LOOK FORWARD PIPE & TUBE, INC. ${?}^1$

$"$If we do decide to produce the $10-$ and $12-$inch pipe internally, it could solve our overstaffing

problem," Anna Holub, owner of Look Forward Pipe & Tube, Inc. $($LFPT$),$ remarked to the plant

manager. $"$I$\text{'}$m reluctant to lay anyone off. It's not the right thing to do if it can be at all avoided."

THE FIRM

Anna Holub had no intentions of starting her own firm back in $1998$ when she graduated from college.

She started working for WorkHardFederer Pipe, a company based in Norman, Oklahoma. This firm

had a quote by a great tennis player, Roger Federer, as a moto: "There is no way around hard work.

Embrace it$.$ You have to put in the hours because there's always something which you can improve."

Anna found other quotes by Federer including: "When you do something best in life, you don't really

want to give that up $-$ and for me it's tennis." For Anna, it was her understanding of the manufacturing

side of the piping business and in May of $2004,$ she decided to start her own pipe company. ${?}^2$ She

recognized that in order to be successful, she needed marketing and financial expertise. By her own

admission, Anna made "many mistakes" during the first $18$ months, but nonetheless, the business

surged ahead. By the third year, it was clear not only that the company would be successful, but that it

had the potential to prosper.

And prosper it has. LFPT operates on $14$ acres and employs $31$ people. In fiscal year $2008,$ sales

totaled nearly $$25$ million despite a nationwide recession and the highly competitive nature of the

piping business.

Anna attributes her success to two factors: service and dedication to quality. She often tells her

employees, $"$If we achieve quality, the quantity will take care of itself." The company also provides

exceptional service. LFPT keeps an unusually large volume and selection of inventory at all times and

maintains a relatively large fleet of trucks. As a result, the company can fill an order quite quickly.

Such fast delivery means that distributors LFPT sells to$--$many of whom are nationally known

wholesalers of building materials$--$are able to keep their inventory low.

A PROBLEM OF SIZE

The vast majority of LFPT$\text{'}$s sales come from drainage pipe, which is mainly used in various sewer

systems. The pipe comes in a variety of sizes, and sales depend in part on customers perceiving the

company as a "full$-$line producer." That is$,$ a sales person is more likely to win an account if a

distributor knows that a producer can promptly deliver various sizes of pipe. Typically, this means that

a manufacturer can quickly meet orders for the most commonly used sizes of pipe. These include pipe

with diameters of $3$ inches, $6$ inches, and $8$ inches.

Sometimes, however, a distributor is interested in $10-$inch and $12-$inch pipe. LFPT has never produced

these sizes internally because Anna feels that annual sales volume is too low to justify the start$-$up cost$.$

If a customer requests such pipe, LFPT typically buys it from a competitor who manufactures the

desired sizes. Anna has not analyzed whether this is a good policy, and she thinks now is the time to do

so$,$ especially given the firm's staffing situation.

${?}^1$ Original version of this case was provided by John McConnell.

${?}^2$ When naming her firm, Anna thought of a quote from one of her favorite tennis stars, Steffi Graff: 'I don't ever look

back. I look forward." It was similar in meaning to the one by Rafael Nadal: "Enduring means accepting. Accepting things

as they are and not as you would wish them to be$,$ and then looking ahead, not behind."

As she sees it$,$ there are two main advantages to producing the $10-$inch and $12-$inch pipe internally.

First, LFPT avoids the expense of buying the pipe from another firm. LFPT pays $45$ cents per pound

for this pipe plus another $2$ cents per pound in distribution costs to get the pipe to LFTT customers.

Unit selling price is $56$ cents per pound. A second advantage is that the company's staffing problem

would be helped.

Though dollar sales have increased slightly in the last two years, Anna recognizes that the firm is

overstaffed by two employees. Sales simply aren't sufficient to keep all the production workers busy

full time. She thinks this could continue, given the state of the economy. In its entire history, the firm

has never cut any worker's hours, let alone lay off someone. Anna decided that she won't start now.

ANNA'S ESTIMATES

Anna can't be certain of what future sales of the $10-$inch and $12-$inch pipe will be$.$ She finds it helpful

to think in terms of scenarios. She has devised a set of estimates shown in Exhibit $1.$

In addition, two sales people complained that accounts were lost when distributors learned that LFPT

does not produce $10-$inch and $12-$inch pipe internally. These distributors were concerned that LFPT

would not be able to fill order