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CUSTOM FABRICATORS, INC.

I. Analysis

Ben Lawson’s main concern in the case presented is how to ensure success
of his business, Custom Fabricators, Inc. (CFI), in the long run despite threats
brought about by some changes in the business strategies of its only customer,
Orleans Elevator (OE) and possible competition from Mexican companies.

The relationship of Ben’s company with OE has strengthened over the years.
OE has provided more and more businesses to CFI since it has been an excellent
supplier with its practice of Lean manufacturing, which supplied OE exactly what
they wanted when they wanted it, without waste and through continuous
improvement. As for OE, CFI has provided customized products (sub assembled
elevator parts) at lower cost and helped in reducing inventory and space which has
its respective costs for OE.

Custom Fabricator’s Lean operation has also become its strength or


competitive advantage. It has developed a strong lean production system
composed of just-in-time production, strict quality control, frequent and reliable
delivery, and near or proximate location with both supplier (Bedford) and customer.
In addition, CFI also has an advantage in terms of cost since their product has lower
costs due to the fact that CFI has inexpensive building, assured raw material
supplies and loyal employees. (Exhibit A – Analysis of Internal and External
Factors) However, these advantages are threatened to be irrelevant with OE’s shift
of priorities. In an effort to further reduce costs, OE recently adopted an internet
auction method through FreeMarkets to outsource its purchases shifting its focus
from purchasing the subassemblies to outsourcing the whole process.

II. Recommendation

Together with Orleans’ shift in priorities and in response to a threat of


possible competition from Mexican companies, there is a need for Custom
Fabricators to also change its business model in order to be more effective and
efficient in providing products and services to its customer and ensure future
success of the business. Rather than being just a supplier, CFI has to move up in
the value chain by becoming a total solution provider banking on its core
competencies of modern technology, pool of loyal and talented employees, good
long term relationships with both supplier (Bedford) and customer (Orleans), and
Lean manufacturing system.
To achieve the goal of becoming a total solution provider, the group reviewed
Custom Fabricator’s critical success factors and core competencies in operations
(Exhibit B – Custom Fabricator, Inc.’s Critical Success Factors and Core
Competencies in Operations) and utilized a SWOT (Strengths, Weaknesses,
Opportunities, and Threats) Matrix (Exhibit C – SWOT Matrix) in recommending the
following strategies to Ben Lawson both in the short-term and long-term:

Short-term:
• Buy out or merge with the manufacturing plant in Bedford. Banking on their
good long term relationship, this would lead to streamlined operations and
provide products with lower costs and high quality which would be difficult for
Orleans to refuse. It will make them much more marketable to OE and much
more competitive with other suppliers. Retaining their close proximity to OE
would also contribute to lowering product costs at the same time maintain the
speed in delivery time.
• Begin expanding and diversifying. Currently, CFI is a single product shop
specializing in certain parts for one company. They should be able to
diversify their specialties to incorporate other fabrications for other products
in varying industries. By acquiring or partnering with Bedford and capitalizing
on their modern technology and talented employees, they will be able to
diversify their final product making them more marketable to other
customers.

Long-Term:
• Become a public company. This will raise needed funds in order for the
company to expand and with new customers; they can open other shops in
strategic areas of the country perhaps near other large manufacturers who
could benefit from their products. Going public will also help market their
company when people can begin to familiarize what the company can
provide.
• Become an international business and apply a global strategy. Take
advantage of low cost raw materials and labor that other countries offer.
Exhibit A – Analysis of Internal and External Factors

Strengths (S) Weaknesses (W)

1. Custom Fabricators Ins. (CFI) has 1. Dependence to Bedford as a supplier.


manufacturing plant located next to Orleans
Elevator (OE) plant. 2. Dependence to Orleans as its only
2. CFI has set up a very efficient process customer and partner.
(Lead Manufacturing System) for fabricating
exactly what OE plant needs for bracket and
panel with very little lead time. CFI knows
exactly what the plant needs based on OE
schedule. Modification of specific need of a
particular elevator order is easy.
3. Assured raw material supplies.
4. Tax break was granted to CFI making its
building for the plant inexpensive. With this,
CFI was able to maintain profit margin close to
30 percent of revenue.
5. CFI has maintained a group of loyal and
satisfied employees.

Opportunities (O) Threats (T)

1. There was no guarantee to the Mexican 1. Orleans is trying to reduce cost of raw
bidders that the contract would go to the lowest materials and considers outsourcing
bidder. materials from Mexican suppliers posting a
problem in communication and possible
2. Bedford plant will be given the option to delays of raw material deliveries.
negotiate price during the bidding. Maintaining
Bedford plant services would be more 2. The quality of Bedford plant’s product was
advantageous for CFI. not up to par due to poor welds, and the
heat treating process not being completed
properly.

Exhibit B – Custom Fabricator, Inc.’s Critical Success Factors and Core Competencies in
Operations

Critical Success Factors Core Competencies

Product Diversify products to cater to a variety of industries

Continuous improvement in the quality of products with the


Quality
use of modern technology

Retain proximity to Orleans Elevator; Open other shops in


Location
strategic areas possibly near other customers
Maintain employees with the excellent craftsmanship; ensure
Human Resource
their loyalty to avoid high turn-over rate

Consider outsourcing raw materials from other countries to


Supply Chain
take advantage of low costs

Exhibit C – SWOT Matrix

Strengths Weaknesses

Buy out or merge with the Begin expanding and diversifying.


Opportunities manufacturing plant in Bedford. - W2, O1, O2
- S1, S2, O2

Become an international business Buy out or merge with the


Threats and apply a global strategy. manufacturing plant in Bedford.
- S2, S5, T1 - W1, T2