Custom Fabricators Case Solution

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I. Problem:
How can Custom Fabricators, Inc. (CFI) prevent a possible business takeover of the Mexican suppliers and at the same time, ensure long-term profitability?

II. Assumptions:
1. The case is set on the current year.
2. The Mexican suppliers will win the bid and production will move to Mexico.
3. In case CFI would switch to contract manufacturing, the contracted volume of units that they will produce is within the range of their production under lean manufacturing.
4. Orleans would shoulder the cost of shipping products from Mexico to CFI only.

III. Alternatives:

Based on the opportunities of CFI, the group has identified three alternatives for the company to implement:
a. Work closely with Mexican suppliers
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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 due 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 be 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. Plan 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

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