According to the case, the CJ Industries is a company that has been dealing with engine related services and products. The company has been offered a contract by Great Lakes Pleasure Boats worth $10 million per year. The contract is expected to commence in July of the year 2008 and involves CJI providing essential engine components to Great Lakes Pleasure Boats, which will be used in the manufacture of luxurious boats.
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This is considered a critical contract to CJI as it will inject a significant percentage of sales, about 30% of the total sales. Resultantly, CJI cannot afford to make a mistake with the contract. CJI is making all the items required for the contract internally, apart from a bilge pump, which it is buying from a different company known as Heavey Pumps.
Heavey Pumps did not have a track record of its past production of bilge pumps because the demand for pumps was usually low and its deliveries for the same were sporadic. Therefore, there were no track records to show the performance of Heavey concerning manufacturing of bilge pumps.
Consequently, it is not clear the quality of bilge pumps that the company produces and whether it will be in a position to supply the demand of 50 pumps per month. CJI has other options such as manufacturing the pumps itself, but the primary concern here is the cost of manufacturing and the time frame in which it is supposed to put up the extra manufacturing plant.
Another option would be to buy the pumps from one of the other two manufacturers known to Mr. Grams, but the distance they are located from CJI is over 500 miles. Mr. Grams, the purchasing manager, decided to hire Bob Ashby.
The major problem that CJI is facing currently is to determine the alternative to adopt for the supply of bilge pumps as it is keen not to make a mistake with the contract that is expected to generate about 30% of sales. The purchasing manager needs to make a decision on whether to buy the bilge pump from Heavey Pumps, manufacture them, or buy them from the alternative two other suppliers. CJI wants to ensure continued compliance with the contract and might probably get additional business from Great Lakes.
The potential solutions to the case study are discussed in the form of discussion questions.
What are the issues here from both CJI’s and Heavey Pump’s perspectives, that need to be researched by Mr. Ashby?
First, it is stated in the case that CJI has the capacity that is required to manufacture bilge pumps. However, the initial capital required for this project will be about U. S. $500,000, in addition to extra space for putting up the plant and additional of new employees.
The other concern is that CJI does not have any experience of manufacturing bilge pumps. Regarding these issues, Bob Ashby will be expected to find out the worthiness of this investment. He will be finding out whether the investment will be worthwhile concerning profitability to CJI.
Heavey Pumps, on the other hand, is a company that manufactures bilge pumps and it is expected that it has experience in the job. However, the company does not have any records showing the performance of the company in the production of these pumps (Weygandt, Kieso & Kimmel, 2010).
Therefore, CJI is not sure of whether Heavey Pumps can produce quality pumps and whether it can sustain the upcoming demand. In this regard, Bob Ashby will be finding out the ability of Heavey Pumps to supply or to maintain the upcoming demand and to provide quality pumps. He will then know which option is more favorable to CJI between manufacturing the pumps and buying the pumps from Heavey Pumps.
Which alternative should CJI choose? The advantages and disadvantages of each alternative
The first option is purchasing pumps from Heavey, the second option is manufacturing its pumps, the third option is buying the pumps from one of the other alternative companies, and the final option is a combination of alternatives.
Heavey has been manufacturing the pumps; therefore, one of the advantages related to Heavey is that they have the experience. Also, continuing to purchase the pumps from Heavey will mean that the CJI will not have to spend much money on establishing its manufacturing plant. The disadvantage, however, is the fact that Heavey does not have any records to support their performance. Therefore, there are no means of assuring the quality of their work and their ability to sustain a high demand.
CJI can extend its operations to start an in-house manufacture of bilge pumps. The advantage of this alternative is the fact that the company has enough capacity and it can sustain even a high demand. However, the disadvantage is that it is too expensive to start, it does not have experience in manufacture of bilge pumps, and it cannot be sure of the quality due to its lack of experience (Berk, 2010).
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Purchasing the bilge pumps from one of the other two alternative companies would have the advantage of assuring constant supply and experience. However, the companies are too far, and this causes expenses to increase due to transportation (Zaeh, 2013). It might also cause inconveniences since it might be challenging to deliver the pumps promptly due to distance.
The combination of various alternatives is possibly the best alternative that CJI could adapt. The two best options that it can adapt would be to purchase the bilge pumps from Heavey and at the same time involve itself in the manufacture.
It could probably hire its employees who would work with Heavey Pumps employees at Heavey’s premises or at a different premise which the two companies can put up together. CJI will support the course with its vast supply, and this will ensure a constant supply. Timely delivery will also be assured since Heavey has never failed on the same in the past.
How can CJI assure continued contract compliance and additional contract business from Great Lakes in the future?
It is in the interest of CJI to comply with the contract, an action that might also trigger more business from Great Lakes. Therefore, the best way it can meet the contract requirements would be to deliver quality products and services in a timely manner.
Choice and Rationale
The best option would be a combination of purchasing the pumps from Heavey and investing in the manufacture of the same. This would ensure constant and timely delivery and reduce the costs on CJI, thereby increasing profits. Also, CJI will in a better position to comply with the contract and increase the prospects of another business (Maldonato, 2010).
In implementing the solution, CJI would discuss all the possibilities with Heavey. Among the possibilities to be discussed would include sharing of expenses and revenues regarding the bilge pumps and the best place to be carrying out the manufacture. It will then reach a conclusion that favors each of them. Once an agreement is reached, the companies will make the necessary contributions, and the work will be ready for commencement.
Berk, J., (2010). Cost reduction and optimization for manufacturing and industrial companies. Hoboken, N.J: John Wiley.
Maldonato, M. (2010). Decision making: Towards an evolutionary psychology of rationality. Brighton, England: Sussex Academic Press.
Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. (2010). Managerial accounting: Tools for business decision making. Hoboken, NJ: Wiley.
Zaeh, M. F. (2013). Enabling manufacturing competitiveness and economic sustainability: Proceedings of the 5th International Conference on Changeable, Agile, Reconfigurable and Virtual Production (CARV 2013), Munich, Germany, October 6th-9th, 2013. Cham: Springer