Case 4-6: Grand Jean CompanyGroup 3Ho Chi Yuen, HarveyTsz Ki Fung, BeckyHe Rui, Kurt HarryKong Jing Ning, SylviaKurnia 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 world’s 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?

NO!!

Goals of 25 Plants’ Managers

Year-End Bonus

!!!!!

Goals of 25 Plants’ Managers

• 1-to-5 scale (5 = highest)• Bonus base =$10,000

• E.g. 3-point rating $10,000 X3 = $30,000

Reward System

Goals of 25 Plants’ Managers• Factors in rating

Meet the production budget figure Meet the standard number of labour hoursCUT COST! Community relations Employees

Goal of Company’s 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• 1.Basic Jeans Dept• 2. Boys’ Jeans Dept.• 3. Men’s Casual Dept.• 4. Men’s Dress and Fashion Jeans Dept.• 5. Women’s Jeans Dept.

ii. The sale force’s compensation consists of salary plus 8 percent sales commissions

iii. The sales of each line of pants are assigned to the respective marketing department

iv. Bonus system

The Marketing Department—A 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

Pro:

• a. Strong stimulation to enhance sales

• b. comparatively efficient controlling system

Cons:

• 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

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

Efficiency Effectiveness

Measurements of Efficiency

Facts: theoretical standard → budgeting

• Production time (hrs) per pair• Production cost ($) per pair

Strength:

• A measurement of the output??

Weaknesses:

• 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

Weakness:• Cannot

make everything engineered!

Monitoring Other Factors

Current Plan: • Put one

plant to work for a whole year on one type of pants

Strength: • 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 company’s performance and

profits) x (Rating)

Strengths:

• A measurement of efficiency• Remuneration package• Incorporation of profits: measures both efficiency and effectiveness, no

need to balance two types of measurements

Weaknesses:

• Overlook other activities such as training and employee development

THE ENDQ&A