Major Facts
CJ industries has been given the opportunity to offer Great Lakes Pleasure Boats with fundamental engine components for pleasure boats line. The opportunity to provide the engine components was due to several years of dedicated service and hard work. It was also due to the creation of a close buyer-supplier relationship between the two companies. It was a 5-year contract worth about $10 million annually. The contract has a chance for an extension if the products satisfy the needs of Great Lakes Pleasure Boats. The contract was awarded in 2007 and was to begin in July 2008 ( Wisner, 2013) . CJI had indicated that they were willing to show their ability to become a fundamental alliance partner with Great Lakes. Optimal performance was necessary for the contract because it would represent about 30% of the annual sales of CJ Industries. Therefore, the contract was a great milestone for CJ industries and Great Lakes.
CJ industries often bought the bilge pump from one of the local manufacturers. The bilge pump was one of the key components of the Heavy Pumps, and the purchase from the small local manufacturer was quite informal. Nevertheless, all the other parts of the pump were manufactured by CJ Industries. After completion, the goods would be placed in a warehouse located close to the company production facilities of Great lakes. The delivery cost of fifty pumps stood at $500 and was added to the unit price which was $1500 ( Wisner, 2013) . The purchases would occur only once in about 4 to 6 months. The contract was important to the performance and success of CJ industries. Their main objective would be to fully satisfy the needs of the contract and secure their future alliance with Great Lakes. Most of CJ Industries’ manufacturing has been in-house, but they have been sourcing their bilge pumps on an informal basis from Heavey Pumps. Despite the fact that Heavey has been a reliable partner, the company’s production capabilities are small and expanded business may stress their ability. CJ Industries has been contemplating whether to continue subcontracting the bilge pump or to build them in-house.
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Major Problem
CJ industries should be able to depend on Heavey Pumps to increase their production and cope with the increasing demand from CJ Industries so as to satisfy the requirements of the new contract. However, even if Heavey Pumps increased their production capacity and provided Great Lakes with the required pumps, there would be problems negotiating the delivery fee. Initially, CJ Industries paid about $500 for the deliveries every 4 to 6 months ( Wisner, 2013) . On the other hand, the new contract dictates that CJ Industries pay the similar change every month. It would increase their annual shipping costs from a maximum of $3000 to almost $6000 per year.
Possible Solutions
The first solution would be to manufacture the pumps in-house. CJ industries would have the capability to manufacture their own pumps after they invest in the required manufacturing machinery. The initial capital investment on the manufacturing machinery would be about $500000 along with employing 3 additional employees and clearing some space in the facilities for the new machines and employees. However, the investment is uncertain because CJ industries do not have pump manufacturing experience. The main advantage of the investment is that if CJ Industries can manufacture about 50 pumps monthly, the delivery costs will be minimized and the company will minimize their spending ( Wisner, 2013) . Nevertheless, the main disadvantage is that the initial investment is quite huge and CJ Industries does not have pump manufacturing experience. CJ Industries will be uncertain about the quality and reliability of the pumps that they will be producing.
The second solution would be to look for other subcontractors who have the required capacity. Other bilge pump manufacturers who have a bigger supply than Heavey can offer the required pumps by Great Lakes. There are about 2 pump manufacturers who are available. However, they are located more than 500 miles from the CJ Industries’ warehouses, and there has never been a business relationship between the new subcontractors and CJ Industries ( Wisner, 2013) . The main advantage would be that Great Lakes would receive the required number of pumps. However, the new subcontractors are far away from CJI’s industries by about 500 miles, and it would lead to a substantial increase in the delivery costs. There would be uncertainties in the delivery of the pumps. Also, the quality of the bilge pumps from the new subcontractors had never been tested, and the company is unsure whether they meet the required quality and safety standards required by Great Lakes.
The third option would be to remain with Heavey as the main supply of the pumps. The main advantage of the solution would be that the company is renowned for the reliability of their delivery and the quality of their bilge pumps. The specifications of their bilge pumps are consistent and meet the required standards. Also, Heavey is located closer to the CJ Industries’ warehouses in comparison to other manufacturers. CJ Industries and Heavey have a close relationship due to the history of their business ( Wisner, 2013) . However, Heavy has a limited supply of the bilge pumps, and CJ Industries is uncertain whether they can guarantee the delivery of about 50 pumps every month. The delivery of 50 pumps every month may have a heavy toll on the production capabilities of Heavey, and they may be unable to sustain the delivery on a consistent and reliable basis.
On the other hand, the company can utilize a combination of any of the above three possible solutions. The main advantage is that any combination will be able to meet the demand requirements of about 50 bilge pumps monthly by Great Lakes. CJ Industries would no longer be uncertain about the manufacturing potential of the manufacturers. It would focus on other core components of the pump while allowing the subcontractors to focus on the construction of the bilge pumps. On the other hands, a combination may result in higher production costs ( Wisner, 2013) . The new subcontractors may have higher production costs, and it may increase the production costs at CJ Industries. Furthermore, the quality of the pumps produced by the new subcontractors had not been previously tested. CJ Industries would be uncertain whether they would pass the quality and safety standards that had been set by Great lakes.
CJ Industries can assure their continuous contract compliance and additional businesses in the future by building a better relationship with Great lakes. A good relationship is one of the key requirements of the business relation between the CJ Industries’ suppliers and contractors. CJ Industries can look for better technologies in building their products. CJ Industries can look for new designs that are more effective and cost-effective for Great Lakes. It will ensure that Great lakes are always eager to recommend CJ Industries to other companies ( Wisner, 2013) . The success of Great Lakes is dependent on high-quality products that are produced by CJ Industries. They should also be ready to offer support when Great lakes are launching their pleasure boats line by sending their best employees to assist in the test runs.
Recommendations
The best solution would be to remain with Heavey Pumps as their supplier. The company is renowned for the reliability of their delivery and the quality of their bilge pumps. The specifications of their bilge pumps are consistent and meet the required standards. Also, Heavey is located closer to the CJ Industries’ warehouses in comparison to other manufacturers. In-house manufacturing would not be the best option because the initial investment is quite huge and CJ Industries does not have pump manufacturing experience. CJ Industries will be uncertain about the quality and reliability of the pumps that they will be producing. Having new subcontractors may have various challenges such as the quality of the bilge pumps from the new subcontractors had never been tested and the company is unsure whether they meet the required quality and safety standards required by Great Lakes ( Wisner, 2013) . On the other hand, a combination of the possible solutions may lead to higher production costs and the quality of the bilge pumps would be questionable.
Implementation
For CJ Industries to fulfill the contract requirements with Great Lakes, they should approach the solution from a strategic point. They should convince Heavey Pumps to ramp up their production capabilities so that they can meet the contract requirements. Heavey Pumps may be faced with challenges regarding space requirements and investing in new manufacturing machines. Since CJ Industries is financially sufficient, they can purchase the required machines, install them in their plants, and then lease the space and machines to Heavey Pumps ( Wisner, 2013) . The space and machines would be run by Heavey’s employees because they have the experience to manufacture the bilge pumps. Such an action would increase the production capabilities of Heavey Pumps, reduce the transport costs, and earn revenue for CJ Industries by leasing the machines and space. Furthermore, Heavey Industries would not have to invest heavily to improve their production capabilities. The machines should be purchased and installed soon so that they would be ready for the operations according to the contract.
References
Wisner, J. D. (2013). A structural equation model of supply chain management strategies and firm performance. Journal of Business Logistics , 24 (1), 1-26.
