Case Study – CJ Industries and Heavy Pumps 1

Case facts

The case involves CJ Industries, which produces engine-related products and services. It
has landed a contract worth $10 million with Great Lake Pleasure boats, which officially
commences in July 2008. CJI will supply engine modules to Great Lake Pleasure Boats for use
in manufacturing luxurious pleasure boats. The contract is critical for “CJ Industries” since it
will contribute to 30% of its total sales, which means the company cannot afford to jeopardize it.
In addition, CJI produces most of its products in-house apart from the bilge pump, which is made
and supplied by Heavey Pumps company. The bilge pump is one of the least performing
products for Heavey Pumps, and they do not have a track record of past production and
performance. It is unclear whether the company can produce and supply the demand of 50 pumps
per month, leaving CJI to consider various options.
Major Problems

The main problem that CJI faces is deciding how to supply Great Lake Luxurious Boats
with bilge pumps that meet the new demand; this means ramping up production for CJI. The
purchasing manager is split between continuing a partnership with Heavey Pumps, starting
producing their own pumps in-house, or contracting other pump manufacturers. CJI can produce
bilge pumps, but the capital required will be $500,000 and additional space for the plant and
more employees – a costly venture. Moreover, the company does not have experience producing
bilge pumps, making it a difficult option to consider.
On the other hand, Heavey Pumps Company does not have track records of bilge pump
production and performance; this makes it difficult to determine whether they can manufacture
quality bilge pumps and sustain the demand (Weygandt et al., 2018). Thus, Bob Ashby has to

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find out whether manufacturing bilge pumps in-house could be profitable, plus the ability of
Heavey Pumps to produce quality bilge pumps and keep up with demand.

Possible Solutions

There are four possible solutions to this case: purchasing bilge pumps from Heavey,
manufacturing the pumps internally, purchasing the pumps from other alternatives, and
combining the three alternatives.
Adopting the first option could be an advantage because Heavey has experience in
manufacturing and supplying bilge pumps. CJI has been working with the company and knows
the quality of pumps the company produces. In addition, continuing the bilge pump purchase
from Heavy will save CJI the cost of establishing its own manufacturing plant, which requires a
large amount of initial capital, additional space, and more employees. It will also reduce the risk
and cost of contracting the two newer and untested manufacturers. The downside of this option is
that Heavey lacks records supporting its production and performance, making it impossible for
CJI to gauge whether the firm can meet the high demand while maintaining quality.
The second option involves CJI investing in a manufacturing plant to produce the bilge
pumps internally. The company can manufacture bilge pumps in-house. However, the $500,000
initial investment, creating additional space, and hiring additional employees make it
unachievable within the remaining period before the contract starts, which is only nine months.
However, if the company considers this option, it may cut costs since they will no longer need to
pay another company nor incur transport costs of the bilge pumps (Shirnezhad & Seifollahi,
2022). Also, this option can guarantee CJI delivers high-quality bilge pumps that meet Great
Lakes’ standards (if they hire qualified staff), which Mr. Grams believes they can. The

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disadvantage of this option is that it will be costly for CJI to implement. Also, the company has
no experience and thus cannot guarantee quality.
The third option for CJI is to purchase bilge pumps from the other two companies. This
would mean that CJI would search for a larger manufacturing company than Heavey, with the
ability to deliver 50 bilge pumps demanded by Great Lakes monthly. Still, the company must
guarantee a constant supply. The disadvantage is that the two alternative companies are 500
miles away, as noted by Mr. Gram, which means CJI will incur higher shipping costs and a more
extended period for the pumps to arrive. Moreover, it would be riskier for CJI since they have no
experience working with the two companies.
The last option combines the abovementioned alternatives, which could be the ideal
option for CJI to adopt. The contract offers CJI limited time, which makes more sense to
continue sourcing from Heavey Pumps and source from the other two potential suppliers while
laying plans to start in-house production. CJI should follow the terms of the agreement because
doing so might lead to a more significant relationship with Great Lakes. Thus, CJI can honor the
contract by promptly delivering high-quality goods and services.
Choice and Rationale

The wisest course of action would be to buy the pumps from Heavey while working on
developing in-house production of the bilge pumps. This would guarantee reliable delivery of
quality pumps on time, lower CJI’s expenses, and increase venues. Additionally, CJI will be able
to uphold the contract and expand the opportunities for other businesses.

Implementation

To implement the solution, CJI would go over all the options with Heavey before putting
the solution into action. Sharing costs and profits related to bilge pumps and the ideal location

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for manufacturing are some options that could be addressed. The next step is to forge a workable
plan that benefits the two firms.

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References

Moghanlou, M. S., & Seifollahi, N. (2022). Designing a conceptual model of production cost
reduction in manufacturing cooperatives. Commercial Surveys.
http://barresybazargani.itsr.ir/article_254018.html?lang=en
Weygandt, J. J., Kimmel, P. D., Kieso, D. E., & Aly, I. M. (2018). Managerial accounting: Tools
for business decision-making. John Wiley & Sons.