Destin Brass Products,

Destin Brass Products Co.
Eaery month it becomes clearer to me that our competitors either know something
that we do not know, or they are crazy. I realize that a in a big
market for all of us. but with the cu that is on, it is likely that no one will be
US lower I guess we
should be grateful competitors seem to be the opportunities for profit in flow
controllers. Eaen with the 121/z% price increase ute made there, our sales representatiaes
report no new competition.
Roland Guidry, president of Destin Brass Products, was discussing product profitability in
the latest month with Peggy Alford, his controller, and fohn Scott, his manufacturing manager. The
meeting among the three was taking place in an atmosphere tinged with apprehension because
The purpose of the meeting was to try to g.r-$q1q!gr! lhe trends and to develop
were three managers, along
sales and manager/ not because he was away/ were
very concerndd because they held significarit shares of ownership in Destin Brais Products. Locally,
they were a success story; the company had grown to be a significant business in Destin, Florida,
better known for its white sand beached and as “the Luckiest Fishing Village in the World.”
The Company
Destin Brass Products Co. was established by Abbott, Guidry, and Scott, who purchased a
moribund commercial machine shop in 1984. Steve Abbott had sensed an opportunity in a
conversation with the president of a large manufacturer of water purification equipment who was
dissatisfied with the quality of brass valves available. John Scott was a locql legend because of the
high-quality brass boat fittings he had always manufactured for the fishing fleet Along the Florida
Gulf Coast. Roland Guidry had recently retired from the United States Air Force, where he had a
long fecord of administrative successes. The three then selected Peggy Alford, an accountant with
manufacturing experience, to join them.
john Scott was quick to analyze the nature of problems other manufacturers were having
with water purification valves. The tolerances needed were small, and to maintain them required
Prot’essor William l. Bruns prepared this case as the basis for class discussion rather than to illustrate either effectiae or
ineffectiae handling of an administratiae situation.
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1
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great labor skill or expensive machine controls, or both. Within weeks of forming the company, Scott
and his shop crew were manufacturing valves that met or exceeded the needed specifications. Abbott
negotiated a contract with the purification equipment manufacturer, and revenues soon were earned.
The company had grown quickly because the demand for water purification equipment
increased, and Destin Brass Products became the sole of valves to its custorner. However
Abbott and tn
machinine valves cotrld also be lsed brass they
created an engineering and designed new those markets. were
an even were same
fluid distribution systems as valves pumps. Moreover, by specializing in brass, the company
could exploit Scott’s special knowledge about working with the material.
Destin did no foundry work. Instead, components were purchased from brass foundries and
then were precisely machined and assembled in the company’s new modern manufacturing facility.
The same equipment and labor were used for all three product lines, and runs were scheduled to
match customer shipping requirements. The foundries had agreed to just-in-time deliveries, and
products were packed and shipped as completed. Guidry described the factory to his friends as “a
very modern job shop in specialized products made from brass.”
The Products
Valves (24Vo of company revenues) were created from four brass components. Scott had
designed machines that held each component in jigs while it was machined automatically. Each
machinist could operate two machines and assemble the valves as machining was tdking place. The
expense of precise machining made the cost of Destin’s valves too high to compete in the
nonspecialized valve market, so all montNy production of valves took place in a single production
run, which was immediately shipped to its single customer upon completion. Although Scott felt
several competitors could match Destin’s quality in valves, none had tried to gain market share by
cutting price, and gross margins had been maintained at a standard 35%.
Pumps (55Vo of revenues) were ceated by a manufacturing process that was practically the
same as that for valves. Five components required machining and assembly. The pumps were then
shipped to each of seven industrial product distributors on a monthly basis. To supply th’e
distributors, whose orders were fairly stable as long as Destin would meet competitive prices, thb
company scheduled five production runs each month.
Pump prices to dishibutors had been under considerable pressure. The pump market was
large, and specifications were less precise than those for valves. Recently, it seemed as if each month
brought new of reduced for Steve Abbott felt Destin had no choice but to
match or asa of
–
AS a result/ gross marglns on
sales in planned gioss margin of
and Alford the competitors could be making profits at current prices
unless pumps were being subsidized by other products.