Gibson Brands is an American music manufacturing company. They primarily manufacture guitars but are not limited to this, as their other products include other instruments and a wide range of audio equipment. The following will focus on the supply chain and operations of the average guitar from Gibson.

Competitive Strategy

            Gibson follows a differentiation competitive strategy. This is evident by their approach to pricing. Most of their guitars are high end and unique. Even their cheapest options are far more expensive than an average retail guitar. This increase in cost is due to the increase in quality and uniqueness of each design, which makes differentiation of the Gibson guitar brand from other guitar brands, a prime selling point. This is especially true in cases where famous musicians play these guitars and the make and model of the guitar becomes associated with the artist, thus differentiating it further while simultaneously increasing awareness of the product.

Competitive Priorities

            The competitive priorities of Gibson Brands are ranked (in order of highest to lowest) as:

1. Quality
2. Flexibility
3. Cost or Price

Quality is the most important competitive priority for Gibson Brands and cost/price is the least important because Gibson sacrifices low costs and prices for high quality products and flexibility. Flexibility is their second priority. This is evident because of their customizability when it comes to certain consumers and public figures.

Order Winners and Qualifiers

Supply Chain and Company Strategy Alignment

A Gibson factory operates at a capacity that utilizes 500 workers making 2500 guitars per week by hand. There are 3 factories in the united states, each of which manufacture a different type of guitar. Solid body electric guitars are made in Nashville, Tennessee. Semi-acoustic guitars are made in Memphis, Tennessee. Full acoustic guitars are made in Bozeman, Montana. They are able to ship internationally as their products are non-perishable, and shipping costs are less relevant to them because of the differentiation competitive strategy that they utilize. They transport finished goods by truck to retailers that are not overseas, and ship by boat (rather than air) when necessary due to the high volume of exported weight per shipment of guitars.

 Gibson guitars are made to stock, meaning that a set amount of them are produced based on a set of criteria (the criteria primarily being supply and demand based on long term forecasting). However, they do offer an assemble to order option for musicians who are particular about the guitars they play. Customers can pick and choose between a multitude of different components for their guitars. The forecasting method that Gibson uses is a seasonal naïve approach. They stock materials and finished goods based on the average demand for the time period they are in. For example, shoppers are more engaged in the month of December leading up to gift giving holidays, and therefore the likelihood of selling guitars increases. Difficulty arises for Gibson when a certain style/make/model of guitar becomes popular unexpectedly (via its endorsement from a famous musician, or other random factors).

Because of the diversity in materials configurable for each guitar, and the amount of materials used on a daily basis, Gibson stockpiles its raw materials and resources. It is crucial that Gibson does not run out of these supplies, and that they have them at their disposal whenever they are demanded for a guitar.

When it comes to quality and lean, this is very important for Gibson products. All products are inspected multiple times during production. A strict quality standard must be met for Gibson guitars before they are finalized because quality is the most important focus of Gibson’s competitive strategy.

Since the company primarily relies on making their products to stock, but still gives customers the option to customize, it falls in between the center and far left on the X axis of the Product/Process Matrix. Since they also create a huge amount of different products and these products are fairly complex with lots of steps and assembly involved, it is almost at the top of the Y axis of the Product/Process Matrix (not all the way at the top because there are other companies that one could argue have more complex processes than Gibson). This is only for a handful of specific custom guitars though. Most of their product line is done systematically in a batch process, which brings the company’s position on the Product/Process Matrix further up on the X axis and further down on the Y axis.

            More on Gibson’s material use/sourcing/procurement: Sourcing suppliers is important because they demand high quality materials to uphold the standards of their differention competitive strategies. When it comes to quantities of said materials, Gibson directly procures and then purchases its materials before they are needed, in order to take a lead approach and always have the materials in stock.

            A list of the materials needed for a Gibson guitar follows:

• Wood, such as maple or mahogany (type is variable and for certain models more than one can be utilized)
• Water is used to maintain humidity within facilities to keep the wood fresh
• Various machines and tools for manufacturing (such as sawmills, glue wheels, etc)
• Glue, vinyl, and cloth strips for binding
• Mother-of-pearl, abalone, or acrylic for fingerboards
• Fret wire
• Paint and lacquer for the exterior
• Pearl or silkscreen for logos
• Nuts and screws
• Pickups
• Internal Wiring
• Steal for strings and tuning pegs
• This list is not exhaustive as there is a multitude of models that Gibson makes that require less frequently procured miscellaneous materials.

Gibson has a different supplier for each of these materials (excluding pickups which they mould themselves). They often attempt to source materials that are made in the United States; however, they sometimes must make exceptions when these such materials are not available in the country (for example Rosewood). For this reason, most of Gibson’s suppliers ship to them by truck, but when it comes to importing materials from overseas, they must be delivered first by boat, and then by truck.

Most of these materials are purchased from strategic alliances from regular suppliers that Gibson trusts to supply high quality materials consistently (except for the manufacturing equipment which is done via a request for proposal from suppliers as needed because these materials depreciate slower and are bought less frequently). However, sometimes spot purchases are needed in situations where it is more optimal to buy a certain material elsewhere. An example of this is rare occasions when a better quality of material can be purchased for cheaper.

Overall, the company’s production process aligns with its competitive strategy, but their strategy has not been working out very well recently due to inability to cut costs. Reasons for the high cost are:

1. The need for their products to be high quality. This means that premium materials must be purchased on a regular basis. This includes high quality expensive woods, top notch/complex electronics, and more.
2. Gibson’s employees are skilled craftsmen and most of the labour is done manually. Their salaries are more than the average factory worker, and thus must be accounted for in the price of the guitars. For this reason, Gibson can be considered as operating over capacity, which is not ideal for the company.
3. There are laws that protect the specific materials that Gibson would otherwise be able to purchase at a cheaper price. An example of this is rosewood, which Gibson uses but must import from India because it is scarce in the United States and therefore is protected under natural resource laws.

As a result of Gibson’s inability to cut costs and their necessity to maintain a high-end differentiation strategy, the company has accumulated over $500 million in debt as of this year.

More on Gibson’s financial troubles and its capacity; Gibson has attempted to adopt a lead capacity strategy since the beginning of the 2010s, meaning that they hoped on maximizing profits by exceeding capacity. This was done by merging with and acquiring various other audio companies in an attempt to become “the largest music and sound technology company in the world,” quoted from their CEO at the time. Gibson was trying to branch out its line of products and increase its overall capacity in service of the strategy. Evidently, they took on more than they could handle as the company filed for chapter 11 bankruptcy in 2018. The company is still recovering from this setback.

Risks

            Gibson’s two biggest risks that it has had to deal with are changes in market demand and geopolitical/environmental risks.

Changes in market demand is a known-unknown risk and Gibson experiences this due to the fact that electric guitars are simply not as popular as they were when the company was founded. The company’s competitive strategy responds poorly to this because while it was once sustainable to put all the work and effort into the production of high quality guitars due to the demand being high, there is now a question of ‘is it really worth it now that they do not sell as well?’.

Geopolitical/environmental risks fall into the unknown-unknown category of risks and were mentioned in the example used earlier in this paper: the environmental regulations involving rosewood. All this means for Gibson is that costs are increased, which does not really have a negative effect on their competitive strategy (cost being lower in favor when compared to quality). However, increased costs are not to be ignored given the company’s troubling financial situation.

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