Custom Fabricators, Incorporated Case Study Since its release in 1994, the North American Free Trade Agreement (NAFTA) has impacted the manufacturing sector in the United States. Manufacturing organizations such as Custom Fabricators, Inc (CFI) have been forced to find ways to cut costs to remain competitive. In the United States, NAFTA has contributed to the reduction of employment in high-
wage traded-goods industries, growing wage
inequality, and a steady decline in demand for workers without a college education. The majority of the net jobs displaced were in the manufacturing sector. Growing trade deficits with Canada displaced 270,248 manufacturing jobs while growing deficits with Mexico displaced 388,682 manufacturing jobs, for a total of 658,930 manufacturing jobs displaced (64.9% of the total) (Scott, Salas, & Campbell, 2006, p. 1). Case Study Discussion Questions Custom Fabricators, Inc. CFI is a non-union shop with loyal employees, and low employee turnover. CF I started by providing sheet-metal elevator panels for Orleans Elevator in the 1980s. Since that time CFI's role with Orleans has grown due to Orleans policy with regard to outsourcing. Not only does CFI produce panels, but CFI also provides the entire panel assembly, which includes the electronics, the elevator motor assembly, and several custom brackets and other machined parts for Orleans. CFI and Orleans have developed a close partnership. Orleans provides CFI with elevator forecast data, which CFI uses to assemble components to support the forecast. CFI ships the components directly to the work site. Orleans parent company, United Technologies Corporation (UTC) has recently decided to implement the FreeMarkets Internet Purchasing system. This system works as an online-auction. Orleans enters data with regard to purchased parts and assemblies, and other companies bid on the jobs. Orleans invited Ben Lawson, CEO of CFI to a recent auction. "For Ben Lawson what was most interesting was to observe the auction for some parts that he used at his plant" (Chase, Jacobs, & Aquilano, 2004, p. 45). A Mexican facility had bid on some of these components and Lawson was concerned with how he wo uld deal with a Mexican supplier. Distance and language barriers were of special concern to him (Chase et al, 2004). Operations Management at CFI "Operations management (OM) has been a key element in t he improvement in productivity in businesses around the world. Creating a competitive advantage through operations requires an understanding of how the operations function contributes to productivity growth" (Chase et al, 2004, p. vi). The OM role at CFI is there t here to provide "a systematic way of looking at or ganizational processes" (Chase et al, 2004, p. 6). OM provides a business plan which includes methods to improve quality, lower costs, and improve the effectiveness and efficiency of operations. The OM strategy is constantly updated to change with current business and economic trends, the changing marketplace, and technological advancements. How does Ben Lawson's Custom Fabricators, Inc. provide value for Orleans?
CFI provides value to Orleans because of the close partnership of both companies. CFI is able to provide several components and whole-assemblies to Orleans by use of a schedule forecast. CFI also ships t he components and assemblies directly to the worksite. This working relationship allows Orleans to spend more time engineering elevators and less time monitoring one of its key suppliers (Chase et al, 2004). In the past, what has been Ben Lawson's competitive advantage in keeping the Orleans business? Prior to Orleans transition to a just-in-time and lean manufacturing system, CFI was able to maintain its competitive advantage because of its location near the Orleans facility. CFI also invested in new machines to improve the processes used to manufacture components for Orleans. Another advantage, now and in the past, is employee loyalty. CFI pays its employees well, which has reduced turnover. This allowed CFI to consistently deliver quality products to Orleans (Chase et al, 2004). Have Orleans' priorities changed? Orleans priorities have shifted to outsourcing more work. Orleans is intereste d in receiving whole subassemblies rather than components. Orleans currently manufactures some of the large sheet met al parts and light fixtures for the elevators. Orleans is leaning more towards an engineering firm and aw ay from manufacturing (Chase et al, 2004). Should Ben change his business model? CFI should change its business model to maintain its competitive advantage with Orleans. Because of Orleans interest in outsourcing and NAFTA, CFI's relationship with Orleans could change. CFI should consider outsourcing to other suppliers and countries to reduce costs and investigate potential technologies to help improve the efficiency of its manufacturing processes. CFI should also look for other companies to partner with. How should Ben position his company in the value chain? CFI should remain a Tier One supplier with Orleans. This puts CFI in the position to continue its close partnership with Orleans. CFI already acts as a war ehouse and distributor for Orleans which further strengthens its position in the value chain. Figure 3 provides a v isual image of a typical manufacturing value chain. Figure 3 Schematic of Typical Original Equipment Manufacturer Value Chain
Note: Retrieved from Chase, Jacobs, & Aquilano, 2004, p. 7. What should Ben do to ensure his company's future success? CFI should continue to change Operations Management strategies to improve the efficiency and effectiveness of current processes. The current business model should be examined and changed to
improve CFI's position within a global market. CFI should also continue to work with Orleans and look for other companies to partner with. Executives at CF I should also investigate the need for more capital investments. New technologies may reduce fabrication time, reduce costs, improve quality, and provide more quality to Orleans and other customers. Lastly CFI should consider outsourcing assemblies to other suppliers, including foreign suppliers. Although, this may have a negative effect on the current em ployee base, it may improve overall costs and competitiveness. Summary The affects of NAFTA and global outsourcing to manufacturing companies within the United States have caused companies such as CFI to make changes to business strategies to rem ain competitive. These changes may require difficult decisions with regard to employee cuts and relocation of facilities but are necessary to remain in business. OM at CFI and other companies, must constantly examine potential threats and opportunities, and make improvements as required. These changes will ensure the company's position in the global marketplace
