Owen’s Precision Machining Credit Analysis
Xiaoyun Hu * Business and Strategy
OPM is a fifteen-person machine shop that makes customized metal parts and integrated subassemblies for a variety of end uses. Found in 1986, it now locates on the first floor of a converted textile factory next to the Merrimack River in Lawrence, MA.
The A/P term of OPM is net of 30. And here is the 5-forces analysis: * The power of suppliers: Strong
Most of the raw materials OPM needs are differentiated, rare and hard to source. They need long lead times and large minimum order quantities. And to form competitive advantage, OPM needs to store a lot. In order to mill good products, OPM needs specific materials that can’t be substituted. As a result, the power of suppliers turns out to be strong. * The power of buyers: Strong
OPM’s competitive advantage mainly lies in the lead times so that they can provide enough volumes according to buyers’ needs. This indicates that OPM’s products are undifferentiated and buyers believe that they can always find other shops very quickly. * Threat of new entrants: Medium
To initiate a business in customized subassemblies area, one doesn’t need much capital expenditure to invest. OPM at first was a single-owner small operator. And if the customers want to switch to another shop, they won’t bear much additional costs. The demand-side benefits of scale are also not apparent in the industry. However, the company can achieve supply side economies of scale by ordering quantities of raw material, most of them are difficult to source and needs large minimum order quantities. The company also has cumulative experience of how to decrease turn-around times and it has good connections with Boston-based high-tech companies and research centers. Considering all the factors, the threat of new entrants is medium. * Threat of Substitute