case analysis

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9-207-121 REV: JANUARY 16, 2009 TIMOTHY A. LUEHRMAN Stryker Corporation: In-sourcing PCBs In late May 2003 executives in Stryker Corporation’s Instruments business were actively considering a change in their sourcing strategy for printed circuit boards (PCBs), a key electronic component of many of Stryker Instrument’s medical products. Currently, Stryker purchased PCBs from a small number of contract manufacturers. The Instruments 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 recent years, the performance of some contract manufacturers had been unsatisfactory with respect to quality, delivery and/or responsiveness…show more content…
In its current version the proposal called for the construction of a new building with 30,000 square feet of space on eight acres owned by Stryker in Kalamazoo, Michigan. Site preparation, construction and improvements were expected to cost $3,030,000. This sum did not include architectural and engineering fees of $278,000. Furnishings and nonmanufacturing equipment would cost $126,000. Communication equipment and IT infrastructure would cost an additional $210,000. The building would be ready for manufacturing equipment by April 1, 2004. The proposed facility would manufacture all of the various types of PCBs required by Stryker Instruments and hence require many kinds of manufacturing equipment. Stryker Instruments’ managers and engineers were already familiar with the requisite manufacturing processes and had prepared detailed specifications for the needed equipment, including descriptions of equipment, software, and related systems by model and manufacturer; specific configurations and options to be included on the systems; quantities for each type; and installed costs. The total budget for about 70 separate categories of equipment was $2,643,258. Equipment was to be installed and ready for testing by the end of the second quarter of 2004. Actual production would begin the third quarter of that year. As Stryker Instruments began producing its own PCBs, it would transition out of supplier agreements with third parties. This would happen fairly
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