The purpose of our report is to provide our analysis, assessment, and recommendations related to Aloha Products (AP) and the current control systems for the manufacturing, marketing, and purchasing departments. Based on the case information, we believe the current implementation of measurements and controls do not best serve the current business strategy of AP. As a result, we have included recommended changes for the three departments that best align with AP’s business model and will create a more thorough and effective measurement for performance for each department and the firm as a whole.
The following subsections of this memo will consider the current situation, the ...view middle of the document...
The organizational health of AP is currently suffering due to a lack of communication across the firm. Given the current organizational structure, which will be discussed in the subsequent section, there isn’t a strong congruence between actual performance and measured performance, which creates frustration amongst manufacturing managers. Furthermore, the lack of interdepartmental communication hinders efficiency and has led to discrepancies between actual deliveries and current requirements. These discrepancies are handled through the spot market; a much more costly alternative. While it is certainly not one of the larger firms in the industry, considering AP’s revenues in 1994 ($150 M) were roughly equal to Philip Morris and P&G’s coffee advertising budgets, their profitability and success is dependent on the understanding of their role in the market and maximizing their margins. However, this initiative will be much more feasible with an organizational structure and controls that compliment an efficient strategy and promote communication between departments.
1. Evaluate the current control systems for the manufacturing, marketing, and purchasing departments of AP
Controls are evaluated based on the three major departments of AP: manufacturing, purchasing and marketing (sales). Based on our analysis, it is evident that AP has a centralized management control system. The main office handles the purchasing, marketing, and sales activities of each of the three plants. Specifically, the vice president of sales and his two assistants manage the sales policies. The president and vice president of sales jointly assume responsibility for advertising and promotion. Finally, the vice president of manufacturing oversees the roasting, grinding, and packaging processes.
There are three production plants within AP’s manufacturing department; each plant is responsible for their own profits and losses. The plant managers’ bonuses are a percentage of their respective plant’s gross profit. The gross margin is prepared monthly by AP’s headquarters, calculated as the net sales less the cost of sales. Unfortunately, the managers have no control over the any of the major activities in their respective production facilities. The current complaint from manufacturing managers is the lack of control over their basis of performance measurement. We consider this argument as valid; the company is structured on a cost basis yet the cost system measures each plant on a profit basis. The current structure of the business creates an unfair measure of performance for the managers and the production plants.
Manufacturing: There are currently three roasting plants within AP. As previously mentioned, each plant takes responsibility for its own profits and losses. In other words, each plant is a centralized “profit center.” Production schedules are provided to each plant manager for the current and following month. The plant managers have no control over the...