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Running head: Case Study: CJ Industries and Heavy Pumps 1

Case Study: CJ Industries and Heavy Pumps

NAME

TLMT 313

American Public University

Professor Ernest Hughes

January 17, 2016

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Case Study: CJ Industries and Heavy Pumps 2

Case Study: CJ Industries and Heavy Pumps

I. Major Facts:

CJ Industries (CJI) is a company that makes and supplies different parts for boat

engines. In October of 2007, CJI was given a $10 million annual contract by Great Lakes

Pleasure Boats. In this contract, CJI would be providing Great Lakes many different boat

engine parts on an as need basis. This contract was a great opportunity for CJI seeing as

Great Lakes and this contract would supply CJI 30% of their annual sales.

Every part of CJI’s building process was done at one of their two facilities except

for a bilge pump that they purchased from a company called Heavy Pumps. These pumps

were built to Great Lakes specifications and CJI would receive these pumps ato ne of

their warehouses. Heavy Pumps and CJI had a very informal, non-contract basis.

Whenever CJI needed pumps, they would call Heavy Pumps in advance and the delivery

would be shipped. The cost of the pumps was $1500 for 50 bilge pumps with a $500

shipping fee. The order was typically made every four to six months by CJI.

The new contract from Great Lakes would require CJI to ramp up production.

This increase in production would require and additional 50 pumps per month and CJI

was not sure whether Heavy Pumps could provide pumps at this volume. The purchasing

manger Nik Grams needed to find out if Heavy Pumps would be able to ramp up their

production to meet the needs of CJI. The pump issue was not foreseen when the contract

was written between CJI and Great Lakes. If the demand could not be met or the

additional shipping was too much this could be as an issue for CJI.

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Case Study: CJ Industries and Heavy Pumps 3

CJI also had the option of making the pumps themselves. In order to do this, Nik

Grams consulted with the production manager and it was determined that a $500,000

investment would be needed and 3 additional employees would need to be hired.

II. Major Problem:

CJI needed to be able to count on Heavy Pumps to ramp up their production and

be able to keep up with the demand for the new Great Lakes contract. If they could ramp

up and supply them with the pumps needed, the delivery fee would also become an issue.

Currently CJI was paying the deliver fee of $500 every four to six months. This new

order would require them to pay that same delivery fee every single month. This would

be an increase in annual shipping costs from the current $2,000 – $3,000 to $6,000 per

year.

III. Possible Solutions
A. Nik Grams can meet with Heavy Pumps to see if the added volume of pumps they needed

would drive the price down. If the price dropped low enough per pump, this might offset

the shipping costs.
B. CJI could look into the two other suppliers more deeply and contact some of their

customers to find out their service record and get some more numbers on

pricing/shipping.
C. Nik Grams could see if Heavy Pumps or any other supplier would be able to produce

more than 50 pumps a month. This would possibly eliminate the shipping costs and since

the contract seemed to be stable if might be worth it to make one or two large purchases

of pumps a year.
D. Production could be set up in house and still meet the time frame.

IV. Choice and Rationale

CJI should set up production of the pumps in house. It would take an additional

investment of $500,000 dollars but would be worth it. This investment would not only

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Case Study: CJ Industries and Heavy Pumps 4

pay off for this contract with Great Lakes but it would also pay off with other future

production. Making the pumps in house would eliminate all shipping costs. It would also

let CJI control the amount of pumps made more specifically for each order or each

shipment to Great Lakes. In addition to increased control of pump production, CJI

wouldn’t have to worry about Heavy Pumps or any other supplier being able to reach

their demand. CJI would overall be more in control of the entire operation and supply

chain of pumps.

Other options weren’t necessarily the worst options but they still had CJI

depending on other companies for something that was crucial to their contract and supply.

Since this was production at a new scale and it had never been tested at these volumes it

would be better for CJI to manufacture in house.

V. Implementation

Once Nik Grams is sure that the production manger could meet the deadline and

pumps could start to be made the initial investment would have to be secured to start the

manufacturing process. Once the space was cleared out, the hiring of new employees

would need to take place and the employees would need to be trained. Finally, once the

employees were trained and the manufacturing was set up it would be time to start

production immediately. In the meantime, and order should be put through to Heavy

Pumps and as many pumps as possible should be on hand as extra supplies if the in house

production didn’t go as smoothly as planned.

Appendix

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Case Study: CJ Industries and Heavy Pumps 5

1. What are all the issues here, from both CJI’s and Heavey’s perspectives, that need to be

researched by Mr. Ashby?

Mr. Ashby has a few issues he would need to investigate. First would be the cost. Would

it be feasible and realistic to set up production at CJI or would it be more beneficial to for

Mr. Ashby.

2. Should CJI continue to use Heavey to supply pumps, should they make them in-house,

should they consider one of the other suppliers, or should they do some combination of these

alternatives? Discuss the advantages, disadvantages, and risks of each of these alternatives.

CJI should make the pumps in house. While the initial investment would be substantial, it

would be worth it in the long run. The efficiency that producing them in house would bring

would be worth it. If they were to outsource the pumps then CJI would have to pay shipping

costs and depend on Heavy to meet a demand they have never met before.

3. How can CJI assure continued contract compliance and additional contract business from

Great Lakes in the future?

Again, the best way to assure contract compliance would be to produce the pumps in house. If

the pumps are produced in house, the quality control would be perfect and there would be less

transportation needed to control. In addition the producing the pumps in house, CJI should keep

the lines open with Heavy as a fail safe in case their pump production doesn’t meet demand.

References

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Case Study: CJ Industries and Heavy Pumps 6

Burt, D, Petcavage, S, & Pinkerton, R. (2010). Supply Management. 8th Edition. New York, NY:

McGraw­ Hill

References

Finally, the reference page. The reference page has the word appears at the top of the page

centered. Also, the reference page has double space entries and there is a hanging ½ inch

hanging indention on the 2nd and proceeding lines.

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Case Study: CJ Industries and Heavy Pumps 7

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