Lake. This facility produc
ed
select
AT
V,
wa
t
ercraf
t, and Vict
ory
motorcyc
le
models.
O
sce
ola was
primaril
y an
engi
ne and co
mp
onents sup–
pli
er
for the other two faciliti
es
.
Al
l o
th
er components were sourced tlu·ough more
th
an
450
gl
oba
l supp
li
ers.
In
20
10 Po
la
ris sourced
almost 40 percent
of
its
co
mponents and mate
ri
als from
outside
th
e United States, up from
30
per
cent
in 2008.
474
Chap
t
er
15 • Sourcing Decis
ions
in a S
up
ply Chain
The
comp
any was al
so
increasing l
ow-cost
co
untr
y
(LCC)
sourcing,
almo
st
doub
li
ng
it
s L
CC
spe
nd to
approximately
24
percent in 2010.
To
support
it
s
pr
oduc
ti
on
capabi
liti
es
in
and
around the northern United
Sta
tes,
Po
l
ar
is h
ad
three
warehou
se
f
ac
iliti
es
in Minn
esota
fo
r raw mat
eria
ls,
expor
t proc
ess
ing, and distribution. When
dema
nd f
or
parts,
ap
par
el, and ac
cesso
ri
es
exceeded
the
compa
–
ny
‘s
ware
house
ca
pa
city in 1
997
, a new di stribution
center was
ope
ned in
Ve
rmillion,
So
uth
Dakota.
In
addition to its U.S. l
oca
tions,
Pol
aris al
so
own
ed
and
ope
r
ated
regional s
ale
s and d ist
ri
bution
ce
nt
ers in
W
innip
eg,
Ca
n
ada,
and in
Nort
hern Eu r
ope
and
Australia.
Redesigning the Supply Chain
Krishna had to consider the trad
eof
f between
manuf
ac-
turing and transportation
cos
ts when re
de
sig
nin
g the
supply chain
for
Sid
e-
by-Side products.
On
one hand,
manufacturing in
mark
ets with low labor
cos
ts
co
uld
result in significant savings. A
lth
ough l
abor
rates in
traditional
LCCs
such as China were rising, U.S.-based
labor was still more cost
ly.
On the o
th
er
hand, with oil
price
s rising
stead
ily,
Kr
ishna kn
ew
transportat
ion
costs would be far l
owe
r if he kept production close to
customers.
Se
ni
or
mana
ge
ment at Polaris was al
so
co
n–
design
of
the supply chain.
Th
ey
co
ncluded that tbe best
options were either to continue produ
ct
ion in exist
in
g
Ameli
ca
n factories or to build a new plant
in
China
or
Mexico.
Beyond the sp
ec
ific pluses and minuses
of
each
locati
on
,
Kr
ishna n
ee
d
ed
to consi
der
the fo
ll
owing in
ma
kin
g a final decision:
•
Th
e majority
of
demand for Side–by-Sides was
in
the
so
uthern United States.
Th
e states with the
hi
ghest sha
re
of
sales volume in 2010 were Texas
and Californ
ia
.
• Side-by-Sid
es
we
re
hi
gh vo
lum
e-t
o-we
ig
ht/lo
w
va
lue-to–weight pr
od
ucts, w
hi
ch m
ea
nt
th
at ship–
ping costs accounted for a large fraction
of
their
reta
il
price.
• Pola
ri
s’s
senior management placed a high value
on ease of
co
mmunication with its
m
a
nufa
~t
urin
g
plant
s a
nd
belie
ve
d that in–
per
so
n
int
e
ract
ion
among managers,
de
sign engin
ee
rs, and pro
du
c-
ti
on staff was a key driver
of
the compan
y’s
long-
te
rm
product innovation.
•
If
Polaris moved produ
ction
of
Side–by-Sid
es
abroad, the company pla
nn
ed to lay
off
sixty wo
rk
–
ers at its Roseau plant. Each worker would be pa
id
a one-time severan
ce
of
$20,
000
.
• Polaris
assu
med that
demand
for Side-by-Sides
would rem
ai
n flat for the next
fi
ve year
s.
