Fabtek

Section A, Group 10
13P084 Manu Mehrotra
13P085 Milan Sachdeva
13P108 Samudra Sarkar
13P110 Shashank Mishra
13P112 Sonakshi Gupta

Faculty Prof. Vinod Kalia

Business Marketing

Context
Corporate and sales office of Fabtek was located in Philadelphia
The main activity of the company is fabrication of titanium, it also sells
titanium metal and specialty hardware.

The companys competitive advantage is high quality welding

Fabtek has a reputation of high quality. It has 5 competitors
In June 1991, the company experienced a critical level of backlog.
Reasons were:
Difficulty of hiring and training qualified welders due to the fact
that the company could not offer higher than average pay
because all of its competitors were located in less expensive area

Lack of reliable information on the shops actual capacity at any

given moment

Orders and Problem

Fabtek has received 4 different orders from

Refco - Refco had requested Fabtek for production of an Super Whopper. The proposed price was $6
million. 80% of direct material and labor would be paid as applied in four installments

Pierce-Pike - Fabtek has quoted $3.9 million on this job. This job involved some unusual fabrication
with which Fabtek was inexperienced, but this capability was important to develop. To deliver the job
on time was uncertain.

Worldwide Paper They requested Fabtek to give a proposal on a piece of titanium equipment. They
were willing to license this item to its manufacturer. If Fabtek accepts the bid, they will have to
subcontract for special heat treatment, which would cost $450,000. The price that Fabtek is ready to
offer is $ 2.4 million. The order offers no process payments but a penalty of 0.1% p/day of late
delivery.

Kathco They have requested Fabtek to give a proposal on production of electrodes. This order does
not represent any long-term business opportunities for Fabtek

The company needs to decide which order or orders to bid for.

Issues to be considered:

Capacity issues by Operations Department

Strategic issues (Profitability by Marketing Department)

Capacity

Welders

Machinists

Fabriators

Refco

22800

5900

6000

Pierce-Pike

6900

1000

2750

Worldwide Paper

7650

830

2950

1700

4900

Kathco
Total

37350

9430

16600

No. of hours available at Fabtek

24950

7650

10760

Refco

22800

5900

6000

No. of hours available at Fabtek

24950

7650

10760

Difference

2150

1750

4760

Pierce-Pike

6900

1000

2750

Worldwide Paper

7650

830

2950

1700

4900

OPTION A

OPTION B

Kathco
Total

14550

3530

10600

No. of hours available at Fabtek

24950

7650

10760

Difference

10400

4120

160

Profitability

Refco

Pierce-Pike

Worldwide
Paper

Kathco

Contribution

2745000

1095000

678000

450000

Contribution (%)

46

28

28

30

4% of material

84000

90000

43200

38400

Adjusted
Contribution + 4%

2829000

1185000

721200

488400

Welding

600000

105000

132000

Adjusted
Contribution per
Welding $

4.7

11.28

5.46

Material Cost

2100000

2250000

1080000

Material Cost per

Welding $

3.5

21.43

8.18

960000

Analysis
Positives

Negatives

Refco

Highest Profitability
Fabtek is the co-designer of
smaller Whoppers

Too much reliance on

Refco. Choosing this
eliminates possibility of
any other order due to
high demand of labor
Late delivery

Pierce Pike

Acquiring a new longpursued client. New

business opportunity
Long-term business
opportunity. Ongoing
installments for labor

Uncertainty of timely
delivery
No experience for similar
job

Worldwide Paper

Opportunity to develop a
standard line of product
Ease for management in
training the employees

Penalty for each day of

late delivery
No ongoing installments
for material/ labor

Kathco

Enhancing the existing good

relationship

The order is a one-shot

deal and does not fit with
high quality image

Recommendations
Refco order is the most profitable one but has disadvantages:
Due to its high demand for labor it doesnt allow Fabtek to bid for any one
order along with Refco. So Fabtek looses onto long term business
opportunities
Refco already represents roughly 20% of Fabteks annual sales. Adding more
would be risky as there are rumors that Refco is planning to set up its own
fabrication facilities for titanium. If this happens, Fabtek may loose a significant
portion of its business at once
As far as Kathco is concerned it does not provide long term business opprtunity.

So we would bid for Pierce-Pike and Worldwide Paper as both of them give longterm business opportunity.

Thank You!