Question No. 07 Case Study on CJ Industries (Attached) (10 marks)

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 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 suppliersCaolinn 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 time-at 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 guarantee delivery of fifty pumps per menth to one of the CJI warehouses. This had been the one item that had "slipped through the cracks" on the contract with Great Lakes, and it now loomed as something that could conceivably put the contract in jeopardy. There were potentially additional equipr..ent, labor, and other production costs for Caolinn associated with the extra demand for bilge pumps, not to mention extra deliven y costs as well. Caolinn had been a reliable supplier for CJI for a number of years, but nothing else had ever been purchased from Caolinn. Addi- tionally, because the demand for these pumps was rather low and the deliveries were spo- radic, no performance records had ever been kept for Caolinn. Mr. Heavey had also not known specifically about the quality history of the Caolinn bilge pump, although he could not remember ever getting one returned by Great Lakes for any reason. Up until now, the pump issue did not seem like anything to worry about. Another possibility for CJI would be to make these pumps in-house. Chris Heavey knew that CJI had the capability to make this pump, but it would require an initial capital invest- ment of about $500,000, according to the CJI production manager, along with the crearing