Custom Fabricators Case Solution

I. Problem How can Custom Fabricators, Inc. (CFI) pr up to nowt a possible business takeover of the Mexican providers and at the same time, guarantee long-term profitability? II. Assumptions 1. The case is set on the current year. 2. The Mexican suppliers go out win the bid and yield entrust move to Mexico. 3. In case CFI would switch to contract manufacturing, the contracted volume of units that they pass on progress to is within the range of their harvest-homeion under lean manufacturing. 4. siege of Orleans would bring up the cost of shipping products from Mexico to CFI only. III.Alternatives Based on the opportunities of CFI, the group has identified trey resources for the caller-up to implement a. Work tight with Mexican suppliers This involves establishment of trenchant communication lines (e. g. through Internet, video conferencing), assigning a representative to varan quality of products to be shipped, sending quality control machines to Mexico or intercommunica te Orleans to require the Mexican suppliers to conduct quality check ahead shipment. b. Differentiate product and/or expand market This involves developing to a greater extent advanced products (e. . touch-screen elevator control panels) or expanding its target market (e. g. alternatively of just supplying control panels for elevators it can excessively create one and only(a)s for ATMs, preventive vaults etc. ) c. Switch to contract manufacturing This means instead of producing outputs only when Orleans needs it, CFI would now keep back a fixed production per month that they would need to deliver. IV. Analysis First, let us identify the major issues in the case. Currently, CFI has several strengths that attend to them establish a competitive advantage.First is the companys proximity to the construction site and to the Bedford plant which serves as its supplier as it was adapted to keep the transportation costs minimal. An separate one is its customer intimacy. Because CFI kn ows exactly what Orleans needs and when to provide it, it is adequate to append to their customers demands in time with good quality products. Having been in the business for over 15 years, CFI was as well able to set up efficient operations which helped them on becoming a lean manufacturer. It as well has firm and skilled employees that are satisfied in their job.Lastly, its business has also been profitable with a high profit margin of almost 30%. However, the company also has several weaknesses that we must take into reflection. First, CFI is a head-to-head company which means it has limited financing options and relies heavily on its revenues as generated by its operations. Also, because it wants to maintain its good relationship with its employees it could not reduce push cost. Because of Orleans increase efforts to reduce costs, the company faces the threat of having the production of crude(a) materials moved to Mexico because of the cheaper labor costs at that plac e.If that would happen (and this paper assumes that it will), CFI exponent claim problems with shipping back items that are not of par quality in addition to possible problems in communication. Moreover, there is also the threat of contest as Orleans might look for other suppliers in Mexico to fall out to decline costs and since CFI couldnt lower its costs any much, Orleans might just source totally from Mexico. Now, let us analyze individually of the alternatives. The first one is to work closely with its Mexican suppliers.Through this, CFI will be able to ensure the quality and secure shipment of units to their company. It would also slighten chances of error in production and delivery and decrease waiting costs for the unit replacements. However, there is the uncertainty of soliciting cooperation from the Mexican suppliers and sending a representative or a quality control machine in Mexico is costly. Moreover, the Mexican suppliers might gain knowledge of CFIs efficient pr oduction process which increases the bump of business takeover.If CFI will differentiate its product, it would be able to lessen its dependence on Orleans as it would be able to get more than customers and therefore generate more income. Also, there is a lesser risk of business takeover as their product will increase competitive advantage as it was able to provide more value for a small additional cost. This can also be related to the alternative of market expansion as its differentiated product could open new market opportunities for them. However, it should also be considered that this alternative requires more investment in R&D and other equipment.Also there are risks of market failure and having problems in meeting demand payable to its limited capacity. Lastly, we have the alternative of switching from lean manufacturing to contract manufacturing. This would help CFI develop economies of scale and receive fixed income or stable inflow of revenues. Because of this, it will b e able to better allocate its resources and might even reduce labor costs as it would generally need less workers. CFI can also use its excess capacity to cater to other customers or work on other products.However, this can also be a factor against them because Orleans might be reluctant to have it as a contract manufacturer thus increasing the risk of CFI being replaced by a Mexican supplier. In addition to that, this alternative also comes with termination costs and decrease in competitive advantage. V. platform of Action After analyzing the position and the possible alternatives of CFI, we created an action plan that takes into consideration the long-run costs and benefits of each option and its technical, operational and economic feasibility given the current capacity, resources, and opportunities of the company.Based on the analysis, CFI could undertake several alternatives yet each should be implemented at the right time. Here is the proposed action and contingency plans f or the company Short-term (1-2 years) Assuming that the production of raw materials will move to Mexico, the best immediate action that CFI could undertake is to work closely with the Mexican suppliers. The company might not be able to lower its costs anymore but they could still ensure that the products that they create are still of good quality and are able to meet the demand.Moreover, we draw that it is unlikely for Orleans to eliminate CFI in the supply chain as it would be more costly for them to look for new Mexican suppliers considering that they already established a good business relationship and developed the qualification ca utilize by over 15 years of working together. Long-term (More than 2 years) To address the issue of ensuring long-run profitability knowing that CFI couldnt get by with Mexican suppliers in terms of cost, it can try to differentiate its products to conjure up its competitive advantage.Since the company has a high profit margin and loyal workers th at produce when there is only a demand for it, it could use these as additional investment in R&D and be used to cater to other consumer demands. Because of this, it would be impractical for Orleans to eliminate CFI in the supply chain as they would get more value from it that they couldnt just get anywhere easily. Moreover, CFI could also see get an probability to expand its market for its unique selling proposition therefore increasing its profitability.