Case 4-6 Grand Jean Company
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Transcript of Case 4-6 Grand Jean Company
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Case 4-6: Grand Jean CompanyGroup 3Ho Chi Yuen, HarveyTsz Ki Fung, BeckyHe Rui, Kurt HarryKong Jing Ning, SylviaKurnia Jessica Adharana, Jessica
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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
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Goals of the Company
Increase profitability
Become more cost efficient
Improve plants’ production efficiency
Improve production capacity
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Are the Goals of the Company the Same as Goals of Plants Managers and Marketing Organization?
NO!!
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Goals of 25 Plants’ Managers
Year-End Bonus
!!!!!
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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
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Goals of 25 Plants’ Managers• Factors in rating
Meet the production budget figure Meet the standard number of labour hoursCUT COST! Community relations Employees
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Goal of Company’s Marketing Organization
To meet the targets of sales units and sales dollar which
are set by marketing forecasts
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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
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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
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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
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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
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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
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Performance Measurement of Responsibility Centers
Efficiency Effectiveness
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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
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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!
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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
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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
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THE ENDQ&A