MCS

ASSIGNMENT NO. – 2

Case Study – Grand Jean Company

SUBMITTED TO :

Ms. SHONALI GUPTA

SUBMITTED BY :

YOGESH DUBEY

MBA 3RD SEM

1. How would you describe the goal(s) of the company as a whole? Is this, or are

these, the same as the goal(s) of the company’s marketing organization and the

company’s 25 managers of manufacturing plants? Explain.

The main objective of the company is to increase profitability and achieve high

growth, by selling as many pants as they can. The company is striving hard to achieve

cost effectiveness and achieve high level of quality. But the goals of the company’s

marketing organization and company’s 25 managers of manufacturing plant are

different.

The marketing division is treated as a “Revenue Centre” so the goal of the

company’s marketing organization is to maximize revenue and sell what is produced.

They are evaluated on the basis of meeting the set sales unit and sales dollar targets.

Also, they are responsible for making demand forecasts which are used to decide the

production levels of each plant.

Whereas, the manufacturing plant have the goal to just meet the budget figure and

fulfill the quota allocated to each plant. Since they are considered as an expense

center and there is no immediate monetary reward to compensate for increase in

responsibilities or requirements, they are not concerned to achieve higher efficiency

and thus, does not want to exceed the targets.

2. Evaluate the current management planning and control system for the

manufacturing plants and the marketing departments. What are the strengths

and weaknesses?

Strengths

1. The company has 25 manufacturing executives with 20 contractors, a reliable and

proven brand for 30 years working together to make pants.

2. The marketing department has 5 marketing vice presidents who work for various

products manufactured by the company.

3. The company has used various measures like time and motion studies to determine

the standard of production, production time, and allocates costs in the production.

Weaknesses

1. Lack of communication between different departments.

2. A flawed evaluation system.

3. Lack of proper MIS.

4.There is lack of staff for some departments as they continue to maintain 11:1

supervision ratio to achieve leadership excellence.

5.They are highly dependent on the outside independent contractors who provide for

approximately one-third of the total pants sold by them.

3. One plant manager recommended that plants be operated as profit centers

because it would overcome some of the problems discovered by Mia Packard and

the case writer. This plant manager commented, “[My] competitor is the nearby

independent manufacturer that makes the same pants for Grand Jean as my

plant makes. And this outsider might also make pants for Grand Jean’s

competitors. Because of the competitive market, only the best managed plants

survive in this business. Therefore, like the outside company’s manager I should

have bottom line responsibility and be rewarded accordingly.” Do you agree or

disagree with the profit center concept for Grand Jean’s 25 manufacturing

plants? How would this approach affect the plant manager’s decisions,

performance, etc.?

The manufacturing plants have the goal to just meet the budget figure and fulfill the

quota allocated to each plant. There is no incentive to the manufacturing plants to

exceed production. Rather, it makes the things difficult for them as they have to meet

increased quota and have thus resorted to “Hoarding” of stock even if there is enough

demand.Since they are considered as an expense center and there is no immediate

monetary reward to compensate for increase in responsibilities or requirements, they

are not motivated to achieve higher efficiency.

It would be a good idea to convert the manufacturing plants to a profit center as that

would increase the profitability of the company. The goal of the production team that

way will be aligned with that of the entire organization. Since, the marketing

department changes the forecast frequently, they can transfer this extra cost to the

sales department if there is a variation at a short notice.

Also due to intense competition from independent contractors, only the best plants

will survive. Hence the plants need to be competitive. Also increase in production will

help the company to be self-sufficient and will reduce their dependence on external

contractors.

4. If Grand Jean’s manufacturing plants were treated as profit centers, three

alternatives were suggested for recording revenues for each plant

i) Use the selling price recorded by Grand Jean’s sales personnel for pants sold

to retailers and distributors.

ii) Use full standard manufacturing cost per unit plus a “fair” fixed percentage

markup for gross profit.

iii) Use the average contract price Grand Jean paid outside companies for

making similar pant types.

Evaluate these three alternatives. Which one would you recommend? Why is

your selection the best one?

(1). Using selling price recorded by Grand Jeans sales personnel for pants sold to

retailer and distributer will not leave the sales department with any margin. The Sales

department would not earn any profits. Hence it is not a feasible option. Every

department needs to generate revenue for its sustenance.

(2). Using full standard manufacturing cost per unit plus a fair fixed percentage

markup for gross profit method has the advantage that there is incentive for the

manufacturing department to do well and to increase efficiency. There is a fixed

percentage of the cost that the manufacturing unit will charge over and above the cost

and that will be its gross profit. So, for every unit they produce and sell they get profit

for it. This profit will make them work harder and attain more efficiency. Also as a

profit center even if they produce more than what is their own companies requirement

they may sell it to the market as contracted manufacturers and earn further profit as a

“Fair” percentage of cost.

But in this case there is nothing motivating for the employees to focus on keeping on

cost of production as low as possible. Hence, this alternative has several advantages

of motivation, but cost factor needs to be taken care of.

(3). If we consider the option of the average contract price that Grand Jeans is paying

to outside companies to get its product made that would give them the price range

with very little margin to work with as the bargaining power of Grand Jeans is pretty

high. Hence, this may lead to reduction in the quality so as to maintain a fair margin

for themselves. This may in turn lead to increased number of rejections at the

customer end and may lead to reduction in brand value and loss of market share to the

company.

Considering the three alternatives given to us the best one would be the cost plus

fixed margin.