Mike McCarty Founder of Silver Ships

Situation: Mike McCarty founder of Silver Ships took his hobby of fishing and turned it into an $11 million ship building company that specializes in 26-60 foot aluminum boats. McCarty loves the industry but is facing the difficult decision of whether to stay in the industry or leave due to a number of factors. Mike is getting old and is considering retirement and shopping the business, however he still sees opportunities for growth in the company and would enjoy continuing to grow the business.

Analysis

Industry/Market:

• The three categories which accounted for the most variance in production cost are aluminum, labor, and logistics.

Aluminum

• Cost of Aluminum fluctuates and is tough to manage effectively except for hedging, inventory management, and waste control

• Silver Ships sold scrap metal to recyclers at 25-30 percent of finished cost to reduce scrap

Labor

• Gulf Coast economy was booming prior to 2007 recession which abled skilled workers to demand higher salaries

• The recession did not hurt the shipbuilding industry as much as it hurt the general manufacturing sector

• Since ships take several years to develop the companies continued to work on their ships through the recession

• Austal USA and Northrop Grumman Shipbuilding set the pay scales for maritime construction workers; during the recession they both offered $16/ hour for apprentice welders

Logistics

• Silver Ships was located near several U.S. Navy, Air Force, and Coast Guard facilities as well as Golf Coast municipalities that had needs for seagoing boats

• Since the majority of bids were secure through bids cost was of high concern

• Boatbuilders were at a competitive disadvantage for bidding on boats that needed to go to distant locations due to high transportation