Body Glove

In March 1991, Russ Lesser, president of Body

Glove, a small wetsuit manufacturer, reviewed
the progress his company had made, as well as
the problems it had encountered, in the nine
months he had been president. The company
was performing well: it was profitable and was
ranked number two in market share in the
wetsuit industry. But Russ knew that he and his
newly appointed management team could not
afford to be complacent. The wetsuit industry
was highly competitive and the markets were
complex, with rapid growth, fashion conscious
customers, and seasonal demand. Much of
Body Gloves success depended on its ability to
respond quickly and in a co-ordinated fashion to
changing market conditions. These responses
should be facilitated by the companys
management processes, and Russ wondered if
the company had the right processes in place.

greater television coverage of water sports

competitions.

THE WETSUIT MANUFACTURING INDUSTRY

Since the differences among wetsuit brands

were subtle, most specialty surf and dive shops
carried only two or three brands of wetsuits and
made changes in their offerings only
infrequently. General sporting good stores, such
as Oshmans and Sport Chalet, typically carried
lines of lesser quality suits to satisfy their less
experienced clientele and were more apt to
make brand changes.

Wetsuits are form-fitting, insulating suits made of

neoprene, a rubber-like material. The suits are
designed to protect water sports enthusiasts,
divers, surfers, windsurfers, kayakers, distance
swimmers, and whitewater rafters, from cold
water temperatures.
The suits are called
wetsuits because they let a layer of water in
between the skin and the suit, and this water,
warmed by body heat, provides a layer of
insulation.
It was difficult to determine the precise size of
the wetsuit market because most of the firms in
the industry were privately held, but it was
believed that the US domestic industry
generated over $60 million in revenues in 1990.
It was clear that the wetsuit industry had grown
rapidly since its beginning in the early 1950s
because of two main factors: One was the
emergence of a multitude of sport-specific as
well as fashion wetsuits which created the
consumer desires to purchase a different wetsuit
for each sport. The wetsuit manufacturers had
also influenced consumer preferences and
brand awareness with increased advertising and
sponsorship of water sport athletes. Another
contributing factor was the growth in
participation in water sports activities, fueled by

The
industry
was
founded
by
small
entrepreneurs, but by 1990 it was dominated by
a small number of larger companies. ONeill,
the largest company in the industry, with
approximately a 50% market share, had the
reputation for producing high quality basic
wetsuits.
Body Glove, number two in the
industry, was known as a fashion-conscious,
high quality producer. ONeill and Body Glove
competed directly against each other in all
market segments; the remaining manufacturers
specialized. For example, Rip Curl, the third
largest firm in the industry, focussed on the
surfing market. Competition in the industry was
fierce, as the firms sought to increase their
market shares at the expense of their
competitors.

Most buyers of wetsuits were very image and

quality/comfort conscious.
Switching costs
involved in buying different wetsuit brands were
low, making it imperative that Body Glove
personnel take care to earn each sale and not
become complacent. The company marketed
itself as a wholesome life-style brand, while
ONeill had a bad boy image. Maintaining this
image required Body Glove managers to
approve everything sold with the companys
brand name on it for image and quality.
Wetsuits were made of closed-cell neoprene of
various thicknesses (1.5mm to 6mm). The
thickness of the wetsuit depended on its design
and its intended use. For example, deep sea
diving required a very thick suit because of the
extremely cold temperature of the water.
Various techniques such as glued and taped
seams, glued and blind stitched seams,

overlocked seams, and flatlocked seams were

used to seal the wetsuit. The change from the
basic, multi-use, black wetsuit to more fashionoriented, sport-specific wetsuits had altered the
manufacturing environment.
To remain
competitive, manufacturers had to provide a
large array of styles and colors to meet
consumer demands, and their ability to react
quickly to changing trends determined their
success.
The large product line required
manufacturers to carry significant amounts of
raw materials and a large finished goods
inventory.

Inc., were approximately $15 million, with nearly

$8 million coming from wetsuits.1
In 1990, Body Glove broke from its family-only
management policy. Kurt Rios, previously a
Body Glove sales representative, accepted the
position of national sales manager in April. In
July, Russ Lesser was recruited from the
companys audit firm to fill the position of
president and chief financial officer, and Mark
Malinski took over the responsibilities of director
of manufacturing when Body Glove acquired his
previous employer, Sub-Aquatic Suits, in
January 1991. The co-founders, Bob and Bill
Meistrell, and other family members remained
active primarily in promotional events, and the
new management team took over the day-to-day
operations.

BODY GLOVE
History

In 1991 Body Glove employed approximately

300 people. The company was organized
functionally, as shown in Exhibit 1.

In 1953, two former lifeguards, twin brothers Bob

and Bill Meistrell, opened Dive n Surf, a retail
water sports store in Hermosa Beach, California.
Later that year they developed a wetsuit made
of neoprene that fit like a glove in order to
protect surfers and divers from the cold ocean
temperature. They began manufacturing the
wetsuits with the Body Glove logo and selling
them both within their shop and to other
retailers. In its first 30 years of existence, the
Body Glove division of Dive n Surf Inc.
developed a small but loyal customer base in
California with a dependable product, fair prices,
and superior customer service.

Market
Body Glove produced a full line of neoprene
wetsuits and accessories designed to meet the
needs of all water sport enthusiasts. Demand
was highly seasonal, so to smooth out the
workload and cash flows the company started
producing snowskiing and snowboarding
apparel and orthopedic products, such as knee
braces and pads. Exhibit 2 shows a full product
listing. Body Glove sold its products through
sports and specialty retail stores, including its
own Dive n Surf retail stores in Redondo Beach
and Del Amo, California.

In 1983, Robbe Meistrell, son of co-founder Bob

Meistrell, became president and led the
company through a period of rapid growth.
Body Gloves sales nearly doubled in the period
1986-1991. The company capitalized on the
demand for its new line of bright colored,
uniquely designed beachwear and sportswear
bearing the Body Glove logo. The company
successfully gave its name a fun life-style
image, in part through its sponsorship of the
Professional Surfing Association of America
(PSAA), the Professional Snowboarding Tour of
America (PSTA), and the National Scholastic
Surfing Association (NSSA).
In 1986 the
company licensed the Body Glove logo to
American Marketing Works for the sale of its
beach and sportswear lines. (This license was
retracted on January 28, 1991). Total 1990
revenues for Body Gloves parent, Dive n Surf,

The companys goal was to dethrone ONeill and

become the No. 1 wetsuit manufacturer by the
year 2000. But the growth the company had
experienced in the last five years had put
pressure on the manufacturing operations. The
manufacturing areas not only had to increase
capacity, but also had to maintain flexibility to
meet the highly segmented and changing
consumer demands.

Total annual revenues of products using the Body Glove

label (including licensed products) was approximately $100
million. Dive n Surf received approximately $2.5 million in
licensing fees.

Exhibit 1
Body Glove: Organization of Dive n Surf, Inc.
Board of Directors
Chairman/CEO Robbe
Board member Bill
Board member Bob

President
Russ
Board of Directors

Dept. Head
Robbie

Credit
Approval

CFO/APM
Russ

Chairman/CEO Robbe
Board member Bill
Production
Board Member
Bob
Mark

Sales
Kurt

Special Projects
Billy, Randy

Licensing
Greg

61

Meistrell
Sports
Bill S.

Adv.
Design
Dina

Retail
Scott J.

Promotion
Scott D.

Acct
Jeanne

Credit
Danelle

51

Data
Processing
Jim

BG
WT

73

52

Factory
Bob W.

Redondo
Store
31

Intl
Andrew

Del Amo
Store
32

Ortho
Fred

61

61

Classes

Charters

41

42

Sch
Phillip

Design
Approval
Randy

Brand
Sales &
Marketing

Accessories
Bruce

52

QC
Billy

65

Purch. & Nat.

Mgmt.
Helen/Larry

Independent
Reps
Non DNS

Licenses
Body Glove

Licenses
Other

51

Rental &
Repair
43

Independent
Reps
DNS

BGTS

BG
Wetsuits
Kurt

54

62

SAS
Karen

63

OSI

64

BGSM

71

Customer
Service
Celeste
72

Exhibit 2
Body Glove: Product Line Overview
Order Cycle

averaged about $100; for the spring line the

average was about $60.

Body Glove produced products for two seasons,

fall and spring.
The fall line, which was
produced from thicker neoprene than the spring
line, consisted of full suits, jackets, legsuits,
hoods, and hooded vests, as well as skiing and
snowboarding products.
The spring line
consisted of springsuits, warm water wetsuits,
trunks, vests, and water ski suits. Fall suits
were more labor intensive and used more
expensive material. The cost of a full fall suit

Each season had its own formal order cycle with

three phases: (1) pre-book, (2) build, and (3)
deliver. In the pre-book phase, salespeople
visited the retail stores to show samples of the
upcoming lines. At this time, the retail stores
gave the salespeople preliminary estimates of
their ordering decisions. Body Glove gave its
dealers an incentive to order during the pre-book
phase; they received volume discounts
(approximately 5%) and free freight.
Body

Shipping

72

Glove used the pre-book estimates and orders,

and information from additional orders received
during this period, to build stock. Delivery
involved completion of production and delivery
to the retail outlet. The time frame for each
order cycle is shown in Figure 1. Customers
began buying the fall line in retail outlets in
August/September and the spring line in
February/March.

The mission of Body Gloves production

department was to manufacture quality products
efficiently while maintaining the production
flexibility necessary to satisfy constantly
changing customer demands. Body Glove was
the only major US wetsuit company that did all
of its production domestically; its wetsuits were
manufactured in a single facility in Hermosa
Beach, California. Manufacturing consisted of
six steps: cutting, sewing, gluing, screening,
finishing, and repairs. The neoprene was cut to
pattern, and the suit pieces were either sewn or
glued together. The logos and designs were
screened on each suit. Finally, each suit was
finished, inspected, bar tagged, and pinned with
a warranty card. Suits failing inspection were
returned for repairs.

Figure 1
Timing of Order Cycle Phases
Order Phase

Fall Line

Spring Line

Pre-book
Build
Deliver

Oct-Nov
Nov-Dec
Jan-June

May-June
June-July
Sept-Dec

The company produced all product lines

throughout the year, but the majority of each line
was sold during the season the wetsuit was
intended for. Body Gloves revenues were
derived approximately 60% from its fall line and
40% from its spring line.

The companys ideal was to produce at constant

rates, but that was not always possible. One
important constraint was the size of the
Hermosa Beach production facility. It was not
large enough to store the desired levels of
inventory.

Marketing Strategy

All wetsuit and accessory manufacturing had

been performed on a single production line. But
in July 1991 the company was in the process of
moving to two production lines, one to produce
large and forecast orders and one to produce
the so-called weird suitscustom orders,
special orders, and reworks. During slack time,
it was planned that this second line would build
wetsuits out of obsolete neoprene colors, such
as pink, yellow, and chartreuse, still held in
inventory.

Body Glove had increased its market share over

the past few years because of its quality product
line and firm commitment to dealer and
customer service.
Body Gloves marketing
strategy was to provide excellent service and
products not available elsewhere to the image
accounts, the windsurfing, surf, and ski shops
that catered to hard core sports enthusiasts.
Individually these shops had low sales volume,
but Body Gloves reputation with the image
accounts affected the acceptance in other sales
outlets. In total, Body Glove sold its wetsuits in
1,500 retail stores in 33 countries.

Demand Forecasting and Production Policies

Andrew Coulter, manager of international sales,
and Kurt Rios, national sales manager,
developed sales forecasts in March and October
of each year. The March forecast was for the fall
line, and the October forecast was for the spring
line. The forecasts were based on historical
sales data, inventory levels, fashion trends,
customer demands, product life cycles, Body
Gloves marketing strategy, and the managers
market feel.

Body Gloves competitive advantage came from

its manufacturing quality and flexibility and its
designs that satisfied customer needs. The
company maintained its commitment to service
by rewarding its sales representative based on
customer service goals, not the number of units
sold. The sales representatives were salaried
employees who were not on commission. They
were given the opportunity to earn bonuses on
both the amount of sales made during the year
and their clients satisfaction.

From this forecast, Andrew developed a

Materials Requirement Plan (MRP) based on the
Bill of Materials (BOM) for a standard mix of
colors and sizes for each wetsuit style. Andrew
also developed a forecast of neoprene usage,
the major item of expenditure, costing five times

Production Processes

as much as any other material purchased.

Three months lead time was necessary for
delivery because Body Glove purchased virtually
all of its neoprene from Japan. The company
had found that the one US supplier lacked
flexibility and quality.

confident that half was safe because we

shouldnt be off by 50%.
The early results of these production changes
were encouraging. The company was able to
turn its inventory two times a season, and spring
1991 sales increased by 45% over spring 1990.

Body Gloves neoprene purchases were not

designed to match projected needs exactly.
Despite the approximately 12% annual inventory
carrying cost, Andrew ordered extra quantities in
anticipation of custom orders and/or changes in
the market. Body Glove managers estimated
that in 1990, they lost $1 million in sales due to a
shortage of the material. They were convinced
that the neoprene carrying costs were much less
than the value of the lost sales opportunities.
The company now carried $3 million worth of
neoprene, rather than the $1.6 million it carried
before 1990.

Planning, Budgeting, and Operating Reviews

Prior to fiscal year 1991, Body Glove had never
prepared a budget.
In 1991, its financial
planning systems still consisted only of a simple,
bottom-up budgeting process. Russ Lesser
wanted a bottom-up process because, as he
said, Its not right for me to pick a number out of
a hat and tell Kurt, You have to meet this
number.
The budgeting process for 1991 began in
November 1990.
The management team
estimated that they could generate 25% sales
growth for 1991, and Kurt broke the total sales
figure down by month and by product. Russ
also requested that each department develop
monthly projection of key expenses (e.g.,
materials, salaries, legal expenses) for the
upcoming fiscal year. After the preliminary
budgets were prepared, Russ consolidated,
reviewed, and discussed them with his
managers, sometimes suggesting changes.
Russ thought that most of his managers were
too optimistic in forecasting revenues but that
their expenses projects were amazingly
accurate.

In 1990, the company changed its basic

production planning policy. Kurt Rios explained:
Prior to 1990, we used to live and die by
the pre-book number. We based our
business on the pre-book, which was
normally 50-60% of the total sales for the
season, and didnt build any inventory
until
an
order
was
received.
Consequently, we were constantly
delivering one month late and operating
completely by the seat of our pants.
Our reputation in the industry was that we
would do a terrible job in the spring.
Wed get yelled at, so we did a great job
in the fall. Wed fall asleep again in the
spring and the cycle would start all over
again.

The budgets were finalized by the end of

December, in time for the start of the new fiscal
year beginning January 1. Russ approved the
budget himself as he was not required to submit
it to the Board of Directors for approval. The
projections were not used for obtaining lines of
credit and loans. Body Glove had a 20-year
relationship with its bank, and the bank did not
require projections since the small loans the
company had were fully secured with assets.
(The companys goal was to be entirely debt free
as soon as possible to increase operating
flexibility.)

The new management team, believing that the

costs of inventory stockouts was greater than
the inventory carrying costs, decided to stock
more finished goods inventory. In addition,
company managers began basing their
forecasts for production scheduling purposes on
a combination of the pre-book and historical
data. The primary forecasting steps were the
same as before, but the managers began to reevaluate the forecast based upon the pre-book
as well as other outside information. They knew
that
historically
the
pre-book
number
represented 50-60% of Body Gloves total sales
for the season so they began building 50% of
their forecast early as Russ Lesser was

During the year, the budget was used to monitor

performance as well as to detect early warning
signals of problem areas. Russ compared
actual performance on a monthly basis. (Exhibit
3 shows an aggregated budget-vs.-actual
income statement comparison for July 1992 and
5

1992 year-to-date.) If a department did not

achieve its budget targets, the department
heads performance evaluation could be
affected, but Russ would first try to isolate the
reason(s) behind the department not making its
budget and then assess whether the department
head had any control over the problem. For
example, in July 1991 the companys sales were
below budget, but Russ concluded that the
variance was not a real problem. Production
efficiency had improved in June. That enabled
the company to ship most of its July orders
during June and to recognize the revenues and
profits early.

In a normal year, bonuses for effectively

functioning managers were approximately 1012% of salary, although in 1991, a relatively bad
year, no management bonus monies were
available. Assignment of management bonuses
was done totally subjectively.
Top-level
managers assigned the bonus pool based on a
number of indicators relevant to each individuals
job, including customer service and satisfaction,
sales levels, factory productivity, and expense
control.
Body Glove had a five-year strategic plan, the
focus of which was on marketing. This plan had
few numbers in because of the high uncertainty
in the market. Russ said, If the bank ever
wants numbers, I can give them to them. In fact,
I can give them any set they want. Its all
smoke.

The annual budget was not revised formally

unless significant uncontrollable circumstances
existed because Russ wanted to see at the end
of year how we did vs. what we thought wed
do. However, Russ did revise the 1991 budget
numbers because of the Persian Gulf war. After
he reviewed actual results for the January
through March period, he adjusted the budget
numbers for the second quarter of the year
downward, but he adjusted the second half
numbers (July-December) upward so that the
total for the year were unchanged.

CONCERN FOR THE FUTURE

As Russ Lesser considered the future of Body
Glove, he wondered if the company should do
anything differently. Should he implement more
formalized planning and performance evaluation
processes?
Many people thought that the
companys informal culture had been a key to its
success over the years, but the company was
now larger and its operations significantly more
complex than they had been in the past. Should
he break out the Body Glove operations as a
separate financial entity? This might require
allocating some of the shared expenses, such
as corporate overhead. Should he prepare
separate financial reports for each product line?

Budget-related performance was not explicitly

linked with any performance-based incentives.
Body Glove had a profit sharing plan for all
employees employed for more than two years
that, in a normal year, provided awards of 6-7%
of base salary. If the profit sharing monies
totaled less than 10% of corporate income, then
the remainder was set aside for management
bonuses. Thus in Body Glove, contrary to the
practice followed in many firms, managers
earned their bonuses last.

Exhibit 3
Body Glove Income Statement Actual vs. Budget Comparison for Dive n Surf, Inc.
July 1992 and 1992 Year-to-Date
Current Month

YTD

Actual

Budget

Difference

Actual

Dive Shop Redondo...............

Del Amo.....................................
Classes......................................
Charters.....................................
Rentals & Repairs.....................
Royalties....................................
BGWT........................................
BGAD........................................
BGTS.........................................
Factory......................................
BG Wetsuits..............................
SAS...........................................
DNS...........................................
ORTHO.....................................
Accessories...............................
Shoes........................................
BGSM........................................
Sales Support............................
Art & Design..............................
G&A...........................................
Corp. O/H..................................
Other Income............................
Other Expenses........................

$ 36,873
27,464
4,874
3,139
6,275
223,920
4,167
5,170
45,490
37,448
48,609
24,334
6,456
34,281
(7,534)
(2,468)
(6,024)
(27,991)
(14,469)
(244,210)
(55,750)
14,174
(45,735)

$ 49,050
6,700
5,000
1,000
7,500
175,632
(12,167)
5,655
32,500
9,500
151,200
35,675
3,000
36,750
25,800
400
(27,000)
(11,800)
(204,100)
(74,400)
7,500
(35,000)

$ (12,177)
20,764
(126)
2,139
(1,225)
48,288
16,334
(485)
12,990
27,948
(102,591)
(11,341)
3,456
(2,469)
(33,334)
(2,468)
(6,424)
(991)
(2,669)
(40,110)
18,650
6,674
(10,735)

$ 249,745
60,312
25,239
(13,804)
23,705
1,087,871
(69,166)
(28,936)
32,108
281,967
1,205,368
228,629
33,470
213,031
29,453
(5,005)
(46,657)
(185,930)
(88,736)
(1,492,467)
(474,900)
89,705
(603,203)

63,175
(189,000)
(82,600)
(1,452,700)
(520,800)
52,500
(561,250)

$ (40,605)
56,412
8,839
(20,804)
2,705
(4,921)
16,001
12,724
(43,392)
215,467
(294,782)
(64,196)
12,470
(2,032)
(159,647)
(5,005)
(109,832)
3,070
(6,136)
(39,767)
45,900
37,205
(441,953)

Net.............................................

$ 118,492

$ 188,395

$(69,903)

$ 551,799

$ 974,078

$(422,279)

Key:

BGWT
BGAD
BGTS
SAS
DNS
BGSM

=
=
=
=
=
=

Budget
$ 290,350
3,900
16,400
7,000
21,000
1,092,792
(85,167)
(41,660)
75,500
66,500
1,500,150
292,825
21,000
215,063
189,100

Difference

Body Glove World Trade

Body Glove Advertising
Body Glove Trade Shows
Surf n Ski
Dive n Surf
Body Glove Sales and Marketing

QUESTIONS
1. For what purposes does Body Glove use its budgeting system? Which purposes are emphasized?
2. Trace the steps in the development of the budget at Body Glove. What are the key events that relate
to the timing of the steps in the budgeting process?
3. The case says that Body Glove never prepared a budget prior to fiscal year 1991. How can a
company like Body Glove function effectively without a budget, or can it?
4. What changes to Body Gloves budgeting and review processes would you recommend, if any?
5. If Body Glove continues to grow and perhaps, diversifies, what changes will have to be made to the
budgeting and review processes?