CASE STUDY : GRAND JEAN

COMPANY

SESSION 11

17/11/2015

GRAND JEAN COMPANY

DESCRIBE THE GOALS OF THE COMPANY
ARE THESE SAME FOR THE COMPANYS
MARKETING ORGANIZATION &
COMPANYS 25 PLANT MANAGER.
EXPLAIN GOAL INCONGRUENCE IF ANY.
EVALUATE STRENGTHS AND
WEAKNESSES OF THE PLANNING &
CONTROL SYSTEM INVOGUE FOR THE
MANUFACTURING PLANTS &
MARKETING DEPARTMENT

GRAND JEAN COMPANY

DO YOU AGREE THAT PLANTS
SHOULD BE TREATED AS PROFIT
CENTRE? IF SO HOW SHOULD ITS
REVENUE BE RECORDED?
(A) COMPANYS REVENUE REALIZED
FOR PLANT PRODUCTION OR
(B) STD MFG COST PLUS FAIR
RETURN OR
AVERAGE CONTRACT PRICE PAID
FOR OUT SOURCING THE PRODUCTS
MFGED IN PLANTS.

GOAL INCOGRUENCE
COMPANY GOAL : maintain its market
leadership and increase firms
profitability and growth
PLANTS GOAL : As Expense
Centers, principle goals are to meet
the budgeted production quota meeting
the required quality and achieve cost
efficiency.
MARKETING DEPT GOAL : As
revenue centre the goals are to sell
products manufactured on the basis of
forecasted demand in unit and dollar

STRENGTHS OF CONTROL
SYSTEM

In 1989 the firm became one of the worlds

largest clothing manufacturers.
Company products were so much sought after
that for last several years it had had
unfulfilled year end demand .
The company has developed a learning curve
to determine average time taken to reach level
of standard hour after initial start-up or a
product switch-over.
Developed and implemented budgeting
method to set the quota, which helps to
evaluate performance more effectively.
The reward system on a 1 to 5 scale should be
a strong motivator as annual incentive earning
could vary from $10,000 to $50,000.

WEAKNESSES OF CONTROL
SYSTEM
The reward system not fair.
Significant reliance on outsourcing
No incentive for plant managers to
exceed production targets.
Deceptive leadership efficiency idea
of 11:1 results in understaffed plant
offices.
Same standard hours irrespective of
vintage of the machinery.

ADVTS OF PLANTS AS PROFIT

CENTRE
As an expense centre plant managers will
not receive any additional monetary reward for
exceeding production quota.
Doing so, they risk increase in Annual quota.
As Profit Center, the plant manager will be
motivated to achieve higher production
through higher efficiency to earn higher
incentive.
This will reduce Cos need for outsourcing.
Enable meeting its year end unfulfilled
demand .

ALTERNATIVE A : USE OF
COMPANYS AVERAGE SELLING
PRICE
Marketing department
will not have
any incentive to sell companys own
prodn.
They will look forward to sell only
outsourced products for earning
profit.
This will seriously affect companys
growth prospect, dent its brand
image and long term profitability.

ALTERNATIVE B : STD MFG COST

PLUS FAIR FIXED % RETURN
Creates incentive for the manufacturing
department to increase efficiency.
By bringing the plant to a higher level
of production, managers will be able to
earn higher incentive.
With this transfer price , the marketing
department will also have incentive to
earn higher profit through higher dollar
sale and more profitable product mix.

ALTERNATIVE C : USE OF AVERAGE

CONTRACT PRICE FOR
OUTSOURCING
This will give the company various
price points with overall lower profit
margins.
To earn higher margins, managers
will be compelled to sacrifice product
quality.
Prodn efficiency is likely to suffer too.
These lead to customer
dissatisfaction and loss of market
share.