GROUP-1

Name Roll No.

Ravi Srinivasan 22
Raja Das 24

Manish Satija 17
Saurabh Sharma 27
 CONTEXT
 Fabtek leading producer of Titanium products for industrial . It’s Fabrication
Division is 2nd largest industrial fabricator of Titanium in USA with 16% market
share i. e $150 million

 Davison in crisis due to shortage of capacity, customer dissatisfaction for late

delivery and erratic price of titanium

 Marketing VP Amy Vitali and VP Operation Rob Lightfoot under tremendous

pressure under these condition to bid for one order out of four potential big
orders.

 Fabtek President Stanley HO wants his team to take decision for the best fit for
the plant.

 Five major competitors with annual sale between $6-$30 million .

 Titanium industry operating at a lower level with capital spending on process and
project was below anticipation and was not expected to increase significantly
in1991
THE BID
Fabtek had 90 significant customers in 11 markets. However its 20%
customer provided 80% business

Mid-June1991- the decision between prospective orders

. WORLDWIDE
REFCO PIERCE-PIKE KATHCO
PAPER

Each order represents a different mix of customer needs, labour, material and
manufacturing talents .
CURRENT SITUTION OF COMPANY
Manufacturing side
 Critical level of backlog in their shops.(Exhibit 4)
 Shortage of qualified welders& difficulty in training of welders as per
specification
 Lack of reliable information on the shop’s actual capacity at any given
moment.
 Delay in delivery of orders 8-10 to 16-60 weeks.

Marketing side
 Price competitiveness forcing Fabtek to play price game with only 15%
success in bidding
 Prone to select high risk custom jobs representing 30-40 % business
 Costing of the product was not efficient.
CRITERION FOR FABTEK- IN THE
SITUATION TO TAKE AN ORDER
FABTEK
• Overall contribution
before S,G&A
LIGHTFOOT’S • Job should be long run
VIEW • Experience with similar
products

• Simple &cost estimate

reliable
VITALI’S • Good payment terms
VIEW • Adequate time delivery &
future potential market

Marketing and the manufacturing function need to operate in an atmosphere

of cooperation with realization that each has it role to play and it needs to fill.
 THE FOUR FABRICATION ORDERS
REFCO
 A very big customer for Fabtek
 Willing to pay $6million with very
promising payment term already has a
good payment record
Drawback-
 Rumor of strong backward integration
 Threat of loss of future potential
orders incase this is true
 On enquire- ‘Cheshire cat like smiles’
 If not accepted the given order might
tarnish the relation
Projected shop floor load stable though
contribution margin of 17% before
SG&A
PIERCE-
PIKE
 A most wanted customer for
Fabtek since 4 years
 Convincing price been offered
 Potential for future orders as
existing capacity not satisfactory
Drawback-
 Unusual fabrication with no prior
experience
 There are competitors existing for
Fabtek
 Might not have the enough
capacity to fill the order.
Projected shop floor load sable only
for fabricators& contribution margin
of 20% before SG&A
 THE FOUR FABRICATION ORDERS
WORLDWIDE
PAPER KATHCO

 Fabtek wanted to develop line of

 A existing good customer .
proprietary items
 Good for management and bring  Projected shop floor load stable in
standardization in product line 1st year though contribution
 Fabtek known for customization margin of 18% (estimated)before
 Would mean in-house development of SG&A
heat treatment operation currently
handled by subcontractor who often
takes advantages
Drawback-
Drawback-
 Extra but one time investment on
 One time order as once its plants
movement of part of plant for heat
treatment operation. are functioning it would not have
any more business

Projected shop floor load stable in 1st

year though contribution margin of 12%
(estimated)before SG&A
RECOMENDATION
Based on the analysis of the four prospective orders
REFCO OR WORLD –WIDE PAPER – would be the best
fit for the current company situation
 REFCO fits almost all the desired parameters for Fabtek
 One threat is its in-house facility which they are skeptical to discuss, But
probabily they were not having the competence to produce such a big
component.
 Another threat is the potential loss of business to a new player – Been a
regular customer would hamper the mutual relation between with Fabtek
 Company current was not in a position to do extra investment to remove the
dependence on sub contractor as it needed to get a major bottom line.
 Contribution margin was significantly less to take a call for WORLDWIDE
considering opportunity cost of losing REFCO prospective future orders.
 REFCO order required needed Hugh welding labour 1950 unit / month.
However the steady requirement for 15 month would help in getting labors

HENCE REFCO IS THE BEST OPTION