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.