Table of Contents

Summary of Findings-------------------------------------------------------------------------------------------

Background Information ---------------------------------------------------------------------------------------

Problem Statement ---------------------------------------------------------------------------------------------

Analysis of Alternatives -----------------------------------------------------------------------------------------

Detailed Recommendations -----------------------------------------------------------------------------------

Answer to Case Questions -------------------------------------------------------------------------------------

Learnings -----------------------------------------------------------------------------------------------------------
 I. Summary of Findings

CJI Industries, the supplier of Great Lakes Pleasure Boats of their key engine
components for their luxury line of pleasure boats had an issue with Heavey Pumps, the
supplier of their bulge pumps. CJI has been purchasing this pump from Heavy Pumps
and suddenly, they encountered an issue whether or not Heavy Pumps could guarantee
them a delivery of 50 pumps per month to one of the CJI warehouses. It is stated that,
Heavy Pumps would have to incur additional production, equipment labor, and delivery
costs for them to meet the demand of CJI. In addition to that, past transactions with
Heavy Pumps have been small compared to what will CJI need in the future and
purchases from them were informal and non-contract basis. Because of these issues,
Nik Grams, their purchasing manager was highly concerned whether to continue the
business with CJI or rather just agree to the suggested alternative plans of their
company.

II. Background Information

Company Name: CJ Industries (CJI)
Industry: Manufacturing Key engine components
Purchasing manager: Mr. Nik Grams
Client: Great Lakes Pleasure Boats
Supplier: Heavey Pumps

CJ Industries is a company that creates key engine components and just a few
years back, the firm has been awarded with a 5-year, $10 million per year contract that
will now allow them to exclusively supply Great Lakes Pleasure Boats. This agreement
can contribute greatly and create a huge positive impact on the over-all business
performance of CJI as this could result to not only a newly-formed alliance, but also an
increase of about 30% in annual sales.

Although the company is noted as a manufacturer of engine components, not

everything is built in-house. Some of their vital parts are bought from suppliers and one
of these is the bilge pump which they get from Heavey Pumps. CJI currently orders via
telephone at a rate of 50 bilge pumps per call at a cost of $1,500 per unit but mostly
depending on specifications. Furthermore, CJI presently has the ability to produce more
than their usual output to increase their entire production process although they are
quite doubtful in the readiness of Heavey Pumps to produce more pumps and
 guarantee on-time delivery as in could entail more labor, equipment and other additional
costs. This was one detail that the company had overlooked and is now one factor that
can put the contract in real danger. Heavey Pumps is known to be a very reliable
supplier to CJI and there is no history of past problems. This serves as a challenge to
Nik Grams, the purchasing manager of CJI. He is now tasked to work out both parties
with have minimal or no problems all throughout the entire contract.

With this, the thought of just making these bilge pumps in-house has entered the
mind of CJI. This option both has pros and cons and one of these cons include an
increase in capital investments of $500,000, increase of space and human labor. Due to
time constraints, achieving this is not easy although Mr. Grams is confident enough that
the company will still be able to pull this one off. He is confident enough that this
decision can be successful in terms of having a good production line although he is
quite uncertain if this is an investment that will be worth it in the long-run. Another
possible option include buying from another supplier but existing suppliers are very far
in terms of distance. This entire situation might fit perfectly for Mr. Gramss project
buyer, Bob Ashby. Nik is sure that Mr. Ashbys ability to get things done will lead them to
executing the contract with their main client successfully.

III. Problem Statement

Given all the available resources, possible future problems and current
constraints of the situation, which among the available alternatives is the most cost-
efficient and on-time option to gain high-quality bilge pumps for the production of the
engine components that will be supplied to Great Lakes Pleasure Boats?

IV. Analysis of Alternatives

Alternative 1 - CJI enters into a Supplier Contract with Heavey

An option for the company is to enter a supplier contact or a partnership with

Heavey that gives a win-win situation for both firms. Also, this would meet the
requirement of Golden Lakes. CJI could offer support to Heavey in providing them their
pumps through investment to the company. Especially the Golden Lake contract would
run for 5 years. In this way, Heavey would have a stable revenue due to the supplier
contract and CJI would meet the demand of Golden Lakes Contract. But in order for
this to succeed, both organization must cooperate well and adapt to the possible
management changes due to the boost in production of Heavey.

Alternative 2 - CJI purchase their Pumps from the Other 2 Possible Suppliers
 In this option, CJI could meet the requirements of Golden Lake Contract
however; they would take the risk of the quality and cost that might occur in the process.
Since the other 2 suppliers are far from CJIs warehouse, there would be a large
increase in cost. Also, quality of the product is not ensured since they have never
engage with the other two suppliers. Lastly, this may also affect the relationship of CJI
and Heavey since they were their supplier for a long time.

Alternative 3 - CJI produce their own pump by In-House Production

By making their own pumps through in-house production, CJI would have to
invest on the required labor, machines and all the other cost. According to the article,
they could also provide this option so it would not be a problem for the company.
However, they must consider the additional cost and quality of the product if not
executed properly especially they would enter the production just now. This would break
their relationship with Heavey since they would be providing their pumps on their own.
In addition, they should consider that the contract of Golden Lake is only for 5 years and
they would not be certain if Golden Lake would offer again or other companies. This
might be an expensive option at first but it would be a good option in the long run of the
organization.

Alternative 4 - CJI develops In-House Production & Supplier Contract with Heavey

Integrating alternatives 1 and 3 would be another good option for CJI, they would
acquire the benefits from both but would make less risk which makes a decent tradeoff
for Heavey and CJI. Heavey would not have to increase additional cost too much and
benefit from the contract as well. Also, they would continue the partnership that was
being practiced in the operation. In the case of the in-house production, CJI would not
need to upsize their operation dramatically since they would only need an additional
supply of pumps in order to meet the Golden Lake contract. Regarding the quality of the
pumps, they could seek help from Heavey to make them as similar as possible. This
would also strengthen their partnership. CJI and Heavey Pumps would not be obliged to
adapt on heavy change. The only problem that might occur is that when both company
have failed in the management of in-house production and external factors that may
affect them after the contract of Golden Lake which is considered as uncertainty of the
business.

V. Detailed Recommendations
It is recommended that the company develops an In-house production & supplier
contract with Heavey. The supplier contract will benefit both firms. It is recommended
that the firm first form a contract with Heavey to supply Heavey with pumps. The pumps
are to be produced in-house. The in-house production of the pumps will be costly to
begin with but it will eventually yield benefits for the firm in the long term. By choosing to
 do both in-house production and supply contract, this recommendation is less risky than
the other alternatives. This recommendation will benefit both CJI and Heavey and will
yield decent trade-offs. This alternative will essentially be like a joint venture for the two
firms in order to meet the contract of Golden Lake by providing above standard quality
of pumps. One problem of this recommendation is the uncertainty of the partnership
after the Golden Lake contract. To solve the problem the management of both firms
needs to come up with contingencies as well as a portfolio of potential contracts that
they can have after the expiration of the Golden Lake contract.

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?
The first issue presented for CJ Industries was its contract with Great Lakes and
maintaining its compliance to the contract. Though CJI had sufficient excess capacity to
build up production on the parts to be supplied in the Great Lakes contract, they were
not sure about the ability or willingness of Heavey Pumps to increase their production of
the bilge pumps. The problem is that CJ Industries had signed the contract with Great
Lakes prior to any discussions about ramping up production with Heavey Pumps.
Another issue for CJ Industries is the new contract with Great Lakes that will
require CJI to have 50 pumps per month or even more. This would exceed the
production capabilities of Heavey and worse off that would likely cause delays in the
supply chain of CJI which could put the contract in jeopardy. Proceeding, there is also
the option of using the two other suppliers that are 500 miles away, instead of Heavey.
Lastly, CJI needs to analyze its value chain and decide they should make the
bilge pumps in-house. However, this would require an initial capital investment of
approx. $500,000 according to the CJ Industries production manager, along with the
clearing out of some space, and the hiring of three additional employees.
For Heaveys perspective, one issue is that if they can still continue their
professional and successful relationship with CJI once the demand reaches 50 pump
monthly. Because of this, they should analyze and weigh the benefits and risks of the
options in expand their production or doing nothing which will put their contract with CJI
in danger.
Expanding their production facilities will keep their contract with CJI in the long
term however, it will be risky to invest in too much capitalization knowing that CJI can
make their pumps in-house. Moreover. If they choose to expand, they have to think if
their current workforce can handle the increase in demand of pumps. Obviously, they
would have to hire new workers in order to satisfy and meet the demands on time.
 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.
The group recommends CJI to discontinue its business with Heavey and make
the pumps in-house. The only reason to stay with Heavey is because of the good
relationship they have made for working for a long time. Unfortunately, Heavey is just a
small company and they wont be able to cope up with the increase in demand of the
pumps thats why CJI should make the pumps in-house. If they were to do this, they
would be able to assert better quality control, use their existing idle capacity, control
their lead time and warehousing costs, and likely come close to utilizing economies of
scale and thus saving on their production costs in the long-term. Also, having full control
over their product manufacturing, will allow them to accurately gauge when their
products are made and then shipped. By giving them control over their lead-time like
this, they can ensure that they will be able to meet Great Lakes deadlines on time as
well as reduce holding times because they wont have to store the incoming pumps like
they did before.
Since there is little information about the other two suppliers, it is best not to get
either of the two. Quality might be compromised if they choose suppliers they dont
know much about. One thing is sure and that is shipping costs would be higher because
they are 500 miles further away from Heavey.
3. How can CJI assure continued contract compliance and additional contract
business from Great Lakes in the future?

In order to maintain contract compliance, CJI simply must ensure to perfect the
order fulfillment and that includes delivering the order on time, complete and damage
free. Quality should always be there, meeting the specifications of Great Lakes and
further develop customer-supplier relationship.

VII. Learnings

In any company may it be big or small, being sure of your capabilities is a big
requirement. Capabilities to deliver, to supply, to store, to sell, etc. The company CJI
Industries (CJI) underwent into a contract with Great Lakes Pleasure Boats before
assessing their supplying capabilities and their supplier options. We have learned that
before going into a contract with any company whether big or small, a company must be
first mindful of their capabilities as well as their supplier capabilities most especially
when they are not making the finished product of a certain product moreover the raw
materials of different products as well. At the end of the day, the customers must be
satisfied with the service that they are getting especially like in this case where large
amount is at stake. Any organisation should not be blinded by the contracts worth
whether it be thousands or millions because if this company would fail their customers,
the price that they would pay for the damage, their energy, their brand, etc. would be
double the price that they have been paid for, and sometimes more. This case is the
perfect example of a supplier having a supplier and a customer having a customer. How
also learned that having a supplier without an enclosed contract would not do any good
with your company most especially when it would undergo another contract worth
millions with another company in this case CJI to Great Lakes Pleasure Boats. The
company must be able to balance out the risks in this transactions and the turn around
this would do their company and whats on the line. All considerations must be met and
all the possibilities whether good or bad must be taken into consideration to avoid the
chances of failing especially a big customer like that of Great Lakes.