Fabtek

Case: Fabtek

EXECUTIVE SUMMARY

Fabtek has the ability to position themselves for profitable growth, but they need to fix their business, focus on key business drivers, and re-evaluate the area. Listed below are the key issues they face and the recommendations for improvement. Focusing on these issues and developing selection criteria for quoting would help Fabtek improve their current profitability and position them for growth. Fabtek should accept the Pierce Pike order as it closely matches Fabtek's selection criteria for selecting orders.

Issue Recommendation

Lack of Sales Focus Fabtek states anyone can make a sell. This indicates the company places a low priority on training sales people. Fabtek needs to focus on direct selling and train sales reps to accomplish market growth and to sell customer value.

Cost Structure and Bidding Process Manufacturing Costs are unreliable and the Bidding Process has a low success rate. Fabtek needs to train its manufacturing and marketing group to work together in estimating accurate costs, lead-times and understanding customer value in quoting a job.

Too Many Markets Fabtek must evaluate the 11 markets served and identify those in growth segments that are not price sensitive, and value quality. Fabtek should focus efforts on these markets.

Lack of Capacity Titanium has been identified as a growth market. Fabtek must either be more selective in order intake or plan for capacity expansion.

Refocus on Core Competency Fabtek's core competency lies in welding Titanium with a high degree of quality. The company needs to build on this strength.

ANALYSIS and RECOMMENDATIONS

Lack of Sales Focus

Fabtek believes anyone in the organization can act as a sales rep. This indicates the company places a low priority on having dedicated, trained sales people. The sales function at Fabtek is understaffed and overlooked. An investment in a "fabrication" sales force would allow Fabtek to grow profitably and have direct, consistent communication of their superior quality and capabilities with customers. Currently, Fabtek uses industry tradeshows, symposiums and technical papers to communicate to customers. This type of communication is often overlooked and is not effective on its own.

Fabtek needs an active sales force to reinforce the presence of the brand in the market and establish themselves as the leaders in "high-quality titanium fabrication". Fabtek needs to invest in developing sales literature/training to aid in highlighting the problems associated with poor heat treatment, thermal cutting and welding of titanium. The sales force should be trained to understand the cost impact to the customers when welds were not were not verified for strength. The sales force should also be trained to communicate the benefits of using Fabtek as a titanium fabricator.

A dedicated sales force who understands the company's core competence, can identify customer need, and sell value would allow Fabtek to build a strong relationship with the customer base and position the company to grow profitably.

Cost Structure and Bidding

Fabtek's product costs had five components: material, labor, manufacturing overhead, subcontracting, and general and administrative costs and profit. Manufacturing overhead at Fabtek is 200% of direct labor costs and should include indirect labor, indirect materials, property taxes, insurance, and utilities. Because high manufacturing overhead cost leads to lower gross margin and income, Fabtek should focus on reducing manufacturing overhead. Eliminating unnecessary functions and optimizing the available geographic footprint can reduce manufacturing overhead and achieving the best-cost position. Fabtek should focus on a productivity program to continuously improve lead-times and improve service.

In addition, Fabtek's operations group needs to improve estimates on labor content for quoting jobs. The unreliable information on labor estimates is likely what has led to increased expenses. Expenses are growing at a higher rate than sales and this is severely hurting the bottom line. Fabtek has appointed a former marketing expert, Lightfoot, to lead operations. Lightfoot has indicated the need for a greater mark-up on labor due to uncertainty. However, customers are unlikely to pay for uncertainty. This approach will only inflate a quote and hamper the ability to make a sale based on "value" provided to the customer.

Reducing manufacturing overhead improving labor estimates on quotes is important because currently the marketing department does not trust cost estimates from the operations department. Marketing typically adjusts quotes to reflect market and corporate goals. This is a poor approach to address the bidding process and is likely a contributing factor the low success rate of quotes.

Manufacturing Costs are unreliable and the Bidding Process has a low success rate. Fabtek needs to train its manufacturing and marketing group to work together in estimating accurate costs, lead-times and understanding customer value in quoting a job. Fabtek should only quote business opportunities that fit the company's selection criteria defined by Marketing and Operations. This strategy would increase Fabtek's hit rate on quotes.

Too Many Markets

Fabtek currently serves 11 markets. They need to prioritize the business portfolio and reduce the number of markets served. Fabtek needs a new marketing approach with an increased focus on growth. The company's methodology and the strategy should be adjusted to reflect market fluctuations, competitor actions, and evolving customer requirements. At the same time, they must strive to continuously improve delivery and to better meet customer needs.

Fabtek must select a set of target platforms from the 11 available markets currently being served. The selection criteria must take into account the total available market of $150M, the current market penetration in each of the 11 markets, the growth rates, the profit potential, the price sensitivity, and product fit. These markets should be a mix of core, growth or stretch business to reduce high reliance on one market segment.

Fabtek's core targets should include their base business. These would include markets where the company has high penetration, are recognized as a leading supplier, and must defend against competitive threats.

Fabtek's growth targets include areas where the company has a market presence and some