Vershire also has some issues on the performance measurement report and evaluation system. Besides the inefficient way to measure manufacturing efficiency, performances of plant managers are measured based on the metric that they cannot directly control, i.e. sales. Therefore the related compensation packages and promotions mislead and lack sufficient incentives to motivate plant managers.
As illustrated before, it is inappropriate to treat a plant as a profit center, rather than an expense center. Due to the manufacturing nature, plants have fully control on costs and should be motivated to lower the cost to make contributions to the revenue. Monthly performance evaluation report and supporting report for a plant showing both sales and costs in Exhibit 2 and 3 are submitted by each plant and reviewed by corporate management. Items that failed to meet the budgeted targets require explanations from plant managers, no matter it is cost-related or sales-related. Moreover, sales report on plant basis is confusing by itself since products are sold on district basis. The sales department had sole responsibility for the price and delivery schedules, which are not identical in each order because of contingencies such as traffic, weather, and sick staff. Plant managers have no way to explain the detailed decision making process of sales department to provide a sufficient explanation to sales failures without asking sales department. Furthermore, second-hand information tends to be less accurate and misleading. The process to acquire the information in Vershire’s situation is unnecessary and leads to avoidable costs. To deal with the issue of report system, as mentioned before, Vershire could have the division general manager, take responsibilities for profits as well as inventory control. The monthly report system should be redesigned based on responsibilities each unit