Vershire Company & Aluminum Industry

Industry of Aluminum

Aluminum. Less spillage or breakage, ease of storage at home or when people travel, maintenance of soft drink carbonation, ease of lithograph and ease of recycling, aluminum production is one of the modern era’s great economic stories. The world’s primary aluminium industry produces over millions ton of aluminium metal per year. The most important markets for aluminium products are the transport, building and packaging sectors, however aluminium also finds application in electrical and mechanical engineering, office equipment, domestic appliances, lighting, chemistry and pharmaceuticals. The United States aluminum industry is the worlds largest, annually producing about $.1 billion in products and exports. U.S. companies are the largest single producer of primary aluminum. The U.S. industry operates over 00 plants in 5 states , produces more than billion pounds of metal annually and employs over 145,000. Aluminum is one of the few products and industries left in America that truly impacts every community in the country, either through physical plants and facilities, recycling, heavy industry, or consumption of consumer goods.

The aluminum industrys performance is noteworthy, particularly in light of the proliferation of alternative materials and global competition. Transportation represents the largest market for aluminum in the United States. In 000, transportation accounted for .5 percent of all US shipments. In 000, containers and packaging ranked second to transportation with 0.4 percent of the market, thanks to shipments of 4, millions of pounds in products such as beverage cans, food containers, and household and institutional foil. Nearly seven billion aluminum foil containers are produced every year for a variety of uses that make our lives easier. Recycling is a critical component of the industry, both from its contributions to the environment and because of the favorable economic impact on production. This dual benefit is probably the reason aluminum beverage cans now account for virtually all of the beverage can market, and most of the total single-serve beverage market . Due to more than 10,000 recycling centres nationwide, two-thirds of the aluminum cans produced are recycled. The industry has done its part in reducing the weight of aluminum cans by about one-third and continuing to raise awareness of the value of recycling to increase the practice of recycling even more. Today, aluminum is the most commonly recycled post-consumer metal in the world.

Thirty parents company own the 0 metal can manufacturing facilities ( which 18 in the Middle East of the USA) in the beverage can market in USA. It is a very competitive oligopoly market with five beverage container manufacturers accounted for 88 percent of the market. There are high entry barriers whereas the minimum efficient scale for a container plant is 5 lines with 0 millions dollars a line in equipment. It is a very competitive market.

Vershire Company place & critical success factors

Vershire Company, a diversified packaging company, has several major divisions including the Aluminum Can division which is one of the largest manufacturers of aluminum beverage cans in the United States. The division has plants scattered throughout the country producing several different sizes of cans for a range of customers. Even on the top manufacturers, competition on this market is really hard. In fact, most of customers have between and 4 suppliers and spread purchases among them. Moreover one large beverage company produced one-third of its own container requirements and ranked as one of the top five beverage container producers in the industry. Aluminum Can division has a great place in this market whereas it is on the top five too. All aluminum can producers employee essentially the same technology, and the division’s product quality is equal to that of its competitors. That’s why the Aluminum Can division critical success factors are the same than competitors objectives The division has to meet the customer’s cost and quality specifications or its standards for delivery and customer service in order to avoid the customer return to another supplier.

Four global companies, two of which also manufacture aluminum containers, supply aluminum to can producers. Moreover raw materials typically account for 64 percent of the production cost. In a such competitive industry, individual producers are not able to influence the price of the output they sell or the output they purchase. Aluminum Can division can influence prices with lots of difficulties but has to respect very competitive price in order to stay on the market. Which a such important rate of raw materials in the production cost, Aluminum Can division has to find competitive advantage with it stature, it low cost, it standards of delivery and it customer service.

In order to be close of these customers, Aluminum Can division has plants scattered throughout the USA. It is easier for each plant, producing several different sizes of cans for a range of customers, to answer the customer needs.

Divisions of Vershire Company are structured to encompass broad product categories. This structure is a critical point of the management control system in order to achieve the customer satisfaction and the range of production. Divisional general managers are given almost full control of their businesses in this view. It is one main point of the management control system. In fact, a divisional general manager is on the head of the Aluminum Can division and has both manufacturing and marketing branches under him. Manufacturing manager is on the head of the plant managers and Marketing manager is on the head of the districts. A strength of the control system is the almost divisional general manager full power. In fact, each division act like a subsidiary but possess enough power to control division conjectural events. Speed of reaction and application of well understudied measures depend on this action liberty.

The Budgetary Control System

In order to maximize the efficiency gain and the market share of the company, mains objectives of the firm, Vershire company has implemented a management control system based on a full control by the divisional managers of their businesses. Nevertheless two exceptions appear the raising capital and the labor relations. In fact all cannot be control by the divisions and something must be assume by the head office besides control of divisions by the head office. The budget is used as the primary tool to direct each division’s efforts towards common corporate objectives Management control system is based on the budgets.

Both exceptions of the division full control

The raising capital and labor relations are both centralized at head office. In fact, linked to all the different divisions, the raising capital need to be perform after a long study of all the point of view. It is really important to have a global view before achieve a raising capital. It is better to perform it after a centralization in the head office which are alone to have this global point of view on all the company. Labor relations need being lead on the head office for the global labor relations. But it would better maybe to perform a part of the labor relations at the head of each division. In fact, they know better than the head office all things concerned by the firm. It is a strength to lead the general labor relations at the head office but probably a weakness to lead division specific labor relations at this level. Even if labor relations are really closed on this market, it is maybe more important in this case to be able to react quickly, so at the division level, in the case of some opportunities. Customer service and reactivity face of an unexpectedly customer need are success factor too. The division can be limited in this case by the control system from the Vershire Company. In fact, for example, once a budget has been approved, it is difficult to change. In order to be able to react at rush customer orders to cancel production, sales manager have the power to determine the way to perform. In fact, customer is always the primary concern and this power of reactivity, even really limited, is a tool against a weakness of the control system sometimes too rigid.

Sales Budget

The first step of the budget process is the preliminary report which is submitted from the divisional general managers to corporate management. This report provide a summarize of the outlook for sales, income and capital requirements for the next budget year and evaluating the trends anticipated in each category over the subsequent two years. The goal is to permit to achieve quickly a market assessment, to examine the forthcoming budget and the following two years in more general terms by the central market research staff. Reports are not details and are usually fairly to pull together in order to perform the most efficient global view and to be not lost in details.

Divisions sales forecasts and company forecast are achieved in a second step from these reports. Several topics are been considered including general economic conditions and their impact on customers, and market share for different products by geographic area. Fundamental assumptions (price, new plants, industry growth, new products) are made. It is the time for the company to evaluate, to estimate, to plan and to reorganize if necessary all the main point of the firm. Objectives has been designed and strategy are going to be elaborate or continue. These forecast are elaborate in the head office in order to ensure that basic assumptions are uniform and that overall corporate sales forecasts are both reasonable and achievable. In fact, Vershire Company leaves lots of controls at each division level concerning operations linked directly to the division; but in order to pursue the same way a check up need to be made at the corporate level. That is the task of this report at this level. Lots of controls at each division give them flexibility in order to maximize their own goals achievement face to conjectural facts. It is one of the main point of the management control system of the Vershire Company. There is equally a control of reasonability and achievability in order to limit excess and to guaranty in some measures the achievement of the forecasts. After elaboration, the completed forecasts are forwarded to their respective division for review, criticism, and fine-tuning.

In the same time, division general managers ask their districts sales managers in order to have their own sales forecasts. After multiples control, review, exchange, consolidation and approbation the sales budget will be adopted by both the division general manager and the corporate management. The entire review and approval process has 4 objectives

- to assess each division’s competitive position and formulate courses of action to improve upon it.

- To evaluate actions taken to increase market share or to respond to competitors’ activities.

- To consider undertaking capital expenditures or plant alterations to improve existing product or introduce new products.

- To develop plans to improve cost efficiency, product quality, delivery methods, and service.

The relationship between division level, corporate level and plants and districts level are really important concerning the control system. In fact, for example, all districts sales forecasts are consolidated at the division level for review but no changes are made in a district’s forecast unless the district manager agreed. This important fact issues from the control system permit a total coordination and final agreement by all level of the firm concerned without risk of change during the course of process.

Manufacturing Budget

After final approval, the overall sales budget is translated into a sales budget in each plant which is then categorized according to price, volume, and end use. Once the sales numbers were estimated, each plant budgets gross profit, fixed expenses, and pre-tax income. Cost strandards and cost reduction targets are developed by the plant’s industrial engineering department for each department, operation and cost center within the plant. Plant objectives and details on the local plant strategy can be finalize in this step.

Before plants budgets are submitted, controller staff from the head office visits each plants. These visits are extremely important because they provide an opportunity for plant managers to explain their situation and allow controllers to familiarize themselves with the reasoning behind the managers’ numbers. It is a main tool for the firm in the management control system in order to perform communication and relation between headquarters and plants. It is a link realer between these entities .

Finally, the budget will be sent to the division level for consolidation and approbation. Once review and approval by the division general manager, it will be sent to the CEO who after approbation too will present the final consolidated budget to the board of directors in December. Budget will be control lots of time in order to have a real, reasonable and achievable budget approved by all the different levels concerned.

Responsibility & Rewards

Problem. Once a budget approved, it is difficult to change. Any problems that arise between sales and production at a given plant are expected to be solved by people in the field. The customer is always the primary concern whereas customer relation is a critical success factor. In all cases, the plant manager is held responsible for his budgeted profit number even if actual sales fell below the projected level. In each these cases, responsibility must assume by managers who maybe can’t do nothings to prevent that. Managers will have worst profit than others managers who didn’t have such problem for a same good working; and rewards will be differents…

Managers in the Vershire Company are responsible for their works in their field. Vershire Company reward its capable managers by

- Promotion based on capability of managers.

- Compensation packages when profit budgets are achieved.

- Valorisation with the compilation of a chart showing manufacturing efficiency by plant and division.

Reward its competent manager is a good way for a firm. But the main factor in determining capability in this firm is the profit performance. It is probably not the best efficient reward that can offer a firm. In fact, there are inherent unfairness in comparing plants that produced different products requiring different setup times, ect. Some managers are privileged and dissensions can appear. Internal competition is also a bad thing because it is always in the detriment of others. Jealousy and dissensions can appear like it said before. Valorisation by chart is worst. Even if a little competition is useful for the short term production, it will be bad for the long term relationship between work-mates. However compensation packages are a good way of reward. Vershire Company should be also given rewards for extra performances but well equilibrated with the compensation packages. The firm should be careful nevertheless to have not too poor forecast linked to a reward easier to gain. Continuous improvement and empowered employee are also good way of rewards if it made with honesty.

Performance measure and evaluation system

Critical operating variances combined with variance analysis sheet are sent monthly at each plant. However daily reaction is asked for plant managers. Two days after received these information, budgeted and actual results’ reports are submitted by each plant to be consolidated by the division affiliated before to be distributed at all the company. Goal of these report is to be focus on the net sales, including price and mix changes, gross margin and standards manufacturing costs. These reports allows to perform the short term strategy and they are a big sources of general information, measurement and evaluation about the current month-to-month life of the firm. That is why it is such important for the firm to communicate these reports.

The danger for an eye who doesn’t see all the components it is to made a misunderstanding. In fact, in the exhibit , we have for example comparison of sales and profit and comparison of efficiencies costs across plants in the same division; and comparative analysis of profit performance, manufacturing efficiency. Bad results can be explain by such goods reasons that are not maybe in the report. Misunderstanding and no perfect appreciation can result to dissension and bad evaluation. Information and communication between sectors and levels are really important. Difficulty of the point it is to find where is the limit between too much and too little information. One objectives of the management control system is to tend to maximize this check point in order to perform the control system in the firm.

Evaluation is also made during the process of the budget. In fact, managers can see feedbacks of last decisions. It is an important point of the control system in order to learn from the past to be able to react in the future and to include it in the next forecasts.

Advices & precision

Designed objectives may not be grounded upon profit maximization; therefore qualitative criteria may be of greater weight. In fact, in order to perform the best customer service as possible, managers should be not to profit targeted but more services and global objectives targeted. Customer service is a critical success factor. If the firm manage for economic performance, there is an ambiguity of link between actions and desired results, like the best customer service as possible. Managing for business effectiveness is to focus resources into generating activities. The firm pursue this objective during the budget process for example when the corporate market research staff studies the reports. All activities are the basic units of competitive advantage, insofar as they create greater value, or equal value at a lower price, than competitors. Vershire Company tends to maximize its competitive advantages.

In order to perform an operational effectiveness, the firm should install 0 sum competition, try to static or decrease its price, and to be careful than pressure on costs won’t compromise ability to invest in a long term period.

Control system

The firm must be careful to recurrent control problem

- the frequent lack of congruence between the goals of departmental staff and the company as a whole. I.e.Profit reward VS customer service (see before)

- The difficulty in measuring output, advice & service, functions that are virtually impossible to quantify, much less evaluate. (i.e. profit reward and unfairness)

Management in an learning organization means shared responsibility (well shared?), not to be too much focus on may control (too much control may detract purpose), to have a mutual corporate culture around a shred vision and to encourage multiple point of view. Vershire Company tend to perform in this way; but must continued its efforts by the development of the workers decisions or to be more flexible face to its customers even after realization of budgets for example.

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