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INTRODUCTION:
Basically, Stryker Corporation is a company that offering a lot of medical equipment
worldwide and it is also well known to be one of the top medical technology companies globally. The
medical equipment that providing by this company includes surgical, medical, spine and Neurotechnology products and reconstructive equipment. The main services and products provided by the
company are accessible all over the world. The main instrument that is used for the manufacturing of
medical products is PCB (Printed Circuit Boards). A printed circuit board (PCB) is mechanically
supports and electrically connects electronic components using conductive tracks, pads and other
features etched from copper sheets laminated onto a nonconductive substrate. In 2002, the company
show a good revenue and operating profit where estimate about $3 billion and $507 million.
The divisions that a part of the company include surgical and medical equipment, orthopaedic
implants, International sales and Rehabilitative Medical Services. There are three main business of the
company include Stryker Medical, Stryker Endoscopy and Stryker Instruments. In Stryker Medical
unit, it is preparing for hospital beds and other patient medical handling equipment. Moreover, this
business unit is also engaged in providing emergency medical service products. While in Stryker
Endoscopy unit produces communications and video imaging equipment along with general and
arthroscopic surgery instruments. Plus, in Stryker Instruments unit come out with operating room
equipment, interventional pain control products and surgical instruments.
THE PROBLEM:
Recently, the company is facing with a lot of issues regarding the suppliers and make the
company has to bring some change in their sourcing strategy. From the current perspective, the
company is doing out-sourcing on a contractual basis from the manufacturers and has estimated
current spending of $10 million in the previous two years.
The management of the company is not so satisfied with the contract of manufacturers for
some reasons. At first, the company is actually facing problems about the quality of products.
Secondly, the company also facing the problem with the current supplier in term of the delivery
timings and responsibility for the companys products. Consequently, the company is continuously
need to find new suppliers one after another for the manufacturing of their products. Another big
problem found in contract manufacturers is due to the operation where based on small margins along
with limited capital.
expenditures in term of materials, infrastructure, R & D, maintenance and so on. Another one, the
company also has to take risk if the equipment that being used may be outdated.
COMPARISON WITH OTHER OPTION:
OPTION 1
Benefit:
-
Benefit:
No capital outlay where to some extent it
Risk:
-
OPTION 2
Risk:
This option potential to have instability
responsiveness.
As mention, all PCBs would be produced in house start from year of 2006. So, we analyse the income
statement from 2005 to 2006 to see how the sales growth for that moment and predict for the year
2007 as the company spends more than $10 million. (Refer to Stryker Corporation Annual Report
2005 & 2006 taken from http://phx.corporate-ir.net/phoenix.zhtml?c=118965&p=irol-reports).
Income Statements
Net Sales
Cost of sales
Gross profit
RD&E expenses
SG&A expenses
Amortization of intangibles
In-process R&D
Operating income (expenses)
Earnings before tax
Income taxes
Net earning
20052006
11%
8%
13%
14%
11%
-11%
231%
13%
556%
16%
5%
21%
% increase
200620062007E1
2007E2
11%
28%
13%
29%
10%
26%
11%
28%
11%
28%
11%
28%
11%
28%
8%
24%
-100%
-100%
5%
21%
7%
23%
4%
20%
2005 A
2006 A
2007 E1
$4,871.50 $5,405.60
$1,718.50 $1,848.70
$3,153.00 $3,556.90
$284.70
$324.60
$1,853.50 $2,061.70
$48.80
$43.60
$15.90
$52.70
$950.10 $1,074.30
$4.50
$29.50
$954.60 $1,103.80
$311.00
$326.10
$643.60
$777.70
2007 E2
$6,000.22
$2,083.88
$3,916.34
$360.31
$2,288.49
$48.40
$58.50
$1,160.65
$0.00
$1,160.65
$348.20
$812.46
$6,892.22
$2,393.67
4,498.55
$413.87
$2,628.70
$55.59
$67.19
1,333.20
$0.00
1,333.20
$399.96
$933.24
Ratio to sales
2005
0.35
0.65
0.06
0.38
0.01
0.00
0.20
0.00
0.20
0.06
0.13
2006
0.34
0.66
0.06
0.38
0.01
0.01
0.20
0.01
0.20
0.06
0.14
2007
E1
0.35
0.65
0.06
0.38
0.01
0.01
0.19
0.00
0.19
0.06
0.14
2007 E2
Less
Less
Less
Less
Add
Revenue
COGS
Gross profit
Operating
Expenses
Depreciation
PBT
Tax
PAT
Depreciation
Net Inflow
2007 P
2008 P
2009 P
2010 P
2011 P
2012
$2,883.76
$576.75
$2,307.01
$3,345.16
$669.03
$2,676.13
$3,880.39
$776.08
$3,104.31
$4,501.25
$900.25
$3,601.00
$5,221.45
$1,044.29
$4,177.16
$6,056.
$1,211.
$4,845.
$865.13
$69.01
$1,372.87
$411.86
$961.01
$69.01
$892.00
$1,003.55
$80.05
$1,592.53
$477.76
$1,114.77
$80.05
$1,034.72
$1,164.12
$92.86
$1,847.34
$554.20
$1,293.14
$92.86
$1,200.28
$1,350.38
$107.72
$2,142.91
$642.87
$1,500.04
$107.72
$1,392.32
$1,566.44
$124.95
$2,485.78
$745.73
$1,740.04
$124.95
$1,615.09
$1,817.
$144.
$2,883.
$865.
$2,018.
$144.
$1,873.
Company Growth
$2,000.0
0
$892.00
$1,034.72
10.00% Npv @ 10 %
15.00% Npv @ 15 %
20.00% Npv @ 20 %
IRR
Pay Back Period
20%
$1,200.28
$1,392.32
$1,615.09
$1,873.50
$3,253.81
$2,396.75
$1,753.70
52%
2.1 years
From above, we derived an apparently positive NPV of the project for the year (2007 2012) when
using the discount rate of 10%, 15% and 20%. Plus, there is a much bigger IRR compared to hurdle
rate (15%) where it means that the project is profitable. So, in conclusion there is a worth it to invest
for this project.