After two years of restructuring and production shutdowns, boat maker Brunswick Corp. expects to boost production 50-60 percent in 2010 and is looking to its supply base to keep pace with the increase.
The company, which uses composites on about two-thirds of its boat lines, still expects overall demand to be down 10 percent this year, but after working to reduce inventory for two years, Brunswick is in position to ramp manufacturing back up.
“The industry is clearly down, lower than it's ever been — at least since we've been keeping records, which is since 1965,” CEO Dunstan McCoy said during a Feb. 10 trade meeting in Miami. “A real issue that we're dealing with is what the industry is going to come back to. Within Brunswick, we have been positioning ourselves where we want to be at a cost structure so that we can make money on smaller volumes as the industry comes back.”
The Lake Forest, Ill.-based company thinks it now has the manufacturing flexibility needed to compete and is taking its first steps toward its new normal. That includes bringing more production on line — after its boat-building fell 65-80 percent, depending on the brand.
Since the global economy began to slow in 2008, Brunswick saw its sales drop from nearly $5.7 billion in 2007 to about $2.8 billion in 2009. It went from profit of $111.6 million to record a net loss of $788.1 million in 2008 and $586.2 million in 2009.
Its boat sales dropped from about $2.4 billion in 2007 to $615.7 million in 2009, according to the company's annual financial report. Brunswick also makes boat engines under the Mercury Marine brand and manufactures exercise and bowling equipment.
In mid-2008, the company was forced to halt boat production temporarily and it closed four plants, consolidating manufacturing of both its aluminum and fiberglass boats. It sold off some non-core holdings and cut its overall manufacturing footprint from 28 plants in 2007 to 14 at the start of 2010. One other plant, an aluminum boat production site in Little Falls, Minn., is set to close this year. Brunswick also cut its global workforce to about 15,000 from 19,760 in 2009 alone.
It also reduced product inventory. At the start of 2009, it had 29,000 boats in the dealer pipeline. By cutting production, Brunswick now has an inventory of 15,000 boats — the lowest in the company's history, McCoy said.
“But it needs to be the lowest we've ever had in the history of the company because of the difficult markets in which we're operating,” he added.
But now that the supply is down to manageable levels, the company can focus on new production, said Andy Graves, president of Brunswick Boat Group.
“We've got to transition from our internal cost focus to really winning and executing in the marketplace,” he said.
That is where new manufacturing flexibility will come into play, he said. In the past, individual manufacturing sites were focused on making boats for one brand, which led to overlapping manufacturing with similar-sized fiberglass boats, for instance, made at multiple plants simply because they were different brand names. Now each plant makes boats and parts for a variety of Brunswick boat brands.
Graves cited its Lund fishing boats as an example of that flexibility. The company has produced aluminum fishing boats for years, but some of its customers wanted a fiberglass version. Brunswick was able to use Lund's design team, along with fiberglass manufacturing in its Triton composite boat-building operations, to launch a new series of fiberglass Lund boats in early 2009.
The next big question facing Brunswick will be whether its supply base is ready to move forward with production. Many of its suppliers also slowed or temporarily cut production in 2008 and 2009 due to the economy, the company noted in its financial report filed Feb. 23. Some of those firms cut staff, and others may have problems accessing financing for full operations.
“During this transition period, the company has experienced some delayed delivery of and shortages of certain materials, parts and supplies that are essential to its manufacturing operations,” the report said. “The company will continue to address this issue by identifying alternative suppliers, working to secure adequate inventories of critical supplies and continually monitoring its supplier base.”
Even with its leaner approach, McCoy warned there are no guarantees.
“Nobody has ever been through this, and we're standing tall,” he said. “This time last year, if you looked deep within our eyes, we were scared. You know what? We're not scared anymore. We're very comfortable about where we are and what we're going to be able to do.”
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