Tommy Hancock Answers Questions from the Owner's Group

Dear SBO Family,

Over the last 24 months we have experienced things that I have not seen in the 37 years I have spent in the marine industry. At this point there are no definitive answers on a lot of questions, but I wanted to take the time to explain what is going on everyday here at Sportsman and to try my best to answer the great questions that many of you submitted.

Can you tell us a little bit about why Sportsman decided to not price protect boats that were already retail sold?

This question has definitely been the most asked and misunderstood of all. Let’s start off by clarifying that this decision was not taken lightly and every angle was explored thoroughly by myself and our entire executive team. To explain this better, we need to rewind back to a year ago. Around this time last year and due to already increasing costs, just about every boat builder took a mid-model year price increase leading into CY2021. For the same exact reasons everyone has voiced their opinions this time around, we decided we would not increase our pricing at that time. Looking back at that decision, it was not the right one. This decision led to a much larger price increase at model year changeover (July 1, 2021) and ultimately has been eroding our margins since then. As soon as we dialed in our price increase that went into effect on July 1, 2021, we immediately began getting hit with more costs increases that were obviously not anticipated.

The truth is we have gotten dozens of double-digit cost increases on just about everything since mid- July 2021. My responsibility is to maintain the financial well-being of the organization for the sake of our employees, dealers and customers. Absorbing these price increases was our plan back in early 2021 and the thought process was that things seemed to be stabilizing. Soon thereafter, the price and cost of goods continued to climb and we were, once again, facing the same decision as before.

We often get asked, why don’t you protect the retail sold units and increase only on new sales? With the incredible demand that we have for our product, we basically wouldn’t have a price increase well into the future if we took that route. In other words, the bulk of our production, for the foreseeable future, is retail sold. This is simply not a sustainable long-term plan for us. So, after much debate internally, we made the decision to announce the latest pricing adjustment to simply offset the continued inflation of our raw materials.

Many have heard of the supply chain issues but how has Sportsman had to adjust during this time? And what has been the biggest challenges?

The trickiest part for us has been stepping away from our Just-In-Time (JIT) processes and start bringing in every component or raw material we could get our hands on, even if it meant we would have parts on the shelf we wouldn’t need for months. This adds a lot of strain on the entire operation as this surplus inventory takes up a lot of room and ties up a lot of resources.

The biggest challenge has been the continued effort from the entire team to not give up and to continue being creative, persistent and resilient throughout these trying times. I’ll be honest, it’s exhausting to have to fight for every single component of every single boat that goes down the production line. Beyond that, some parts we simply can’t source. We’ve seen lead times go from 2-4 days to 40-50 weeks! There are no words that can explain what it takes to keep the production line running right now.

Aside from supply chain issues with parts and materials, what are some of the other (less discussed) issues or unexpected challenges that arose in the past 24 months. Specifically considering increased demand, growth, and new product releases.

There are 3 major issues we’ve encountered over the past 24 months that have contributed to the supply chain constraints. I would say at the top of my list is lack of communication. We pride ourselves in being transparent and forthcoming with information to our dealers and customers. But we have been operating the entire business under complete lack of reliable information from every corner. Often times, we or our dealers take the brunt for not having reliable information on when boats or engines or other parts will arrive but the reality is that we are not withholding any information. We simply don’t have the visibility or clear line of communication from our vendors to know. And it’s not their fault, they are also operating under the same conditions. This lack of reliable information absolutely goes against how we want to operate but is a path we have no choice but to follow.

Second issue has been labor force related. Coming back from the COVID shutdown we had at the very beginning of the pandemic, we quickly realized we needed to ramp up production. This meant increasing our labor force. This proved to be very difficult and has taken a long time to get to where we felt we needed to be to continue our growth. We’ve grown our team by almost 30% since this time.

Lastly, I would say has been managing some of the small COVID outbreaks we’ve had amongst our employees throughout the plant. Nothing is more important than the health and well-being of our valued employees. In some cases when an employee tested positive, the entire team that employee worked with would need to be sent out to get tested and potentially be out for 10 days. All of this just adds to the complexity and disruption of the times we are living in. Not to mention how it affects our ability to keep delivery dates.

What is Sportsman doing to keep their customers in the know about delays, shipments and deliveries?

We are actively maintaining as clean a line of communication as we can with every customer and dealer. We respond to more than 300 emails, website inquiries and social media messages a week through our customer service team. They have been giving updates, sending photos and explaining what is going on with their order. We feel like at the very least, we can assure them we are doing everything in our power to deliver them their Sportsman boat.

If a boat is materially complete but missing a part, let’s say the windlass or even just the electric reel outlets...will it incur another 5% increase?

This is a great question and we have developed and implemented a new process to deal with all the shortages that we are faced with daily. We’ve created a RACI chart outlining exactly what constitutes a “stop ship” meaning what parts stop a boat from shipping and what can be backordered to be sent later. This ensures that we don’t stop a boat from shipping simply because it’s missing a part that can be easily installed later at the dealer level. I can assure you that the last thing we want to do is hold up an order due to backordered parts. In some cases, we have been shipping without an engine. We have limited space and at some point, boats held at the end of the line prevent new builds from starting in our lamination department.

Pricing is locked in when the boat is invoiced. There’s a lot of variability from start of production to completion timeframe and it would be nearly impossible with the little information that we have to know exactly when that unit will be completed.

Look, I get it, I certainly understand that this pricing volatility and uncertainty makes some folks question their purchase. It takes an incredible amount of effort to earn your business and the last thing we are trying to do is throw that away. We’ve built our business around trust and transparency and this is 180 degrees from that. Our entire team is working around the clock to get us through these difficult times.

Are the supply chain issues getting better or worse? Are they making any advancements in improving accuracy of spray dates?

It’s difficult to gauge if it’s getting better or worse because the issues are ever-changing. The components that we were struggling to find last week may be different from what we are dealing with today. Our team jokes around sometimes and calls it a “Big Game of Whack-A-Mole” because it honestly feels like that. Not one second later after fixing one issue that another one pops up in a different place. At this point, we have had struggles in every single department here at Sportsman with some sort of supply chain issue.

With the hard work and efforts the team has done, our hope is to have more accuracy on spray dates starting in Q1 of 2022.

Are parts that are in high demand/low supply (items leading to delays) costing more than they were previously?

Absolutely! I can’t think of a single part or component that isn’t costing us 25%, 100% and even 200% more than it did in early 2020. Plus, added to that cost is the increased overhead to overnight parts or air freight. These are the things we’ve had to adapt to keep the production floor moving. We have opted to pay 10 times more shipping and freight costs in some cases just to have the parts needed for the next production day. Choosing not to do this would have led to even more delays and in some cases entire teams in the plant not having the materials they needed to work the next day. We also experience huge inefficiencies by having to continually “revisit” boats to add parts as the parts arrive.

I think the most important message I can send to all of those waiting for a boat is that we are not just sitting around waiting for these things to resolve themselves. We are actively fighting and clawing our way through these times to continue to have success and deliver a top-quality product with world-class service. We are certainly not giving up and will never be defeated. We will get through this.

Are there other issues unique to the 261 builds that are leading to possible delays?

Initially we did have some setbacks with the tooling shop (where we make our molds) due to the sheer number of new models we introduced this year. Staffing for this department is highly specialized and very difficult to find. The 261 shares the console and top with the 247 and 247OE so priority was put to complete hard-top and console molds. This led to a small delay in Start of Production for the 261. I can say that all 6 of our new models are now making their way down the production lines. This is the biggest new product launch year we have ever had in our 10-year history. We are not letting market conditions dictate our decisions. We are keeping the pedal to the metal on new product and delivering the absolute highest quality boat with modern designs and the highest quality components.

What is sportsman doing to make sure quality is not suffering with this rush?

This is my personal top priority and one that all of us on Team Sportsman take seriously. Our quality procedures are more in-depth and robust today than they have ever been in the past. Are they perfect? No, of course not. But we work on that every single day. Every boat is handmade and on a typical build, the boat goes in a straight line from beginning to end. Due to part shortages, many boats get to the end of the line only to wait on parts. This can lead to additional issues, but we have been revamping our QC procedures to accommodate for this new normal. We will always stand behind our product and do whatever it takes to make it right.

Will factory tours resume at some point?

We are working on a new system for this internally as demand for factory tours has skyrocketed. We are hoping to have it ready for early 2022. In the meantime, we encourage all of you to watch the Behind The Glass series.

Are the smaller models more likely to have less delays than the larger models?

Everything is equal in the likelihood to have delays. Unfortunately, larger models suffer from different issues with delays than the smaller models. Where a 35 may be having issues with advanced joystick rigging component shortages, the smaller 207 may be missing an engine or prop. No size is completely safe from delays.

Thank you for your patience and understanding,

Tommy Hancock
President of Sportsman Boats