Fafco Write Up Gwalker

The primary component of the FAFCO solar heating system was the 10-ft by 4-ft corrugated black plastic panel utilized as the heat exchanger for swimming pool water. While developing the solar system, Freeman Ford worked with Hercules Corporation to develop the correct compound of raw materials in order for the panel to exhibit the optimal thermal and mechanical capabilities. Furthermore, Ford engineered the thermo-forming process for fabricating the solar heating system manifolds from the plastic panels. Hercules manufactured these panels for FAFCO, but the rejection rate was high and manufacturing tolerances did not meet FAFCO’s demands. These problems facing FAFCO were further exacerbated buy a lack of refunds for defective material and a potential price increase from Hercules. Identification and integration of new suppliers is difficult and time consuming. Additionally, FAFCO’s low volume did not make them an attractive customer to industries expecting high-volume sales. While intimate knowledge of the product was present in-house, vertical integration of the panel production must be approached with caution.

FAFCO should vertically integrate the plastic extrusion process due to the relatively low costs associated with this step in the production process. Raw material and labor costs are relatively low and providing FAFCO develops an aggressive growth-based business strategy, capital expenditures (warehouse space requirements, facility expansion, etc) can be bundled with growth costs. This is further supported through application of the “make or buy” decision table and associated criteria discussed in the text (Walker, Figure 6.3, Page 174). FAFCO’s process is unique and distinguishes it from their competitors.

FAFCO was faced with a dilemma related to sales staff expertise. Should they recruit and train sales people to be technical experts or sales experts? FAFCO must address this concern and develop a system to bridge chasm between these two...