Custom Fabricators, Inc. Case
As Ben Lawson, CEO of Custom Fabricators, Inc., drove back to his home in South Indianapolis, he thought about the day.
I’ve done a lot of business with Orleans Elevator in Bloomington over the years but just wonder how long this will continue. I have much invested in my manufacturing plant located right next to their plant, but now that United Technologies [the parent company of Orleans] is all into this FreeMarkets Internet purchasing system, I just wonder how long they are going to be interested in keeping me in the supply-chain loop.
It’s been a good business over the past few years. I was in the right place at the right time when Orleans got ...view middle of the document...
The business has changed over the past few years, though. “Outsourcing” is now the big game. Orleans is much more interested in whole subassemblies rather than just the parts. We now make that entire control panel, complete with the buttons and the wiring harness. One of our biggest money makers is the elevator motor housing. This is a massive box that contains the motor and control electronics for the elevator. The motor housing electronically connects to our control panel. We custom fabricate each of these in our shop and ship them directly to the site where the elevator is being assembled. The Orleans plant never even sees them.
There is not much left there at the Orleans plant site. In 1985 they were running a massive operation with over 400,000 square feet of production space spread over two buildings. Now all the production takes place in only 150,000 square feet. They still make some of the large sheet metal parts and fabricate some of the lighting fixtures for the elevators. The engineers still are located on the site. It’s still a pretty big job to engineer the elevators for a large building. Everything associated with the design of the elevator is modular, so it’s a matter of sizing the modules to the needs of the building and fitting them all together.
It is companies like mine that really represent the backbone of the U.S. manufacturing system. I was lucky to hook up with a major company like Orleans, since I never had to go public with my company. Orleans has always bought the raw materials that I need, so all I have needed to worry about is the lease on my land, my investment in the plant and equipment, and paying my employees. I was lucky to find that plant site. It was an old distribution center.
After the tax breaks given to me by the county, the building is really inexpensive. I can easily maintain profit margins close to 30 percent of revenue.
I have a loyal group of employees; many had worked for Orleans and been part of the union. We are a lean shop and I pay my employees well. There has never been any interest in joining the union. My employees often joke about how much they produce compared to what they did at the Orleans plant. So far, I have never had to lay anyone off. We have just been able to pick up more and more business from Orleans as they continued to outsource manufacturing.
I am really getting concerned, though, with the future. This morning was interesting. Orleans is now trying to further reduce costs associated with its elevators. Now they are working on reducing the cost of the raw materials. What they did was contract with a company known as FreeMarkets, located in Pittsburgh, Pennsylvania, to conduct an auction for nearly $20 million worth of raw materials and parts. The idea was to contract with Mexican suppliers. The thinking is that with the lower labor cost in Mexico, costs should be much lower. Orleans did not feel that it knew enough about Mexican suppliers to try to contract...