Custom Fabrications – Case Study
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Abstract
The abilities of companies to outsource certain processes or tangibles can allow for more efficient and cost effective solutions, however, at times changing the vendors that they outsource to could have substantial impacts on internal process. Therefore, companies must be very careful to make sure when outsourcing that it does not cause more internal turmoil or hidden costs that than benefits which will be more costly in the end.
Custom Fabricators Inc – Case Study
This case study is an excellent example of a company’s attempt to increase its competitiveness by reevaluating its operating strategies and processes. Our reading states that “for a firm to remain competitive, all of the activities that make up the operations’ core must buttress the firm’s strategy” (Chase, Jacobs, & Aquilano, 2006, 42). This means that organizations must continually investigate changes in operating strategies that will enable them to utilize and integrate new technological innovations and productivity measures.
After doing business with Orleans Elevators since the late 1980s Ben Lawson, CEO of Custom Fabrications, Inc., is beginning to wander how much longer it will continue. Orleans originally started doing business with Custom Fabrications due to just-in-time and lean manufacturing initiatives and has since successfully built a strong working relationship with Orleans Elevator. Orleans outsources their fabrication needs of electrical panels and wiring harnesses for large elevators to Custom Fabrications. Over the years, Custom Fabrications and Orleans Elevators have established such a close relationship that “Orleans simply gives them the production schedule for elevators being shipped over the next month, and they make the required parts automatically” (Chase, Jacobs, & Aquilano, 2006, 45). Custom Fabrications manufactures the parts and ships them directly to the customer without Orleans even seeing the products.
Recently Orleans has decided to look into the possibility of changing suppliers for their raw materials from a local supplier to a company known as FreeMarkets who primarily purchases their raw materials and parts from Mexican suppliers. They are considering making this transition do to the lower labor costs in Mexico. While it is possible that doing business with FreeMarkets could decrease material and labor costs, there are important factors that must be considered before a decision can be made. This first is that the bids form the Mexican suppliers are significantly lower than the local supplier that Orleans is currently doing business with, however, the bids that Orleans are receiving for the materials do not include shipping costs. The second issue involves whether or not to do business with the local supplier if it renegotiates its prices to be more competitive with the new suppliers.
The decision to do business with the Mexican suppliers did not pose questions for Orleans alone. Customer Fabrications was forced to evaluate several factors as well. Ben Lawson, CEO of Custom Fabrications, was concerned that the new suppliers would not be able to supply the parts adequately. Ben had done business with the current supplier, located in Bedford, Indiana, for over 15 year. In that time, when issues occurred with the products, Ben was able to go to the supplier and straighten the issues out. He was concerned that due to the distance of the new supplier production and efficiency might be decreased. There was a separate concern that if the Mexican suppliers did a good enough job that Orleans might replace his place in the supply with the new suppliers as well.
Custom Fabrications creates value for Orleans in many different ways. By forming a close partnership with Orleans that has been ongoing since the 1980s, Custom Fabrications has reduced costs and even increased profit margins close to 30 % of revenue (Chase, Jacobs, & Aquilano, 2006, 45). The lowered cost to Custom Fabrications has directly benefited Orleans as well. By gaining the trust of Orleans Elevators and expertise in the production of their products, Custom Fabrications is able to take Orleans schedule and manufacture the parts on their own. Once completed, they ship the parts directly to the customer’s sites. This reduces costs by bypassing the shipping costs resulting from shipping the products to Orleans first for inspection and delivery or the amount of time and resources lost by having Orleans representative come out to inspect the products at Custom Fabrications’ location.
Custom Fabrications has held a competitive advantage of other competitors in the past due to their expert knowledge of Orleans products and their ability to provide the products as they are needed which reduces their on-hand inventory. Another key advantage is that Custom Fabrications is staffed with loyal employees who have had previous experience with Orleans in the past and therefore had a strong familiarity with its product requirements and needs.
Over the years, Orleans business strategies and priorities had begun to change. When Orleans first opened its doors for business it produced everything in-house.