“If we do decide to produce the 10- and 12-inch pipe internally, it could solve our overstaffing problem,” Mark Rubin, owner of Great Lakes Pipe & Tube, Inc. (GLPT), remarked to Vinny Patricko, the plant manager. “I’m reluctant to lay anyone off or even cut back hours. It’s not good business and it’s not the right thing to do if it can be at all avoided.”
Mark Rubin had no intentions of starting his own firm in 1972. Since graduating from college in 1964, he had worked for ML Pipe, a company based in Youngstown, Ohio. In January 1972, the company decided to relocate to New Jersey, and Rubin went also. Rubin and his wife were quite unhappy in Virginia, mainly because they felt so distant from their relatives, nearly all of whom were located around Youngstown. In May of 1972, he decided to move back to Youngstown and start his own pipe company.
Rubin felt he understood the manufacturing side of the piping business “inside and out.” He recognized, however, that in order to be successful, he needed marketing and financial expertise. By his own admission, Rubin made “many mistakes” during the first 18 months, but nonetheless, the business surged ahead. By the third year, it was clear not only that the company would be successful, but that it had the potential to prosper.
And prosper it has. GLPT operates on 14 acres and employs 31 people. In fiscal year 1991, sales totaled nearly $25 million despite a nationwide recession and the highly competitive nature of the piping business.
Rubin attributes his success to two factors: service and dedication to quality. While many firms are concerned with the quantity of pipe they produce, right from the start Rubin was dedicated to manufacturing the best quality of pipe possible. He often tells his employees, “If we achieve quality, the quantity will take care of itself.” The company also provides exceptional service. GLPT keeps an unusually large volume and selection of inventory at all times and maintains a relatively large fleet of trucks. As a result, the company can fill an order quite quickly. Such fast delivery means that distributors GLPT sells to--many of whom are nationally known wholesalers of building materials--are able to keep their inventory low.
A PROBLEM OF SIZE
The bulk of the firm’s sales come from PVC pipe, which is mainly used in residential and commercial plumbing and government sewer systems. This pipe comes in many different sizes, and sales depend in part on customers viewing the firm as a “full-line producer.” That is, a salesman is more likely to win an account if a distributor is convinced that the manufacturer can promptly deliver various sizes of pipe as needed. This typically means that a producer can quickly fill orders for the most commonly used sizes of PVC pipe; that is, pipe with diameters of 3 inch, 6 inch, and 8 inch.
Sometimes, however, a distributor is interested in 10-inch and 12-inch pipe as well. GLPT has never produced these sizes internally because Rubin feels that annual sales volume is too low to justify the start-up cost. If a customer does request such pipe, GLPT will typically buy it from a competitor who does manufacture the desired sizes. Rubin has never carefully analyzed whether this is a good policy, and he thinks now is the time to do so, especially given the firm’s staffing situation.
As he sees it, there are two main advantages to producing the 10-inch and 12-inch pipe internally. First, GLPT avoids the expense of buying the pipe from another firm. GLPT pays 45 cents per pound for this pipe plus another 2 cents per pound in distribution costs to get the pipe to GLPT customers. Unit selling price is 56 cents per pound. A second advantage is that the company’s staffing problem would be helped.
Though dollar sales have increased slightly in the last two years, the increases have not kept up with inflation. Rubin realized six...