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David Neis

BPS4305.001

Sturm, Ruger & Co.

Executive Summary

This report is a look into the company Sturm, Ruger & Co to develop a plan of action for

the coming years to provide a strategic plan for their future success. The introduction will

provide some background history on the company, what problems they have, and what analysis

can discover a solution to those problems. An external analysis will be provided to determine the

current condition of the firearms or shooting market, a stakeholders analysis will be given to

show how those connected to the company are affected, and a use of Porter's five forces to see if

they are fit for continuation in the market. The internal analysis will provide the financial

numbers to how profitable they are, SWOT & VRIO analysis to provide a view of their strengths

along with weaknesses, a value chain analysis that shows how well the wholesalers, retailers, and

consumers are connected to their product, and an id of what is currently being done in the

company. Recommendations will be provided at the end to give a plan for future growth.

Introduction

Ruger is an American firearm company in Southport, Connecticut founded in 1949. Their

legacy started with creation of the Ruger Standard 22 pistol, a combination of a German Luger

pistol and a Colt Woodsman pistol. Since then, Ruger has established themselves as one of the

most popular firearm manufacturer's not only in the US, but the world market as well. Ruger

offers 30 different product lines that expand into more than 400 gun variations. This consists of

four lines of bolt action rifles, one line of falling block rifles, four lines of semi-automatic rifles,

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eight lines of centerfire pistols, four lines of rimfire pistols, five lines of double action revolvers,

five lines of single action revolvers, and one shotgun line. Some of these guns are completely

unique to them, but one of the things that Ruger does well is imitation and combination. Some

lines are almost straight copies of other products on the market, while some are a combination of

other products, think of the Ruger Standard mentioned previously. They do this very well and

while there are many companies who replicate there are few who combine favoring attributes.

All lines are made and assembled in America at the Newport, NH and Prescott, AZ factory.

These lines are primarily sold to the public consumers, though there are law enforcement sales as

well.

Ruger for the last 60 years has been able to hold strong with the majority of

manufacturers out there. Though their success has not reached its limit, they do need to look into

what can be done to be better. Some factors that could lead to a potentially higher market share

are development of a law enforcement program, expansion of value chain activities, increased

production capabilities, and development of unique products not just imitation of others. The

following categories will help lead to a decision in what Ruger should focus on to reach a higher

market share. Externally, this will review how the shooting industry is doing currently, how

current changes effect the stakeholders, and if they should continue according to Porter's Five

Forces. Internally, this will demonstrate their financial ability to change, provide a SWOT

analysis and VRIO analysis, take a look into value chain activities, and a detailed view of their

current business strategy. Finally there will be three recommendations that Ruger will take into

consideration, what will be considered the best potential strategy to change or continue, and an

outline of the plan to further the business's success.

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Eternal Analysis

The current state of the shooting industry is a strong yet weakened mess due to the events

of December 14, 2012. In the shooting industry one could easily forecast a busy season due to

politics, but what happened on that day could not have been foreseen in any way. That Friday a

school shooting in Newtown, Connecticut would start a rampage of political discussion as to

what should, could, or would happen to guns. From that day forward consumers were in a panic

to get a hold of any gun, ammo, magazine, or accessory they could find. Somehow the general

consensus was that our president was going to outlaw all forms of firearms and shooting, so if

you want it you should buy it now. This is where the industry became strong, people buying

what they would in a year in one sitting, multiple times over a couple weeks. The problem that

became of this is it was the industry year end. Most if not all manufacturers', distributors, and

retailers had let their inventory dwindle to reduce their taxes at the end of the year. On top of that

if you were a manufacturer you had stopped production almost completely for people to take

their holiday and prepare the new year's orders. In a two week period our store had sold the

amount that we do in an entire month, and for the next two months there was very little to

reorder. Our ability to sell had become weak in the supply of products, but demand was stronger

than ever. This wasn't just for our area, but it was nationwide. FBI statistics on the National

Instant Criminal Background Check System (NICS) show how the first two months of the year

accounted for more than five million sales, which had the highest recorded checks in the last 15

years. Since then the demand for product has decreased, but the amount of people who joined the

industry has increased the number of buyers and sellers. The industry has been slowly making a

recovery in the supply, and while some companies struggle to return to normal Ruger has almost

made a full recovery to the supply.

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The past year has proven to be mix of strong and weak points for Ruger stakeholders.

Due to the increased sales there will be a third plant location to be created in Mayodan, North

Carolina. It is estimated that Ruger will be bringing 450 new jobs to the plant with a $26 million

investment. Between January and November of 2013 Ruger's share price has increased $34.

Those who hold ownership can only look forward to higher shares with the increased demand.

There aren't very many firearm companies in the shooting industry who are publicly owned, but

those who were in Ruger got their money's worth this year. Those most affected by Ruger's

actions, the employees, will be looking forward to the changes ahead. Given the amount of

demand needing to be filled, the current employees have minimal worries as they can't afford to

reduce production at this time. Information shows that while the amount of buying has

decreased, the demand is still higher than their ability to produce. The introduction of new lines

has created a need to take over slower selling lines on the production. When there is a limited

amount of space in the factory whichever product can't keep up in sales gets discontinued or set

aside for limited production. Last year the goal of their production was to sell a million units, and

they were able to do so before year end. This year they were able to hit that number so fast they

took too many orders and had to cancel orders. Now this has created problems among the

wholesaler and retailer networks. For example, my store had placed orders with Ruger through a

distributor. We had been receiving from our orders throughout the year until summer. Our sales

representative for the distributor LM Burney in Waco, TX told us that all their Ruger orders were

canceled. For us it wasn't a horrible problem since we received the majority of our order, but let's

imagine it from their viewpoint. There was 20 or so units that still hadn't been delivered to us,

and because of the cancellation LM Burney wasn't able to sell us those 20 units. If LM Burney

has 100 customers they just lost a huge amount of sales. Then retailers take their business to a

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distributor who had their product delivered before the cancellation. While wholesalers and

retailers do not want to drop the brand it does create problems for both parties. This also creates

problems for the consumer. If the product is not available to get they do get tired of waiting and

move on to a product that is available. This issue has only positively affected the suppliers for

Ruger as it means they have ordered to maximum production capabilities. The addition of the

third plant will help bring the stakeholders closer to symbiosis instead of hurting on another like

in zero sum.

Porter's Five Forces let us take a look into the attributes that determine if Ruger is well

suited to continue in the industry. The first stepping stone is rivalry in the industry.

Unfortunately Ruger has lots of competitors here in the US and overseas. As mentioned earlier

Ruger does imitate some of the products out there, but why this doesn't affect the negatively is

they have a better means of production. All production is done in house so while some of their

products might not differentiate from the others it does sit in the lower cost corner. Second is the

threat of new entrants. Under normal circumstances the shooting industry requires something

unique and functional or inexpensive and quality to be able to survive entry. the high demands

of this year has allowed easy entry to the market. Any new company who is able to deliver their

product right now has an easy gain to the consumer base. Third is the threat of substitute

products. For some of the their lines there are equivalent if not better products out on the market.

At the same time there are lines that are the top choice of their category that consumers cannot be

easily drawn away from as they are such a popular item among users. Fourth is the bargaining

power of buyers, which was very strong this year. High demand and inability to keep with that

demand put Ruger's customers in a position to get what could be gotten. While there is no issue

in the immediate foreseeable future, they could see supply problems again by next election. Fifth

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and last is the bargaining power of suppliers. Their biggest problems lies in the labor force.

There are plenty of companies out there who will sell steel, aluminum, and plastic to Ruger, but

the machinists and gunsmiths needed to run the plant is low. If there is another event that leads to

the increased demand of firearms the laborers might use that knowledge to demand a raise. If

Ruger doesn't allow the raise then we might see less workers and another issue with keeping

supply up.

Internal Analysis

In the last few years we've seen major increases in firearm sales across the country.

Ruger's revenue has gone from $324 million in 2011 to $484 million in 2012. This sales change

estimates to about 50% increase in their total product line, not including their casting business.

$182 million of total sales was contributed by introduction of five new products, which includes

two new product lines. If this could be repeated with the introduction of a new product line

Ruger should see additional revenues like it had this previous year.

SWOT, Strength/Weakness/Opportunity/Threat, Analysis gives an insight as to what

Ruger is doing right and what can be done to keep them in a right direction. Each attribute of

SWOT shall be addressed individually.

Strengths:

American made. Rugged firearms that will provide reliable and durable performance. Parts are casts in its own metal casting plant in Newport, NH. Less expensive than competing manufacturer's in the market while keeping equal

quality. Lifetime warrantee. Has a large market share with over 1.7 million firearms produced in 2012 alone. Able to release new products that combine favorable attributes of other products on

the market and/or are unique to the current market

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Ruger has many strengths in the firearm market as seen above. With the job market being in a

slump since 2008 one of the largest trends in some markets has been support of American

made products from American companies. Ruger being in that category gets a big consumer

draw to their product instead of foreign competitors. All the firearms are created with high

quality cast steel giving them very strong durable structures that will not break or fail under

pressure. Lifetime warrantee that is given to every firearm produced in the rare case that there

is a problem for ease on the consumer mind. Lastly we see a large demand for their products

with a sale of over 1.7 million firearms, which could have been more if they hadn't stopped

taking orders.

Weaknesses:

A lack of strong law enforcement and military presence. Not a strong leader in the centerfire rifle and handgun market. Little presence in the shotgun market. Production capacity is capped and needs to be increased

There are only 2 major weaknesses in the company to be considered. There is only a small

presence of Ruger firearms in law enforcement use. Majority of law enforcement (LE) use

foreign made firearms. Additionally, the lack of a LE presence doesn't give them as strong of a

name in the handgun market as one strong selling point for any gun company is that military or

LE use their firearm. A limited production capability also holds them back from knowing their

cap on market share.

Opportunities:

Would not be put out of business by proposed legislation in 2013. With increased sales revenues production capacity is being increased. Trends in support of American made products puts it in favorable standings with the

public. Development of Law Enforcement Program.

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Firearm manufacture and use is a large political subject, and 2012 has brought large concerns

to the public with a democratic president being re-elected. A large potential opportunity for

Ruger is that only a few products would be dropped in the case of legislation on certain

firearm types, which would allow Ruger to the take the place of the companies that would

lose their business completely. As seen in strengths, the trends in support of "Made in USA."

If Ruger took the time to develop a distribution program for their pistols to be used by law

enforcement they could see a large increase in sales of that product. Consumers typically look

at what LE use as a guideline, and if Ruger could put get that secondary market their primary

market sales would increase.

Threats Legislation in 2013 could cause a drop of 2-3 product lines from their 30 total.

The largest threat to Ruger's revenue would be legislation that could eliminate some of their most

popular product lines and reducing their revenue and market share.

VRIO analysis allows us to decide if the plan we're looking to implement will create a

valuable, rare, imitable, and organized change to the company as well as the market. Will a

reliable, affordable service weapon bring value? Yes, one thing that the LE market lacks is an

affordable, American made service firearm to compete with that of the Austrian Glock and the

German Sig Sauer. Additionally, this would help motivate the need for increased production that

would help that consumer market get what they want. Are these actions something that is hard to

find in the market? Smith & Wesson, the only other publicly traded firearm company in the US,

has attempted to take the spot of a US made LE firearm, but has not proven to be able to replace

the foreign competition. Can their product and actions be replicated? Technically Ruger is doing

the replicating in this situation. They are attempting to do what Smith & Wesson failed at, but

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where Ruger may succeed is not only in their lower price for equal quality, but their potential to

deliver in much higher quantity than Smith & Wesson could. Is Ruger readily organized to take

on such a feat? Not yet, while they are on the path to increase production and provide the public

with what they want their motives show little interest in putting themselves out there as number

one choice for law enforcement. It seems their interest more lie in the consumer than sectors of

government. The past two years the motive has been to reach sales numbers of one million units.

They have reached well over those numbers, but are unable to deliver the amount demanded by

consumers let alone the number required for law enforcement if they received a large contract.

Ruger doesn't spend equal amount of resources in value chain on both sides of the

market. Ruger makes it very motivating to invest in their product to sell. The past two years

involved a new program called the million gun challenge, which provided incentives (buy 10 get

1 free) for distributors and retailers to purchase more Ruger than had been done in the past. For

each unit sold there would be $1 donated to the National Rifle Association. That number was

reached fairly quick and has since been increased to the 1.2 million gun challenge. The

incentives were not only business friendly, but also gave a purpose to donate to the organization

the fights for their right to stay in business. Every year they will go to different trade shows and

provide the opportunity for sellers to test the product free of charge. From my viewpoint as a

retailer, to get free product or being able to experience a product to help my customers is great

value for me. What lacks in the consumer chain that other companies have are activities and

products that mix with their products. Glock and Smith & Wesson offer armorer classes for those

consumers who would like to learn about their new purchase. They also work with other

companies to provide safety equipment, cleaning supplies, travel cases, and more that is

represented by their name. Ruger has a few after market partnerships, but when it comes to the

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frequent purchases there aren't products that can relate to the name. What consumers want is the

ability to buy the main unit, purchase a maintenance product that the company suggests, be safe

with the glasses they suggest, and more. Where they lose value that can be an easy addition to

their chain is that they don't allow all accessories for their products. Companies like Volquartsen

and Tactical Solutions have their entire product line based on Ruger products, but if the unit

makes its way to the factory it will be removed for factory parts. Consumers want to have fun

with their purchases, but don't want to worry about the value they add themselves being taken

away.

Ruger doesn't have a single strategy for their business. There is a combination of cost

leadership and differentiation. Their ability to be a cost leader comes from two key factors. One

is their casting plant, which allows them to keep production of parts all in house, purchase of

larger quantities of material that can be divided among all lines, and save on money that would

other be used in contract labor. Not only do they save money by doing their work in house, but

they also provide contract work. Their casting company provided almost $7 million in revenue

last year. Many of their competitors, including Smith & Wesson, use their contract services for

their products. Going back to what created Ruger in the first place, they are able to differentiate

themselves in two ways. First is their ability to mix the best attributes of other products to create

a single good product and the second is use of imitation. They started by the mixing of a popular

American handgun and a popular German handgun to become the Ruger Standard. Just last year

they released a new economical rifle that has been a popular seller, American Rifle. At a low

price point, due to their casting company, that is $100-$200 below their competitors they

released a combination of two popular rifle companies Tikka (Finnish) and Savage (American).

One of their most popular products is the Vaquero, a single action revolver. It takes the aspects

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of the old west, the six shooters that Colt originally created and combines them with their

modern revolvers to make a nicer feeling, more durable cowboy handgun. For the past 5 years

one of their top sellers, LCP, was a copy from the company Kel-Tec. One year prior, Kel-Tec

released the P3AT which only was surpassed by the LCP which was the same gun in all ways

except that cosmetically the LCP was more appealing. While not their most popular line their

Hawkeye rifles have taken a design discontinued since 1964 and revived it. The design originally

was used by Winchester from 1936-1964. Between the two strategies Ruger is a major contender

on the firearms market. It is easy to decipher how they make quality products at a low price, it is

fair to see how they create one from two, and they save resources by not only bringing back old

designs but improving current ones.

Recommendations

There are three potential directions that can be taken for the following years to better

improve Ruger's position on the shooting market. The four discussed previous were the

introduction of a law enforcement program, expansion of value chain activities, increased

production capabilities, and development of more unique products. At this time it is not

reasonable for an attempt at a law enforcement program. There are tests that need to be passed,

demonstrations that need to be provided to major cities across the nation, and production

capabilities to meet the additional demand. Meeting requirements of departments across the

nation can be simple as it only takes a little time to prove if it qualifies. Demonstrations and

marketing to LE across the nation would take immense resources and time. That is 48 states to

do a one day demonstration and if each demonstration is on a weekend it could take an entire

year to accomplish get their product across. If they can't keep up with demand of their consumer

base how will they ever keep up with the additional demand from the LE. They are not prepared

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to meet the plan yet. Next is how they could expand the value of their product. There are two

ways to approach it. One is to implement programs that could allow for teachers to instruct

consumers on their product, and two is to create connections with different companies to show

favored accessories in different areas of the market. The first part of that is resource and time

consuming. They would need multiple employees to solely take the role of providing instruction

to consumers and it could take an entire year to hit all parts of the country with minimal gain.

The second part requires asking companies they already work with to provide cleaning products,

safety equipment, and more to attach the Ruger name to their product and vice versa. A much

easier simpler method to providing value. Then is their attempts to meet total demand by

increasing production. Creating new plants and splitting up product lines to each plant to make

production more efficient. It is both very resource and time consuming, but creates an

opportunity to fulfill total demand. Last would be to push research and development to produce

more unique products. Unique is always a better thing, but it isn't the thing that they are best at.

Mixing and imitating put them where they are today and a single failure could lose all that.

The best choice to be implemented are changes to production capabilities and their

efficiency. My estimates, based on observations from this year, is that they are capable of

supplying at least two million units to the market without sitting on overstock. The first year they

attempted for one million they stopped taking orders by march, 11 months after they started. This

year they stopped and cancelled orders at summer time, 3 months after they started. New plants

would allow for larger orders, a more fulfilled consumer demand, and product lines to stay

longer and become more efficient.

There has been a realization that they are not meeting their full demand potential at their

current production quantities. It seems like it would take a lot, but there are few steps to

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implement this plan. First choice would be whether to expand current plants or build a new one.

Expansion allows for the use of property already owned at two location. Where this becomes

problematic is the need to shutdown production and further halt certain sectors of plants to

reconstruct the current plants. Since building may take a year or more the choice that would be

best suited for their situation is to make a new facility. The new plant would not get in the way of

current production until it is completed for the need of moving equipment in. While there would

be a slow period during the move it would open up space in one of the plants that would

normally be occupied by unused equipment. This would not only provide the opportunity to meet

total demand, but allows for the company to be more efficient in their product lines. Currently

the two plants are split between handguns (pistols and revolvers) and long guns (rifles and

shotguns). The moving of equipment from product lines in either plant would allow for a more

efficient production rate in the new factory and the factory where the equipment was taken from.

From there on the new plant would allow them to test their new capabilities with a two million

challenge. If actions are done according to my plans Ruger could see itself in a position to not

only obtain higher market share, but provide a new programs to LE and to better value their

products for consumers.

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Citations

Autry, J. K. (2012, September). Ruger’s rapid retail rewards program returns. Retrieved from http://www.shootingindustry.com/rugers-rapid-retail-rewards-program-returns/

Dineen, T. (2013, February 27). Form 10-k. Retrieved from http://www.ruger.com/corporate/PDF/10K-2012.pdf

Federal Bureau of Investigation, NICS. (2013). Nics firearms checks: Top 10 highest days/weeks. Retrieved from website: http://www.fbi.gov/about-us/cjis/nics/reports/obsolete-reports/nics-firearms-checks-top-10-highest-days-weeks

Fifer, M. (n.d.). 1 million gun challenge. Retrieved from http://www.ruger.com/micros/million/index.html

Johson, S. (2012, March 23). Ruger can’t meet demand, suspends acceptance of new orders. Retrieved from http://www.thefirearmblog.com/blog/2012/03/23/ruger-cant-need-demand-suspends-acceptance-of-new-orders/

McCarthy, E. (2012, January 12). Why the glock became america’s handgun. Retrieved from http://www.popularmechanics.com/technology/military/weapons/why-the-glock-became-americas-handgun

Ruger. (n.d.). Ruger history. Retrieved from http://www.ruger.com/corporate/history.html

Ruger. (n.d.). Pine tree casting. Retrieved from http://www.ruger.com/casting/index.html

Ruger. (n.d.). Ruger website. Retrieved from http://www.ruger.com/index.html

Sturm, ruger to open new plant in north carolina. (2013, Auguest 13). The Associated Press. Retrieved from http://www.cbsnews.com/news/sturm-ruger-to-open-new-plant-in-north-carolina/

Sturm, ruger & company. (n.d.). Retrieved from https://www.google.com/finance?q=NYSE:RGR&sa=X&ei=hP6XUvDMF5iEoQTB0oCADQ&ved=0CC4Q2AEwAA