Presented to the Department of Decision Sciences and Innovation
De La Salle University - Manila
Term 3, A.Y. 2024-2025
In partial fulfillment
of the course
In SUPCHAM (K36)
Case Study #1: CJ Industries and Heavey Pumps
Submitted by:
Table of Contents
I. Summary of Findings 3
II. Background Information 3
III. Problem Statement 3
IV. Analysis of Alternatives 4
A. Alternative Course of Action #1 - Add a secondary supplier with Heavy Pumps. 4
B. Alternative Course of Action #2 - Form a formal contract with Heavy Pumps as
CJI’s sole supplier. 5
C. Alternative Course of Action #3 - Make the Pumps in House 6
V. Detailed Recommendations 8
VI. Answer to Case Questions 9
A. Continue to use Heavey Pumps to Supply 10
B. In-House Manufacturing 10
C. Consider other suppliers 10
D. Combination of Alternatives 11
VII. Learnings 12
I. Summary of Findings
The case study shows that CJ Industries has some concerns regarding its
manufacturing that stems from the lack of formal agreement with their supplier of
bilge pumps, Heavey Pumps. CJ Industries is unprepared for the increased
demand that is required under the new contract with Great Lakes Pleasure
Boats. Their current supplier, Heavey Pumps, has been reliable on low-volume
orders but may lack the capacity to consistently handle larger demand in a
smaller period of time. This poses a risk of not honoring a contract on the part of
CJ Industries. There is an alternative solution that was brought up by Mr. Nik
Grams, their purchasing manager, invests in an in-house production facility but it
would cost them $500,000 and he is also unsure if it is a plan that is worth
investing into since their personnel lack the knowledge of manufacturing these
materials.
II. Background Information
CJ Industries was rewarded with a five-year contract worth $50 million in
October 2007 to supply Great Lakes Pleasure Boats engine components for their
boats. This contract was a result of years of effort and dedication of CJ Industries
to satisfy Great Lakes Pleasure Boats. This is huge for CJ Industries as this
accounts for about 30% of annual revenue and its success going forward is
heavily dependent on its performance on the contract. If all this goes well, this
would serve as a bridge to long-term alliance between the two companies.
Among the components that was needed to be produced from CJ
Industries was a bilge pump. However, they do not produce it in-house but rather
they outsource it from one of their suppliers, Heavey Pumps. Moreover, CJ
Industries doesn’t have a formal agreement with Heavey Pumps when it comes
to ordering, they just order a specified number of pumps and order it in advance
so that it won’t disrupt their supply chain, which happens every four to six
months.
III. Problem Statement
The new contract between CJ Industries and Great Lakes Pleasure Boats
stipulated that CJ Industries would produce a much higher quantity of engine
components that is needed for its client’s boats. However, one of the parts
needed for the engine component is a bilge pump and CJ Industries produce all
of its materials in-house except for this one. So they have been outsourcing it
from one of their suppliers, Heavey Pumps. However, they don’t have a formal
contract with them in terms of supplying them with what they need, this sudden
rise of demand would question the reliability of Heavey Pumps in terms of
meeting this new demand. This obstacle poses a risk of not fulfilling the terms of
the contract with Great Lakes Pleasure Boats.
Nik Grams, the purchasing manager of CJ Industries proposes that it
could produce the bilge pumps in-house but it would need an initial investment of
$500,000, clearing out spaces so that it could fit the machineries, and hire
additional employees. However, Mr. Grams also showed his concerns on
whether this would be a good investment as their personnel doesn’t have much
experience in manufacturing these pumps.
IV. Analysis of Alternatives
A. Alternative Course of Action #1 - Add a secondary supplier with
Heavy Pumps.
This alternative is to reduce supply chain risk by dividing pump
orders between Heavey Pumps and another external supplier. According
to the case, there are other suppliers identified by Mr. Grams that are
located 500 miles from CJI’s warehouses but have no history of relations
with the company. Under this plan, Heavey Pumps might be contracted to
supply 25–30 pumps monthly, and the second supplier would produce the
remaining 20–25 pumps. CJI might organize this in such a way that if one
supplier misses, the other can temporarily fill the gap or be ramped up to
full capacity if required. Although Heavey has an existing working
relationship with CJI, their scalability is uncertain. Conversely, exclusive
reliance on a new supplier can inject new, unwanted variables like
onboard time, alignment of quality in products, and shipping fees. With
that being said, diversification of supplies provides CJI the opportunity to
test the waters using a different vendor while holding steady with Heavey.
Strengths
1. Supply chain risk mitigation
This is an important strength considering the uncertainty about
Heavey’s capacity to scale from periodic batches to consistent
monthly deliveries. By adding a second supplier, CHI has a safety
net in place. With that being said, if Heavey is not able to perform
and keep up with the demands, the secondary supplier can take
some of the production load while preventing a breach of Great
Lakes’ contract.
2. Redundancy and Business Continuity
In case of unforeseen events—such as supplier shutdowns, natural
disasters, or financial instability—CJI would still have another
supplier in place. This is vital considering that bilge pumps are
critical to the contract and cannot afford delay.
3. Operational Flexibility
Demand from Great Lakes may fluctuate depending on the success
of their luxury boats. Dual sourcing allows CJI to quickly adjust
order volumes between suppliers without overcommitting or
overextending any single partner.
Weaknesses
1. Increased coordination
Managing two suppliers may increase workload for purchasing and
logistics team given that there are two sets of schedules, invoicing,
and quality inspections.
2. Challenges in Logistics
Given that secondary suppliers are 500 miles from CJI
warehouses, there may be added challenges with regards to
transportation and coordination.
3. Quality Differences
Even if both of them manufacture to the same drawings, minor
variation in materials, tolerances, or assembly could lead to
variation. This is dangerous for the components used for luxury
products where consistent performance matters.
B. Alternative Course of Action #2 - Form a formal contract with Heavy
Pumps as CJI’s sole supplier.
This action entails shifting from an informal supplier arrangement to
an official, performance-based contract with Heavey Pumps. In the
existing informal arrangement, Heavey has been delivering small
quantities of 50 bilge pumps every four to six months, on verbal orders
and without a contract. This was acceptable when CJI was delivering
components to Great Lakes on an occasional, as-needed basis. But with
the new five-year, $10 million/year deal starting in July, Great Lakes now
anticipates regular, on-time shipments of parts—such as the bilge
pump—on a monthly production schedule.
By putting the agreement with Heavey on a formal footing, CJI
would have to obligate them to supply 50 pumps a month (six times their
current output), maintain specifications as per Great Lakes', and agree to
terms regarding price, quality, non-performance penalties, and delivery
schedule. This action would involve careful negotiation and possibly
extending assistance to Heavey in the form of volume assurance or
progressive pricing to offset any additional cost of ramping up production.
Strengths
1. Existing Product Knowledge
Heavey has already been producing the exact bilge pump design
for CJI, meaning they’re familiar with Great Lakes' specifications
and production standards. This eliminates a significant learning
curve.
2. Stronger Supplier Loyalty and Focus
If Heavey is awarded the entire business, they’re more likely to
prioritize CJI’s orders and possibly invest in additional capacity,
training, or process enhancements to retain the account.
3. Faster Execution
CJI already has a working relationship with Heavey. With a contract
in place, production could scale quickly within the limited
nine-month window, helping meet Great Lakes’ delivery
expectations.
Weaknesses
1. High supply risk
Relying entirely on one single supplier with no proven high-volume
delivery record can be a major vulnerability. Any production failure
could directly jeopardize CJI’s contract.
2. No performance data
CJI has no documentation on Heavey’s defect rates, on-time
delivery performance or capacity limits. This lack of data can
increase the uncertainty of future performance.
3. Risk of supplier overdependence
While having Heavey Pumps as CJI’s sole supplier, it can possibly
lead to major risk. Should the company experience production
delays, equipment breakdowns or quality control issues, they will
not have an immediate fallback to continue the supply.
C. Alternative Course of Action #3 - Make the Pumps in House
The last course of action that Nik Grams was considering was
producing the pumps in-house. This would mean that CJI would craft their
own pumps for selling and would no longer need to purchase and rely on
other suppliers, unlike the two other alternatives. Grams knew that CJI
could attempt this. They had not done so previously, since demand is
uncertain and the company only needed the bilge pump in small amounts.
Now that demand is much more certain and the revenue stream is certain
as well, CJI could consider manufacturing its own pumps.
This course of action would require a steep initial investment of
approximately $500,000. Aside from this, the company will also need to
hire three additional employees and will need to make room for the new
material manufacturing. The manufacturing manager ensures the success
of this alternative despite tight time constraints. However, with 9 months
left until the beginning of the contract and with so little experience in the
product’s manufacturing, Grams can’t afford more time assessing the
overall long-term profitability of this investment.
Strengths
1. Cost-Effective
In the long run, this solution may potentially end up more
cost-effective. CJI will no longer need to pay another company for
the needed products, which will reduce costs. Additionally, CJI will
no longer need to pay for distant shipping costs, unlike the other
alternatives. However, demand must remain relatively consistent or
steadily increase.
2. Reduced Dependency
One of the risks harbored by relying on suppliers includes being
unable to have complete control and security over the supplies that
have been ordered. By implementing this alternative, CJI will have
more control over how much it can manufacture based on the
demand that it forecasts. Moreover, since CJI can rely on its own
manufacturing, the chances of unexpected delays and potential
product deficiencies can be reduced, and if not, easily amended
since the company handles its own.
3. Product Innovation
If the company chooses to invest in its own bilge pump, the
company has the opportunity to further innovate the product and
jump on potential increased efficiencies. CJI could create an even
better bilge pump than that of what they already buy. This could
help rake in more deals using innovative bilge pumps as leverage.
Weaknesses
1. Large Investment
The case study mentions that beginning to manufacture requires a
large investment of $500,000 and employing 3 more employees.
This requires both a lot of time and money, making it difficult to
commit to. Additionally, the company is unsure of the potential
return on investment the project could pose, making it an even
more difficult commitment.
2. High Risks
The case study also mentions that CJI has never attempted to
make their own bilge pumps. Being that this would be the first time
the company manufactures such an important piece of machinery,
high risks are imposed, such as technical and operational risks.
The product that the company ends up making could potentially be
inefficient, which could prove detrimental to the deal between CJI
and Great Lakes.
3. Tight Timeline
CJI only has 9 months in order to manufacture and perfect the bilge
pumps before the start of the contract with Great Lakes. Despite
the production manager's confidence in being able to produce a
bilge pump on time, there are still factors such as unforeseen
delays or potential defects that pose a risk to producing the right
pump on time. Aside from this, the company also has to take into
consideration the setting up of machinery and staff training, since
this would be the company’s first time with bilge pumps.
V. Detailed Recommendations
Given the value of the Great Lakes contract, the limited time until
production commences, and the uncertainties regarding Heavey Pumps'
capacity, CJ Industries must implement a dual sourcing strategy as the most
cautious and efficient option. Additionally, CJI must immediately enter into a
formal supply arrangement with Heavey Pumps, with specific monthly delivery
requirements, quality specifications, price terms, and non-compliance penalties.
At the same time, CJI must identify and qualify a backup supplier, preferably with
high-volume manufacturing experience and a strong quality management
system. This backup supplier should be brought onboard with an initial volume
allocation (e.g., 20–25 units per month) to allow for familiarization with
specifications and timelines while still having the ability to ramp up if Heavey
underproduces.
Moreover, CJI must also set up a system of performance monitoring
through periodic audits, delivery tracking, and quality checks for both suppliers.
With this, the logistics and procurement teams internally must be ready for the
additional coordination that this strategy will demand. By actively developing
supply chain resilience and lessening reliance on a single supplier, CJI will not
only safeguard its $50 million contract but also enhance its credibility with Great
Lakes Pleasure Boats and position itself for future partnership prospects.
Aside from this, CJI could also conduct a cost-benefit analysis given all
the alternatives they currently have. With each alternative having its respective
strengths and weaknesses, the company should invest time in conducting a
cost-benefit analysis that could help uplift the company in the long run. While the
short-term plan of the company can be easily decided, it will do CJI good to
assess the potential long-term benefits based on the results of the analysis.
Despite the several alternatives that the company currently has, it would
also do the company good to create various contingency plans just in case all
plans fall through. Great Lakes is a huge deal for CJI, and by increasing the
amount of fallback plans, the company can ensure a smooth partnership with
Great Lakes as well as trust between both companies. A few contingency plans
include having a list of several emergency contacts for immediate bilge pump
supplies, and having an option of expedited shipments.
VI. Answer to Case Questions
1. What are all the issues here, from both CJI’s and Heavey’s
perspectives, that need to be researched by Mr. Ashby?
In the perspective of CJ industries (CJI), the capability and
willingness of Heavey Pumps to consistently deliver 50 bilge pumps per
month raises a concern. CJI is assessing the overall capacity and
reliability of Heavy in being able to meet the said demand every month.
Additionally, Mr. Nik Grams, the purchasing manager who put the contract
together with Great Lakes must ensure the quality of Heavey’s pumps.
Ensuring that the purchased pumps are up to Great Lake’s standards, the
historical quality of Heavey’s must be assured.
With CJ Industries to supply Great Lakes Pleasure Boats, CJI’s
supplier Heavey Pumps becomes looped into the potential supply chain.
That being said, CJI must consider the cost analysis of a bilge pump
priced at $1,500 per unit with the inclusion of about $500 per 50 pump
shipment, depending on the carrier used. CJ industries must assess
whether this is reasonable compared to making these in-house or
sourcing such from other suppliers. On the other hand, CJI must consider
the risk of dependency to Heavey Pumps. As this contact with Great
Lakes would represent 30% of CJI’s annual sales, potential risks of failure
to deliver would significantly affect the aforementioned contract.
Another aspect CJI must consider is the possibility of producing
these pumps in-house. However, this requires an investment of about
$500,000 along with the clearing out of some space, and the hiring of
three additional employees. Ultimately, this becomes a deciding factor for
Mr. Grams considering that CJI has a lack of pump manufacturing
experience and alternative suppliers are present.
On the other hand, Heavey Pumps must assess the company’s
production capacity of being able to efficiently produce 50 pumps per
month instead of 50 pumps every 4-6 months. In the process, Heavey
Pumps must recognize the underlying operational impact this increase will
entail and if the unit price of $1,500 will be considered profitable despite its
increased production scale. Overall, Heavey Pumps must take into
consideration the potential risks of entering such formal agreement and
ensuring that they meet the required monthly demand.
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.
A. Continue to use Heavey Pumps to Supply
In the event that CJ Industries continues to use Heavey to
supply pumps, this existing relationship greatly impacts the new
contract with Great Lake. Given that CJI has been purchasing from
Heavey, this suggests that no immediate capital investment is
required and the aforementioned 2 companies could continue to
work with one another. However, with CJI’s new demand of 50 units
per month instead of 50 units every 4-6 months, it is unclear if
Heavey is able to meet the aforementioned requirements. As
Heavey was supplying pumps to CJI at an informal and
non-contract basis, CJI must heavily consider the existing contract
if the company chooses to continue with Heavey. As this is not yet
solidified, this exposes CJI to the potential risk of supply disruption
which directly impacts the contract with Great Lake.
B. In-House Manufacturing
Another alternative would be CJ Industries manufacturing
and producing pumps in-house. With the decision of supplying
in-house, this allows CJI’s full control over the production schedule,
amount of goods produced, and its corresponding quality.
Additionally, this serves as a potential long-term cost savings
solution if demand for pipes continues or increases with Great
Lake’s contract. Although, this requires an investment of about
$500,000 along with the clearing out of some space, and the hiring
of three additional employees. With CJI’s lack of overall pump
manufacturing experience, this new implementation could delay
production, and inefficiency could eventually taint the company’s
reputation and, most importantly CJ Industries' contract with Great
Lakes.
C. Consider other suppliers
The other alternative would be the look for new suppliers for
the pumps. The advantage of looking for a new supplier is that they
may have better quality of products compared to Heavey, and that
they may be able to deliver what CJ Industries needs. The
disadvantage would be that CJ Industries has never worked with
them before, meaning they have no prior relationship with these
suppliers. The other suppliers were also 500 miles away from the
CJ Industries warehouse, which can make logistics difficult and cost
more.
D. Combination of Alternatives
The last option is to do a combination of the alternatives,
which is to stick with Heavey Pumps as their supplier and do
in-house production of the pumps. The advantages of this
combination would be that if Heavey Pumps were not able to
supply, then CJ Industries can still rely on their in-house production,
and if the quality and supply of the in-house production do not meet
the requirements, then CJ Industries can rely on Heavey Pumps.
The disadvantages of this combination would be that CJI will have
to make a $500,000 initial investment to do in-house production,
and they have no prior knowledge of producing bilge pumps.
Another combination would be to continue with Heavey Pumps and
look for other suppliers who can deliver the requirements. The
advantages would be that CJI will not solely depend on Heavey
Pumps for their supplies and that they have a backup supplier if
they cannot deliver. The disadvantages would be if CJI can
communicate properly having two different suppliers and if they can
manage their supply chain management properly; if these chains
are mishandled, then it can cause an internal issue, which may lead
to CJI not being able to deliver the requirements of Green Lakes.
With all the mentioned alternatives, it is best that CJ Industries
(CJI) chooses to currently stick with Heavey Pumps for 1 more year but
eventually result in in-house manufacturing of pumps.
The alternative of CJ Industries choosing to get their supply of
pumps from Heavey for one more year allows the company to assess
whether or not Heavey is capable of manufacturing large orders of pipes.
In doing so, this allows CJI to observe whether Heavy Pumps have the
ability to satisfy ongoing and future contracts with Great Lakes.
Additionally, the one-year time frame allows CJI to begin constructing their
own bilge pumps in-house and gain experience in manufacturing. After the
said 1-year contract, CJ Industries can begin selling their in-house
manufactured pumps after ample time of trying, testing, and assessing the
return on investment of CJI choosing to make the pipes in-house.
3. How can CJI assure continued contract compliance and additional
contract business from Great Lakes in the future?
CJ Industries (CJI) can assure continued contract compliance and
additional contract business with Great Lakes in the future by establishing
formal supply agreements, developing a contingency plan, and efficient
quality control systems
In establishing formal supply agreements, this allows CJI to solidify
contacts with potential suppliers such as Heavey Pumps. In doing so, this
allows CJI to outline the required production quantities, prices, its
corresponding timelines, penalties, and expected quality. On the other
hand, CJI must prepare contingency plans to remain resilient in
responding to potential supply disruptions. By preparing such, this proves
to Great Lakes that CJI is prepared in times of uncertainty,
miscommunication, or any potential issues that may arise. Whether these
contingency plans include back-up suppliers or having in-house
production, this proves to Great Lakes that CJI can be trusted in times of
unpredictability. Lastly, efficient quality control systems are a crucial
component in upholding CJI’s end of the bargain. As CJI aims to have
continued contract compliance and additional contract business from
Great Lakes in the future, quality assurance is crucial. By ensuring regular
inspections and audits this could increase trust between Great Lakes and
CJI in producing supplies with utmost quality.
VII. Learnings
In the case of CJ Industries (CJI) and Heavey Pumps, supplier capacity is
underlined. Despite CJI’s existing relationship with Heavey Pumps, this does not
guarantee that Heavey would be able to adjust to CJI’s current contracts and
demands. CJI must not automatically rely on Heavey without assessing the
company’s supplier capacity to meet demands. Thus said, evaluating a supplier's
potential to scale and satisfy the needs of large contracts in the future should
take precedence over past performance. As Heavey was supplying pumps to CJI
on an informal and non-contract basis, this perceived risk could pose a domino
effect on all of CJI’s commitments. With that being said, reliance on a single
supplier poses various threats and disadvantages. Whether this may be
uncertainty to meet the quantity of demands or inability to adjust to required
timelines, businesses such as CJI must learn to diversify their sources of supply.
Companies choosing to create contingency plans increase their resiliency in
times of uncertainty, disruptions, or suppliers failing to meet certain needs. The
implementation of contingency plans avoids the risk of contract failure, loss of
revenue, and affecting the overall company reputation. This case study of CJ
Industries and Heavey Pumps allows room for critical thinking about which
options will be the best course of action for CJ Industries. Each option have its
own advantages and disadvantages, and these should be weighed and assessed
properly in order to reach a final decision on which option will greatly benefit CJ
Industries.
