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Case 4-6: Grand Jean Company

Group 3 Ho Chi Yuen, Harvey Tsz Ki Fung, Becky He Rui, Kurt Harry Kong Jing Ning, Sylvia Kurnia Jessica Adharana, Jessica

Company Background
Founded in mid 19th century Survived lean years and the 1929 depression

Dominant product: blue denim jeans

One of the worlds largest clothing manufacturers Owned 25 manufacturing plants and contracted 20 independent manufacturers 40 million pairs of pants; 1/3 were produced by the contractors

Goals of the Company

Increase profitability

Become more cost efficient

Improve plants production efficiency Improve production capacity

Are the Goals of the Company the Same as Goals of Plants Managers and Marketing Organization?

Goals of 25 Plants Managers

Goals of 25 Plants Managers

Reward System

1-to-5 scale (5 = highest) Bonus base =$10,000 E.g. 3-point rating $10,000 X3 = $30,000

Goals of 25 Plants Managers

Factors in rating
Meet the production budget figure Meet the standard number of labour hours CUT COST! Community relations Employees

Goal of Companys Marketing Organization

To meet the targets of sales units and sales dollar which are set by marketing forecasts

How to Achieve This Goal?

i. Frequent changes in product mix to cater the change in consumer demand

ii. The sale forces compensation consists of salary plus 8 percent sales commissions
iii. The sales of each line of pants are assigned to the respective marketing department
1.Basic Jeans Dept 2. Boys Jeans Dept. 3. Mens Casual Dept. 4. Mens Dress and Fashion Jeans Dept. 5. Womens Jeans Dept.

iv. Bonus system

The Marketing DepartmentA Revenue Center

Actual sales are measured against budgets: a. Set up sales forecast b. Measure performance based on the budget

Revenue is the primary measure

Sales commission is the key incentive for sales force

Brief Evaluation
a. Strong stimulation to enhance sales b. comparatively efficient controlling system

a. Focus solely on sales b. Sales budgeting is limited within dept. c. Inefficient communication with production dept. d. Relatively ineffective in corporation level

Suggested Solutions
Planning production budget based on sales forecast Improve the compensation system by lowering the weights of sales commission and rewarding for stable needs

Such policy may incent marketing staff to lower sales budget and ease their job

Several new policies are needed to offset this drawback

Production Unit
Engineered Expense Center:
Discretionary costs exist Engineered costs predominate

Input can be measured in monetary terms

Output can be measured in physical terms

Optimum $ per output can be determined

Performance Measurement of Responsibility Centers



Measurements of Efficiency
Facts: theoretical standard budgeting
Production time (hrs) per pair Production cost ($) per pair

A measurement of the output??

The standard is merely an approximation of what ideally should have happened under the prevailing circumstances Recorded costs are not precise measures of the resources actually consumed

Measurement of Effectiveness

Current System:
Objectives: to keep all plants at peak efficiency Problem: complicated production schedules due to mid-year changes in pant needs provided by marketing department Result: cannot meet the objective

Cannot make everything engineered!

Monitoring Other Factors

Current Plan:
Put one plant to work for a whole year on one type of pants

Save start-up and changeover costs

Performance Review of Managers

Current Systems:
Compare standard labor hours allowed against the actual labor hours Community relations Employees morale Reward system: (Annual bonus based on the companys performance and profits) x (Rating)

A measurement of efficiency Remuneration package Incorporation of profits: measures both efficiency and effectiveness, no need to balance two types of measurements

Overlook other activities such as training and employee development