STRYKER STRYKER CORP: IN-SOURCING PCBS
Qstn. 1) State the business case !" !#ti!n $%& the PCB In-S!u"cin' #"!#!sa(. #"!#!sa(. For this case study of Stryker Corporation, it can be seen that option three (to manufacture its own PCs in its own facility near company headquarters) can be consider as the best alternative to adopt because of several reasons. t t first, if the company adoptin! in"sourcin! option, it able to e#ercise full control in their supply chain where it can help to increase the de!ree of quality alon! with the delivery of products in turn. nother reason is related to the transportation and able to reduce the cost of lo!istic as the facility will be located near to the company$s headquarter. Plus, the manufacturin! cost alon! with in"housin! manufacturin! of PC%s will be ta# deductible where enable the company to make its ta# obli!ation lower durin! the early years of manufacturin!. &oreover, the depreciation applied on capital and ' equipment with respect to the initial investment will also be ta# deductible. %esides that, if the company !oes for option number three, then it will be able to achieve efficiency in terms of production that will increase the profitability of Stryker Corporation in turn. 'n short, the benefits that the company will !et from this option is better control in quality, delivery and cost. 'n addition, it will help to maintain the business stability, supply PC%s to other Stryker business and able to implement cost shift and avoid ta#. 'nstead of that, there is a few risks when the company implements the option three where need to carry the inventory, incur a lar!e capital outlay and sunk cost. Plus, the company has to increase the headcount, payroll and other e#penditures in term of materials, infrastructure, * +, maintenance and so on. nother one, the company also has to take risk if the equipment that bein! used may be outdated.
Qstn. ) Use the #"!*ecti!ns #"!+i,e, in the case t! c!#ute inc"eenta( cash (!s !" the PCB #"!*ect& as e(( as its NP/& IRR& an, #a0bac #e"i!,
s mentioned, all PC%s would be produced in house start from year of --. So, we analyse the income statement from --/ to -- to see how the sales !rowth for that moment and predict for the year --0 as the company spends more than 12- million.
a) Computation of Cash flow for PC% pro3ect
Inc!e Stateents
223 4
225 4
4et Sales Cost of sales 9ross profit +*: e#penses S9* e#penses morti;ation of intan!ibles 'n"process *+
15,602./12,026./18,2/8.-165.012,6/8./156.612/.717/-.215./-
1/,5-/.12,656.018,//.7185.1,-2.0158.1/.012,-05.817./-
1,---. 1,-68.66 18,72.85 18-.82 1,66.57 156.51/6./12,2-./ 1-.--
1,67. 1,878.0 5,576.// 1528.60 1,6.01//./7 10.27 2,888.1-.--
:arnin!s before ta#
17/5.-
12,2-8.6-
12,2-./
2,888.-
'ncome ta#es
1822.--
18.2-
1856.-
1877.7
4et earnin!
158.-
1000.0-
162.5
1788.5
7 inc"ease --" --0:2
--/" --
226 E1
226 E
Rati! t! sa(es
22= 6= 28= 25= 22= "22= 82= 28= //=
22= 28= 2-= 22= 22= 22= 22= 6= "2--=
--" --0: 6= 7= = 6= 6= 6= 6= 5= "2--=
2=
/=
/= 2=
--/
--
--0 :2
-.8/ -./ -.- -.86 -.-2 -.--.-.--
-.85 -. -.- -.86 -.-2 -.-2 -.-.-2
-.8/ -./ -.- -.86 -.-2 -.-2 -.27 -.--
2=
-.-
-.-
-.27
0=
8=
-.-
-.-
-.-
5=
-=
-.28
-.25
-.25
he key hi!hli!ht> he amount of 1788.5 reflects an increase by -= as required by the company as the company has spends more than 12- &illion.
--0 :
b) Computation of 4P?@'@Payback Period>
Aess
Aess Aess Aess dd
--0 P
--6 P
--7 P
-2- P
-22 P
-2
evenue C<9S G"!ss #"!it
1,668.0 1/0.0/ 8&%26.21
18,85/.2 17.-8 8&565.1%
18,66-.87 100.-6 8%&129.%1
15,/-2./ 17--./ 8%&521.22
1/,2.5/ 12,-55.7 89&166.15
1,-/. 12,22. 89&93.
16/.28 17.-2 81&%6.6 1522.6 8;51.21
12,--8.// 16-.-/ 81&3;.3% 1500.0 81&119.66
12,25.2 17.6 81&96.%9 1//5.81&;%.19
12,8/-.86 12-0.0 8&19.;1 15.60 81&322.29
12,/.55 125.7/ 8&93.6 105/.08 81&692.29
12,620. 1255. 8&%. 16/. 8&21.
+epreciation
17.-2
16-.-/
17.6
12-0.0
125.7/
1255.
8;.22
81&2%9.6
81&22.
81&%;.%
81&513.2;
81&6%.
Net In(!
Company 9rowth " 1,---.-
167.-2-.--= 2/.--= -.--=
12,-85.0
-=
12,--.6
N#+ < 12 7
8%&3%.1
N#+ < 13 7
8&%;5.63
N#+ < 2 7
81&63%.62
IRR Pa0 Bac Pe"i!,
37 .1 0ea"s
12,87.8
12,2/.-7
12,608./-
Qstn.%) =! !u(, 0!u c!#a"e this #"!#!sa( t! O#ti!ns $1 an, $>
"
%enefit> 4o capital outlay where to some e#tent it
"
his option can improve the quality of
can protect future a!ainst disruption with
the supplies by increasin! the business
lower cost and fle#ibility.
potential with the supplier.
isk> "
isk> his option potential to have instability
"
his option has the possibility of
in quality, cost, delivery and
bankruptcy and weak financial
responsiveness.
performance of supplier and cause the sole supplier will stron!ly affect the Stryker$s Corporation performance and end up cause the coordination problem.
Qstn. 9) Base, !n 0!u" ana(0ses& !u(, 0!u "ec!en, that St"0e" Inst"uents un, this #"!*ect>
%ased on the above analysis, we derived an apparently positive 4P? of the pro3ect for the year (--0 B -2) when usin! the discount rate of 2-=, 2/= and -=. Plus, there is a much bi!!er ' compared to hurdle rate (2/=) where it means that the pro3ect is profitable. So, we would recommend that it would be worth for Stryker 'nstruments to invest for this pro3ect.
