GRAND JEAN COMPANYCASE STUDY:

S.M.E.ZorriehZahra S.A.Rafiee rad

 BACKGROUND:
1. In 1989 it was one of the largest clothing manufactures in the world.

2. 2~3 manufactures out of 25 of GJ Co. usually produced only blue jeans. Currently, there were 20 contractors making all lines of GJ pants. 3. The contract price ceiling is established, but overall, its all depends on Contractors performance. 4. Treat 25 plants as expense centers 5. The market is highly competence; the pressure comes from domestic and Foreign competitors. 6. Grand Jean is using the incremental budgeting.

7. It uses one plant to produce one kind of jeans each year, but they usually need to do
The change in the midyear. 8. Use 1-to-5 scale reward system.

President Vice president corporate planning Vice president marketing

Basic Jeans Dept.

Vice president Finance and administration

Vice president production operations

Distribution Dept.
Boys Jeans Dept. Men's Casual Dept. Men's Dress and Fashion Jeans Dept.

Traffic Dept.

Plants(25)

Women's Jeans Dept.

Grand Jean Company

Outside Supplier

Headquarters

Factory 1 Factory 3

Factory 2 Factory 4 Factory 25

Outside Supplier Outside Supplier Outside Supplier Outside Supplier

..

Marketing

Customers

SWOT ANALYSIS
STRENGTHS

WEAKNESS

Companys been profitable for a long time. The contractors are very reliable to the company. Developed the learning curves to see the productions stand hour. Use budgeting to set the quota, which can evaluate the performance easily. 1-to-5 scale reward system can motivate employees work harder. Very clear marketing department system. Also has the reward system to support it.

Single style of pant every year, then need to do the change in the midyear. Make marketing department confused about the production schedules with The midyear changes. Outcome budgeting is not accurate, because plant managers will hide some of the pants. They want to hide them for the future production deficiencies. The reward system is not that fair, the people who work at the headquarter have Higher awarded rating then the plant managers. For some departments, they lack of staffs. But based on the 11:1 rate, they cant hire New people. This will lower the production no expense budgeting only have the production requirement

CONT
OPPORTUNITY

THREATs

By 1989 they were the worlds largest

The firm has tied up with outside

clothing manufacturers. They enjoyed a

monopolistic market, which was an opportunity for them to grow up and more easily and capture the whole market.

independent manufacturers to increase the

production capacity ,which was an threat for firm because they were also working for rival competitors The plant manager were hoarding some of the pants produce over quota, to protect them self against future production

There production capacity was quite high Which gave them an opportunity

to cover whole market and gained

customer trust and expand their business in whole world

deficiency but if they adopted this strategy

it would have affected the demand of company.

CASE FINDINGS AND CONCEPT LINKAGES

Grand jean co. - responsibility centres may be classified as Revenue Centres Expense Centres Profit Centres Investment Centres

A responsibility centre is an organization unit that is headed by Plant manager who is responsible for its activities. Delegation of responsibility for specific to successive lower levels of organization. Motivation of the level of management to which a certain task has been delegated. Measurement of the achievement of specified objectives.

REVENUE CENTRE

Revenue centre encountered in the marketing operation

of a Grand jean co.. Marketing operation split into

revenue centers (with each responsible for a particular product range). Grand Jean co. treat their 5 marketing department as a revenue department.

The sales department is an example for a revenue centre.

Sales budget are prepared for revenue centre and

budgeted figures are compared with actual sales. Generally the costs are not related to output.

COST OR EXPENSE CENTRE

Cost centre An identifiable part of an organisation where costs can

be calculated. A cost center is part of an organization that does not

produce direct profit and adds to the cost of running a company.

Examples of cost centers include marketing departments, help desks

and customer service/contact centers. it is a smaller segment of

activity or area of responsibility for which cost can be accumulated. Its manager is basically responsible for production of a product or

service; his decision authority relates to how human resource,

machinery and materials should be used to produce the product or service.

PROFIT CENTRE

An identifiable part of an organisation where costs and revenue can be calculated. A profit center is a unit of a company that generates revenue in excess of its expenses.

Profit center management is equivalent to running an independent business because a profit center business unit or department is treated as a distinct entity enabling revenues and expenses to be determined and its profitability to be measured. Miss. Mia Packard has suggested to organize manufacturing plants in terms of profit centers where the profit center's revenues and expenses are held separate from the Grand jean co. in order to determine their profitability. Usually different profit centers are separated for accounting purposes so that the management can follow how much profit each center makes and compare their relative efficiency and profit.

WAYS TO CREATE PROFIT CENTRE:

There are essentially two ways to create a new profit center. The first method

is to create an extension of the original businessa new product related to

existing products, or new services that build on services that are already offered.

The second method is to create an entirely new business altogether that can operate using the first business's corporate infrastructure (at least initially) and that can be operated at the same time as the original business.

USE OF PROFIT AND COST CENTRE IN GRAND JEAN COMPANY

This allow the business to compare performance between

departments / across products / brands etc

This allows the business to make decisions about underperforming areas

Establishing profit centers, and generating daily profit/loss

statements, has allowed them to better identify, and correct, there weaknesses.

MANAGEMENT CONTROL SYSTEM

It Is the process of evaluating, monitoring and controlling the various sub-units of the organization so that there is effective and efficient allocation and

utilization of resources in achieving the predetermined goals.

FEATURES OF MCS: Involvement of people Action taken by people Information about the actual state of the organization is compiled by people. Actual Performance is compared to Planned Performance in control, so planning and controlling are interlinked and are known as P&C systems It decides what the organization plans to achieve in a given time framework which is known as Planning Process. The management decides the desired state or standards against which performance is compared.

GRAND JEAN CO. MANAGEMENT PLANNING

The plant budgeting begins with Mr. Wick and the staff determining what a plants quota {in pairs of pants} for each month should be for one year ahead of time. They look at the plants past performance and add a little to this because they expect people to improve this

year. These yearly budgets are updated at the end of each month in
light of the previous months production. In a plant managers beats this budgets figures, they feel he has done a good job.

MCS OF GRAND JEAN CO.:

Treating plants as expense center.

keeping there plants at peak efficiency.

worker turnover.

Standard labour hours for the month

Compare figure against the actual labour hours.

CONT

Feedback from manager.

Rating manager performance. Providing bonus.

CASE FACT:

Contract agreements are negotiated based on the companys values is at its highest for those that can deliver the aforementioned values the

best.

Grand jeans companys corporate objectives are: producing quality product at a reasonable price in a timely fashion.

The corporate strategy is to effectively access each business unit in

attempts to allocate resources as needed.

In the case of grand jean company engineered expense center for the plant divisions are used to distribute their market leading jeans in this functional organization. In an expense center approach the financial performance report evaluates the efficiency of the manager.

ENGINEERED EXPENSE CENTRE

Engineered expense centers are usually found in

manufacturing operations. Warehousing, distribution trucking

and similar units within the marketing organization may also be engineered expense centers.

In an engineered expense center, output multiplied by the standard cost of each unit produced measure to improve what

the finished product should have cost.

CONCLUSION:

EVALUATION OF THE SYSTEM:

The plant manager of grand jean co. was hoarding some of the pants

produce over quota. They does this in good months to protect

themselves against future production deficiencies.

They use 11:1 ratio for surprise their employee i.e. they are assigned 11

workers for every supervisor or member of the office or administrative

staff.

MAIN PROBLEMS IN THE GRAND JEAN CO. MCS

Grand Jean has a functional organization and it causes several disadvantages: there is no real way to determine the effectiveness of the separate functional divisions (production and marketing). And yet, there are real inequalities in these organizations because the marketing division is higher awarded than the plants managers.

Furthermore, the requirements which the plants' manager

have to meet are very high.

ALTERNATIVES:

Establishing profit centers, and generating daily profit/loss statements, has allowed them to better identify, and correct, there weaknesses.

Put more focus on the input control. Decide the engineered cost and discretionary cost. Do not only focus on the output, starts to control the input.

Engineered costs are those for which the right or proper amount can be estimated with reasonable reliability- for example, a factorys costs for direct labor, direct material, components, Supplies, and utilities.

Discretionary Costs (also called managed costs) are those for which no such engineered estimate is feasible.