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BODY GLOVE. Class Announcements  Body Glove Case and  Assignment #2 Due on February 10 th  The Service Learning Placements will be posted at 12:00pm.

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Presentation on theme: "BODY GLOVE. Class Announcements  Body Glove Case and  Assignment #2 Due on February 10 th  The Service Learning Placements will be posted at 12:00pm."— Presentation transcript:

1 BODY GLOVE

2 Class Announcements  Body Glove Case and  Assignment #2 Due on February 10 th  The Service Learning Placements will be posted at 12:00pm on Thursday February 6th at SCHW 396 (First Come First Serve Basis)

3 Class Objectives 1. Case Analysis of Body Glove 2. Understanding the role of the budgeting process in context

4 Body Glove  Who: Russ Lesser, President and CFO of BodyGlove (part of new management team)  What: Right budgeting processes in place to “respond quickly and in a coordinated fashion to changing market conditions”  When: Current 

5 Body Glove: The Company  Business:  a small profitable wetsuit manufacturer  employs 300 people  sales nearly doubled in the last 5 years  goal - #1 wetsuit manufacturer in 9 years  Sales:  $15M in sales and $8M from wetsuit sales ($60M market)  also produces out of season product s(i.e., snow-skiing, snowboarding, orthopedic, etc,)  Ownership:  in 1990 changed from a family owned business with a new management team

6 Body Glove: Success Factors  Competition in industry is fierce  markets were complex with rapid growth, fashion conscious, seasonal demand  requires the ability to respond quickly to changing market conditions and changing trends  Body Glove  ranked #2 in wetsuit industry; desire to become #1 wetsuit manufacturer by 2000  known as fashion conscious high quality producer  manufacturing quality and flexibility  designs that satisfy customers needs  marketed as wholesome “life-style” brand

7 Body Glove: Production  Production cycle:  produced products throughout the year: fall (60%) and spring (40%)  Fall suits were more labour intensive and used more expensive material.  order cycle has three phases 1) pre-book 2) build 3) deliver and informs production cycle  Production processes:  growth put pressure on capacity and production flexibility  production facilities are all domestic and there are storage limitations; production facilities are not large enough  now have two production lines 1) forecast orders 2) custom orders  12% annual cost to carry inventory ($3M in stead of $1.6M)

8 Body Glove: Forecasting  Forecasting Sales:  based on pre-book sales (50-60%)  develop sales forecasts in March (fall) and October (spring)  sales forecasts based on historical sales, trends, gut feeling, etc.  Forecasting Material Purchases:  Materials Requirement Plan (MRP) based on forecasted sales  neoprene usage forecasted was five times as much as any other materials  3 month lead time to purchase material from Japan who were flexible and provided quality (unlike US suppliers)

9 Body Glove: Budget Process  Budget Process Timing:  previously no budget (prior to 1991)  five year strategic plan with no financials  bottom up process discussed with managers  sales by month and by product  budgets finalized by December for January  annual budget not formally reviewed by Board of Directors  annual budget was not revised formally unless significant uncontrollable circumstances arose  each division responsible to project monthly key expenses  CFO reviewed all budgets and consolidated results

10 Body Glove: Budget Process  Budget as Evaluation Tool:  budget used to monitor performance and detect problems  sales representatives were salaried and bonuses based on customer satisfaction and sales levels  performance monitored monthly  budget performance not linked to performance based incentives  profit sharing plan provided rewards of 6-7%  managers’ bonus residual from profit sharing plan  assignment of managers bonus done subjectively

11 1) Purposes for which Body Glove uses its budgeting system?  Planning - Used for planning purposes  Monitoring - Used to ensure expense levels are low given sales levels to generate profit levels  Evaluation - Budget vs actuals are used to evaluate performance but not formally linked with incentive compensation; compensation is both qualitative and quantitative  Communication - Coordination between divisions occurs outside of budgeting process

12 1) Purposes for which Body Glove uses its budgeting system?

13 2) Budgeting process timing?  Body Glove managers do not spend a lot of time with a formal budgeting process  Simplicity of budget process is consistent with informal management style and company size  Budget not provided to Board of Directors only internal usage  Budget is prepared in December for January  “It’s all smoke”

14 3) Functioning effectively without a budget?  Yes, did so until 1991  Managers accomplished role of budgeting (i.e. communication, resource allocation, evaluation, performance measurement) through exchange of quantitative non financial information and informal communication  Benefits of formal planning grows as companies grow and become more complex  Body Glove is no longer simple organization; it has many profit centres and 300 employees

15 4) Changes to budgeting and review process?  Process  Reporting frequency adequacy – seasonal, quarterly  Updating the budget more frequently  Evaluation  Usefulness of subjective evaluations should be considered (uncontrollable, departmental interdependency)  Need to link performance evaluations with budgeting process  Strategy  Need quantity information in 5 year strategic plan

16 5) Body Glove continues to grow?  Body Glove will inevitably grow  Communication:  As company becomes larger and more complex coordination of all the various functions will be more difficult  Informal company culture will likely not satisfy all communication requirements  Formal process:  Budgeting system will have to involve more people and will need to become more formal and elaborate


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