Aloha Products

 

1. POINT OF VIEW: The

case will be analyzed from the standpoint of the

consulting rm that was enlisted by the president p resident of Aloha Products to study the company’s method method of repor reporting. ting. The consulting r rm m specialize specializes s in strategy execution, execution, and it has the capacity to inuence the decisions of Aloha Product’s president. 2. STATEMENT OF THE PROBLEM: hat

management control measure measures s should

be changed or implemented in Aloha Products to align performance standards with unit ob!ecti"es, thereby moti"ating the managers toward decision and actions that are benecial to the company# 3. ANALYSIS:  A.

PURCHASING The

company operates a central purchasing unit in

corporate head$uarters, which is responsible for obtaining co%ee beans for the company’s processing & pac'aging plants. The beans are purchased months in ad"anced, which sometimes results in a surplus or shortage of beans. To To address this matter, the company buys or sells beans in spot exchanges. The cost of operating the purchasing department is allocated in the general corporate o"erhead. (entralized purchasing is ad"antageous a d"antageous to the company as big "olume purchases permi permitted tted fa"orable terms and pricing. B.

MARKETING  )ales

p olicies, ad"ertising and promotions were centrally policies,

managed by company ex executi"es ecuti"es in corporate he head$uarters ad$uarters C.

MANUFACTURING Aloha

Products maintains three processing plants within

its manufacturing department, which are operated by their respecti"e plant managers. Plant managers are e"aluated based on the plant’s prot or

 

losses, with their compensation correlated to gross margin. As such, the plants performance is measured based on a prot center model. *owe"er, many of the main decisions and acti"ities in the plant are a re beyond the control of its managers+ the P of manufacturing o"ersaw the roasting, grinding, and pac'aging of Aloha’s co%ees, production schedules were pro"ided by head$uarters at the start of each month, the special purchasing unit handled all purchases of the unprocessed co%ee beans. Plant managers do not ha"e ha "e control o"er the cost of their inputs since the cost is based on a specic contract arranged by the purchasing department. hen the beans were deli"ered deli"ered to the plant, a charge was made was made for the costs represent represented ed by the contracts -made by the purchasing department which co"ere co"ered d the shipment. /ur /urthermor thermore, e, when the company sold their surplus of beans to the open mar'et mar'et,, the sales were costed on a specic contract basis, which could result in a prot or loss on the transaction. 4. RECOMMENDATION: The

company’s current structure and processes do not

allow the company’s plant managers to ha"e control o"er its plants’ inputs and outputs0 accordingly, the plant managers do not ha"e control o"er the "ariables that control gross margin. Thus, the company should not measure the plant manager’s performance based on gross margin. Aloha Products Products needs to treat its manufacturing departments as cost centers instead of prot centers, in order to establish reasonable measures for their plants. As such, plant managers should be e"aluated using 1A 1A.. (ompensating the plant managers based on this measure will encourage them to impro"e the

 

plant’s 1A by ma'ing in"estments without compromising their performance. 1A 1 A also promotes managers to ma'e decisions that result in long2term benets for the company.