I.

Summary of Findings

For several years, the CJ Industries has been supported by the Heavey Pumps
with enough and proper supply chain of important component. Bilge pumps are needed
for equipment that will be also supplied to luxury line products of Green Lakes. With
new contract with Green lakes, CJI is planning to expand its supply of equipment parts
that are provided to Green Lakes, which also requires more supply from Heavey Pumps
as well. The problem arises when CJI tries to order more quantity of bilge pumps from
Heavey Pumps. Since they did not inform Heavey Pumps about the new contract with
Great Lakes, they were not sure if Heavey Pumps would be able to adjust and expand
their production as well in order to fit in the extra demand of CJI.

Nik Gram, the purchasing manager of CJI expects that there would be increase
in cost that are caused from more labor, equipment and deliveries. Mr. Gram is
considering four alternatives that are stated below:

1. To continue to get supplies from Heavey Pumps with increment of cost

2. Look for other suppliers that the company has never worked with before and are
located 500 miles away
3. Construct equipment for bilge pump production and self-supporting of the
component
4. Apply combination of alternatives

II. Background Information

CJ Industries has been supplying parts to Great Lakes for many years on an as-
needed basis. A 5-year, $10 million per year contract that commences on July 2008 was
just awarded to CJ Industries to supply Great Lakes Pleasure Boats with several key
engine components to be used in their luxury line. Due to this contract, Great Lakes
would then represent approximately 30% of the annual sales of CJI if they perform well
enough and meet the contract and specifications of Great Lakes.

Heavey Pumps is a small local specialty pump manufacturer that has been
supplying CJI with bilge pumps. CJI and Heavey Pumps transact informally and do not
have a contract between each other. Each time an order was placed via telephone by
CJI to Heavey Pumps for 50 bilge pumps made to the specifications of Great Lakes’ , a
cost of $1,500 per unit is incurred and included in this cost is the estimated $500
shipment fee that is dependent on the carrier used. An order was usually placed by CJI
every 4 to 6 months as they would order about 8 to 10 weeks ahead of time. CJI’s
orders have always been filled before they ran low or out of stock. The bilge pump is the
only part that CJI buys to fill Great Lakes’ order, all the other parts that are ordered are
made by CJI in-house and given to Great Lakes from one of the two finished goods
warehouses of CJI near Great Lakes production facilities.

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III. Problem Statement

CJI is currently dependent on Heavey Pumps to increase their production and be

able to meet the demand of Great Lakes. If they could ramp up and supply them with
the pumps needed, the delivery fee would also become an issue. Currently, delivery fee
costs $500 every four to six months. With the new order, this requires CJI to pay the
same amount every month. This would mean an increase in annual shipping costs from
the current $2,000 - $3,000 to $6,000 per year.

IV. Analysis of Alternatives

Heavey Other suppliers In house Combination

They are the closest Could have good or There is no shipment One company can supply
supplier of bilge even better quality cost when the other can’t or
pump to the and service as There can be a they are interchangeable
Advantages

warehouse Heavey cheaper cost There is more supply of

Heavey has proven A number of the compared to being pipes
to be a reliable supply will not be supplied by a company The company don’t have
supplier over the insufficient The company can to drastically choose
years. They deliver Could have cheaper certainly secure the either option
their pumps on time, price of the supply quality of the product More possibilities of
give decent quality, They can easily finding optimal solution
and decent pricing. supervise
tagesDisadvan

CJI’s stock of pumps 500 miles away from It would require an More cost would be
might be depleted the CJI warehouse initial capital involved with this
Uncertainty of ability (Delivery) investment of alternative
or willingness of to Never supplied to CJI $500,000 Oversupply can
V. Detailed Recommendation

Out of the four choices, the group recommends in combining two of the
alternatives. The combination of Heavy Pumps and in-house is a better choice than the
others since it is less risky. As of now, CJI is not sure the Heavy Pumps will be able to
produce a higher amount of demand. Therefore, CJI should invest money in developing
their own pumps. Since the contract between Great Lakes company and CJ industries
is long term, it is more beneficial for CJI to invest money in developing their own
production process. Since there are now two suppliers, the production of pumps should
increase considerably. It would mean that there is a sufficient supply of pumps enough
to cover up the demand from Great Lakes. These two suppliers can be used
interchangeably, if one supplier cannot provide then pump then the other would.

Moreover, CJI still can have good business relationship with Heavey. Also, due to
their long term contract, in-house production will be less costly because there is no
shipment cost and may produce cheaper cost than purchasing supplies from other new
suppliers.

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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?

There are many issues that exist within this case study. Based on CJI’s
perspective, Mr. Ashby has to discuss their ability to provide the whole required
quantities from all the items which the Great Leak Company requested. Based on
Heavey’s perspective, he has to discuss the ability of Heavey Company to provide the
required quantity pumps with the required quality on time.

The following issues that has to be researched by Mr. Ashby regarding CJ

Industries are:

 They are not certain if Heavey Pumps has the capacity and willingness to
increase the production of bilge pumps to fill their order to be able to fulfill their
side of the contract with Great Lakes.
 They did not consult with Heavey Pumps about the bilge pumps prior to signing
the contract with Great Lakes.
 CJI might have to consider the other two manufacturers of bilge pumps to be
their supplier.
 Whether the bilge pumps should continue to be bought from another
manufacturer or to be made inhouse with an additional investment of $500,000,
hiring additional three workers, and figuring out the logistics to allocate space to
the production.

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 The following issues to be researched by Mr. Ashby regarding Heavey Pumps:

 Whether or not they can guarantee that 50 bilge pumps can be delivered to one
of the warehouses of CJI each month.
 Potentially, there will be an increase in costs for additional equipment, labor,
delivery, and other production costs to fill the additional orders of bilge pumps.
 Even though Heavey Pumps has been a reliable supplier to CJI, CJI has never
ordered anything else from Heavey Pumps aside from the bilge pumps.
 There have never been any performance records kept for the bilge pumps orders
because the demand was rather low and the deliveries were irregular.
 The quality history of the bilge pumps from Heavey Pumps is unknown but Mr.
Grams does not recall any returns made by Great Lakes for any reason.

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.

CJI should use a combination of the alternatives specifically, they should

continue to use Heavey as their supplier and make their own in house pumps. Although
this alternative may be expensive, it is the less risky option and better for the long run
since CJI is already contracted as Great Lakes’ supplier.

Below is a table that discusses the advantages, disadvantages, and risks of the
four choices:

Heavey Other suppliers In house Combination

Closest supplier of Could have good or No shipment cost One company can supply
bilge pump to the even better quality Can be a cheaper cost when the other can’t or
Advantages

warehouse and service as compared to being they are interchangeable

Proven to be a Heavey supplied by a company More supply of pipes
reliable supplier A number of the Can certainly secure Don’t have to drastically
over the years supply will not be the quality of the choose either option
Deliver their pumps insufficient product More possibilities of
on time, give decent Could have cheaper Can easily be finding optimal solution
quality, and decent price of the supply supervised
pricing.
RiskstagesDisadvan

JI’s stock of pumps 500 miles away from Requires an initial More cost would be
will be depleted the CJI warehouse capital investment of involved with this
because of the (Delivery) $500,000 alternative
potential that Never supplied to CJI Need of securing Bad quality and late

Late delivery can be CJI has no Potentially be a bad Oversupply can

caused due to the experience with investment due to CIJ potentially be a problem
large quantity of ordering from these may not be able to May eventually become
pumps that Heavey suppliers so the produce their own lead time where the

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

CJI should guarantee of supplying bilge pumps to Great Lakes to meet its
demands. CJI should also consider in choosing the best alternative that will be feasible
to ensure of new demand for bilge pumps.

VI. Learnings

Throughout this case study, the group was able to learn about evaluating
business decisions in terms of deciding whether to make or buy an item given certain
scenarios. The group also considered in taking into account all the pros and cons of
each possible situation before making a final decision. Listing down the advantages and
disadvantages enabled to properly evaluate a situation and foresee if the cons of the
decision may be handled properly and effectively to minimalize its negative effects on
the result of the decision. Moreover, the group realizes that choosing one or the other
with proper consideration of all the facts and possibilities avoids to potential problems
that may be avoided in the first place.