CJ Industries and Heavey Pumps
CJ Industries is a manufacturing plant that manufactures and supplies boat engine parts. Throughout these processes, Heavey Pumps bilge pumps are always used. Great Lakes Pleasure Boats awarded a $10 million annual contract in October 2007. The arrangement represents a fantastic potential for CJ Industries, as it accounts for 30% of its yearly revenues. CJ has always purchased bilge pumps made to the specifications of the Great Lakes Pleasure boats from Heavy. CJI engaged in basic transactions without contracts with Heavey pumps throughout their activities. CJ generally issued orders every four to six months. Heavey delivered 50 bilge pumps per request at the cost of $1500 which is inclusive of $ 500 shipping fee. The new contract requires Heavey pumps to increase its production to 50 pumps per month. Consequently, the purchase manager needs to find out whether Heavey pumps increase their supply to meet CJ industries' needs.
Problem Statement
How to get a supply of 50 bilge pumps per month to the CJ industries to ensure the success of the contract with Great Lakes Pleasure Boats.
Possible Solutions
CJ industries have three options to choose from to ensure the supply of the 50 bilge pumps per month. First, they can decide to continue procuring from Heavey pumps. Secondly, they can decide to build their pumps in-house and thirdly, they can purchase from the other pump manufacturers located at approximately 500 miles from CJ industries.
If CJI decides to continue getting their supplies with Heavey, they will have to face the uncertainty of whether Heavey will be able to deliver the required units on time. It is a significant risk for the company to depend on just one supplier (Nelson, 2013). Also, they will have to spend an additional $3000 per year on shipping costs. CJI has no performance or quality records for Heavey pumps. Therefore, they cannot forecast its potential. However, the advantages of keeping Heavey pumps as the supplier is that it assures CJI of quality products (Nelson, 2013). Also, CJI can strike an alliance with Heavy pumps to ensure that they get a reduction in shipping costs.
The second option CJI has is to build their pumps in-house. The advantages of in-house manufacture are the company will always be sure to meet the quantity required by The Great Lake Company. Also, CJI will still have the assurance of the quality of the pumps, and there will be a decrease in production cost as there will be no delivery cost (Edmunds, 2017). Consequently, the company profits will rise faster. The disadvantages of in-house manufacturing are that the initial cost of half a million dollars is high. Also, it will consume a lot of the company's time to start training new employees, and it is a high risk for the company as it does not have pump manufacturing expertise.
The third option would be to get the supplies from the other pump manufacturers. The advantage of this option is that it eliminates the risk of an interruption in the service supply (Nelson, 2013). Also, multiple suppliers will present CJI with an opportunity to sample and test the other suppliers' quality without interfering with the production process. The disadvantage of CJI having numerous suppliers is it will lose control over the quality checks (Nelson, 2013). Also, multiple suppliers pose the risk of inconsistency in service delivery. Even the various suppliers will mean additional shipping costs to CJI as the companies are far from Heavey.
Recommendation
I will recommend a win-win situation for both CJI and Heavey Pumps. A combination of in-house production and the continued supply of Heavey Pumps would be the most ideal choice. In-house production is essential as the cost of production will reduce at the same time ensure quality production. The initial expense is very high, but the money is compensated very fast by the reduction of the shipping costs. At the same time, CJI does not have the expertise to produce pumps. Consequently, they will need the services of Heavey pumps. The company should still get its supplies from Heavy as it proved reliability as it always supplies the pumps before the CJI stock runs out. Also, the company has expertise in producing pumps. Furthermore, the company has a track record of delivering quality pumps acceptable by Great Lake Company standards. Therefore, the company will not compromise the quality.
Implementation
Investing in new machinery and expansion of the warehouses might be too costly for Heavey Pumps but possible for CJI. Consequently, the CJI can build a facility and purchase the required machinery to establish a plant manufacturing plant. Later they can offer the facility for lease to Heavey Pumps. Heavey's workers will run the company as they are the experts to ensure quality production of the pumps. The situation is a win for both companies as CJI will invest in the machinery which they can, in turn, give them an income as they lease and also they will reduce the shipment cost. On the other hand, Heavey stands to benefit as it will not have to invest heavily in expanding its warehouses and machinery. When the company rents the facility, it gets to expand its production capacity and consequently increase its income.
References
Edmunds, S. A. (2017, September 26). The Pros & Cons of Manufacturing Products With in-House Manufacturing. Retrieved December 15, 2017, from Bizfluent Website: https://bizfluent.com/info-8120513-pros-manufacturing-products-in-house-manufacturing.html
Lilly, B. (2013, July 22). 7 Rules For Keeping and Maintaining Business Relationships. Retrieved from Mason and Hanger Website: http://m.masonandhanger.com/blog/entry/7-rules-keeping-and-maintaining-business-relationships/
Nelson, J. (2013, February 28). Evaluating Supply Chain Risks with Single vs. Multiple Vendor Sourcing Strategies. Retrieved December 15, 2017, from Spend Matters Website: http://spendmatters.com/2013/02/28/evaluating-supply-chain-risks-with-single-vs-multiple-vendor-sourcing-strategies/
Appendix
What are all the issues here, from both CJI’s and Heavey’s perspectives, that need to be researched by Mr. Ashby?
First, Mr. Ashby needs to find out whether Heavey Pumps is willing to increase their production capacity. Second, he needs to find out whether Heavy pumps could guarantee the supply of 50 pumps in one month throughout the year. The third issue that Mr. Ashby has to research is to conduct a cost-benefit analysis of the company starting an in-house over contracting multiple suppliers.
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.
CJI may decide to continue getting their supplies from Heavey. Consequently, they will have to face the uncertainty of whether Heavey will be able to deliver the required units on time. It is a significant risk for the company depending on just one supplier. Also, they will have to spend an additional $3000 per year on shipping costs. CJI has no performance or quality records for Heavey pumps. Therefore, they cannot forecast. However, the advantages of keeping Heavey pumps as the supplier is that CJI will ensure quality products. Also, CJI can strike an alliance with Heavy pumps to ensure that they get a reduction in shipping costs.
CJI could build their pumps in-house. The advantages of in-house manufacture are the company will always be sure to meet the quantity required by The Great Lake Company. Also, CJI will still have the assurance of the quality of the pumps, and there will be a decrease in production cost as there will be no delivery cost. Consequently, the company profits will rise faster. The disadvantages of in-house manufacturing are that the initial cost of half a million dollars is high. Also, it will consume a lot of the company’s time to start training new employees, and it is a high risk for the company as it does not have pump manufacturing expertise.
CJI could also get the multiple suppliers. The advantage of this option is that it eliminates the risk of an interruption in the service supply. Furthermore, various suppliers will present CJI with an opportunity to sample and test the other suppliers’ quality without interfering with the production process. The disadvantage of CJI having numerous suppliers is it will lose control over the quality checks. Also, multiple suppliers pose the risk of inconsistency in service delivery. Even the numerous suppliers will mean additional shipping costs to CJI as the companies are farther than Heavey Company.
How can CJI assure continued contract compliance and additional contract business from Great Lakes in the future?
CJI needs to ensure that their contract runs smoothly, by ensuring that their supply chain is efficient regarding timely delivery, cost efficiency, quality product delivery, and also to ensure that they have excellent customer service. Furthermore, CJI needs to establish a good relationship with whichever pump manufacturer they choose.
