Cj Industries

CJ Industries and Heavey Pumps

1. Please provide at least three suggestions (alternatives) for how CJI can get the extra number of bilge pumps necessary for the contract that they have already signed with their customer. Also, state the advantages and risks of each alternative you provide. Please state which of those alternatives you would like to recommend for CJI and why.

CJ Industries (CJI) signed a 5-year contract with Great Lakes Pleasure Boats that amounted to $10 million per year. This contract meant that Great Lakes would make up 30% of CJI’s annual sales, and could lead to a long-term relationship between the two firms.

Heavey Pumps, a small local specialty pump manufacturer, had been producing and delivering 50 bilge pumps at a time at a cost of $1,500 per unit and built to Great Lakes’ specifications whenever an order was placed, about every 4 to 6 months. After signing the contract, CJI became unsure about the willingness of Heavey to increase their production of bilge pumps to meet the new demand of at least 50 pumps per month.

One option for CJI is to continue using Heavey as their bilge pump supplier. The advantages of this strategy are: CJI’s other in-house production activities would not be altered or disturbed; CJI and Heavey would both benefit from the Great Lakes contract; the relationship between CJI and Heavey may be strengthened and allow for potential profits from future contracts. The risks of this strategy are: Heavey may not be able to keep up with the increased demand and will need to terminate their portion of the Great Lakes contract; Heavey might ask for more money to cover the additional equipment, labor, and other production costs necessary to keep up with Great Lakes’ demand; an increase in demand may cause quality of Heavey’s bilge pumps to decrease; delivery costs would increase.

Another alternative for CJI is to manufacture the bilge pumps in house. In this case, CJI may keep their relationship...