Matthew Yachts, Inc.

Matthew Yachts, located in Montauk, Long Island, manufacturedsailing yachts of all descriptions. The company had begun by buildingcustom-designed yachts for a largely New York-based clientele. Custom-designedyachts still accounted for three-fifths of Matthew’s unit sales and four-fifthsof its dollar sales and earnings. Over the years, as Matthew Yachts’ reputationfor quality design and workmanship spread, sales broadened to cover all of theeastern seaboard.

In an effort to capitalize on this increased recognition and to secure a pieceof the fastest growing market in sailing, Matthew Yachts began manufacturing anew standard, fixed-design craft. Matthew attacked only the high end of thismarket, as the boat measured 37 feet long. Nevertheless, even this end of themarket was more price-sensitive and less conscious of performance than MatthewYacht’s custom-design customers were.

All of the company’s yachts were manufactured at the Montauk plant and sharedthe same equipment and skilled labor force. Custom designs were given priorityin scheduling, and the new boat was rotated into the schedule only when demandslackened. As sales of the fixed-design boat increased, however, scheduling thenew boat on a regular basis became necessary.

Matthew Yachts were built basically from the bottom up. Fabricating hulls wasthe first step. Increasingly, fiberglass hulls were demanded for their speedand easy maintenance. Afterward came the below-deck woodworking, followed bythe fiberglass and woodworking on the deck itself. The masts were turned anddrilled separately. Masts and hull were then joined and the finish workcompleted.

Over the past year, as the fixed-design craft continued its steady increase insales, costs and deliveries began to slide precipitously, especially on thefixed-design yachts. During this period, when push came to shove, constructionof the fixed-design craft always yielded time and resources to thehigher-profit-margin custom designs. As a result, many fixed-design yachts werestrewn around the yard in various stages of construction. Moreover, space inthe existing shipyard was becoming scarce, and a plant expansion of one sort oranother appeared inevitable.

Discussion Question

1. Should Matthew Yachts, Inc. stay in the business of buildingstandard, fixed-design yachts?

2. If Matthew Yachts does so, how should it continue?