Stryker Corporation Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

State the business case for option #3, the PCB In-sourcing proposal.

The option number 3 is to minimize the risk of material quality compromise and risk of stock-out. The option is to manufacture the intermediary product, i.e. PCB for its company to have a check and balance of the quality and quantity demanded. Currently, the company is facing a problem of low quality supplies from its current suppliers, therefore the demand for the final good is compromised due to quality compromise.Through this new and advanced system, the quality of PCB required to manufacture final product can be achieved, this can also supply the sufficient quality as the demand is known for final product, therefore the production can be undertaken accordingly.

Through this method, Stryker Corporation can minimize its inventory holding cost of manufacturing the demanded units of daily production; therefore no cost can arise for inventory holding. The cost of transportation can also be saved because of the adjacency of the new factory to the current production unit, the cost savings can flow to the entity. The supplier can charge a margin to Stryker and that margin can also be saved through in-house production, therefore the benefits can flow through many methods.

The benefits cannot flow to the entity without any cost. In this case, it has to bear a cost of $6.3 million for capital expenditure to finance this new production unit for intermediary goods (Appendix 1). The cost is necessary to have the production unit operating for PCB, and also the cost is necessary to build the plant and generate the benefits.

Use the projections provided in the case to compute incremental cash flows from the PCB project, as well as its NPV, IRR, and payback period.

The incremental cash flow is the difference between the payments that have to be made to the supplier and the actual cost incurred for the same production in units. The net present value must be used to calculate the net benefit that it can generate through this project acceptance.

There are many other methods to be undertaken while going forward for this investment like internal rate of return (IRR) and payback period that are necessary to consider. The NPV is calculated through discount rate of 15%, i.e. hurdle rate of the company for any risky investment. The investment is different as the company does not manufacture intermediary goods and the success is not certain, therefore 15% rate is used to discount the benefits.

The net present value through free cash flow is $14.96 million. In this case, it is estimated that in the future, it has to reinvest the amount for capital expenditure that is equal to the depreciation and working capital increment is the only increase in receivables. The inventory level remains the same over the life of the project. The growth of the free cash flows is considered to be 4.52% (Appendix 1).

The internal rate of return of this project is 48% that is above 200% of the required return of 15%. The internal rate of return is attractive to undertake the investment (Appendix 1).Stryker Corporation Case solution

The payback period for any capital investment and any loss of benefits in the first two years can be paid back at the date is 5.23 years or 62.79 months (Appendix 2). The period is derived through simple method in which discounted rates are not considered.

How would you compare this proposal to options #1 and #2?

This proposal can be compared through the proposal 1 and 2 through the suitability and benefits of the proposal as compared to both proposals specified under the case.

If the comparison is made between the proposal number 1 and 3, then the proposal 3 is viable. The company is willing to invest more to have safety stock with a view to secure it from any uncertainty that can break-down the supply chain of the company to its retailers. However, the inventory can secure the interest in the shortest period and quality cannot be guaranteed by Stryker, therefore the method cannot be acceptable due to the quality procedures of the company. The company has to satisfy it and it is not possible through the large number of inventories in hand...................

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