This case involves CJ industries which have been supplying parts to the Great Lakes. The company was just awarded a five-year contract to supply engine components to be used by the Great Lakes Pleasure Boats in their luxury line. The contract was worth $10 million per year which gives them an opportunity to be given about 30% of their annual sales by the Great Lakes if they meet Great Lakes specifications and perform well generally. The CJI always supply the Great Lakes with bilge pumps which they acquire from Heavey Pumps who are specialists in pump manufacturing. Heavey Pumps supply 50 bilge pumps every 4 to 6 months at the cost of $1500 per unit to CJI which included shipment fee of $500. However, the Heavey Pumps delayed their supply which made CJI run out of stock thus making it hard to satisfy the Great Lakes order because the Heavey Pumps was their sole supplier of the bilge pump.
The problem here is about the costs the CJI are likely to incur since if the Heavey Pumps was to supply them with the new order of the pumps needed, they have to pay the delivery fee. The delivery fee which stands at $500 for every 4 to 6 months currently will increase CJIs shipment costs from between $2000-$3000 they currently pay to about $6000 per year. Mr. Ashby has to research on issues regarding CJIs and Heaveys perspectives.
In CJIs perspective, four main areas have to be researched. Firstly, the capability of Heavey Pumps to increase their bilge pump production has to be analyzed since it will make it hard for CJI to fill the Great Lakes order. Secondly, the CJI have to look for ways to solve the shortage of the pumps because at first, they did not consult with the Heavey Pumps to supply them with bilge pumps before signing the Great Lakes contract because they always do their business informally through telephone calls. Thirdly, the CJI might be forced to consider other two suppliers of bilge pumps because the Heavey Pumps might fail to deliver the same. Lastly, CJI will have to do a cost analysis on whether to continue buying the bilge pumps from suppliers or made it in-house through adding three workers to their staff and planning logistics to create space for the production which will cost them additional $500,000 of investment.
In Heavey Pumps perspective, five main areas have to be researched. Firstly, they have to research on the ability of Heavey Pumps to guarantee delivery of 50 bilge pumps every month to one of their warehouses. Secondly, they will have to analyze the costs which will be incurred in delivery, labor and production costs which will arise due to additional orders of bilge pumps. Thirdly, CJI has only been only doing business with Heavey Pump for bilge pump suppliers even though they have been reliable supplier so this has to be further researched. Fourthly, the informal and low demand for bilge pumps which CJI and Heavey Pumps had been doing makes it hard to determine their performance records. Lastly, the quality history of Heavey Pumps bilge pumps needs to be assessed though there have been no returns and complains by the Great Lakes.
For CJI to come up with a cheaper strategy regarding costs, they should analyze the advantages, disadvantages, and risks of Heavey Pumps, other suppliers, in-house and the combination of the supply of bilge pumps. In Heavey Pumps case, the advantages of them include supplying quality products in time with good pricing and is a close supplier to the CJI thus minimizing transport costs. They have also been proven to be a reliable supplier to the CJI. Their disadvantage is that they may be unwilling to supply the bilge pumps in time thus the CJIs stocks may be depleted paralyzing the Great Lakes order.
In other suppliers case, their main advantage is that they have better qualities of bilge pumps than the Heavey pumps. They also can supply sufficient pumps on required time with decent pricing so as to avoid stock problems. However, their long distance from the CJI which is approximately 500 miles will create logistical problems regarding costs when delivering the pumps. The other problem is that they are new to CJI because they have never supplied anything to them thus their reliability wont be known like Heavey. This would be a risk for the CJI because they have no experience of ordering products from these suppliers.
In in-house case, the advantage is that it will be cheaper regarding costs because there are no shipment costs like when is supplied by other companies and the quality of the product will be secured with the cheaper price of the pumps and also there will be close supervision. The disadvantage arises where it requires initial capital of $500,000 to hire other staffs and also there is need of securing space for the production of the pipes. This will be a risk to the company because they may be unable to produce the pumps required making it potentially a bad investment.
The last case is combining these three options. The advantage is that its supply will be guaranteed since one company will supply when the other is unable to supply, and there is the possibility of more supply of the pipes. It also gives the company more options of choosing the optimal solution which is cost effective. The disadvantage is that it will be more costly and there are chances of the product being of poor quality and lateness in delivering. Therefore, there are risks in oversupplying of the pumps and bad quality will make the products be returned by the Great Lakes.
Choice and Rationale
After analyzing all these options, the best option the CJI should use is the combination of the alternatives where they will use Heavey Pumps as their main supplier and at the same time making their in-house pumps to fill the deficit. However, this option may be very expensive, but it will be a less risky option because the quality of the pumps and quick delivery will be assured since the Heavey Pumps has always been their supplier.
The CJI should ensure they implement the most appropriate option of supply of bilge pumps so that it will guarantee its supply to the Great Lakes to meet the orders demand. The feasible option should be chosen by the CJI which will aid in meeting their demand and also satisfying the Great Lakes so as to award them other products in future.
This case is a classic example of problems many companies face and it has given good ways to solve that situation. The decisions in a company need to be well analyzed through looking at advantages, disadvantages, and risks as shown in this case. This will minimize the companys costs and at the same time satisfying its clients.
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