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 company’s 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.

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 2 - Pierce-Pike

Pros

• In line with fabtek’s 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

Alternative 3 - Worldwide Paper

Pros

• Good relationship with Fabtek

• Simple design

Cons

• ‘One-shot’ deal as Katho’s new plant to be up soon.

• No new capabilities being developed

Altenative 4 - Kathco

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. THANK YOU