Stryker Corporation: in-Sourcing Pcbs

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1. State the business case for option #3, the PCB In-sourcing proposal. What is the benefit? What is the risk? How do you compare this proposal to option #1 and #2?

Benefit:

a. Better performance in management, quality and delivery. When PCB is in-souring facility, the management team of Stryker Corporation can directly control the production process, which is more efficient and could obtain better quality in products. Secondly, when the production of PCB is in-sourcing, it will be much easier for Stryker Corporation to make a delivery plan of PCB. This will considerably reduce the logistic losses.

b. More flexible in outputs. Under current sourcing, the flexibility of PCB’s outputs depends on the frequency of order, resulting in some unavoidable differences between the actual demands of Stryker Corporation and the actual outputs. When the PCB’s production is in-sourcing, Stryker Corporation can change the amount of production quickly and efficiently.

c. In-sourcing can lower the cost and achieve greater benefit than contract manufacturers could provide. Generally, the outsourcing policy can effectively reduce costs in a short period. In this case, Stryker Corporation was considering an in-sourcing change in 2001. At that time, the proposal was executed. We believed that the decision must include concerning about raising costs. In 2003, the situation began to change. At least from the current estimates, the costs of purchasing PCB from contract manufacturers are larger than the costs for Stryker Corporation to manufacture PCB itself. If the future development of the situation and the estimate are consistent, there will be a large costs reduction.

d. Meeting Stryker Instruments’ future growth needs. Even if the outsourcing policy can meet the Stryker Corporation’s demand to PCB now, it’s hard to say Stryker Corporation can satisfy its gradual growing needs to PCB in the future. A facility in its own hands is more likely to keep up with increasing demands of the Stryker Corporation which is growing rapidly.

e. Reduce the risk of information leakage. Sourcing will allow the access for contract manufacturers to customer data and information with Stryker Corporation, resulting in potential risks of information leakage. If the PCB in-sourcing plan works, a well-built internal control system can reduce the outflow of secret information.

Risk:

a. Lack of skilled worker and efficient management may lead the in-sourcing plan to failure. There is no reliable analysis to tell about how to employ and train a lot of staffs to use this facility cost-efficiently. Companies which are in a high-speed expansion stage often lag in human resource. In order to obtain an efficient in-sourcing, Stryker Corporation needs not only a large number of skilled workers, but also professionals who are able to manage the factory. It always takes some time and money to train the workers and searching for the professionals.

b. Cost saving is uncertain. There is no guarantee that company’s production costs will decrease as estimated. Canceling purchasing from contract manufacturers and take in-sourcing instead may cause a huge cost, temporary or long-lasting. This will give the manage team a lot of pressure and make the price of Stryker’s products less competitive.

Comparison:

a. Option 1 is like a temporary measure rather than long-term solution to current problem. It’s difficult to decide how many safety stocks Stryker Instruments should keep. Too few inventory of PCB will lead to a restricted production because of tight supply. In the other side, an excessive purchase of inventory will affect liquidity and decrease the operation efficiency. Therefore, we don’t think that option 1 is a good choice.

b. Option 2 suggests a single contract supplier. It’s very risky. Because the single contract supplier may not be that loyal to Stryker Corporation. A supply monopoly has more bargain power. Once this manufacturer...
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