Management

ManagementControl
ControlSystem
System

VVEERRSSHHI IRREE CCOOMMPPAANNYY

Prepared by GROUP 1:
Andhika Adi Khrisna
Pramita Riskia D.P.
M. Zakky Alif
Yeris Permata Octarina

Class of International Program I

Master of Business Administration
Universitas Gadjah Mada

Case Summary
Case Summary
VERSHIRE
COMPANY

Organization policy
Budgetary control system
Sales Budget System
Manufacturing Budget
Performance Evaluation &
Measurement
Incentives

Manufacture diversified
packaging company.
Inc. beverage can for small
breweries, Softdrink using
eg. Steel & Aluminum can.
Metal can Production
1970: 88% Steel cans
1996: 75% Aluminum cans

CONTROL
SYSTEM

ORGANIZATION
CHART

For Aluminum Can Division.

Division GM
Manufacturing Mgr
Plant Mgr 1
Plant Mgr 2
..
Plant Mgr 7

Marketing Mgr
District 1
District 2
..
District 15

MAIN ISSUE in Management Control System

MAIN ISSUE in Management Control System
1. Organization policy

CONTROL
SYSTEM

Division GM have full control of their

business with two exception: Raising of
capital, Labor relations (Head office duty)

2. Budget control system

Organization policy
Budgetary control system
Sales Budget System
Manufacturing Budget
Performance Evaluation &
Measurement
Incentives

Each plant served customer in its own

geographic regions

3. Sales Budget
4. Manufacturing Budget

1.
2.

Top-down: Overall Corporate Sales Forecasting

Bottom-up: District Sales Forecasting

The plant managers are responsible for

budgeted profit number, even if the actual sales
below the projected level.

5. Performance Evaluation & Measurement Monthly statement: Variance Analysis

(budgeted vs actual)
6. Management Incentives

Incentive between SALES DEPARTMENT and PLAN MANAGER

Sales Dept. responsible for Price, Sales
mix, delivery schedule. Focus on SALES.
Plant manager responsible for plan operation and plant profits.
Compensation tied to achieving profit budget.
Plant managers should have been Focus on EFFICIENCY.

Problem statement
Problem statement
1

Strength and Weakness of Vershire Companys Planning and Control System

Profit Budgeting Process in Vershire

Should Plant manager responsible for profits?

How to assess performance evaluation system?

Redesign Management control structure in Vershire

Strength and Weakness Analysis

Strength and Weakness Analysis
PLANNING SYSTEM

CONTROL SYSTEM

Formulating sales budget by considering several

aspects, eg. market condition, create more precise
forecasting, anticipate future loss, to make future
decisions for long-term goals
Forecasting method by top-down inline with bottom-up
approach makes team feel
being involved in its
das
preparation.
Plant visit before final submission of budget
allows more accurate and complete
Strength
budget to be produced.

Similar forecasting method for all product

lines might be not an effective way due
to different behavior of each division
(demand of customer base, industry
trends, product spec)

Full responsibility given to Divisional managers create

efficient process to make decisions that can best achieve
the divisions goals, objectives, and performance forecast.
Moreover, leaving labor relations and capital to the
corporate head office allows the divisions are then
also able to focus on making-profit activities
emphasized by the company.
Timely communication across hierarchies.
Strength Overseeing budget-actual variance and
analysis to anticipate large variances on a
daily basis.

Weakne
Weakness
Weakness
ss

Inefficient Reversible review process (corporate

headquarter to divisional managers) will alter initial
forecast.
Plant managers are held accountable for profits when
they do not have control over all the profit
components (but district sales managers do).

Profit is measurement to evaluate plant

managers performance and determine
bonuses Not Effective measurement,
because not considering another factors,
different product lines.

Profit Budget Process at Vershire

Profit Budget Process at Vershire
May

Sept
VP Marketing,
Corporate

Review and
Submit sales
forecasts

Reversible process

District Sales Central Market

Divisional GM
Research Staff
Manager
Plant Manager

Consolidate
division
budget

Compile new
sales forecasts

Submit forecasts

CEO

Visit
Plant

Submit plant
sales budget
Submit the preliminary
report to Corporate
Management

Head Office
Controller Staff

Request
cost budget

Review &
submit cost
budget

Dec
BOD

Approve &
Submit Budget

Approve
final budget

Submit
Final
Budget

Final
Budget

Should Plant manager responsible for profits?

Should Plant manager responsible for profits?

Plant managers should be

PROFIT = REVENUE - EXPENSE

Sales department has sole

responsibility for revenue
(including price, sales mix and
delivery schedules).

responsible only for the measures

that they can directly control, which
are the expenses
E.g.: Direct materials, direct labor, variable
manufacturing and fixed overhead budget

If Plant managers should responsible for profits, and if production can be disrupted by the sales
manager, itll reduce plant managers ability to maintain cost efficiency. Prior to budget
submission, head office controller staff visits the plants and the plant manager has the opportunity to
explain his/her situation.

How to assess performance evaluation system?

How to assess performance evaluation system?

1 Variance report, regarding sales

price, sales mix, & sales volume
(irrelevant).

Cost
variance
more
relevant

Sales department responsibility

rather than Plant Manager.
Vershire evaluates plant managers
which the plant managers have no
direct control.

2 Net Profit is the main concern. In

a manufacturing environment,
Vershire use output (profit) as a
means of evaluation rather than
the quantity produced, the
evaluations become irrelevant.

Overall, the performance evaluators contained do not

accurately measure the effectiveness or efficiency of the
aluminum can manufacturing plants

How to assess performance evaluation system? (2)

How to assess performance evaluation system? (2)
More detail analysis

Irrelevant for Plant Manager

Relevant for Plant Manager

Comparative analysis
might be unreliable
since it compare plants
with different
production lines

By using these performance evaluators to assess the plant managers performance in each plant,
they are penalizing them for the shortfalls of the sales department and its inability to sell what is
produced. Alternatively, the company is also rewarding the plant managers when the sales
department is able to negotiate favorable contracts for the company.

Redesign Management control structure in Vershire

Redesign Management control structure in Vershire

Recommendation in Redesigning Management Control System involving 3 main aspects:

More open communication between corporate HQ and division general managers

Alter how plant managers are compensated and reassign responsibility over
profits

Improve comparisons of manufacturing efficiency between divisions and plants

Redesign Management control structure in Vershire (2)

Redesign Management control structure in Vershire (2)

THANK YOU