Trail Frames Chassis Case Analysis

Chase Rooney, Rebecca Ally,

Aan Shah, Chandler Tansavatdi
SCHM2301

Trail Frames Chassis is a major manufacturer of chassis for the motorhome and van
markets. It is based in Elkhart, Indiana. It was founded by two unemployed truck-manufacturing
engineers in 1976 and since then the company has grown to be one of the largest suppliers of
chassis. They currently specialize in the chassis used in high-end vehicles, vehicles that usually
cost more than $150,000. Recently, they entered into an agreement with Gulf Stream wherein
they had to manufacture a different type of chassis, a pusher-type chassis, for vehicles that cost
less than $100,000. TFC’s current core capability is its design and marketing knowledge. It is
known in the market for its ability to design and build a chassis in less than 30 days.
However, the increased workload of the newer chassis (because of the increasing
demand), has resulted in growing lead times for TFC. TFC’s management has identified its
design department to be the bottleneck. In looking for a solution to this problem,
Computer-Images, a design house located in Michigan, approached TFC with an attractive offer.
The offer was to take responsibility of TFC’s low-end design work. Computer-Images also
offered to work virtually with TFC, i.e. they would design the chassis and electronically send it
to TFC. It is TFC’s decision whether or not to outsource the low-end design work to
Computer-Images.
 Figure 10-1

Making an insourcing versus outsourcing decision is quite complex, which is why

referring to figure 10-1 and using that to analyze the problem at hand is the best way to go about
it. Already at step 1, assessing the fit with the firm’s core competencies, it is evident that
outsourcing would not be the smartest decision for TFC. TFC’s clear value proposition is that
they can design and deliver within 30 days due to their extensive knowledge base built through
plentiful experience and knowledge. This being said, their core competency would be their
strength in their design since competitors can’t match their level of experience and knowledge.
However, the deal with Computer-Images would mean outsourcing their design, which is again
their clear core competency, leaving them without the rights to what they formerly considered to
be an asset. Since a company should never outsource what they consider to be their core
competency, right away we decided that accepting the outsourcing deal would not be the smart
move.
 Even though we already determined that accepting the proposed deal from Computer
Images was not the smart choice, to provide additional evidence we have chosen to continue with
the steps of analysis. Step 2 is where the evaluation of the suitability for outsourcing takes place.
Mature products with standard processes and requirements are often outsourced, but this would
not be the case here since the lower end version of the chassis is new to TFC, and the design has
not yet been standardized. Since it wouldn’t be classified as “mature” that means that there is
some intellectual property risk. Usually the intellectual property risk is high if the other company
is based out of a country with lesser regulations of that sort, but it is also relatively high here
(even though Computer-Images is based out of the US) since their contract states that they are
not barred from working with other companies that produce the same products.
Next comes step 3, where the benefits of outsourcing are weighed against the benefits of
insourcing. Firstly, one major upside to outsourcing would be the decrease in cost. With the
Computer-Image proposal the cost of each chassis would be $255 per chassis whereas the TFC
make option would be $490 per chassis, so the savings would be massive. However, this means
that TFC would lose its rights to these designs, which are valuable assets to this company. This is
an especially large downside because Computer-Images was clear that they are still free to work
with any other Chassis builder, so again there would be a risk of intellectual property being lost.
Additionally, besides the fact that outsourcing a core competency would be foolish, with
Computer-Images delivery time of a design would take 3 months where an inhouse design would
be delivered immediately since it would be sourced from TFC itself.
Quantitatively, it is going to be expensive for TFC not to outsource. As per the given
financials, it will cost TFC $490 to manufacture one chassis as opposed to $225 if
Computer-Images manufactures it. Overall the variable cost per chassis is $265 more to TFC for
insourcing. On the other hand, the offer says the fixed costs to outsource is $300,000 (setup costs
that include computer systems, training, etc.) and the fixed costs to insource is $200,000 (costs to
expand the design capacity). If TFC chose to outsource, the lead times would decrease from 5 to
10 days to less than 2 days.
Minimum cost to outsource is $525,000 and to insource is $200,000. The ideal difference to
insource is $231,250, considering there will always be a demand for 1250 chassis.
While numbers may tell one story, looking at some of the qualitative factors for making
the outsourcing decision can greatly sway the balance in one direction. Step 5 accounts for the
factors we can’t necessarily quantify, like intellectual property rights, delivery times, etc.
Starting with IP, by outsourcing to Computer Images, TFC would lose their rights to the designs
of their chassis. This creates two major problems, for one they wouldn’t be able to have any
input on the design of the chassis, and two, their intellectual property rights could be jeopardized
and could lead to many other unintended consequences. Since Computer Images is still allowed
to partner with other companies during the contract, TFC’s proprietary designs could make their
way into competitors’ hands and their competitive advantage could be eviscerated overnight.
Another factor to consider is the chassis delivery times would greatly increase if TFC was to
outsource. It would take Computer Images over three months to deliver the first chassis where as
TFC can begin work immediately.
Now that we have covered all the steps relevant to the case it is time to finally make a
decision and implement it in. As discussed in the very beginning of our analyzation, TFC would
be outsourcing one of their core capabilities to Computer Images so that was an immediate tell
that TFC should keep designing in house. However, we continued to analyze the rest of the
factors and we still think that even though Computer Images may offer a quantitative advantage
over time, there are many qualitative factors that lead us to believe outsourcing is not the right
decision for TFC at this time.
 To bring this case back to real life, we’re going to discuss a popular example of
outsourcing designs for motor-vehicles. Founded in 1930, Pininfarina is an Italian design house
that first started coachbuilding for Ferrari in 1951. This partnership continued throughout the
1950s and 60s as Pininfarina was one of a few design houses designing cars for Ferrari. By the
1970s, Pininfarina was the sole design house tasked with sculpting the bodies of every Ferrari.
This partnership was strong and codependent, until about six years ago when Ferrari established
its own in-house design studio called Centro Stile Ferrari. At first, Ferrari’s new in-house design
studio, Centro Stile Ferrari, worked together with Pininfarina in order to familiarize itself with
Pininfarina’s design practices when creating the successor to the California, the California T.
Although the California T doesn’t wear the Pininfarina badge, it was still mainly designed by the
Pininfarina design team. The final Ferrari to wear the Pininfarina badge was the F12 Berlinetta
which was discontinued in In 2017, Ferrari officially left Pininfarina so that its own in-house
design studio, Centro Stile Ferrari, had full creative control over its design. Ferrari’s next car,
the LaFerrari, was when Ferrari officially announced that the LaFerrari was designed completely
in house and they would no longer be using Pininfarina as their design house.
It is for this reason that we made the decision not to outsource to Computer-Images.
The proposal currently states that there is a contract that lasts for three years and has a minimum
order of 1000 chassis per year. Additionally, Computer-Images is free to work with any other
chassis builder. Computer-Images is also requiring that Trail Frames Chassis(TFC) give them a
6 month training period. This would consist of TFC’s designers teaching Computer-Images’
designers about the critical tasks and aspects of building a chassis. Additionally, all of
Computer-Images’ designs would be owned and remain the property of Computer-Images.
Essentially, this would allow Computer-Images to take FTC’s designs and sell them to whoever
they want. They would end up becoming TFC’s main competitor and could run them out of
business.
This relates to Ferrari because TFC’s design team would be required to teach
Computer-Images’ designers as Pininfarina taught and worked with Centro Stile Ferrari,
Ferrari’s inhouse design team. Once Ferrari had learned what they needed, they stopped using
Pininfarina, just as Computer-Images would do with TFC. Ferrari’s current designs are still
heavily based on and influenced by the last generation designed by Pininfarina.
Computer-Images could also do this as they would have access to TFC’s designs and could just
slightly modify them and then they would own the rights to the designs. This partnership would
benefit TFC in the sense that they can get chassis for cheaper, but the partnership supremely
benefits Computer-Images as they will have the opportunity to learn from the best in the business
and own the designs. This partnership is not mutually beneficial and would end up hurting TFC.
 Works Cited:
McGraw-Hill Education (Ed.). (2018). ​Supply Chain and Operation Management.
Perkins, Chris. “Ferrari No Longer Sells a Car Designed by Pininfarina.” ​Road & Track,​ Road &
Track, 14 May 2018,
https://www.roadandtrack.com/car-culture/car-design/news/a32659/ferrari-pininfarina-81
2-superfast/.