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CUSTOM FABRICATORS, INC.

I. Analysis

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

The relationship of Bens company with OE has strengthened over the years.OE has provided more and more businesses to CFI since it has been an excellentsupplier with its practice of Lean manufacturing, which supplied OE exactly what

they wanted when they wanted it, without waste and through continuousimprovement. As for OE, CFI has provided customized products (sub assembledelevator parts) at lower cost and helped in reducing inventory and space which hasits respective costs for OE.

Custom Fabricators Lean operation has also become its strength orcompetitive advantage. It has developed a strong lean production systemcomposed of just-in-time production, strict quality control, frequent and reliabledelivery, 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 lowercosts due to the fact that CFI has inexpensive building, assured raw material

supplies and loyal employees. (Exhibit A Analysis of Internal and ExternalFactors) However, these advantages are threatened to be irrelevant with OEs shiftof priorities. In an effort to further reduce costs, OE recently adopted an internetauction method through FreeMarkets to outsource its purchases shifting its focusfrom purchasing the subassemblies to outsourcing the whole process.

II. Recommendation

Together with Orleans shift in priorities and in response to a threat ofpossible competition from Mexican companies, there is a need for Custom

Fabricators to also change its business model in order to be more effective andefficient in providing products and services to its customer and ensure futuresuccess of the business. Rather than being just a supplier, CFI has to move up inthe value chain by becoming a total solution provider banking on its corecompetencies of modern technology, pool of loyal and talented employees, goodlong term relationships with both supplier (Bedford) and customer (Orleans), andLean manufacturing system.

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To achieve the goal of becoming a total solution provider, the group reviewedCustom Fabricators critical success factors and core competencies in operations(Exhibit B Custom Fabricator, Inc.s Critical Success Factors and CoreCompetencies 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 theirgood long term relationship, this would lead to streamlined operations andprovide products with lower costs and high quality which would be difficult forOrleans to refuse. It will make them much more marketable to OE and muchmore competitive with other suppliers. Retaining their close proximity to OEwould also contribute to lowering product costs at the same time maintain thespeed 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 todiversify their specialties to incorporate other fabrications for other productsin varying industries. By acquiring or partnering with Bedford and capitalizingon their modern technology and talented employees, they will be able todiversify their final product making them more marketable to othercustomers.

Long-Term:

Become a public company. This will raise needed funds in order for thecompany to expand and with new customers; they can open other shops instrategic areas of the country perhaps near other large manufacturers who

could benefit from their products. Going public will also help market theircompany when people can begin to familiarize what the company canprovide.

Become an international business and apply a global strategy. Takeadvantage of low cost raw materials and labor that other countries offer.

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Exhibit A Analysis of Internal and External Factors

Strengths (S)

1. Custom Fabricators Ins. (CFI) hasmanufacturing plant located next to OrleansElevator (OE) plant.2. CFI has set up a very efficient process(Lead Manufacturing System) for fabricatingexactly what OE plant needs for bracket andpanel with very little lead time. CFI knowsexactly what the plant needs based on OEschedule. Modification of specific need of aparticular elevator order is easy.3. Assured raw material supplies.4. Tax break was granted to CFI making itsbuilding 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 andsatisfied employees.

Weaknesses (W)

1. Dependence to Bedford as a supplier.2. Dependence to Orleans as its only

customer and partner.

Opportunities (O)

1. There was no guarantee to the Mexicanbidders that the contract would go to the lowestbidder.

2. Bedford plant will be given the option tonegotiate price during the bidding. MaintainingBedford plant services would be more

advantageous for CFI.

Threats (T)

1. Orleans is trying to reduce cost of rawmaterials and considers outsourcingmaterials from Mexican suppliers posting aproblem in communication and possibledelays of raw material deliveries.

2. The quality of Bedford plants product was

not up to par due to poor welds, and theheat treating process not being completedproperly.

Exhibit B Custom Fabricator, Inc.s Critical Success Factors and Core Competencies inOperations

Critical Success Factors Core Competencies

Product Diversify products to cater to a variety of industries

Quality Continuous improvement in the quality of products with theuse of modern technology

LocationRetain proximity to Orleans Elevator; Open other shops instrategic areas possibly near other customers

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Human ResourceMaintain employees with the excellent craftsmanship; ensuretheir loyalty to avoid high turn-over rate

Supply ChainConsider outsourcing raw materials from other countries totake advantage of low costs

Exhibit C SWOT Matrix

Strengths Weaknesses

OpportunitiesBuy out or merge with themanufacturing plant in Bedford.- S1, S2, O2

Begin expanding and diversifying.- W2, O1, O2

Threats

Become an international business

and apply a global strategy.- S2, S5, T1

Buy out or merge with the

manufacturing plant in Bedford.- W1, T2