CJ Industries and Heavey Pumps1
In October 2007, CJ Industries (CJI) had just been awarded a 5-year contract, amounting to $10 million per year, commencing on July 2007 to supply Great Lakes Pleasure Boats a number of key engine components for their 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 their boats on an as-needed basis. The contract had significant long-term follow-on potential as well, if they could continue to show Great Lakes they had the capabilities to be one of their valued, alliance partners. In addition, with this contract, Great Lakes would represent approximately 30 percent of CJI’s annual sales, so performing 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 their suppliers, Heavey 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 their two finished goods warehouses located near the Great Lakes production facilities. Heavey Pumps was producing and delivering 50 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 per 50 pump shipment, 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 50 about eight to ten weeks ahead of time, and Heavey had always been able to supply the pumps before CJI’s stock was depleted.
Though CJI had sufficient excess capacity to ramp up production on the parts to be supplied in the Great Lakes’ contract, they were not sure about the ability or...
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