This document discusses four orders received by Fabtek, a company that fabricates titanium. The orders are from Refco, Pierce-Pike, Worldwide Paper, and Kathco. Fabtek needs to decide which order(s) to accept due to capacity constraints. Refco's order is the most profitable but would utilize too much of Fabtek's labor. Pierce-Pike and Worldwide Paper's orders are recommended as they provide long-term business opportunities, while Kathco's order is only a one-time deal.

1. Section A, Group 10
13P084 – Manu Mehrotra
13P085 – Milan Sachdeva
13P108 – Samudra Sarkar
13P110 – Shashank Mishra
13P112 – Sonakshi Gupta
Fabtek
Faculty – Prof. Vinod Kalia
Business Marketing

2. 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 company’s 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 shop’s actual capacity at any
given moment

3. 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)

4. Capacity Welders Machinists Fabriators
Refco 22800 5900 6000
Pierce-Pike 6900 1000 2750
Worldwide Paper 7650 830 2950
Kathco 1700 4900
Total 37350 9430 16600
No. of hours available at Fabtek 24950 7650 10760
OPTION A
Refco 22800 5900 6000
No. of hours available at Fabtek 24950 7650 10760
Difference 2150 1750 4760
OPTION B
Pierce-Pike 6900 1000 2750
Worldwide Paper 7650 830 2950
Kathco 1700 4900
Total 14550 3530 10600
No. of hours available at Fabtek 24950 7650 10760
Difference 10400 4120 160

5. 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
2829000 1185000 721200 488400
Contribution + 4%
Welding 600000 105000 132000
Adjusted
4.7 11.28 5.46
Contribution per
Welding $
Material Cost 2100000 2250000 1080000 960000
Material Cost per
3.5 21.43 8.18
Welding $

6. 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 long-pursued
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

7. Recommendations
Refco order is the most profitable one but has disadvantages:
• Due to its high demand for labor it doesn’t 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 Fabtek’s 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 long-term
business opportunity.

8. Thank You!