STRIKER CORPORATION Case Study Solution
Stryker Corporation is one the leading manufacturers in the medical industry. The company has operated successfully in the past by recording huge positive revenues. The company originated from Michigan, USA. The main equipment of the company “PCBs” is involved in almost all of their production. Recently, the company has been facing problems due to the disturbance created by their major suppliers of their equipment “PCBs”. This led the company to think about the alternative to solve this problem and for this they have considered three options. From these options, it has selected the third option and wants to analyze the financial impact as well as the impact on their strategic aim.
The analysis of the third options is done through calculating the NPV, IRR and Payback period. The NPV shows the overall return of the project against the investment made by the company. The IRR shows the breakeven point for the company and payback period shows the time taken to recover their investment. The NPV of the project is $24 million, IRR is 59% and payback period is 4.78 years.
INTRODUCTION:
Stryker Corporation as incorporated in 1946 in Kalamazoo, Michigan, USA. The founder of the Stryker Corporation is Dr. Homer Stryker. The company deals in the medical and surgical products and is a leading provider of these Specialty products. The founder “Dr. Homer Stryker” made the company public through an IPO in 1979 and is currently registered in two stock exchanges “NYSE” and “S & P 500”.
The company operates four divisions in Michigan, Puerto Rico, and Ireland. The four divisions of the Stryker Corporation include “Orthopaedic Implants, Medical and Surgical Equipment (MedSurg), Rehabilitative Medical Services, and International Sales. The company recorded global revenues of approximately $430 million in 2002. Stryker Endoscopy produced video imaging and communications equipment and instruments for arthroscopic and general surgery. Stryker Medical produced hospital beds and other patient handling equipment along with the emergency handling equipment. Printed Circuit Board(PCB)is its main instrument which is used in all of its products and platforms.
PROBLEM STATEMENT:
The company reported revenues and operating profit in 2002 of $3 billion and $507 million. In 2003, the management of Stryker Corporation is considering a change in its strategy for the sourcing of their Print Circuit Board (PCB) instrument. Currently, the company is sourcing this instrument from small suppliers on the contract basis.
The performance of some contract suppliers is not at adequate level regarding the quality, delivery and responsiveness. These issues are creating problems for the company due to which the company is consistently looking for an alternative sources to cover up this problem. The management of the company has studied three options for resolving this problem. From these three options, the management has decided to put more emphasize on the third option.
Now the main problem is that the third option, which is “In-house manufacturing of PCBs” requires substantial investment up to $10 million and the company wants to assure that through analysis whether this option is suitable or not.
ANALYSIS:
Quantitative:
Stryker Corporation has considered three options for the covering up the problem discussed in the problem statement. From these three options, two of them do not require any financial analysis. Therefore, they are discussed in the quantitative analysis.
The third option thatis In house manufacturing of PCBs has been put under consideration. For this analysis, the NPV, IRR and Payback period are calculated in order to identify whether the return earned from this investment is valuable or not. The first step before the calculation of the above stated terms is to calculate the total cost of investment that will be incurred in the calculation of the NPV.
Stryker Corporation has estimated the budget of spending around $10 million. The expected cost of investment for the above proposed project includes construction of the new building with 30,000 square feet of space on eight acres costing $3,030,000, 70 separate categories of equipment, which are shown as capital equipment costing $2,643,258, and communication & IT infrastructure equipment costing additional $210,000. The total sum of $5,883,258 as the cost of investment has been taken in the project.
Moreover, the amount of net saving before tax has been calculated as shown in the EXHIBIT (excel file). In order to arrive at this final amount, several steps have been followed; from the given case, we have taken annual data from the Exhibit no. 2 which is named as “Selected Cost Projection under Different Sourcing Policies. The annual amounts of the projected PCB Purchases under current sourcing, which is the outsourcing policy, are the usage of the funds taken as an expense against the expenses under the new proposal, which is the “In-sourcing of PCB” The difference between these two is the amount of decrease in the purchases from the contract manufacturers is taken as an annual savings....................
This is just a sample partial work. Please place the order on the website to get your own originally done case solution.
Related Case Solutions & Analyses:
CNBM: Rolling Up Chinas Cement Industry
Strategic IT Transformation at Accenture
Kendall Square Research Corp. (B2) (Abridged)
Computer Associates International Inc.: Governance and Investor Communication Challenge
Novo Industri
James Carroway (B)
NUMERICAL SOLUTION
DUCTILE IRON CASE
Brazos Partners and the Tri-Northern Exit
Mitochondrial dysregulation in the myocardium of a model of Maturity Onset diabetes in the Young (MODY) and impact of diet
