Cj Industries and Heavey Pumps

In October 2007, CJ Industries (CJI) had just been awarded a 5-year contract with

Great Lakes Pleasure Boats amounting to U.S. $10 million per year, commencing in July

2008. CJI would be providing a number of key engine components for Great Lakes’ 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 longterm

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, non-contract 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 U.S. $1500 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 U.S. $500 per 50 pump shipment, depending on the carrier

used) were included in the U.S. $1500 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...