Stryker

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Case Study of Stryker Corporation

1. (1) Option #3 was for Stryker Instruments to manufacture its own PCBs in its own facility near company headquarters. (2)Benefits for option 3: ● Better control the quality, delivery and cost; ● Maintain the business stability; ● Supply PCBs to other Stryker businesses; ● Be able to implement cost shift and avoid tax; (3) Risks for option 3: ● Carry the inventory; ● Incur large capital outlay and sunk cost; ● Increase headcount, payroll and other expenditures (materials, infrastructure, R&D, maintenance, PP&E and depreciation) of Stryker; ●Bear the risk that the equipment may be outdated; (4) Compared with option #1: ●Benefit: no capital outlay; to some extent can protect future against disruptions with lower cost; flexibility; ●Risk: instability in quality, cost, delivery and responsiveness;
Compared with option #2: ●Benefit: can improve quality of the supplies by increasing business with the supplier; ●Risk: the possibility of bankruptcy and weak financial performance of supplier; the sole supplier can strongly affect Stryker’s performance; coordination problem.

2. (1) Followings are the key assumptions of our write up: ● Stryker Instruments incurred all capital expenditures including (construction and improvements, furnishings and non-manufacturing equipment, communication equipment and IT infrastructure and capital equipment) in year 2003, before the implementation of the project. ●Revenue: We use the projected PCBs purchases as the revenue, because we can cut the amount of purchases by implementing in-sourcing production. ●COGS: before year 2006, COGS contains the purchases of PCBs and raw materials. After that COGS solely consist of the cost of raw materials. ●SGA: SGA of each year consists of…...

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...us ed in a spreadsheet, or transmitted in any form or by any means—electronic, mechani cal, photocopying, recording, or otherwise—without the permission of Harvard Business School. TIMOTHY A. LUEHRMAN Stryker Corporation: In-sourcing PCBs In late May 2003 executives in Stryker Corp oration’s Instruments business were actively considering a change in their sourcing strategy fo r printed circuit boards (PCBs), a key electronic component of many of Stryker Instrument’s medi cal products. Currently, Stryker purchased PCBs from a small number of contract manufacturers. The Instrument s business anticipated spending more than $10 million in each of the next two years on PCBs, an amount that would increase as the Instruments business grew. In re cent years, the performance of some contract manufacturers had been unsatisfactory with respect to quality, delivery and/or responsiveness and Stryker had repeatedly found itself looking for new suppliers. More generally, contract manufacturers tended to operate on thin margins with scant capital. Ba nkruptcies were not uncommon, and even without bankruptcy, a financially weak supplier was simply less reliable. Given recent events and the shaky appearance of several current suppliers, Stryker Instruments had resolved to address the issue. Stryker Instruments’ manufacturing managers stud ied three options for improving the situation. Option #1 was to maintain the current basic sourcing policy for PCBs, but with important modifications.......

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...1. (1) Option #3 was for Stryker Instruments to manufacture its own PCBs in its own facility near company headquarters. (2)Benefits for option 3: ● Better control the quality, delivery and cost; ● Maintain the business stability; ● Supply PCBs to other Stryker businesses; ● Be able to implement cost shift and avoid tax; (3) Risks for option 3: ● Carry the inventory; ● Incur large capital outlay and sunk cost; ● Increase headcount, payroll and other expenditures (materials, infrastructure, R&D, maintenance, PP&E and depreciation) of Stryker; ●Bear the risk that the equipment may be outdated; (4) Compared with option #1: ●Benefit: no capital outlay; to some extent can protect future against disruptions with lower cost; flexibility; ●Risk: instability in quality, cost, delivery and responsiveness; Compared with option #2: ●Benefit: can improve quality of the supplies by increasing business with the supplier; ●Risk: the possibility of bankruptcy and weak financial performance of supplier; the sole supplier can strongly affect Stryker’s performance; coordination problem. 2. (1) Followings are the key assumptions of our write up: ● Stryker Instruments incurred all capital expenditures including (construction and improvements, furnishings and non-manufacturing equipment, communication equipment and IT infrastructure and capital equipment) in year 2003, before the......

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