1. Read and study the case and complete the questions at the end of the study. Use the case study outline below to assist you with your analysis. Questions should be answered using case study format. Ensure that you adequately explain the problem, describe alternative solutions and justify your recommendation. This exercise should be able to be completed in approximately 3-6 doubled space pages. Attached completed Case Study #1 as a MS Word document in the assignment area of the classroom – Case Study #1. In October 2007, CJ Industries (CJI) had just been awarded a 5-year contract with Great Lakes Pleasure Boats amounting to U.S. $10 million per year, commencing in July 2008. CJI would be providing a number of key engine components for Great Lakes’ luxury line of pleasure boats. The award marked an important milestone for CJI, in that it was the culmination of several years of hard work and dedicated service, supplying Great Lakes parts for their boats on an as-needed basis. The contract had significant longterm follow-on potential as well, if they could continue to show Great Lakes they had the capabilities to be one of their valued, alliance partners. In addition, with this contract Great Lakes would represent approximately 30 percent of CJI’s annual sales, so performing adequately on this contract had a significant long-term financial impact on CJI. One of the parts, a bilge pump, was an item that CJI had been purchasing from one of their suppliers, Heavey Pumps, a small local specialty pump manufacturer, on an informal, non-contract basis.
The remaining items were all built in-house by CJI and supplied to Great Lakes from one of their two finished goods warehouses located near the Great Lakes production facilities. Heavey Pumps was producing and delivering 50 bilge pumps at a time at a cost of U.S. $1500 per unit and built to Great Lakes’ specifications, to one of the CJI warehouses, whenever an order was telephoned in by CJI. The delivery costs (about U.S. $500 per 50 pump shipment, depending on the carrier used) were included in the U.S. $1500 per unit price. This scenario typically occurred about every four to six months. Normally, CJI would order another batch of 50 about eight to ten weeks ahead of time, and Heavey had always been able to supply the pumps before CJI’s stock was depleted. Though CJI had sufficient excess capacity to ramp up production on the parts to be supplied in the Great Lakes contract, they were not sure about the ability or willingness of Heavey to increase their production of the bilge pumps. The new demand for bilge pumps starting in July would be 50 pumps per month, and potentially more, depending on Great Lakes’ demand, and the ability of CJI to perform on the contract. There were a number of issues that Nik Grams, the purchasing manager who put the contract together with Great Lakes, needed to work out with both Heavey and the production manager at CJI, in order for this contract to be met with as few problems as possible. The issue with Heavey Pumps was whether or not they could guarantee delivery of 50 pumps per month to one of the CJI warehouses. This had been the one item that had “slipped through the cracks” on the contract with Great Lakes, and it now loomed as something that could conceivably put the contract in jeopardy. There were potentially additional equipment, labor, and other production costs for Heavey associated with the extra demand for bilge pumps, not to mention extra delivery costs as well.