Tijuana Bronze Machining (TBM)
As time goes by, it becomes clear to me that our competitors are crazy. Pumps are a major
product in a big market for all of us, but with the prevailing price cutting mentality no one will be able to sell pumps profitably as long as we all are forced to match each other’s lower prices. I guess we should be grateful that competitors don’t play the same foolish game in valves and flow controllers. Even with the
12 ½% price increase, we don’t see any new competition in flow controllers.
Herb Alpert, President
TMB was established by Alpert in 1984 when he purchased a moribund commercial machine shop on the ...view middle of the document...
Valves did not fully utilize available capacity. Pumps were known to be an even larger market than valves, and flow controllers were often used in the same fluid distribution systems as valves and pumps. Moreover, by specializing in bronze, the company could exploit Paul’s special knowledge about working with that material.
Raw forgings and castings purchased from foundries were precisely machined and assembled in TBM’s new modern manufacturing facility. The same equipment and labour were used for all three product lines. Runs were scheduled to match customer shipping requirements to eliminate finished goods inventory. The raw material suppliers (foundries) had agreed to just-in-time deliveries, and products were packed and shipped as completed.
Valves (24% of company revenues) were created from four bronze components. Paul had designed machines that held each component while it was machined automatically. Each machinist could operate two machines and assemble the valves as machining was taking place. The expense of precise machining made TBM’s valves too expensive to compete in the non-specialized valve market. All monthly production of valves took place in a single production run, which was immediately shipped to the single customer upon completion. Although Paul felt several competitors could match TBM’s quality in valves, none had tried to gain market share by cutting price. Gross margins had been maintained at a standard 35%.
Pumps (55% of revenues) were created in a manufacturing process similar to that for valves but with a little less precision. Five components required machining and assembly. The pumps were sold through seven industrial products distributors. To supply the distributors, whose orders were fairly stable as long as TBM met competitive prices, the company scheduled five production runs each month.
Pump prices to distributors had been under considerable pressure. The pump market was large and specifications were less precise than for valves. Stan Getz, TBM’s sales manager, felt that as the company had no design advantage in pumps, it had no choice but to match the lower prices or give up its market share. As a result, gross margins on pumps in the latest month had fallen to 22%, well below the company’s planned gross margin of 35%. Alpert and Ford could not see how competitors could be making profits at current prices.
Flow controllers (21% of revenues) regulate the rate and direction of flow of liquids. As with pumps, the manufacturing operations for flow controllers were similar to those for valves. More components were needed for each finished unit, but less labour was required. This product had been added to the line because it helped fill excess machining capacity. In recent months, TBM had manufactured 4,000 flow controllers in 10 production runs. The finished flow controllers had been distributed in 22 shipments to distributors and some end-use customers.