case+14-1 - 698 Chapter 14 c. Comment on the ideal number...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 698 Chapter 14 c. Comment on the ideal number of defects and delivery times necessary to achieve the minimum costs and the maximum compensation level. (I. Assume that the company as a whole can measure the financial losses related to defects and late deliveries. The costs would include warranty costs, express delivery charges, lost { sales, and lost goodwill. These costs do not affect the manager’s compensation. The cost for each defect is $460. The cost for each day above onc~day average delivery is $500,000 per day late. That is $0 for one-day average delivery, $500,000 for two days, and so on. , Create a table showing the firm’s total costs~——including production costs, costs of defects, costs ofdelays, and the cost ofthe manager’s compensation (including applicable bonus)~~ l for defect rates of 2,032; 500; 100; 50; and 32 per million and average delivery times of one to four days. Note the minimum cost. 6. Comment on the optimum delivery times and number of defects necessary to achieve the minimum costs to the firm and the maximum compensation level now that the f irm’s total costs are considered. Case 14—1: Global OiI‘3 In 1995 Global Oil Corporation's Marketing and Refining (M&R) Division was the fifth largest US. refiner with 7,700 Global-branded service stations selling about 23 million gallons per day, or 7 percent ofthe nation’s gasoline. All the service stations are company owned. [11 1990, M&R ranked last among its peers in profitability and was annually draining $500 million of cash from the corporation. In 1993, M&R reorganized from a centralized functional organization (Refineries, 'I‘ransportation, Warehousing, Retail, and Marketing) into 17 geographic business units (sales and distribution) and 14 service companies. The functional organization was slow to react to changing market conditions and the special customer needs that differed across the country. The new decentralized organization was designed to better focus on the customer. New marketing strategies could be better tailored to local markets by giving local managers more decision-making authority. A new corporate strategy to focus on the less price—sensitive customer who would not only buy Global gas but also shop in its convenience gas«store outlets was implemented simultaneously with the reorganization. Global’s new strategy was to redesign its convenience stores so they would become a “destination stop,” offering one-stop shopping for gas and snacks. The old organization used a variety of functional measures: manufacturing cost, sales margins and volumes, and health and safety metrics. After changing its cerporate strategy and organizational struc- ture, M&R decided to change its performance metrics and began investigating the balanced scorecard. E i. a l 2 : Heinz-used st'm‘et‘rrrtl (EEC) (it lyltfi'f'ii M&R formed project teams of managers to design performance metrics for its operations. Thirty-two different metrics were identified. These included Financial (ROA, cash flow, volume growth, etc), Cus- tomer (share of segment, mystery shopper, etc.), Internal (safety incidents, refinery ROA, inventory level, etc.), and Learning (strategic skills accumulation, quahty of information system, etc.) The “mys» tery shopper” is a third-party vendor who purchases gas and snacks at each station monthly. During each visit, the mystery shopper rates the station on 23 items related to external appearance, rest rooms, and so forth. A brochure describing the BSC was prepared and distributed to M&R’s 1 1,000 employees in August of 1994. Extensive meetings with employees explained the new metrics and the BSC concept. i.l'r123§2i't;.1:tifan!{tlrtllfi All salaried employees of M&R received up to a it) percent bonus if Global ranked first among its seven competitors on ROA and earnings per share (EPS) growth. In addition to this existing plan, a l3This case is based on R Kaplan, “Mobil USMSLRtA): Linking the Balanced Scorecard," Harvard Business School Case 9---l97---025 (May 7, 1997). 699 rl/ianagementAccounting in a Changing Environment new program was added that awarded bonuses up to 20 percent to managers. The size of the bonus depends on the average performance of three factors: ° Global’s competitive tanking on ROA and EPS growth. I ~ M&R’s balanced scorecard metrics, 0 Own business unit’s balanced scorecard. In 1995, M&R generated more income per barrel of oil than the industry average, and its ROA exceeded the industry’s average. Required: a. Critically evaluate M&R’s implementation of the balanced scorecard. Identify any strengths and weaknesses of the program. 1). Was the adoption of the balanced scorecard at M&R responsible for the turnaround in its financial performance? Case 14—2: Inorganics, Inc. At the monthly managers’ mectin g, the vice president of marketing, Fred Rooks, pointed out that based on the new IMPACT (Incentive Motivation Plan Act), only 4 of the l9 general line salespeople quali- fied for the annual bonus, {Table 1 explains IMPACT and shows sample salesperson performance.) Wm TABLE 1 Sample of Salesperson Performance for CnrrentYear Based on IMPACT” M Business Current Year Prior Year Prior Year Sales Rep Area Sales 8 Contribution ti Contribution % Sales .3 Contribution % Rob B. Photo $1,000,000 8 480,000 48% $ 800,000 45% Water 2,500,000 1,000,000 40 2,000,000 39 Electronics 150,000 (22,000) — 15 180,000 — 17 CaCl 700,000 300,000 43 600,000 33 Soda ash 3,000,000 1,000,000 33 2,900,000 50 Sulfuric acid 2,000,000 10,000 1 2,400,000 H 16 $9,350,000 $2,768,000 30% $8,880,000 27% Jane R. Photo 36 300,000 $ 180,000 60% $ 200,000 59% Water . 650,000 300,000 46 450,000 44 Electronics 75,000 1,000 1 250,000 9 CaCi 75,000 25,000 33 50,000 34 Soda ash 1,000,000 575,000 58 3,050,000 57 Sulfuric acid 150,000 (40,000) —27 200,000 —26 $2,250,000 $1,041,000 46% $2,200,000 41% Jack B. Photo $ 1,600,000 $1,100,000 69% $ 1,200,000 65% Water 790,000 350,000 44 750,000 42 Electronics 0 100,000 —5 CaCl 900,000 320,000 36 850,000 34 Soda ash 3,000,000 1,725,000 58 2,000,000 57 Sulfuric acid 1,750,000 (700,000) -40 2,000,000 -39 $8,040,000 $2,795,000 35% $6,900,000 25% ___._..w——w—-——""—’ —-*-—'_M_— ._..___m IMPACT is the Incentive Motivation Plan Act, created for generai iine salespeople to promote product sales across all business areas. Bonus is based on four criteria, with the amount ofbonus directly proportional to the degree of criteria satisfaction, (CM is contribution margin.) The four criteria are 1, Show positive CM > 35 percent in at least four business areas. 2. Overall CM > 31 percent. 3. Show increase in sales dollars over prior year. 4. Show increase in CM over prior year in at least four areas. ...
View Full Document

Page1 / 2

case+14-1 - 698 Chapter 14 c. Comment on the ideal number...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online