Harvard Case - Stryker Corp.: In-sourcing PCBs
"Stryker Corp.: In-sourcing PCBs" Harvard business case study is written by Timothy A. Luehrman. It deals with the challenges in the field of Finance. The case study is 6 page(s) long and it was first published on : May 25, 2007
At Fern Fort University, we recommend that Stryker Corp. proceed with in-sourcing the production of PCBs. This decision should be approached strategically, considering the long-term implications for the company's manufacturing processes, cost structure, and overall profitability.
2. Background
Stryker Corp., a leading medical technology company, faces a critical decision regarding the production of printed circuit boards (PCBs), a key component in their medical devices. Currently, Stryker outsources PCB production to a third-party supplier. However, rising costs, supply chain disruptions, and concerns about quality control have prompted the company to consider in-sourcing.
The main protagonists in this case study are:
- Stryker's management team: They must weigh the financial and operational implications of in-sourcing versus outsourcing, considering the potential impact on profitability, competitiveness, and long-term growth.
- Stryker's engineering team: They are responsible for assessing the technical feasibility of in-sourcing, including the necessary equipment, expertise, and processes.
- Stryker's finance team: They must analyze the financial viability of in-sourcing, including the upfront investment costs, ongoing operating expenses, and potential return on investment (ROI).
3. Analysis of the Case Study
This case study can be analyzed through the lens of several frameworks, including:
- Strategic Analysis: In-sourcing aligns with Stryker's strategy of vertical integration, allowing for greater control over quality, cost, and supply chain. However, it also involves significant upfront investment and potential operational risks.
- Financial Analysis: A thorough financial analysis is crucial to assess the economic feasibility of in-sourcing. This involves comparing the costs and benefits of both options, considering factors such as:
- Capital budgeting: The initial investment required for equipment, facilities, and personnel.
- Cash flow management: The impact on cash flow, both in the short-term and long-term.
- Return on investment (ROI): The potential return on the investment in in-sourcing.
- Break-even analysis: Determining the volume of PCB production required to cover the costs of in-sourcing.
- Profitability ratios: Assessing the impact of in-sourcing on the company's overall profitability.
- Operations Strategy: In-sourcing requires a significant shift in Stryker's operations, including:
- Manufacturing processes: Developing and implementing efficient and reliable PCB production processes.
- Activity-based costing: Accurately allocating costs to different activities within the PCB production process.
- Quality control: Establishing rigorous quality control procedures to ensure the reliability and safety of PCBs.
4. Recommendations
Stryker should proceed with in-sourcing PCB production, but with a strategic approach that minimizes risks and maximizes potential benefits.
- Phased Implementation: Instead of a complete and immediate in-sourcing, Stryker should adopt a phased approach, starting with a pilot project to test the feasibility and efficiency of in-house production.
- Strategic Partnerships: Stryker should consider partnering with experienced PCB manufacturers or technology providers to leverage their expertise and technology. This could involve joint ventures, technology licensing agreements, or outsourcing specific aspects of the production process.
- Investment in Technology and Expertise: Stryker should invest in state-of-the-art equipment, automation, and training to ensure efficient and high-quality PCB production. This includes hiring skilled engineers and technicians with expertise in PCB manufacturing.
- Continuous Improvement: Stryker should implement a culture of continuous improvement in its PCB production process, using data-driven analysis and lean manufacturing principles to optimize efficiency and reduce costs.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: In-sourcing aligns with Stryker's core competency in medical device manufacturing, allowing for greater control over quality and innovation.
- External Customers and Internal Clients: In-sourcing can enhance customer satisfaction by ensuring consistent quality and timely delivery of PCBs.
- Competitors: In-sourcing can give Stryker a competitive advantage by reducing reliance on third-party suppliers and potentially lowering production costs.
- Attractiveness: The financial analysis should demonstrate a positive return on investment (ROI) for in-sourcing, considering factors such as:
- Cost savings: Potential cost reductions through economies of scale and control over production costs.
- Improved quality: Increased control over quality and reliability of PCBs.
- Increased flexibility: Greater flexibility in adapting to changing market demands and technological advancements.
- Assumptions: These recommendations are based on the assumption that Stryker can successfully overcome the challenges associated with in-sourcing, including:
- Technical feasibility: The ability to develop and implement efficient and reliable PCB production processes.
- Financial viability: The availability of sufficient capital investment and the ability to achieve a positive ROI.
- Human capital: The ability to attract and retain skilled engineers and technicians with expertise in PCB manufacturing.
6. Conclusion
In-sourcing PCB production presents a significant opportunity for Stryker to enhance its control over quality, cost, and supply chain. By adopting a strategic approach and mitigating potential risks, Stryker can successfully implement in-sourcing and achieve its desired outcomes, including improved profitability, increased competitiveness, and long-term growth.
7. Discussion
- Alternative Options: Other alternatives to in-sourcing include continuing to outsource PCB production, exploring alternative suppliers, or establishing a joint venture with a PCB manufacturer.
- Risks: The risks associated with in-sourcing include:
- High upfront investment: The significant capital investment required for equipment, facilities, and personnel.
- Operational challenges: The potential for delays, production issues, and quality control problems.
- Skill shortages: The difficulty in attracting and retaining skilled engineers and technicians with expertise in PCB manufacturing.
- Key Assumptions: The success of in-sourcing depends on the validity of the assumptions, including:
- Technical feasibility: The ability to develop and implement efficient and reliable PCB production processes.
- Financial viability: The availability of sufficient capital investment and the ability to achieve a positive ROI.
- Human capital: The ability to attract and retain skilled engineers and technicians with expertise in PCB manufacturing.
8. Next Steps
To implement the recommendations, Stryker should:
- Form a cross-functional team: Assemble a team of experts from engineering, finance, operations, and other relevant departments to oversee the in-sourcing project.
- Conduct a feasibility study: Conduct a detailed feasibility study to assess the technical, financial, and operational viability of in-sourcing.
- Develop a pilot project: Implement a pilot project to test the feasibility and efficiency of in-house PCB production.
- Establish a strategic partnership: Explore potential partnerships with experienced PCB manufacturers or technology providers.
- Invest in technology and expertise: Invest in state-of-the-art equipment, automation, and training for PCB production.
- Implement continuous improvement: Establish a culture of continuous improvement in the PCB production process.
By following these steps, Stryker can successfully navigate the complexities of in-sourcing PCB production and position itself for long-term success.
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Case Description
Examines a proposed investment in the capability to manufacture printed circuit boards (PCBs) in-house rather than buying them from third-party contract manufacturers. Stryker Corporation's Instruments business is considering the proposal in response to difficulties with existing suppliers. Requires students to formulate and execute basic quantitative capital budgeting analyses, specifically, to compute net present value (NPV) internal rate of return (IRR) and payback period.
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