Case analysis Fabtek

Context
Fabtek fabrication is the second largest industrial fabricator of

titanium in USA.
Value proposition - high quality, high price 5 major competitors 80% of company revenue concentrated with 20% customers. Policy of capping maximum revenue share of customer to 20% and market to 30%. Welding capability is the best.

Issues
Capacity crunch on account of backlog.

Difficulty in hiring and training skilled welders.

Declining sales. Loss reported in 1990. Mismatch between manufacturing and marketing on capacity. To choose between 4 potential orders.

Alternative 1 - Refco
Pros Fabtek has experience with similar kind of product. In line with companys high quality image. Good payment terms - On time payment of bills Order size: $6million Reliable cost estimates - progress payments for material and labor

Cons Refco unsure of Fabtek delivery schedule - labor already running backlogs Risk of depending too much on Refco for sales Rumors of Refco shifting to in-house fabrication.

Alternative 2 - Pierce-Pike
Pros Potential for development - Strong company in rapidly growing market Technically challenging job. Vital and Lightfoot find it important to develop this capability. Vitali has been pursuing Pierce-Pike for business for four years

Order Size: $4million

Cons No experience in this product. Progress payment only on raw material Failure can risk in losing credibility and customer forever.

Alternative 3 - Worldwide Paper

Pros In line with fabteks high quality image. Standard work, less demanding than custom work Good market potential - develop a standard sales force

Cons No progress payments Penalty of 0.1% of the contract price for each working day that the complete order was late. No incentive for early delivery

Altenative 4 - Kathco
Pros Good relationship with Fabtek Simple design

Cons One-shot deal as Kathos new plant to be up soon. No new capabilities being developed

Recommendations
Accept Worldwide Paper as
It will give opportunity to work on standardized product and develop sales force. Pressure of penalty will streamline existing delays.

Standardization will also help in maintaining timelines.

Can lead to long term relationship building.

Accept Refco post

senior management discussions on rumors of setting up own facility and possibility of moving
out orders from Fabtek.

Progressive payment terms will be helpful

Get operations and marketing team to coordinate better on capacity planning through regular
meetings and mandating marketing team to get complete capacity map before making order commitments.

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