Grand Jean Company

1. Company Background The Grand Jean Company was founded in the mid-19th century. By 1989, it was one of the worlds largest clothing manufacturers. It offered a wide variety of dress and fashion jeans for both men and boys.

2. Process Characteristics The company owned 25 manufacturing plants. The average output was about 20.000 pairs of pants per week. Currently, the company contracting 20 independent manufacturers that making all lines of Grand Jeans pants. Contractors produced one-third of the total pants sold by Grand Jean last year. According to Tom Wicks, vice president for production operations, the company established ceiling or maximize price for contractors for each type of pants. If contractors capable of making quality pants, company will pay that ceiling, if not, the company bid below that ceiling for the first year or two. The company treats 25 plants as expense centers. The rate of total production time per pair for every basic style of pants is known. This information is used for budgeting a plants cost. Marketing estimates the quantity of pants of each type it wants produced each year. That information is used to divide total production among the plants. The plant budgeting begins by determining what a plants quota (in pairs of pants) for each month for one year ahead. This plants quota estimates by looking at the plants past performance and add a little adjustments. This yearly budgets are updated at the end of each month in light of the previous months production. If plant manager reach the quota then he has worked efficiently, and vice versa. Given that number of pants that a plant actually produces in a month, we can determine the number of standard labor hours allowed for that month. We compare this figure against the actual labor hours to determine how a plant manager performed as an expense center. Marketing department are treated as revenue centers. Marketing forecasts are used to set sales unit and sales dollar targets. The performance of marketing department managers is measured on the basis of meeting these targets.

3. Problem Identification Based on Mia Packard observation, she discovered that: 1. The plant manager was keep some of the pants produced over quota. These plant managers arent really pushing for maximum production. If they increase output, their quotas are going to go up, and yet they wont receive any immediate monetary rewards to compensate for the increase in their responsibilities and requirements. 2. Supervision ratio is 11:1, due this policy, we cant get enough people in the offices to generate timely and accurate information from plants. 3. No difference between the standard hours determined in these plants and the older ones.

4. Questions 1. How would you decribed the goal(s) of the company as a whole? Is this, or are these, the same as the goal(s) of the companys marketing organization and the companys 25 managers of manufacturing plants? Explain? 2. Evaluate the current management planning and control system for the manufacturing plants and the marketing departments. What are the strengths and weaknesses? 3. Do you agree or disagree with the profit centre concept for Grand Jeans 25 manufacturing plants? How would this approach affect the plant managers decisions, performance, etc? 4. Evaluate three alternayives. Which one would you recommend? Why is your selection the best one?

5. Answers 1. The goals of the company are providing a high quality clothing and pants while maintaining its efficiency and effectiveness in a stiff garment industry competition. These goals are not aligned with marketing organization and manufacturing plants. Manufacturing goals are fulfilling companys quota for pantss production set by vice president production operations. Manufacturing is treated as expense centers. Marketing is treated as revenue centers with its objectives are achieve sales target in dollar and unit.

2. Stengths : i. The company has developed learnings curves that tell us how long it will taje the production of a given type of pants to reach the standard hours allowed per pair after initial start-up or product switch-over. ii. The company also developed a very good relationship with its contractors that the company has been worked with several of them for over 30 years Weaknesses: i. No difference between the standard hours determined in these plants and the older ones. ii. Standar kuota di divisi manufacturing membuat plant managers tidak mempushing sampe ke level produksi yang maksimum, malah mereka menyembunyikan pants hasil produksi yang melebihi kuota iii. Understaff at offices that causing, head office cant get timely and accurate reports from plants. 3. Agree with the profit centre concept for Grand Jeans 25 manufacturing plants.

As shown in organization structure above: a. Marketing Division The role of this division is as a product owner, they create and analyze product performance. They also create contract with third party to supply jeans.

b. Business Unit (BU) / Plant Manager (PM) Division Business Unit is a division where revenue and cost is define. We can call Business Unit is a profit center. The role is: BU selling product (getting revenue) BU manage cost (goods, machine, people, cost production, building, etc) BU identify requirement number of people

With profit center concept, the effect are: BU can optimize the production based on sales needs. BU can analyze number people requirement. If number of employee not fit with standard employee, BU can ask management to recruit. BU can provide an excellent training to the employee. BU can analyze why if their plant not productive or getting loss. BU responsible for profitability of the plant BU are particularly responsive to pressure to improve their competitive performance.

4. Use Full standard manufacturing cost per unit plus a fair fixed percentage markup for gross profit. This scheme is like a one-size fit all concept. Grand Jean have to determine the average cost of 1 type of jeans for each plant. Why: This can avoid different cost production within each plants. This can avoid different prices in the market. This can prevent BU doing fraud because cost production had determined. Easy for accounting activity. Revenue just based on number of sales.

6. Background Theory Responsibility centers A responsibility center is an organization unit that is headed by a manager who is responsible for its activities. Responsibility centers receive inputs in the form of materials, labor and services. The Responsibility centers performs its particular function with the ultimate objective of transforming its inputs into outputs, either tangible or intangible. Types of responsibility centers

There are four types of responsibility centers: 1. Revenue centers, output is measured in monetary terms 2. Expense centers, inputs are measured 3. Profit centers, revenues (output) and expense (input) are measured 4. Investments centers, relationship between profit and investment is measured Revenue centers In a revenue center, output is measured in monetary terms, but no formal attempt is made to relate input. Expense centers Expense centers are responsibility centers whose inputs are measured in monetary terms, but whose outputs are not. Two types of expense centers: 1. Engineered costs Characteristics of this cost: a. Their input can be measured in monetary terms b. Their putput can be measured in physical terms c. The optimum dollar amount of input required to produce one unit of output can be determined Engineered expense centers are usually found in manufacturing operations. 2. Discretionary expense Include administrative and support units (e.g accounting, legal, industrial relations, public relations, human resources) research and development operations, and most marketing activities. a. Administrative and support centers Control problems: 1. Difficulty in measuring output 2. Lack of goal congruence b. Research and development centers Control problems: 1. Difficulty in relating results to inputs 2. Lack of goal congruence

c. Marketing centers Three types of activity measures are: filling and logistics activity, marketing activites and order-getting costs. Profit Center Is an organization unit where both revenue and expense center are combined. This concept can increase the speed of decision making, improve quality decision, can define which profit center are loss or gain profit.