What's the No. 1 challenge for Tennessee-based Tullahoma Industries? A sudden flurry in competition for the firm's military contracts, which make up its bread and butter.
"Military contracting has gotten very competitive," says Richard Davenport, president. "As people have left the commercial market, they are almost desperate to try something else to stay in business - and the government is attractive because it's a long-term contract. So a number of contractors have tried to move in."
In past years, the firm typically faced two or three competing bids, but that number has been as high as 60 in recent months, says Davenport. He says he expects the surge to subside during the next few years because contractors that don't survive the switch from commercial to government markets will no longer be in the running.
With increased pressure to keep prices competitive, Davenport plans to keep overhead as low as possible - a strategy to which he credits his firm's long-term success.
Tullahoma's customer base comprises 90 percent government contracts and 10 percent commercially sold military knockoff products, such as thermals, crewnecks and socks.
Competitors have tried to import the products sold commercially, but without much success, reports Davenport. "We're steadily eating into their market share - they hadn't reduced their price to the consumer, and we've still got the best price in the marketplace," he says.
Tullahoma makes three products for the military - coveralls, polypropylene underwear and the white jumper worn by Navy enlisted personnel, which has been a mainstay for two decades. "We were the only contractor on that product for at least 15 years - now, we've got the men's contract, and another company has the women's contract, so we still have 80 percent of the total production on that product."
In 1999, the firm acquired a second 12,800-square-foot facility to do coveralls in Gruetli-Laager, TN, adding 80 employees, and in 2002, added a 28,000-square-foot facility in Brilliant, AL, employing 190. "We do all the cutting, most of the shipping and some sewing in Tullahoma, but the other two locations are strictly sewing plants," says Davenport.
Although growth won't exceed 500 employees because most of the contracts the firm bids on are set aside for small businesses, Davenport does plan for the company to diversify its product mix, to be less dependent on its military contracts. "It's a good market for us and a good base to work out of, but we want to be open to other opportunities as they present themselves and take advantage of them," he says.
With the goal of automating as much as possible, Tullahoma's facilities have been upgraded with Lectra cutting equipment, automated pocket setters and a unit production system on its jumper line. "One good thing about the government products is that they don't tend to change a lot, so you can set your production lines up to be [very] efficient."
The firm has been fairly aggressive with capital investment. "In 1999 we probably had less than $100,000 on our balance sheet, but we've added a couple million since then," says Davenport. "Also, as we have grown, the growth itself has helped us automate, since the more we do, the further we can spread our overhead."
To be more cost-competitive, Tullahoma hired a fabric sourcing expert to develop new materials, such as two-sided fleece made of polypropylene, which can sell at half the cost of PolarFleece. "He's developed new material for us to put into some of our products to offer something to our customers that our competitors can't," Davenport says. "This has helped us tremendously."
Another focus for the future is high-tech and moisture-wicking fabrics. "The military seems to be interested in that type of fabric right now, so we are trying to incorporate that into some of our products," says Davenport.
Davenport gives the example of the Navy's white jumper, which is 100 percent polyester and, he acknowledges, not the most comfortable uniform to wear. "But the style is traditional, and they'd most likely want to keep that. So we want to offer it to them in a fabric that would be more appealing for the sailor to wear, to keep the product going."