Operations
Obsidian Precision, a precision investment-caster of superalloy components for power-generation turbines, has landed a large new customer its stretched Salem, Ohio plant can barely serve — how does it take the contract on?
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Obsidian Precision (OPC) is a family-owned precision investment-casting manufacturer based in Salem, Ohio. It casts and machines nickel-superalloy components for industrial gas turbines (IGTs) and the aerospace engine aftermarket. The product line is only two families: turbine airfoils (roughly 26,000 blades and vanes per year) and large structural castings (about 1,150 torque frames and housings per year). In FY2025, OPC generated $120.1M of revenue with a gross margin near 44%. All production runs through a single plant, Salem Works, whose bottleneck department is the vacuum heat-treat shop: four furnaces (F1, F2A, F2B and F3) that solution-treat and age every casting.
The market is turning in OPC's favor. Aftermarket turbine part demand is growing, and a major IGT original equipment manufacturer, Aegis Turbine Systems (ATS), has offered a five-year frame agreement for 5,000 airfoils per year at roughly $3,850 per unit, about $19.3M of annual revenue, with deliveries to begin in nine months and a full ramp within twelve. The contract includes liquidated damages of 3.5% of the monthly invoice for every month of delay beyond the ramp schedule, capped at 12% of annual contract value. ATS will not renegotiate year-one pricing, and OPC must maintain its aerospace and IGT quality certifications to serve the contract.
Inside the plant there is a sharp disagreement. The CEO, who has long believed heat treat is "obviously" the constraint, wants to order a fifth vacuum furnace ($9.5M, 14-month vendor lead time) and commit to ATS immediately. The VP of Operations disagrees: Salem Works is at roughly 86% furnace utilization, deliveries have been slipping for four months, and NDT rejection rates are climbing, but he argues the plant does not have a gross capacity problem, it has a yield problem. In his view, scrap and rework inflate demand on the heat-treat shop, and the money should go into fixing quality first. In passing, he mentions that the maintenance log shows the recalibration of a thermocouple in zone 2 of furnace F2A has been deferred three times in the last eleven months.
You have been asked to advise the board. The key decision is whether OPC can credibly commit to the ATS contract, and if so, what it must do operationally and financially to deliver on time and protect margin. Underlying that decision is a diagnostic question the data must answer: is the constraint gross capacity, or is it the quality-driven amplification of demand on the bottleneck?
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