The CJ Industries and Heavey Pumps Contract Case

Subject: Case Studies
Pages: 3
Words: 648
Reading time:
4 min
Study level: College

Major Facts

Great Lake Pleasure Boats (GLPB) offered a contract worth $10,000,000 per year to CJ Industries (CJI). The contract will commence in nine months, requiring CJI to provide GLPB with engine components suitable for its luxury boats (Wisner, 2016). The contract’s importance for CJI cannot be overstated since interactions with GLPB will exceed 30% of its total sales (Wisner, 2016). CJI does not manufacture the required bilge pumps and purchases them from Heavey Pumps (HP), but the latter’s ability to produce at least 50 pumps monthly remains unclear (Wisner, 2016). To avoid failures, CJ Industries needs a reliable strategy allowing it to meet GLPB’s quantity and quality requirements.

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Major Problem

The key problem for CJI involves finding the best strategy to ensure the supply of bilge pumps so that GLPB will consider it reliable and responsible as a business partner.

Possible Solutions

Option A involves continuing to collaborate with HP and ordering bilge pumps from this company to meet contractual terms. Regarding this solution’s benefits, CJI’s previous experiences with HP indicate that this manufacturer completes orders on time and successfully implements GLPB’s specifications (Wisner, 2016). Nevertheless, the disadvantages are the absence of manufacturing statistics to prove HP’s ability to meet GLPB’s quantity expectations and the risks of costly under-deliveries under the contract.

Option B involves establishing the necessary processes to make sure CJI can manufacture bilge pumps using its own facilities. Considering the benefits, based on Grams’ analysis, CJI has the capability to launch a new production line (Wisner, 2016). Also, expanding production would increase its independence from outside suppliers. Nevertheless, the disadvantages are numerous, including the hardly bearable starting expenses, a lack of experience with bilge pump production, and the risks of suboptimal product quality.

Option C involves researching the market and developing business relationships with the two other entities that manufacture the requested pumps. The benefits are the ability to supply the required number of pumps and the opportunity to assess two different suppliers comparatively and make an informed choice. Regarding the disadvantages, both alternative suppliers are physically distant from CJI’s warehouses, implying additional delivery-related issues and the risks of delays in the case of urgent orders or quality complaints from GLPB.

Option D involves combining the alternatives above to share risks, for instance, by ordering some bilge pumps both from HP and manufacturing the remaining parts of GLPB’s orders without external assistance. This solution’s advantages include adequate risk distribution, the continuation of business relationships with a proven supplier, and increasing GLPB’s interest in placing larger orders. The weaknesses involve substantial initial expenses and the risks of GLPB’s dissatisfaction with CJI’s pumps, leading to costly production line corrections.

Choice and Rationale

Despite its disadvantages, option D seems an optimal choice for CJI. Firstly, the company’s long-term partnership with HP enables CJI to learn the details of bilge pump manufacturing from the former. Given GLPB’s satisfaction with HP’s products, such learning will be beneficial in many instances. Secondly, the solution allows CJI to enter the bilge pump manufacturing field gradually and gain the necessary experience prior to completing large orders without products received from HP. Thirdly, from the long-term perspective, CJI’s rather expensive bilge pump production line will show meaningful returns on investment by transforming CJI into GLPB’s key partner.

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Implementation

To implement the option, CJI should schedule a meeting with HP’s representatives, request any information to assess HP’s production capacity, and agree on the number of bilge pumps that HP will be able to manufacture per month without reductions in quality. Next, CJI is to plan production line organization efforts, clear out the space required for this new project, consider financial expenditures, and hire employees to participate in bilge pump production. Inviting experienced employees from HP could be an option to consider. After launching the new production line and getting feedback from GLPB, CJI will begin to share GLPB’s orders between its facilities and HP.

Reference

Wisner, J. (2016). CJ Industries and Heavey Pumps. In J. Wisner, K. C. Tan, & G. Keong Leong, Principles of supply chain management: A balanced approach (4th ed., pp. 3-4). Cengage.

Appendix

Discussion questions for the case by Wisner (2016) will be addressed below.

Q1: Mr. Ashby should research diverse issues linked with the partnering parties’ production capacities, investments’ feasibility, and so on. From CJI’s perspective, the basic problems to explore are the ways to reduce initial expenses associated with independent bilge pump manufacturing and the investment’s actual worthiness given CJI’s lack of experience. From HP’s perspective, the issues requiring exploration are HP’s bilge pump production statistics, product quality feedback, and the maximum number of pumps it can manufacture every month.

Q2: CJI should implement a combination of the alternatives and purchase bilge pumps from HP in addition to extending its own production activities to manufacture similar pumps (option D). For the discussion of the four options’ advantages, risks, and disadvantages, see the section titled “III. Possible Solutions.”

Q3: To maximize the chances of stable compliance and additional contracts with GLPB, CJI needs to plan its collaboration with HP and emphasize the quality of engine parts to be delivered to GLPB. Considering HP’s potentially unstable production capacity but appropriate quality-related compliance, distributing the manufacturing work between CJI’s and HP’s facilities will support CJI in earning GLPB’s trust. This will prevent the delivery of defective goods manufactured under the pressure of time while also ensuring timeliness and the absence of unfulfilled order sections. Moreover, by expanding its product range, CJI will become a more attractive business partner for GLPB.