Endure Heavy Duty Aluminum Doors and Frames is a manufacturer of aluminum doors and frames. These items are supplied for water and wastewater treatment plants, schools, and other locations where corrosion from water or other chemicals is a threat; and where a strong, pre-finished opening is desired.
There are two types of doors and ten different aluminum frames manufactured. The doors are available in either a 1.75” or 3.00” thickness. While the 1.75” thickness doors can be provided in sizes up to 48” wide by 144” tall; the 3.00” doors have no such size limitation, but have a realistic maximum size of 12’ wide by 24’ high. Sizes any larger than this would require motorized equipment to either slide or swing the doors, while this size and smaller can be operated manually.
All of these products are manufactured from raw materials, utilizing local labor for manufacturing, assembly, packaging and shipping. Each configuration of 1.75” door has been broken out into a Bill of Material (BOM). This BOM serves two purposes: 1) it determines the exact number of stock lengths required to fabricate the door, and 2) it determines the exact cuts, miters, bends, and openings required for each type of door.
Doors and frames being manufactured today might have been priced and quoted 18 months ago, as there is an extremely long lead time between the receipt of the order, and the actual approval from the engineer or contractor to go ahead and fabricate. In addition, almost all of the raw materials to manufacture the doors and frames have lead times from the suppliers that range from 12 – 16 weeks. Overall times from the pricing and quoting to shipping typically can run 22 – 26 months, which makes pricing a challenge, especially when prices are rapidly rising.
The norm in this industry has been to discount the order, based on the number of items purchased, so that an order for one door and one frame would be discounted much less than an order for fifty doors and fifty frames. The standard mark-up used on doors and frames is 3.6, so if our total raw material and labor costs to manufacture and package a door is $200.00, then the retail price showing in the price book will be $720.00. The 3.6 multiplier takes in both the fixed and variable costs, as well as the attendant discount, and is intended to furnish Endure with a 10% Net Profit. The discount, based upon the number of items (doors and frames) being shipped ranges from 12% to 40%, so the $720 retail price will actually result in gross dollars being received of $633.60 to $432.00. This is exclusive of any freight. The differentiator between Endure and their competition IS the freight. As mentioned before, Endure will estimate the freight costs to the job site and include that cost in their initial quotation. The freight is calculated at what is referred to as “full retail”, and that is the cost used for the quotation. However, the freight discount received from the freight companies can approach 40%, which allows Endure to generate additional profit (i.e., if the freight cost was estimated at $1000, then the typical freight bill would be $600, furnishing Endure with an additional $400 of profit).
As discussed above, the main pricing tactic that Endure uses is a discount from the retail price, based on the total number of items being shipped. There are no legal or ethical issues involved in the pricing scheme that Endure uses.
While Endure does not utilize any wholesalers, distributors, or retailers in the distribution of the products, they do utilize manufacturer representatives in various markets. These are non-stocking representatives, whose main function is to call on architects, engineers, general contractors, glass houses, and hardware suppliers, and apprise them of the various products that Endure manufactures, and to help with the design of the specifications. They receive a commission of 10% of any products shipped into their territories. This 10% is based on the selling price, and is included in the variable costs of the firm.
The marketing objective of Endure is to manufacture and sell as many heavy duty aluminum doors and frames each year as they can (the current manufacturing facility could support up to approximately $12MM a year in sales revenue). As all doors and frames are custom manufactured for the specific customer’s requirements, the use of stocking wholesalers, distributors, or retailers is of no use to the firm as there is nothing for them to stock. The territories that have manufacturer representatives in them allow for the representative to call upon each of the identified members of the target market a minimum of four times as year. In those areas without representation, direct employees of Endure will call upon the identified members of the target market a minimum of twice a year.