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Submitted by:
Hoshang Bhesania (07)
Zulfiqar Vohra (40)
Mihir Yadav (42)
Jemin Shah (24)
Contents
* An Introduction of Grand Jean Company
* Questions-Answers
*
* The Grand Jean Company was founded in the mid-19 the
century.
President
Vice President
(Marketing)
Basic Jeans
Department
Boys Jeans
Department
Mans Casual
Department
Vice President (
Corporate Planning)
Mans Dress
& Fashion
Jeans Dept.
Womans
Jeans
Department
Vice President
(Finance & Administration)
Vice President
(Production & Operations)
Distribution
Department
Traffic
Department
Plants
(25)
* Goal of the Company- are these same as goals of Plants Managers and
Marketing Organization?
* Manufacturing plants have the goal to just meet the budget figure (according
to marketing) and fulfill the quota allocated to each plant.
Strengths
* The company has 25 manufacturing plants and 20 contractors, so it has huge
production capacity.
Weaknesses
* Focus solely on Sales.
* Weak organization structure and lack of communication between different
departments
The
manufacturing plant will not get anything if they do so much production.
Weaknesses (Cont..)
and old machinery plants. Hence the results were not accurate.
* The manufacturing plants have the goal to just meet the budget figure
and fulfill the quota allocated to each plant.3
* 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.
* If the manufacturing plants would charge the mat the price at which they
are selling to retailers and distributors, then the sales department would
switch to the external suppliers for supply at a lower cost and will not
continue with this system.
the outside market even then they will have to reduce their price to the
market price.
* So, considering both the points that are mentioned above using selling
price recorded by Grand Jeans sales personnel for pants sold to retailers
and distributors, it will not do any good either to the manufacturing or to
company as a whole.
Alternative 2 Use full standard manufacturing cost per unit plus a fair
fixed percentage mark-up for gross profit
* Using full standard manufacturing cost per unit plus a fair fixed percentage
mark-up for gross profit means manufacturing unit calculates the per unit
cost of manufacturing and add a predefined Fair Profit percentage to it to
arrive at the transfer price.
* This 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.
Alternative 2 Use full standard manufacturing cost per unit plus a fair
fixed percentage mark-up for gross profit (Cont)
* But in this case there is nothing motivating for the employees to focus on
keeping on cost of production as low as possible.
* The employees should try their level best to keep the cost as low as possible
and competitive.
* Hence, this alternative has several advantages of motivation, but cost factor
needs to be taken care of.
Alternative 3 Use the average contract price Grand Jean paid outside
companies for making similar pant types.
* 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.
* 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 (Alternative 2).
* All other options dont fit well in the situation of Grand Jeans.
* Moreover, the manager of manufacturing and sales may sit down and
negotiate and reach at a consensus.
* This price could be between the cost plus margin price and selling price of
the sales department.
* At this price the sales department will have sufficient margin as well as
manufacturing department will have good incentives to do well.