Question # 06 Case Study on CJI (Attached) (12 marks) Review the attached case study and answer the questions mentioned in case study. Page 2 of 4 Case Study 2 CJ Industries In October of 2002, CJ Industries had just been awarded a five-year contract, amounting to $10 million per year, commencing on July 2003 to supply Great Lakes Pleasure Boats a number of key engine components for its 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 its boats on an as-needed basis. The contract had significant long-term follow-on potential as well, if CJI could continue to show Great Lakes it had the capabilities to be one of its valued alliance partners. Additionally, with this contract, Great Lakes would represent about 30 percent of CJI's annual sales, so per- forming 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 its suppliers--Caolinn Pumps, a small local specialty pump manufacturer-on an informal, noncontract basis. The remaining items were all built in-house by CJI and supplied to Great Lakes from one of its two finished-goods warehouses located near the Great Lakes produc- tion facilities. Caolinn Pumps was producing and delivering fifty bilge pumps at a timeat a cost of $1,500 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 $500, depending on the carrier used) were included in the $1,500 per unit price. This scenario typically occurred about every four to six months. Normally, CJI would order another batch of fifty about eight to ten weeks ahead of time, and Caolinn had always been able to supply the pumps before CJI's stock was depleted. While CJI Had sufficient excess capacity to ramp up production on the parts to be sup- plied in the Great Lakes contract, it was not sure about the ability or willingness of Caolinn to increase its production of the bilge pumps. The new demand for bilge pumps starting in July would be fifty pumps per month, and potentially more, depending on Great Lakes' de- mand and the ability of CJI to perform on the contract. There were a number of issues that Chris Heavey, the purchasing manager who put the contract together with Great Lakes, needed to work out with both Caolinn and the produc- tion manager at CJI for this contract to be met with as few problems as possible. The issues with Caolinn Pumps were whether or not it could guaranty dalinam afce Case Studies out of some space and the hiring of three additional employees. With only about nine months remaining until the contract start date, it would be tight, but the production man- ager had assured Chris that CJI could do this, if needed. While Mr. Heavey did not doubt the production manager's assurances that the production line could be ready, he was not sure that going to this added expense was a good investment for CJI, given its lack of pump man- ufacturing experience. There were also at least two other bilge pump manufacturers that Mr. Heavey knew of, but both of them were about 500 miles farther away from the CI ware- houses, and he had never used either of these firms in the past. This whole thing seemed to Chris like an ideal job for his special project buyer, Linda Stanley. He figured he had a week or two to hammer out a plan to assure contract compli- ance with Great Lakes, and Linda was known for her ability to put things together quickly. So, he called her. Questions for Discussion 1. What are all the issues here, from both CJI's and Caolinn's perspectives, that need to be researched by Ms. Stanley? 2. Should CJI continue to use Caolinn to supply pumps, should it make them in- house, should it contact one of the other suppliers, or should it do some combi- nation of these alternatives? Discuss the advantages, disadvantages, and risks of each of these alternatives. 3. How can CJI assure continued contract compliance and additional contract business from Great Lakes in the future