After Measures Are Set, You Must Track Their Actions

Posted on November 21, 2008 - Filed Under Business | Leave a Comment

In one of the performance meeting a couple of days ago, the operation manager was questioned on his performance in his operation. The measure in question was the Return of Investment to the business.

It has not been able to meeting the target of 25% return. The Operation Manger explained his position in several presentation slides. One of the slides indicated the performance todate as follows:

  • Profit achieved 12 mil against a budget of 15 mil

  • Sales - Local achieved 128 mil against budget of 150 mil

  • Sales - Export achieved 180 mil against a budget of 230 mil

  • Variable cost achieved 750 per ton against a budget of 690 per ton

The operation manager acknowledged the short fall of the profit and presented a recovery plan as follows:-

  • Sales to pick up and meet the budget for the rest of the financial month

  • Production to continue its cost down initiatives to meet the budget of 690 per ton

Report A: The sales manager was called to explain the shortfall of sales for both local and export. He reported that local competitors have drop their prices while export market faced with keen competition from the China players.

Report B: The production manager report a plan to conduct aggressive cost down that include immediate cost negotiation for several purchased services such as sub-contracting, pallets purchase etc. On top of these immediate actions, production department will look into quality improvement to further reduce the variable cost.

A calculation sheet was presented to indicate those actions has the potential to bring down the variable cost to 690 per ton as budgeted. However, the production manager requested that sales volume must be met as per budget in order for the variable cost to materializes as some of the variable costs are production volume related.

From the two reports, it was obvious that the sales managers give some reason for the shortfall but failed to provide a more comprehensive recovery plan as in the case of the production manager.

During the last quarter performance review, both the sales and production managers gave similar explanation for its shortfall in the first quarter. The sales did not pick up while production managed to keep quite closed to its budget.

What are the differences?

The Variable cost was able to keep to budget level mainly due to some tracking system was put in place by the Production manager as a recovery plan as opposed to the sales manager who failed to provide any plan. The fact was that sales could not recover while variable cost has improved.

This case study is a real application issue and it hope to provide an early warning sign for you to avoid such a performance review.

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About the Author: Dr. LM Foong, PhD

He writes and publishes TQM articles, ebooks, case studies, trainer manual and other TQM Related information made available at the Resource Center in Total Quality Management

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