Stryker Corp: In-Sourcing PCBs
Introduction:
Stryker Corporation is engaged in offering various medical equipments worldwide. The company is known to be one of the leading medical technology companies globally. The company is providing miscellaneous range of products and services that includes surgical, medical, spine and Neuro-technology products and reconstructive equipments. The main services and products provided by the company are accessible all over the world. The main instrument that is used for the manufacturing of medical products is PCB i.e. printed Circuit Boards. In 2002, the company’s recorded revenues and operating profits of $3 billion and $507 million respectively.
Divisions of the company include surgical and medical equipments, Orthopedic Implants, International sales and Rehabilitative Medical Services. Three main business units of the company include Stryker Medical, Stryker Endoscopy and Stryker Instruments. Stryker Medical unit produces hospital beds and other patient medical handling equipment. In addition, this business unit is also engaged in providing emergency medical service products. Stryker Endoscopy produces communications and video imaging equipments along with general and arthroscopic surgery instruments. Stryker Instruments produces operating room equipments, interventional pain control products and surgical instruments.
Furthermore, manufacturing facilities of the company are located in Ireland, Puerto Rico and Michigan. In 2002, the company generated revenues of $430 million worldwide.
Key strategic issues:
Currently, the company is facing various issues with respect to its suppliers and is considering to bring some change in their sourcing strategy. From the current perspective, the company is doing out-sourcing on a contractual basis from the manufacturers and has estimated current spending of $10 million in the previous two years. Further, the management of the company has not been completely satisfied from their contract manufacturers for several reasons.
Firstly, the company is facing problems about the quality of products. Secondly, the company is facing problems from the current supplier about the delivery timings and responsibility for the company’s products. Consequently, the company is continuously finding new suppliers one after another for the manufacturing of their products. Another major problem found in contract manufacturers was that they operate on thin margins along with limited capital.
Options availability:
Right now, there are three options available for the companies to make its supply chain strong from the suppliers’ side. The first alternative that is available to the company is to maintain the current basic sourcing policy by making slight changes in it. The next alternative available to Stryker Corporation is to enhance consistency by developing strong relationship with a single supplier, and that supplier will sell their products to Stryker Corporation only. In addition, the last option will be manufacturing of company facility that is in-sourcing PCBs near headquarter of the company.
Objectives:
As the company has to decide whether they should in-source or outsource the manufacturing facility; therefore, they can make their decisions based on the objectives set by the company. The company’s initial objective is to reduce the purchase of Printed Circuit Boards and to maximize profit. Furthermore, another objective of the company is to reduce the risk with respect to suppliers of PCBs. Next objective of the company is to gain control and empowerment over the supply chain, delivery and quality of products. Another most important objective of the company is to improve the cash in terms of liquidity.
Analysis:
It can be seen that option three will be the best alternative for Stryker Corporation to adopt because of various reasons. First reason is that by adopting in-sourcing option, the company will be able to exercise full control in their supply chain, which will increase the degree of quality along with the delivery of products in turn. Another reason is that transportation and cost related to logistic will reduce as the facility will be located near the company’s headquarter. In addition to that, the manufacturing cost associated with in-housing manufacturing of PCBs will be tax deductible, which will enable the company to make its tax obligation lower during the early years of manufacturing.
Moreover, the depreciation applied on capital and IT equipments with respect to the initial investment will also be tax deductible. Furthermore, the company will have elasticity with respect to the accounts payable span that will increase for the company from 30 to 120 days. This will give an edge to the company as the company will be able to earn more before even giving payments to their suppliers. Besides that, if the company goes for option number three, then it will be able to achieve efficiency in terms of production that will increase the profitability of Stryker Corporation in turn.
In addition to that, if the company goes for the third option then management of the company will be able to make its vertical integration strong, which will help the company to reduce its cost along with price. Through this, the company will be able to focus more on its customer service........................
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Considers the proposed investment in the ability to produce printed circuit boards (PCB) at home instead of buying them from a third-party contract. Business intelligence tools Stryker Corporation is considering a proposal in response to the difficulties with existing suppliers. Requires students to formulate and carry out basic quantitative analysis of the budget of the capital, in particular, to calculate the net present value (NPV) Internal Rate of Return (IRR) and the payback period. "Hide
by Timothy A. Luehrman Source: Harvard Business School 6 pages. Publication Date: May 25, 2007. Prod. #: 207121-PDF-ENG
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