Case Study. Custom Fabricators Inc. From Lean Manufacturing to Contract Manufacturer

Conquering Opportunities

In response to Orleans Elevators’ action of outsourcing low-cost materials from Mexican Suppliers, Custom Fabricators Inc. will focus on providing high-quality yet low-cost control panels and motor housings.  By focusing on products to which it has expertise and that return the highest profit i.e., discontinuing production of products with lower profit margin, Custom Fabricators Inc. not only maximizes its comparative advantage but also improves its profitability.  To achieve and deliver its value proposition of providing the lowest cost control panels and motor housings, Custom Fabricator Inc. will implement the following strategies: (1) outsource low-cost raw materials, (2) explore technological developments in manufacturing elevator control panels and motor housing to improve efficiency and cost-effectiveness, and (3) expand its market clientele.

Custom Fabricators Inc. must be able to find and expand the number of its suppliers on its supply chain that offer low-cost raw materials.  With globalization, this may entail the inclusion of foreign suppliers on its supply chain.  Also, Custom Fabricators Inc. must explore recent technological developments in producing elevator control panels and motor housings. New technologies will help Customer Fabricators to reduce the required man-hours in the production process which in turn will reduce direct labor costs and increase profits. Lastly, Custom Fabricators Inc. must increase its market clientele for its control panels and motor housing products.  It must expand and search for new clients that will need its specialized products both in the domestic and local market.

Minimizing Weaknesses

With United Technologies’ direction to use the FreeMarkets Internet Purchasing system and Orleans’ initiative to further reduce costs, distance and language barriers between Custom Fabricators Inc. and potential Mexican suppliers are exploited. Custom Fabricators Inc. should work with Orleans in negotiating with the outsourced firms the use of the English language as the supplier and purchaser’s official language of communication. This is to avoid miscommunication between Orleans and Custom Fabricators Inc. and the Mexican suppliers. Custom Fabricators Inc. should also work with Orleans in negotiating with the outsourced firms that the supplier must shoulder the costs of transporting the parts from Mexico to the USA, notwithstanding the bidding setup where shipping costs are excluded.

Transporting the parts from Mexico to Bloomington would take at least a week. In order to avoid unnecessary delivery turnarounds and to be able to put a ceiling on the delivery time, Custom Fabricators Inc. should work with Orleans in also negotiating with the outsourced firms that the suppliers shall be responsible for the insurance of the materials prior to the turnover to Custom Fabricators Inc. The purchaser and supplier should also agree on acceptable delivery service level agreements to safeguard Orleans and Custom Fabricators Inc. from late delivery costs.

Custom Fabricators Inc. solely depends on Orleans in acquiring materials that the firm needs to manufacture the elevator components. With the availability of outsourced firms providing cheaper raw materials, Custom Fabricators Inc. should look at this as an opportunity to consider outsourcing the raw materials that they need, which could possibly support the company in exploiting new and widening their current market segment.