CASE CUSTOM FABRICATORS INCFROM LEAN MANUFACTURING PARTNER T

CASE: CUSTOM FABRICATORS, INC.-FROM LEAN MANUFACTURING PARTNER TO CONTRACT MANUFACTURER COO As Ben Lawsoa, CEO of Custion Fabricators, Inc. seed, so all I have needed to worry albvut is the lease on my lad drove back to his home in South Indianapolis, he thoughs about the my vesiment in the plat and equipment, and paying my employ ces. I was lucky to find tha plant site. Ii was an old disaribution given to me by the county, the build- I\'ve done a Jot of business with Orleans Elevator in Bloominon ing is really inexpeasive. I can easly maintain profit margins close over the years, but just wonder how long this will continue. I have o30 percent of revenue. much invesied in my maaufactuning plant located right nexu to their plant, bat now that United Technokogies [the parent company of and been part of the union. We are a lean shop and I pay my Orleans] is a into this FreeMarkets Internet purchasing system 1 employees well. There has never been any interest in joining the just wonder how long they are going to be interesied in keeping e anion My employees often joke aboet how moch they produce in the supply chain loop. a ioyal group of employees; many bad worked for Ofleans compared to what they did an the Orieans piast. So far, Thave neve It\'s been good business over the past few years I was in the had to lay anyone ofWe have just been able to pick up more sd right place a the rigi time when Orlcans go intojusi-in-time and more business frorn Orleans as they continued to ounsource manu- facturing. lean manufacturing in the late 1980s Initially was jos4 making the control panels for the elevators. It was interesting to walk into a new I am rcally geting concemed, though, with the future. This building, get on the elevasor, and see my company\'s handiwork in mrningwas interesting. Orleans is now trying to further reducc that beautiful stainless steel panel that houses ibe buttons for the costs associated widh its clevators Now dhey are working on redac- floors on the building. 1 could take a lot of pride in the craftsman ing the cost of the raw materials. What they did was contact with ship even though it was largely a technology thing That ne a company known as FreeMarkets, now a part of Ariba, localed in numerically controlled machine tool that I purchased in 1985 made Piesburgh, to conduct an auction for nearly $20 million worth of making the holes in those custons panels easy. We are still mng aw materials and parts. The idea was to contract with Mexican suppliers. The thinking is that with the iower labor cost in Mexico, Since that time, my company has gotten a lot of other business costs should be much lower OGcans did Dor eel knew enough from Orleans. We now make all kinds of special brackets and pan about Mexican suppliers to try to contract with the companies on els for the plant. This has been greal for us over the years. We have their own, FceMarkets has developed considerable experience set up a very efficien! process for fabricating exactly what lhe planl with this type of activity over the palew years_ and has developed needs io these Orleans simply gives us the production schedule for elevators heing y presented by Orleans hipped over the next month, and we make the required parts auto matically, We know exactly what thcy need based on their schedulc. morning We sat in a conference room at the Oricans plant and Of course, it is easy to snodify things foe the specific needs of a par watched the bidding from the Mexican suppliers. The 20 auctions ticular elevator order pans with very little lead time. For most items. the contacts needed to atract Mexican companies to the opportun Orleans invited me to the FreeMarkets bidding event this tock over five hours to conduct. The anctions were each started at The business has changod over the past few years, though different times with some overlap in the times. As one auction was Outsourcing\" is now the big game. Orleans is much more inter ending. another was jest starting and a second was about 10 mia- ested in whole subassemblies than just the parts. We now make that ues from completion Auctions were schoduled to take 20 min- entire control panel, complete with the buttons and the wiring har utes, but if any bidding sook place in the lasa 3 mimutes, the auc- ness. Ore of our biggest money makers is the elevator motor houstion was aatomatically exiended an extra 3 mimutes. One auction ing. This is a massive box that cootains the motor and control clec ook over an hour to complete. Exbibit 2.10 is a screen from one tronics for the elevator. The motor housing electronically connects of the auctions. In this auction, the winning bid was more than to our control panel. We custom fabricate each of these in our shop 27 perent lower than Orleans\' current contract for these parts and ship them directly to the site where the elevator is being assem Today\'s event was just one sep in a peocess for auctioning off the bied. The Orleans plant sever even sees the 1 There is not much lelt there at the Ocleans plant site. In 1985 they were nuening a massive operation with over 400,000 sqare mately 50 potentáal suppliers. Odleans ran a prebid conference in feet of production space spread overtwo buildings. Now all the pro. Mexico six weeks ago for the group Nost of the potentials aitend- duction akes place in only 150,000 square feet. They sill make ed the conference where Orlears discussed the parts that were being some of the large sheet metal parts and fabricase sonse of the light bid and the process that would be used in the auction. Orleans even ing fixtures for the elevators. The engineers still are located on the brought many of the parts so that the atendees could see the wide site. It\'s still a pretty big job to engineer the elevators for a large range of parts. There was a healthy exchange of icfonmation building. Everything associated with the design of the elevator is modular, so i\'s a matter of sizing the modules to the aeeds of the consisted of about S1 anillion weth of materia! for each year and building asd fitting them all together Working with FreeMarkets, Orleans had identified approxi- The auetion involved 20 hiterent Ios of malerinls. Each lot had from 50 to approximately 100 different items. The lots were ll is companies like aunc that really represen\' 1he backbone of designed based on what Orleans felt might be groups of parts the U.S. manufactaring sysiem. I was lucky 1o hook up with a would be attractive to produce for a panicular company. One lot najor company like Orleans, since I never had to go public with included all types of fasteners: nuts, boltsscrews, washers, and the my company. Orleans has always boughi the raw materials hat like. Anoher lot had different kinds of hrackets that could be

Solution

Ben should bring some changes in his business model as desired. The company should focus on its core capabilities and should prioritize keeping its cost structure attractive by trying to cut down its labor cost and making variations in other cost. The company should also focus on developing its infrastructure.