Stryker Corporation Case Study

Stryker Corporation Case Study

Executive Summary

It is 2003 and Stryker Corporation is proposing to build a new facility that would be able to produce a key component (printed circuit boards) in-house instead of outsourcing that activity to suppliers. Currently, Stryker purchases PCBs from a small number of contract manufacturers but recently the suppliers have been underperforming in quality and delivery. The proposed plan would create a high degree of control over this product, ensure quality, and create an economy of scale in the long run.

However, this plan also required the most capital outlay in both money and resources. The project would have an initial investment of a new building, capital equipment, and IT infrastructure totaling $6,287,258. However, there would also be cost savings in the long run from decreased purchases from suppliers even after the increased expense of Stryker's manufacturing costs. To find out if this project offered an adequate return on investment we performed a Net Present Value Analysis and also calculated Internal Rate of Return and Payback Period for years 2003 through 2009.

Analysis

1. Does this project make sense?

We like the insourcing proposal and think that it makes business sense for several reasons. However, these reasons are based off of the information taken from the case before we analyzed NPV, IRR, or Payback Period, so they are strictly inferences made using sound business sense.

First, we think insourcing is a good strategic move on the basis of having inconsistent and weak suppliers. When the suppliers you are working with are neither effective nor efficient, your own supply chain and ultimately your profits will suffer. Good logistics are very important in trying to create a competitive or distinct advantage in an industry. Consequently, Stryker manufacturing PCBs in a facility of its own would decrease inventory, ensure quality, and even decrease accounts payable because of less purchases from suppliers.

Second, the in-house manufacturing facility would help to create economies of scale for Stryker in the long run. This would result in lower costs of production for the PCBs, creating an opportunity to price lower than competitors and grab a larger market share of the medical supplier industry. Or, Stryker could choose to keep the same price as the industry and rake in larger profits because of the increased efficiency over competitors' operations.

Last, even though the insourcing proposal would have the largest capital outlay to begin, the familiarity with the manufacturing process by Stryker's managers and engineers and the extensive amount of effort that has gone into the planning phase for this proposal shows that Stryker Corp.