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 asneeded 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. CJIs
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.

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

tagesDisadvan

Advantages

Heavey

Other suppliers

In house

Combination

They are the closest

supplier of bilge
pump to the
warehouse
Heavey has proven
to be a reliable
supplier over the
years. They deliver
their pumps on time,
give decent quality,
and decent pricing.

Could have good or

even better quality
and service as
Heavey
A number of the
supply will not be
insufficient
Could have cheaper
price of the supply

There is no shipment
cost
There can be a
cheaper cost
compared to being
supplied by a company
The company can
certainly secure the
quality of the product
They can easily
supervise

One company can supply

when the other cant or
they are interchangeable
There is more supply of
pipes
The company dont have
to drastically choose
either option
More possibilities of
finding optimal solution

CJIs stock of pumps

might be depleted
Uncertainty of ability
or willingness of to

500 miles away from

the CJI warehouse
(Delivery)
Never supplied to CJI

It would require an
initial capital
investment of
$500,000

More cost would be

involved with this
alternative
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.

VI. Answer to Case Questions

1. What are all the issues here, from both CJIs and Heaveys perspectives, that
need to be researched by Mr. Ashby?
There are many issues that exist within this case study. Based on CJIs
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
Heaveys 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.

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:

RiskstagesDisadvan

Advantages

Heavey

Other suppliers

In house

Combination

Closest supplier of
bilge pump to the
warehouse
Proven to be a
reliable supplier
over the years
Deliver their pumps
on time, give decent
quality, and decent
pricing.

Could have good or

even better quality
and service as
Heavey
A number of the
supply will not be
insufficient
Could have cheaper
price of the supply

No shipment cost
Can be a cheaper cost
compared to being
supplied by a company
Can certainly secure
the quality of the
product
Can easily be
supervised

One company can supply

when the other cant or
they are interchangeable
More supply of pipes
Dont have to drastically
choose either option
More possibilities of
finding optimal solution

JIs stock of pumps

will be depleted
because of the
potential that

500 miles away from

the CJI warehouse
(Delivery)
Never supplied to CJI

Requires an initial
capital investment of
$500,000
Need of securing

More cost would be

involved with this
alternative
Bad quality and late

Late delivery can be

caused due to the
large quantity of
pumps that Heavey

CJI has no
experience with
ordering from these
suppliers so the

Potentially be a bad
investment due to CIJ
may not be able to
produce their own

Oversupply can
potentially be a problem
May eventually become
lead time where the

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.