Case Study Assignment: CJ Industries and Heavy Pumps (Essay Sample)

CJ Industries and Heavy Pumps
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Case study: CJ Industries and Heavy Pumps
Question one:
From CJ industries Perspectives
CJI’s main aim is to maintain a contract compliance with Great Lakes because it is the future of the company’s future success and. Keeping that in mind, they need to ensure that the supply of pumps from Heavey will be timely and of high quality. The relationship between CJI and Heavey has been suitable and professional, even it is casual. Nevertheless, CJ Industries had usually placed orders fifty pumps, eight to ten weeks in advance, every four to six months which gave Heavy the opportunity to stay on top of the orders and deliver the products as obliged. Though, the new contract with Great Lakes would require CJI obtain fifty pumps per month, with a prospect that it could increase during the five-year contract. In such a scenario, production capabilities of Heavey would be exceeded and worse off. Therefore, delays in the supply chain of CJI would be evident, yet they have to abide by their contract with Great Lakes strictly. CJI also have an option of hiring other suppliers rather than Heavey, who are five hundred miles away. Also, CJI has to mandate to analyze its value chain, impacts on the business relationship with Heavey, make critical decisions on if building the pumps in-house would validate the capitalization costs, and whether it would dilute their expertise.
From Heavey Perspectives
Heavey is a local company that is dedicated to delivering their products on time. Their relationship with CJI seems to be successful, but they find difficulties to supply their bilge pumps once CJI’s demands 50 pumps monthly. Such a situation will prompt them to consider other options like maintain their production level and risk losing CJI as business partners or expand their production level.
Since they are not entirely established, they need to consider expanding their production levels for long-term benefits. Such a decision will aid them to continue working with CJI, will be risky to invest much capital for expansion when there are possibilities of CJI choosing other suppliers or decide to produce their pumps domestically. The major ambiguity that comes up for Heavey is the absence of an official contract with their client, CJI. Heavy must consider that fact that will they be expanding their business for the sake of delivering to CJI alone or will it help in servicing other clients. Additionally, they will also consider hiring more staff to keep up with CJI demands.
Question Two
Option 1: Continue using Heavy
CJI have always trusted Heavy with their on-time delivery of quality pumps. As such, CJI did not consider pumps as an issue after signing their contract with Great Lakes. CJI had initially ignored that Heavy would have to expand their manufacturing capabilities for pumps. It seems a lot to expect Heavy to align with CJI requirement since there was no formal agreement between them. Therefore, the most likely move that CJI can make is to discontinue their relationship with Heavy or form a partnership with them. However, they cannot fully rely on Heavey supplying them with pumps as they presently are, as it would guarantee them to failure in meeting Great Lakes requirements.
Additionally, as CJI rely on Heavey’s proficiency and product eminence with regards to the production of pumps, formalizing their pump manufacturing has been a short-term plan so far and with their bigger production level it will escalate more costs than in-house manufacturing would. Also, CJI does not gain any advantages regarding cost saving from Heavey utilizing economies of scale since they produce products in batches, and they are a small company.
Option 2: In-House Manufacturing
If Heavey asserts to this option, they would assert better quality control, use their existing ability, control, manage their lead time and storage costs, and most likely utilize economies of scale and thus save their production costs in a long-run. Currently, CJI produces other parts their engines in-house, therefore, if they start producing the pumps in-house they will be able to allow for the luxury of designing their products to suit clients’ needs. Also, with the free workplace within their facility, manufacturing pumps in-house would help them utilize the floor space and make a better use of their fixed assets. Even though it does not reflect on the financial reports, it allows the firm to improve the efficiency of their preceding capitalization. Control of their manufactured pumps will aid them in gauging when their products are ready for transportation. Such control over lead-time will make them meet Great Lakes deadline requirements. Finally, as they are producing approximately six hundred per year, they will be able to take advantage of the economies of scale since their employees start to get used to pumps production.
Disadvantages associated with in-house production are employing more capitalization cost, quality issues, and inexperienced labor force. It is evident that there will need to employ more capital in the engaging in a new production process, It is estimated that engaging in in-house production with requiring an initial capital of $500,000, clearing out space and hiring three new employees. As such this will affect the company’s efforts to focus on its core competence of boat engine manufacturing. Also, the new staff will require training. Therefore it will exert more workload on the production manager. Finally, quality issues are eminent since they have to satisfy their clients, Great Lakes, regarding delivery time as well as quality. During the n...