Resolution and Exploration to Troubled Supply Contract

The construction and assembly of motorized vehicles and boats are multifaceted, complex operation s that require the sourcing of parts from different manufacturers, both locally and internationally (Zsidisin & Ritchie, 2009). The suppliers, located in different parts of the globe offer a wide range of expertise that allow s manufacturers to focus on the quality of the products that they manufacture (De Villiers , Nieman & Niemann , 2017). The boat-building industry is no different. The industry draws on the proven experience of well-established suppliers that make specific components that are used in the final assembly o f a boat as designed by the boat manufacturer . This case study entails the resolution and exploration of a troubled supply contract featuring CJ Industries and Heavy Pumps. 

Major Facts 

CJ Industries (CJI) was give a 5-year contract by Great Lakes Pleasure Boats to provide specific engine components for the duration of the contract. The contract was worth $ 10 million annually and was to commence from July 2008. The contract represented a significant chunk of business for CJ Industries and constituted about 30% of the company’s total annual sales. CJ Industries manufactured most of the components in-house except for the bilge pump which was supplied by another manufacturer , Heavy Pumps . Heavy Pumps had been the leading supplier of bilge pumps for a while , with the two entities having formed a healthy relationship that had worked for them for many years. Owing to this relationship, t he agreement was mutually implied and was exercised without the requisite paperwork. All was done in good faith on a regular, non-contractual basis. 

Purchase of the bilge pumps occurred i n a cycle of every 4-6 months, with Heavey Pumps supplying the items at the cost of $ 1500 per unit. The price was inclusive of the delivery cost to one of CJI’s warehouses. The relationship between the two companies worked in such a way that CJI would make orders after 8-10 weeks once the stock was depleted. The next phase involved a demand of at least 50 bilge pumps on a monthly basis once the contract was initiated. 

Major Problem(s) 

Nick Grams, the purchasing manager at Great Lakes, identified several potential issues with the contract. For starters, Heavy Pumps had offered no guarantees that it would deliver the pumps in good time . Likewise, the quality of the pumps supplied to CJI was not guaranteed . While there had been no supply issues in the past, there was an apparent increase in the items to be supplied, and no concrete guarantees had been offered on the supplier's ability to deliver the numbers required on time . There was also lack of previous performance records between Heavy Pumps and CJI. While there had been no returns or complaints from Great Lakes, there was no clear documentation on the same. 

Since there was no way of completely guarantee ing that the required quantity of pumps would be supplied, CJI had to offer guarantees on how it would execute its end of the bargain with Great Lakes. One of the options that CJI put forward was the establish ment of its own internal pump manufacturing capabilities. Unfortunately, this move would require an investment of $ 500,000 to establish the pump manufacturing division. Likewise , there would be additional space required as well as recruitment of 3 additional membe rs of staff. The need fo r additional space had the risk of potentially passing on the cost to Great Lakes. Another pitfall included the fact that at least nine months would have to be given to CJI to help them develop their internal pump production capacity. The extra time had the potential of delay ing implementation of their supply contract if it was not enacted in time. Alternative pump suppliers who possessed previous experience were not a viable option since they were at least 500 miles away. This concerns regarding whether or not CJI would guarantee Great Lakes the quality of engine components and pumps from its suppliers and commence their supply contract in time . 

Possible Solutions 

One of the solutions would have been for CJI to negotiate with Heavy Pumps . The negotiation would involve pushing them to commit to supplying the regular number of pumps as stipulated by the first party manufacturer. CJ I ndustries would work with Heavy Pumps to ensure that the capacity needed for consistent production wa s expanded and that Heavy Pumps would be assisted to grow and expand enough to meet the needs of the business as they develop. The advantage of this solution is that it would not entail any extra cost. Conversely, CJI would not be guaranteed that the number of pumps needed would be supplied on time. 

Another solution would be for CJI to commence the development of its own internal pump production capabilities early enough for testing and quality assurance to be provided on all pumps that will be manufactured internally. Enough time would be needed to expand, build and hire the new staff and also allow them to come up with a functioning prototype that would be developed and tested before moving to the actual manufacture of pumps. In this case, the CJI would have to spend more money and time to achieve this goal in the short-term. However, in the long run, an internal pump production facility would help reduce costs and ensure that quality of the required pumps is met. 

Choice and Rationale 

Of the two options, I would choose the second option. This is because the latter option allows CJI to control the entire supply chain process and offer its validated guarantees based on quantifiable measures that determine performance. The two attributes are absent in the first option and hence the reason for not choosing it. 

Implementation 

The safest plan would be to invest half a million dollars so as to guarantee that 30% of sales would remain intact. The ideal situation would be to seek financing and commence expansion and hiring as soon as possible. This would enable CJI to develop its own internal capabilities without worrying about a 3 rd party's ability or lack thereof to deliver enough quantities at the right time. Commencing the building of internal pump production capacity earlier than the nine months required would enable the company to get an early start and iron out any frustrations and kinks before the official commencement of the supply contract with Great Lakes. 

Conclusion 

While maintaining healthy contracts and relationships is essential, the execution of this contract would have been of great value. This could have been done by making the right investment to safeguard the considerable portion of sales that the contract offered, and which would act as a stepping stone for the company to grow even farther. 

References 

De Villiers, G., Nieman, G., & Niemann, W. (Eds.). (2017).  Strategic logistics management: A supply chain management approach . Van Schaik Publishers. 

Zsidisin, G. A., & Ritchie, B. (2009). Supply chain risk management–developments, issues and challenges. In  Supply Chain Risk  (pp. 1-12). Springer, Boston, MA . 

Appendix 

Question 1 

CJ Industries has additional demand that it needs to cater to which forms a significant part of it s contractual obligation to Great Lakes. Part of this demand could require a formalization of the buyer-supplier relationship that has previously existed without any formal agreement or contract in place. CJI has a dilemma, whether to entrust the contract of supplying bilge pumps to Heavey Pumps and hope that they will be able to cope with the increased demand or invest in their in-house manufacturing capabilities. Heavey Pumps ha s not been able to assure CJI that it can service the increased demand once CJI’s contract is initiated. Heavey Pumps would have to invest significant sums of capital in expanding its capabilities so as to meet the needs of a single client, without the guarantee of another market should the contract at any point be voided or canceled. These are the issues that should inform Mr. Ashby’s research efforts. 

Question 2 

With all factors considered, CJI should invest in b uild ing its bilge pumps. The requisite investment in acquiring new staff, expanding floor space and purchasing new machinery is a better investment as it will safeguard the integrity of the company’s contract with Great L akes and guarantee its ability to deliver. One of the advantages of investing in internal capacity is that CJI will enjoy full autonomy and responsibility when it comes to delivering on its contractual obligations. CJI will also be able to grow its capacity and expertise , thus boosting its presence in the market while strongly increasing its chances of acquiring new customers. The disadvantages, however, are that acquiring new staff and space, and installing the machinery might take a long time. This could jeopardize the commencement of the contract and possibly delay it. Another disadvantage is that CJI has no proven record when it comes to manufacturing bilge pumps and would have to invest and grow its capacity painstakingly. This implies that teething problems in its new product development process are almost inevitable. The risk of working with another supplier means that they would have to initiate a relationship from scratch that offers no guarantees concerning quality. 

Question 3 

CJ Industries can ensure that there is continued c ont r act compliance by streamlining its processes internally and making sure that its internal quality control processes at the very least match those of Great Lakes. CJI could also create a mechanism that stipulates the guidelines of working with any new supplier and the standards they would have to meet as well as signing binding agreements between them. CJI could also help foster good faith and extend the life of its contract with Great Lakes by ensuring that all obligations that are stipulated in its agreement are met and delivered on time with contingencies in place to deal with any potential emergency.