Stryker Corporation
Case 1 Report #0502 Group 2
1. Benefits and risks
Benefits: (1). Controlled quality
By choosing option 3, Stryker Corporation can control the quality of PCB by itself. PCB manufactured in its own facility can meet Stryker’s quality requirement better than those from different contract manufacturers. Moreover, the quality can be more stable. Stryker would not suffer from the risk of contract manufacturers’ bankruptcy any longer.
(2). Reduced cost and higher efficiency
Stryker Corporation can relief its human resource from looking for new suppliers and greatly reduce management cost spent on this issue. Stryker will also benefit from shorter delivery time and less cost since the facility is close to its headquarters, which means higher efficiency and more competitive strength. To in source PCBs, Stryker only needs to deal with material suppliers instead of many small and unstable manufactures. The communication cost will go down.
(3). Longer payable period
Payable period will extend, which will lay less stress on Stryker‘s working capital because the longer the accounts payable period, the shorter the cash conversion cycle.
Risks: (1). Technological changes
In-sourcing PCBs will bear risks at the same time. First issue is that whether PCBs will be replaced by new technology and then investment in facilities can be valueless. We forecast the project needs decade to get a positive NPV but chances are that PCBs could be eliminated by industry.
(2). Insufficient production capacity If PCBs technology can stand that long and Stryker Corporation’s demand of PCBs keeps increasing there are still risks that the demand exceeds the facility’s capacity. That means Stryker will find itself fall into a situation as they did before in-sourcing and go back to looking for new manufacturers to meet the exceeded demand for PCBs.
2. After analyzing the benefits and risks of the in-sourcing project, we need to calculate the exact incremental cash flow and NPV to help
1. Benefits and risks
Benefits: (1). Controlled quality
By choosing option 3, Stryker Corporation can control the quality of PCB by itself. PCB manufactured in its own facility can meet Stryker’s quality requirement better than those from different contract manufacturers. Moreover, the quality can be more stable. Stryker would not suffer from the risk of contract manufacturers’ bankruptcy any longer.
(2). Reduced cost and higher efficiency
Stryker Corporation can relief its human resource from looking for new suppliers and greatly reduce management cost spent on this issue. Stryker will also benefit from shorter delivery time and less cost since the facility is close to its headquarters, which means higher efficiency and more competitive strength. To in source PCBs, Stryker only needs to deal with material suppliers instead of many small and unstable manufactures. The communication cost will go down.
(3). Longer payable period
Payable period will extend, which will lay less stress on Stryker‘s working capital because the longer the accounts payable period, the shorter the cash conversion cycle.
Risks: (1). Technological changes
In-sourcing PCBs will bear risks at the same time. First issue is that whether PCBs will be replaced by new technology and then investment in facilities can be valueless. We forecast the project needs decade to get a positive NPV but chances are that PCBs could be eliminated by industry.
(2). Insufficient production capacity If PCBs technology can stand that long and Stryker Corporation’s demand of PCBs keeps increasing there are still risks that the demand exceeds the facility’s capacity. That means Stryker will find itself fall into a situation as they did before in-sourcing and go back to looking for new manufacturers to meet the exceeded demand for PCBs.
2. After analyzing the benefits and risks of the in-sourcing project, we need to calculate the exact incremental cash flow and NPV to help