For engine dealing products and services, CJ Industries (CJI) has been known to take the lead. Due to this, Great lakes Pleasure Boats (Great Lakes) has offered the company a contract worth $10 million a year. The contract expects CJI to provide engine components for boat manufacturing. CJI needs to ensure the supply of pumps from Heavy will be of high quality and arrive within the required time for CJI to maintain the contract compliance with Great Lakes Pleasure Boats because it holds the future of the company’s success. CJI and Heavey Pumps have a professional relationship between them.
However, CJI first placed an order of fifty pumps every four to six months in advance; this allowed Heavey to stay on top of the orders and satisfy CJI as obliged. However, the new contract signed with Great Lakes required CJI to order fifty pumps per month with a possibility of increasing during the five-year contract. This means that Heavey’s production capacity will be exceeded. Therefore, delays will be evident, yet CJI has to deliver their contract with Great Lakes.
To build the pumps in-house whereby they have to raise the capital, and by doing so, they would have diluted their expertise.
Heavy is a dedicated company that delivers products on time to customers. They have had a good relationship with CJI, but once the order is increased to 50 bilge pumps a month, they find it challenging to supply. This means they will have to either maintain their levels of production or lose the CJI business. To avoid delays, CJI has to hire other suppliers other than Heavey’s, who are five hundred miles away. Otherwise CJI ought to make critical decisions or increase it to march the new order.
Increasing their production would mean that CJI will be fully established, with long-term benefits. It would also be risky to invest a larger amount of capital to expand, knowing CJI can build the pumps in-house or choose other suppliers. The absence of an official contract with CJI poses a major ambiguity. Therefore, Heavy needs to evaluate whether expanding the business is for the sake of their relationship with CJI or serving the customers. Heavey has to hire additional staff to withstand the demand.
Option 1: In-House Manufacturing
If CJI chooses to build the pumps in-house, they will control the lead time, have better quality control, cut on storage cost, and eventually utilize the economy of scale hence saving the production cost. CJI, which are currently reproducing the other parts of an engine, will achieve the luxury of designing a product to fit clients’ needs when producing the pumps. CJI have plenty of underutilized workspaces, and by manufacturing the pumps in-house, will use them (Boydon, 2019). Controlling the lead time will help them meet the Great Lakes deadline. The disadvantage of this option would be more capital, inexperienced labor, and quality issues. A lot of funds will be needed to start any production process requiring an initial capital of $500,000. They will also need to train their employees for the new task. They have to ensure the pumps are of high quality to satisfy their client, Great Lake. Alternatively, they can sub-contract Heavey during the first year for support.
Option 2: Continue Using Heavy
Since CJI did not have an issue when they first sourced the pumps from Heavey, they might opt to continue with their contract. Moreover, CJI feared Heavey will not expand their production capabilities, which is difficult (Boydon, 2019). This means they cannot entirely rely on Heavey to supply them with pumps, which will lead them to fail to meet Great Lakes’ requirements. By maintaining this relationship, CJI does not get any advantages regarding cost-saving since Heavey does not utilize the economy of scale as it produces goods in batches. Although they will have an advantage because Heavey has the experience, CJI will not spend money on establishing a bilge pump manufacturing plant.
Option 3: Switch to Other Suppliers
CJI does not have many options regarding suppliers as there are only two of them, Heavey and the one 500 miles away. When they consider the other supplier, the shipping cost will be escalated. Currently, CJI cannot consider this option as minimal information is given. Furthermore, this will have an advantage as they will be assured constant supply. Alternatively, CJI can consider combining the options whereby they can continue purchasing from Heavey and, at the same time, invest in in-house manufacturing. I would choose B since I believe that if there is more than one solution, all should be explored to maximize chances of success.
For CJI to ensure continued contract compliance and additional future business from the great lake, they must continue proving their products in time, deliver high-quality products, respond quickly to Great Lakes’ request, and work and expand on their relationship with Great Lakes. This means CJI must manage and effectively control their supply chain to work in sync with the Great Lake, which will benefit both parties.
Boydon, C. J. I. S. (2019). Assessment of an alternative payment scheme for manual gasoline stations using queuing theory. In 2019 IEEE 6th International Conference on Industrial Engineering and Applications (ICIEA) (pp. 299-305). IEEE.
- Mr Ashby should research weather Heavey Pumps, and CJIs can meet the deadlines on time to avoid any inconveniences.
- CJIs should combine their options, let Heavey Pumps bring them pumps and build them in-house, learning how to make quality pumps will give CJIs the chance to expand and utilize the workspace and cut on the cost of purchasing them. However, there are some risks if the pumps made in-house are not of high quality.
- CJIs should ensure they get and deliver the pumps on time to cement their relationship with Great Lake.