Table of Contents

I. Summary of Findings
II. Background Information
III. Problem Statement
IV. Analysis of Alternatives
V. Detailed Recommendations
VI. Answer to Case Questions
VII. Learnings

1. Summary of Findings

II. Background Information

CJ Industries got the opportunity to provide Great Lakes Pleasure Boats with key engine components for their line of pleasure boats. They earned this through the culmination of several years of hard work and dedicated service, the development of a strong buyer-supplier relationship with Great Lakes and this 5-year, $10 million per year contract offers them the chance to have an extended relationship if they can satisfy Great Lakes’ needs.

The opportunity given to CJI is very critical for the success of their company, and the principal goal of the company should be to fully satisfy the requirements of the contract with Great Lakes, and secure their future business with Great Lakes. CJI has been doing most manufacturing in-house, however, they have been sourcing their bilge pumps out to Heavey Pumps on an informal basis. Heavey has been a reliable supplier, however, their company is small and the expanded business will stress their production capabilities, so CJI has been planning whether to build the pumps in-house, or continue to subcontract them.

III. Problem Statement Normally, CJI orders a batch of 50 bilge pumps eight to ten weeks ahead of time which occurred every four to six months. However, there is a new demand now of 50 pumps per month or more depending on Great Lakes’ demand and CJI’s ability to perform. CJI is now faced with the problem that with this new demand, Heavey Pumps might not have the ability or the willingness to increase their production of bilge pumps especially to be supplied in a monthly basis. Extra costs would be incurred and because the demand before was sporadic and no performance records had ever been kept for them, there would be an issue of quality. CJI could also choose to manufacture their own pumps but would require a big investment capital, added costs, and they do not have much pump manufacturing experience. Lastly, there are two other pump manufacturers but both were locations far from the warehouse and would be working with CJI for the first time. The purchasing manager now has to decide on the best alternative to meet the increased demand for pumps and assure contract compliance with Great Lakes with only little time to spare.

IV. Analysis of Alternatives There are many possible alternatives that CJ Industries can take with regards to their bilge pump supplier.

The first alternative would be to continue to use Heavey Pumps as their supplier. Continuing with Heavey as the supplier would mean that CJI would have to make an agreement with Heavey that they will be able to increase their supply in bilge pumps and be able to deliver a larger quantity than they used to. Since CJI has already been working with Heavey Pumps, it may not be too difficult for the to come up with an agreement for their pumps. However, since Heavey is a small local manufacturer, they may not be able to provide the required number of pumps even if they wanted to. Keeping them as a supplier also means that CJI will have to keep paying for the shipping costs of these pumps.

The second alternative for CJI would be to make the bilge pumps in-house instead of having a supplier. Doing this will cost CJI another $500,000, along with the hiring of three new employees. Since it will be a big investment for CJI, they aren’t sure whether this would be the best route to follow. However, the group believes that if they follow this route, they may be able to cut costs in the long run. Having the pumps made in-house means that they no longer need to pay other suppliers and no longer need to pay for the shipping costs of the bilge pumps. It is important to note that they need to be able to produce quality pumps that are of the same quality as Heavey Pumps, and Mr. Grams believed that they are capable of producing quality pumps. They need to be able to hire workers who are qualified to do the job well so that they can ensure the pumps quality.

The next alternative would be to consider a different supplier for their pumps. Since they will be producing more engine components for Great Lakes, CJI will also need to find a supplier that can produce more bilge pumps. Although Heavy has been their supplier for quite some time, they are a small local manufacturing company and may not be able to provide the needed quantity. CJI should instead search for a larger manufacturing company that can produce what they need. However, Mr. Grams stated that both of the other suppliers were about 500 miles away, meaning they would have higher shipping costs and it may take more time for the pumps to arrive to CJI. It would also be risky for CJI to try these new suppliers because they have never worked with these suppliers before, and since they are far away, they would be spending more.

The last alternative for CJI would be to do a combination of these alternatives. Since CJI is pressed for time because of their contract with Great Lakes, they could still order the pumps from Heavey pumps while working on manufacturing their own pumps. They could also try to sample the pumps of the other suppliers to see which is the most cost efficient and which has the best quality. They could possibly do all of these simultaneously, although it will cost them and it will be a risk for them if the new bilge pump suppliers do not produce quality pumps.

V. Detailed Recommendations In deciding what alternative to choose, CJI should see the effect of each alternative to every aspect; quality, quantity, cost, and time. They may be put into rush already in the situation, however, they should also consider that serving the best for Heavey is still important as they have built their credibility already onto this firm. Costs may be a big factor but maintaining the company’s trust and brand loyalty with them is much more important also as it can pave way to more opportunities for them in the long-run. High risk - high return approach, where CJI should go for long term wherein decisions are all worth it. And so, the group came up with the decision that CJI should go for the alternative of getting a new supplier for this project since it demands bigger quantity this time. Higher shipping costs may be added to their expenditures but this is what can solve the problem easily as they are already rushed. And having a contract with Great Lakes for a long period of time will indeed require them to have a larger manufacturing company this time and not settle for just a small manufacturing company. Meaning, it is better for them to start building their partnership with a bigger manufacturer since this is what the company needs already. However, Mr. Ashby should still do heavy research about the manufacturing company they will be choosing. But they should also consider doing the alternative of building their own manufacturing company at the same time, since this will lessen the cost of shipping expenses in the future and they could assure this time the quality of their products even if it will take them a long process to achieve it.

VI. Answer to Case Questions

1. What are all the issues here, from both CJI’s and Heavey’s perspectives, that need to be researched by Mr. Ashby?

Mr. Ashby should see to it that CJI would be willing to manufacture bilge pumps on its own before the contract start date which is only nine months away. The production manager gave his assurance that they can have the production line ready by then however the problem Mr. Ashby should research on is whether it would be a good investment for CJI. CJI lacks pump manufacturing experience and making pumps in-house would require an initial capital of $500,000 along with other costs like clearing out of space and hiring additional employees. Mr. Ashby should also look into the 2 other manufacturers of pumps and ponder whether it would be wise to work with them since it would be the first time and that they are located 500 miles away from the CJI warehouse.

The issue Mr. Ashby should research on with Heavy Pumps is whether or not they could deliver 50 pumps per month to one of CJI’s warehouses. Before, these pumps were ordered few months beforehand which made it possible for Heavy to produce and deliver these goods specialized for Great Lakes. Now that they have to deliver these pumps on a monthly basis, the quality of the product is another issue since they did not use to have performance records back when demands were low and occasional although there were no complications up to date. Aside from this, production for Heavy would be more expensive because of additional equipment, labor, and other costs needed for production. On top of all this is the extra delivery cost of $500 every month per 50 pumps.

2. Should CJI continue to use Heavey to supply pumps, should they make them in-house, should they consider one of the other suppliers, or should they do some combination of these alternatives? Discuss the advantages, disadvantages, and risks of each of these alternatives.

Assuming CJI decides to continue using Heavy to supply pumps, they will be assured of quality, since Heavy has been providing their pumps for a very long time. Aside from quality assurance, the ease of knowing that they will be no faced with issues which regards to delivery, contract signing, and any other problems when it comes to transacting. Since CJI is a loyal customer of Heavy, coordinating and handling processes wouldn’t be much of an issue. On the other hand, if they do decide to continue, there wouldn’t be enough pumps created by Heavy because they only have limited resources since they do not produce bulk supplies. CJI will be faced with lack of supplies to their client, because of their supplier’s limitations of production. Taking on this decision will be a risk of not being able to meet the expectations, or more specifically, the promises made through the contract, of CJI’s client Great Lakes.

Deciding to create pumps in-house is also a possible alternative, wherein CJI would invest a big amount of money to assure the creation of the pumps needed by Great Lakes. The good thing about when they decide to do their pumps in-house is that they would be able to assure the quality of the products, because it will be created within their abilities and employees. Once they push through with this decision, they will be able to meet the needs of Great Lakes which will be a solution to their prior issue of not being able to meet demands. Although if they do choose to do this, they might not be able to produce the quality Great Lakes expected from them, because they are not experienced. The decision of investing money for something not unsure will be a great risk for CJI financially. If it doesn’t succeed, they might not be able to impress Great Lakes. The best thing to do is research properly and hire the best people to work on this project once they do decide to implement it. The company will benefit in the long run once this succeeds, because their investments will be then worth it.

Looking for other suppliers is also an alternative, which seems like the easiest decision because they short of time having only 9 months left before the start of the contract. The advantage of getting another supplier is that they won’t have to worry about the lack of pumps, and it would be easier to acquire and transact. However, once they do this, they wouldn’t be assured of the quality of the pumps because it will be their first time to use their products. Extra costs would also be incurred because of the delivery; since the only suppliers available are nowhere near the CJI headquarters. This is a risk of quality pumps for Great Lakes, and may be a bad investment for the company. Although if they do thorough research regarding their potential suppliers, they might be able to pull it off. Just as long as research is done regarding their quality, CJI may be able to provide what Great Lakes need without incurring too much cost.

The last alternative, combining all the three previous alternatives, may also be an option for CJI as to they can acquire pumps from Heavy while they invest on creating their own. They may also research and test other pumps from different companies, to weigh all their possibilities and see what the most effective solution is. This will make them see what the best option is for their company. Although this idea may seem good for thorough testing of alternatives, it may just cost too much money for the company that they can’t afford to lose since they are pressed for time. This decision requires a lot of time, money, and researching. This is a risk of time and money wasting for CJI, unless they come up with a plan that will pull off this alternative such as scheduled doing of all these three alternatives.

3. How can CJI assure continued contract compliance and additional contract business from Great Lakes in the future?

In order for CJI to continue contract compliance, the company should ensure that they provide their products on a well-timed manner and at a high quality. CJI should also consider and integrate Great Lakes’ needs into their design plans, and further develop their relationship, as well as quickly respond to Great Lakes’ needs. With proper management of their supply chain, CJI should be able to work well together with Great Lakes in order to help benefit both companies. Through this, both CJI and Great Lakes will be able to secure further business with each other.

VII. Learnings

After the group had read through the CJ Industries and Heavy Pumps case, we have learned that companies are faced with plenty of decisions all the time. May the decisions be minor or major, they are still given issues to decide for the company, that may risk their company’s assets or relationships with other suppliers. All the decisions a company makes will affect their processes entirely, which is why top management and all other employees have to be careful with their actions and decisions. All choices result to something, and it is their job to assure that every step they take will be for the improvement of the company. It is the job of the decision makers to weigh their pros and cons, and to study all the possibilities specially whenever a major step will be taken. With the contract the CJI signed with Great Lakes, we have learned that there are many problems or decisions whenever a company decides to make a change or adjustment. The main lesson of all of this is that when doing something, all the advantages and disadvantages have to be weighed, and the decision has to be the best that will benefit the company. Research must be done, and all angles of the situation must be looked at so no future problems or issues will be faced.