A profit margin Essays

A profit margin Essays A profit margin Essay A profit margin Essay Already highly competitive and overcrowded market; establishing a new name in this area would be very difficult and an expensive business.  As Giusti is a well established firm in this sector with a worldwide customer base it has already overcome these threats of entry. The company however is constantly looking to widen its product range; recently in the field of storage silos and homogenisers for cosmetic creams. In the new product range these barriers do exist and Giusti struggles in this area, as it does not have sufficient personnel to develop these new ranges. As a result we find that new products are evolutionary rather than revolutionary. The company tends to develop products on the job, and this is a practice common with small engineering companies. It is beneficial in that it keeps overheads low but when the newly developed product does not perform as anticipated then the rectification costs can escalate as generally the unit is on site at a customers factory.  Becomix, who are a German competitor of Giusti, have similar problems but a higher level of manning so development can be carried out along side production engineering. Threat Of Substitutes  Manufacturing in the United Kingdom has been on a general slow down for a number of years now and this is reflected in the customer base Giusti has in this country. Along with other process equipment suppliers Giusti has accepted that, especially in the food sector, the use of second hand vessels and pumps etc is becoming more and more common due to constraints on expansion budgets. As a result the company has formed close ties with second hand equipment stockists and, where appropriate, will offer the option of using new or pre-used equipment. Bargaining Power Of Suppliers  The price of stainless steel is elevated due to surcharges for nickel content, but this is fairly constant and common to competitors. Occasionally a customer may specify that a particular manufacturer of ancillary equipment be used in a project and in cases like these it is very difficult to negotiate significant discounts.  Giustis prices have been known to be at the upper end of the market scale in the past and great efforts have been made over the last nine years to reduce the cost of the equipment by increasing the efficiencies in the factory (purchasing seam-welding equipment, the increasing use of computer controlled laser cutting, economic batching of standard components, etc.), value-engineering the equipment to reduce materials used, required fabrication, machining, polishing, and fitting time on the shop floor. The efficiency increases have resulted in the company being able to use a nine year old pricing list for current, and much improved, equipment. The area that is still expensive is the control systems and bought out components.  The company has been aware for some time that many bought out components (valves, pumps, gear units, electrical equipment, etc.) are manufactured in India and the Far East, shipped to Europe and then distributed on to the customer. In setting up an office in India three years ago the company is endeavouring to cut out the European middle-man and gain the cost saving. Ironing out the reliability and quality issues with these suppliers is key to this initiatives long-term success. Bargaining Power Of Buyers  In recent years the customer base serviced by Giusti has seen a rationalization; with pharmaceutical companies merging, e.g. SmithKline Beecham and Glaxo Wellcome now knows as Glaxo SmithKline (GSK), and firms such as Avon Cosmetics relocating to save on production costs, i.e. moving production from Northampton to Poland. As a supplier to these companies Giusti now have fewer customers but the buyers that remain now have greater bargaining power. In a suppliers seminar held by GSK in the last year they stated that all suppliers were to reduce prices across the board by 21% if they were to remain on the recommended suppliers list. As stated earlier Giusti has made great efforts to reduce production costs in an attempt to maintain profitability but when customers such as H. J. Heinz hold tendering auctions on-line and award the contract to the lowest bidder then there is a point where a line is to be drawn between maintaining a busy factory and maintaining a profit margin.  Becomix do not enter into pricing or delivery time battles, relying on the quality of their products. The price on the box is the price that everyone pays and stated delivery may go back, but never be improved on. They have a perceived added value that is high and is sufficient to bear a price and delivery premium.