Vershire Company, a packaging company that manufactures aluminium beverage cans, is known as one of the largest in its industry in the United States. It has several divisions one of them being the Aluminum Can division wherein two line managers report directly to the Division General Manager. Divisions were almost autonomous in conducting business except for raising capital and labor relations, both functions being done at the head office to realign each division’s efforts into the company’s objectives. The company was divided into divisions which were then divided into departments, namely Marketing and Manufacturing, to be able to practice control over smaller units that were easier to evaluate according to function. In budget preparation, sales forecasts were made at the corporate headquarters to ensure that all divisions had the same assumptions and that forecasts were reasonable and achievable. This would then be given to division general managers who would cross check this with data prepared by his subordinate district sales managers. This would then be submitted to the corporate level for approval. Once approved, budget was broken down into plant level sales budgets. Plant budgets were then submitted to the division head office for approval.
One problem in Vershire’s set-up was the unequal delegation of responsibilities, with plant managers having to account for more than just plant operations. Manufacturing departments were treated as profit centers. To illustrate, a budgeted profit was set upon approval of the sales forecasts. If sales fell below the projected sales level, it was the plant manager who was held accountable. Second, if the plant budget submitted to the division head office did not match the management’s expectations, plant managers were asked to revise and look for additional savings. Lastly, unforeseen circumstances, such as rush orders, were to be solved at the plant level. However, if an approved budget did not include such allowances for these kinds of problems, it would be difficult to change.
Plant managers were encouraged to meet said profit targets due to incentives such as promotion and compensation packages. It has also become a sort of competition since comparative efficiency charts of the different plants and divisions were publicized making it easier to compare performance of each plant.
A better way to practice control at the plant level would be to treat manufacturing as an expense center instead of a profit center. Aside from costs, there are other parameters wherein performance may be evaluated such as quality of products, production volume, and plant efficiency. Personnel training may also be included in the evaluation since it is also part of the manager’s responsibility to ensure that employees receive proper training and development. By classifying the plant as an expense center, plant budgets may be reviewed accordingly. Isolated expenses, such as emergency deliveries, may be considered in the preparation of plant budget.
Through this reclassification plant managers would be evaluated more accurately. The pressure brought about by the informal competition amongst plants would be loosened. This, however, does not mean that departments would lax performance since they are no longer being rewarded. There would be more formal measures to account for good performance which would be tied up with the right rewards and incentives.