ALOHA PRODUCTS

BY:

Hedie Mirimoghadam

Farid Khaheshi

Nassim Parsa

CONTENTS

Product Analysis

Market Analysis

Company Analysis

PRODUCT ANALYSISSupplier

s

Brazil, The

largest

Colombia

Indonesia

Ivory Coast

Mexico

Coffee

Arabica in South America

Robusta at Ivory Coast

Buyers

United States,

The largest

Europe

BUSINESS ANALYSIS

Origin Country

Trade Firms

Food Processo

r

Coffee Business is a relationship Business.

AFFECTIVE FACTORS Drought and Frost The Level of coffee inventories in major

producing and consuming countries. Marketing policies of exporting

countries.

Coffee Consumption Trends Premium and Gourmet Coffee Sales

increased.

US. LIQUID CONSUMPTION TREND

COMPETITORS Nestle : The largest coffee company in

the world. Philip Morris and P&G: The largest

coffee producer in US.

Their resource:Infrastructure, distribution network,

brand equity, production resources and marketing expertise.

ALOHA PRODUCTS The company operated 3 plants, each plant

with its own profit and loss responsibility. Headquarters presented monthly gross

margin statements for each plant. Every month, headquarters present plant

managers with production schedules for current month and a projected schedule for the succeeding month.

Each plant has small accounting office to record manufacturing costs and prepared payrolls.

ALOHA PRODUCTS Plant manager has no control over buying

the green coffer beans. A special unit within the company handled the purchases.

The purchasing unit kept all its records and handled all financial transaction related to purchasing, sales to outsiders and transfers to the three company-operated roasting plants.

Unit manager report directly to the company’s secretary-treasure.

The PU’s primary function: Obtain necessary varieties and quantities of green coffee

ALOHA PRODUCTS The purchasing group entered into forward

green coffee bean contracts with exporter. The group can also purchase on the spot

market- purchase for immediate delivery. Spot purchases are kept to a minimum. The difference between actual deliveries

and current requirements is handled through either sales or purchases on the spot market.

The company would sell to, or buy from, coffee brokers and other roaster.

ALOHA PRODUCTS The usual policy of a company is to make purchase

commitments based on maximum potential plant requirements and sell the surplus on the spot market.

The company maintains a separate cost record for each contract.

The record is charged with payments for coffee purchased, shipping charges and import expenses.

For each contract, the purchasing group computed a net cost per bag.

ALOHA PRODUCTS The operating cost of running the

purchasing unit was charged directly to the central office.

The cost was recorded as an element in the general corporate overhead.

The problem was in computing gross margin.

QUESTION 1 Q: Evaluate the current control systems for

the manufacturing , marketing and purchasing departments of Aloha products.

Answer: The management control structure does not

give the plant managers control on any of the major activities of a production facility.

The plant manager does not control the green beans purchase, production schedule or the production mix, nor do they have control over sales or marketing.

QUESTION 1 Aloha Products has a cost center

structure, but the control system is attempting to measure the roasting plants on a profit center system.

Having a profit center measurement approach for infrastructure that operates in a cost center approach, will not provide reasonable measurements for the management control system.

QUESTION 1 The plant manager's concern regarding

the evaluation system is valid. Without proper control over the input and output you cannot expect the plant manager to perform well.

Aloha, should not tie the gross margin of the plant to the manager's evaluation without giving them the ability to control all the variables that affect the gross margin.

QUESTION 1 Aloha, should not tie the gross margin

of the plant to the manager's evaluation without giving them the ability to control all the variables that affect the gross margin.

Current measurement system is not appropriate. Given the current situation, the managers evaluation should not directly tied the gross margin.

QUESTION 2 Q: Considering the company’s competitive strategy,

what changes, if any, would you make to the control systems for the three departments?

Answer: Purchasing

Given the volatile nature of the coffee market, having a central purchasing unit is necessary. Expecting each plant to handle the coffee purchases will add unnecessary overhead cost to the company. One recommendation is to restructure the purchase unit as an operational arm of all three plants. Purchase department should take the requirements from each of its plants and execute them. This gives Aloha to achieve cost savings from bulk purchasing. This approach also gives the plants an opportunity to control their inputs according to their needs.

QUESTION 2 Marketing

Aloha should continue its marketing from the central office. The marketing resources will be better utilized under one unit since all three plants producing the same product. Under strict profit center approach, the plant should undertake the marketing function as well. In this case, the parent unit would be served better if a central unit handles the marketing function, because the Aloha can promote its brand in an efficient and integrated manner.

QUESTION 2 Sales:

Sales function should be conducted at the plant level. Aloha's target areas should be divided into the three regions and each unit should be assigned one sales area. This avoids potential cannibalization within the three plants if they are allowed to sell at free will.

QUESTION 2 With sales under their supervision, the

plant managers can make long term sales forecasts. Depending on their current and future sales forecast, the plant manager can make green coffee orders to the purchase unit and control production levels accordingly.

QUESTION 2 Plant Management:

Current system of evaluating plants on gross margin can be applied with above recommendations, but using EVA for plant evaluation would be a better approach at this point. EVA approach allows assigning same profit objectives of each plant and also allows assigning different interest rates for coffee beans depending on the time of purchase.

QUESTION 2 This approach also allows the plant

managers to make plant investments without negatively affecting their performance. When plant managers are evaluated and compensated based on the EVA of the plant, they are motivated to increase the EVA of their plant, which in turn will benefit the whole company.

The End