9-1 Final Project Peloton

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9-1 Final Project: Peloton By Laura Turgeon QSO-600 Operations Management Dr. Abul Rashid November 18, 2023

Overview of Peloton Founded in 2012 by five cofounders, including John Foley, Hisao Kushi, Tom Cortese, Graham Stanton, and Yony Feng, Peloton has become a household name to many. Foley had the idea to bring a boutique fitness experience to those who lacked the time for it. Being a fitness addict and a business executive as Barnes & Noble’s President, he found little time to get to the exercise classes he wanted to be at. Enter the Peloton: A high-end, high-performing spin bike that allows the user to take instructor-led spin classes from the comfort of their home. Peloton began shipping bikes in 2014, making a name for themselves and creating a cult- like following. Not only did they have a premium product, but they had high-energy instructors who made people want to make the trip to New York to take in-person classes. They continued showing off the bike in pop-up stores inside shopping centers, trying to spread awareness of their product. By 2018 they had to expand in order to keep their customers engaged and coming back for more. They launched their next exercise machine, the Peloton Tread. Not only did they add treadmill fitness classes, but they also added classes like yoga and high-intensity interval training. According to Hartmans, Tobin, and Mayer (2023), “By 2019, the company had sold 577,000 bikes and treadmills.”

In early 2020, the COVID pandemic hit, forcing people all over the world to stay at home. Since people were stuck inside, and most businesses were closed, more people took to at- home fitness. By May 2020, Peloton reported that they had a 66% increase in sales and a 94% increase in subscribers. Unfortunately, as the pandemic came to an end, and people started getting back to normal, Peloton’s user numbers have gone down. But Peloton is determined to continue to grow and offer people the Peloton exercise experience. Now in 2023, Peloton’s equipment is easier to obtain as there are no delivery delays thanks to partnerships with logistics companies. Additionally, they released the long-awaited Peloton Row, and classes to go with it. They also started making their accessories available on Amazon and have a wide variety of classes such as Pilates, meditation, floor cardio, and shadowboxing. Peloton is also working on partnerships with businesses to become a part of their benefit package. Employees at companies that have bought into the partnership will receive discounts on equipment and get free membership allowing them to access any on-demand class they want. Justification Peloton has had its share of ups and downs over the past 11 years, but they have persevered. The type of product they promote is something that is unique and does not have a ton of competitors. While there are companies out there striving to be the next big fitness brand, Peloton does it well because they use a combination of technology, class offerings, and amazing instructors to empower everyone through fitness. (Peloton, 2023). Their next adventure is going to be the creation of a boxing setup that will allow the user to take their shadowboxing classes with real gloves and bags. They tested how boxing would go

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over with their customers by using some of their most popular instructors to create a 2-week program. It was so popular in their millions-strong community that it is a regularly scheduled class. Now they would like to create the equipment to go along with it. The setup will include boxing gloves, a heavyweight bag, and a speed bag. Each of the bags will contain sensors that will give the user various stats about their hits, which in turn will help them punch the bags properly and without injury. Production Needs Estimated Process Cycle Time Currently, Peloton outsources the production of its bikes and treads. However, it has been decided to keep the production of the boxing product in a small facility in New York, New York, at least for now. The cycle time to create one full boxing machine will be 15 hours. The machine will take several different teams to create one finished product, including the large punching bag, the smaller speed bag, and the attached monitor that will display the classes for the customer. This facility will operate for 9 hours a day, which includes a 30-minute lunch and two 15- minute breaks for the production associates. While only one full machine will be created every 12 hours, the takt time will be the same as it is now. At this time, Peloton does not expect customer demand to be over the amount that can be produced reasonably. For this product they will use batch production, that way there is not a lot of excess until it can be evaluated on how it will sell. The production layout will be that of an assembly line, with workstations next to each other so that the workers can just pass their finished product down the line to be worked on at the

next station. Below is an example of how the layout will be. This design will make the production easier and more seamless. While this type of layout is used for a higher volume of demand (Russell & Taylor, 2019), this will ensure that Peloton will not have an issue should the demand fluctuate. Process Bottlenecks During any manufacturing process, there are always potential issues that could arise to impact the cycle time. “A bottleneck is a point of congestion in a production system that slows or stops progress” states Barone (2023). For Peloton, the below are the ones that could be the most detrimental to the cycle time.  Issues obtaining materials, whether it be because of a supplier or delivery company  Staffing challenges (illness, PTO, etc)  Equipment malfunction  Poor quality in raw materials, substitutions that may be needed Principles of Lean Management According to TXM Lean Solutions (2023), “In a Lean supply chain, the focus on reducing lead times leads to shorter, simpler distribution networks” and “in warehouses and Part 1 Speed Bag Part 3 Punching Bag Part 2 Punching Bag Part 1 Punching Bag Part 3 Monitor Part 2 Monitor Part 1 Monitor Part 2 Speed Bag

freight networks to eliminate non-value-added waste such as excessive travel times, waiting times and unnecessary double handling of goods.” Strategy Recommendation One recommendation is to ensure that there is a purchasing department that stays on top of ordering necessary materials. Implementing this type of department will give the company the tools needed to adjust orders if materials are not available, or if customer demand changes. This will reduce unnecessary cycle time lost waiting on changes. Additionally, it is recommended to create a First In First Out (FIFO) queue. This will include details on what the maximum amount of the product that can be there, along with the minimum. FIFO queues influence the sequence of the product as it arrives in a queue for the next operation. The use of FIFO queues will also help operations be able to adjust to the customer demands should it change. Labor, Equipment, and Materials Needs 1. Materials a. stuffing, sensors, leather, threading, metal attachments, planks, monitors 2. Labor a. 2 people x 8 stations= 16 total FTE 3. Equipment a. Sewing machine, filler machine, hand tools, computers, cords Labor, Equipment, and Materials Plan

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For the boxing machine to be successfully built, it will require materials for each different piece. These materials will include stuffing and sensors inside the punching bag and the speed bag, along with leather for the casings. Additionally, there will need to be metal attachments for each one, and wood planks to hang them from. Lastly, each machine will require a monitor that will come pre-made but will need the software uploaded. To ensure each piece is made with enough attention to detail, there will be a requirement of two people per station, with a total of at least 16 associates. This amount may also be adjusted depending on demand. With this number of associates stations can also be adjusted should one area require help due to demand changes or staffing challenges. Equipment that will be required is a heavy-duty sewing machine for the punching and speed bags and a machine that will be able to put the filling in and compact it. Associates will need to manually insert the sensors. All the attachments to the bags will be manually done, so the associates will need the proper tools to attach the chains and wood planks. The monitors will require cords to attach them to the computers that will install the software. Finally, all pieces will be wrapped in plastic for protection during shipping and delivery. Labor, Equipment, and Materials Support To ensure that everything is ordered promptly, and materials are kept in stock, the purchasing department will assist with the set-up and the regular ordering. They know the relationship with the various suppliers, and what the other Peloton machines use, so they will be able to handle whatever comes up.

All hiring will be done by HR, as per usual. They have been given the job descriptions and requirements, so they will be on point to hire the 16 FTE. When it comes to staffing, the team manager will be responsible for making sure that everything is staffed appropriately. Additionally, the manager will be responsible for sending staff home if there is not enough work to do. Finally, the manager will be responsible for normal manager duties, such as employee evaluations, one-on-one support, career progression, etc. The staff that runs the various equipment items will be the first line of defense when it comes to catching issues before they become big. Additionally, routine maintenance will be done on each machine, whether big or small. And proper training will be supplied to each associate and management so that there is no preventable damage done while using. Risk & Financial Impact Potential Risks Every time a company launches a new product, there are risks. This is no different with the Peloton Boxing Machine launch. Sometimes companies like to play it safe and not release new products, but according to Khajavi, Partanen, Holmström, & Tuomi, (2015) “innovation and new product development is essential for the prosperity (increased market share, sales, and revenue) of organizations in the face of increasingly competitive global markets.” It can be hard to know how well the product will do in the market, but without trying, companies would never grow. For this product launch, the main risk that the company must consider is if the machine is not well received by the Peloton community and its customers. While the boxing classes that were previously introduced have been a big hit, it is hard to know if customers are willing to invest in another machine.

Another risk that the company needs to be ready for is if there is a material failure or performance issue. Peloton has had to issue recalls in the past on it’s Bike, and it is always a company goal to not have to do that again. If there is a breakdown of something on the machine, and it causes injury to a customer, the company can be exposed for a recall and potential lawsuits. It would also cost quite a bit to have to fund either, which could cause financial issues if not prepared for. Even if there is no injury, if there are machine performance issues, it would be costly for Peloton to replace machines that are within the warranty period. Lastly, if demand is not what is expected, there could be staffing issues. This is considered a risk because if there is too much staff for production needed to meet the demand, there could be potential layoffs or shifting of staff. On the other side, if there is huge demand and the staff becomes overworked, it could drastically reduce morale and possibly cause attrition. Risk Mitigation Plan According to LinkedIn (2023), “One of the biggest risks to your product launch is that your product does not fit the market or solve a real customer pain point.” To help mitigate the market risk, Peloton has done its due diligence to ensure that the Boxing Machine would be well received by its customers. Before moving forward with deciding to launch the product, there was an effort to survey the Peloton community to get their thoughts on something like this. Additionally, there were customer interviews done at the New York studio. There was an overwhelming amount of support and interest from those surveyed and interviewed. There is no doubt that the machine will be a hit with those die-hard Peloton customers. To try to mitigate a performance issue, each machine will go through quality assurance to make sure that everything is working properly before leaving the warehouse. In addition, each station during the production process has associates specifically trained to spot issues with materials. Staying on high alert to spot defects or problems, issues can be caught quickly so that they can be addressed just as quickly. When it comes to staffing risks, there is not just one good way to address them. There could be several factors that cause problems and reduce morale. The company has discussed this

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with the people leaders, and they will be on high alert so that they can detect any changes to production and morale. Additionally, there will be extra focus on flexible schedules, moving associates to different stations as needed, and doing things to keep morale up. The manufacturing staff is aware that if demand is not what is expected, there may need to be a reduction, but the company will do everything it possibly can to find those people in new areas within the company. Currently, Peloton does not expect to have staffing issues but is ready to combat anything that arises. Management Strategies Team Key Aspects and Characteristics When trying to determine what was needed in a team for this product launch, Peloton had to consider any key aspects or characteristics they needed in a team. It was determined that the team needed to have clearly defined roles in addition to clearly defined goals. Everyone should want the same thing at the end of the day, and that is for the product launch to be a success. They will also know what they need to do daily, but also be flexible if something needs to change. Additionally, the team will require clear rules and open communication. While the company wants to try to keep a flexible atmosphere for the employees, there will still need to be rules so that no one pushes boundaries too far. Along with that, keeping a constant flow of open communication will help. Peloton wants the employees to feel heard and does not want to keep secrets or do things that would lose team trust (Campling, 2020). Stakeholder Involvement: Internal While all internal stakeholders have importance in a product launch, Peloton wants to focus on the product team. This team is made up of engineers, designers, product owners, and product managers (Productboard, Inc, 2023). This team has the main interest in the launch going well because this is their design, and they are very proud of what they have created. This team would also be able to help address any bottlenecks or issues that arise during production. Stakeholder Involvement: External

The most important external stakeholder in this product launch is the customer. They will dictate the demand, which will allow more materials to be purchased, more staff to be hired, more ideas to be made, etc. The customer is the most important part of the process because without them, the company would not exist. Peloton places a large focus on the customer because they are their community. Cross-Functional Team As Dinca, L. & Voinescu, C. (2012) state regarding cross-functional teams, “CFT are the source for obtaining the competitive advantages by the companies.” Creating a cross-functional team is imperative to the product launch because it takes someone from all the various areas and focuses on open communication. While previously it was mentioned that the product team would be an important stakeholder, they are not the only part of a fully formed cross-functional team. It is important to also have someone from customer service, marketing, sales, and leadership. This will ensure that there is a dialog that allows for quicker decisions and resolutions as things arise. Management Strategy For the boxing machine product launch, the cross-functional team will be managed by letting them basically run the show. While they will need to be managed as with any team, they will feel empowered to make decisions without having to run to leadership. Additionally, it will be important to have open conversations with each team member and the group. To do this there will be one on ones and team meetings scheduled throughout the launch. Total Quality Management (TQM): Managing Total quality management (TQM) can be defined as an approach to management that focuses on success through customer satisfaction (ASQ, 2023). TQM will be used in several ways, including keeping all associates involved and using processes that have been laid out but continuing to look for improvement. Additionally, as previously mentioned, there will be a large concentration on communication and keeping all lines open. Total Quality Management (TQM): Customer Expectations

Using the TQM strategy, there is a large focus on customer satisfaction. This is really like that in any company and any product launch because the company fails if the customers are not happy. By continuing to monitor how the customers are reacting to the product, how sales and demand are doing, and by listening to customer feedback, Peloton will only be able to continuously improve. The product launch is a great place to focus on the customer because they can tell companies things that no one else may have thought of. Additionally, the customer will tell a company what they are willing to spend money on. Departmental Assessment: Customer Expectations Every department within Peloton will be ready to review customer feedback to ensure that the product and the company are meeting customer expectations. While the customer service team will likely hear the most, and feedback will be sent to all departments. For example, marketing will need to hear from the customer because they may need to adjust any ads or material that is out about the boxing machine. Sales may need to consider new ways to show the product off, and the product team may need to make any changes to the machine and accessories. If customer demand is very high, HR may need to be involved because they may need to hire more staff to keep up. Customer satisfaction and happiness ultimately affect every department in the company. Conclusion Peloton has had both highs and lows in recent years, but there is a strong community behind them. That community has shown a large interest in the shadowboxing classes, so the next product launch is going to be a machine that the customer can use to enhance their boxing experience. Using the recommendations in this product introduction analysis will only lead to a smooth operation and a successful product launch.

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References Barone, A. (31 Jul 2023). Bottleneck: A Point of Congestion in a Production System. Retrieved from https://www.investopedia.com/terms/b/bottleneck.asp#:~:text=A%20bottleneck %20occurs%20in%20manufacturing,pace%20with%20the%20earlier%20 stages Campling, B. (15 Dec 2020). Team Key Aspects and Characteristics. Retrieved from https://recruitee.com/articles/effective-teams Dinca, L. & Voinescu, C. (2012). Cross-functional Teams and their Role in Increasing Competitiveness of the Organizational Partnerships. EIRP Proceedings. 7. Hartmans, A., Tobin, B., Mayer, G. (18 Aug 2023). Peloton wants to expand beyond at-home fitness with a push into gyms, businesses, and hotels. Here's how it went from a pandemic-era success story to losing money. Retrieved from https://www.businessinsider.com/peloton-company-history-rise-fall-2022-2 Khajavi, S. H., Partanen, J., Holmström, J., & Tuomi, J. (2015). Risk reduction in new product launch: A hybrid approach combining direct digital and tool-based manufacturing. Computers in Industry, 74, 29–42. https://doi-org.ezproxy.snhu.edu /10.1016/j.compind.2015.08.008 Linkedin. (2023). What are the top risks to your product launch and how can you mitigate them? Retrieved from https://www.linkedin.com/advice/0/what-top-risks-your-product-launch- how-can-you#:~:text=To%20mitigate%20this%20risk%2C% 20you,your %20product%20decisions%20and%20strategy.

Peloton. (2023). The Peloton Story. Retrieved from https://www.onepeloton.com/company Productboard, Inc. (2023). Stakeholder Analysis. Retrieved from https://www.productboard.com /glossary/stakeholder-analysis/ Russell, R. S., & Taylor, B. W. (2019). Operations and Supply Chain Management (10th ed.). Wiley Global Education US. Retrieved from https://mbsdirect.vitalsource.com/books /9781119577645 TXM Lean Solutions. (2023). What is Lean Supply Chain Management? Retrieved from https://txm.com/what-is-lean-supply-chain-management/#:~:text=In%20a% 20Lean %20supply%20chain,unnecessary%20double%20handling%20of%20goods.

9-1 Final Project Peloton

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