Reference no: EM132268570
The Poly Corporation Case
THE INDUSTRY AND COMPANY BACKGROUND
The Poly Corporation is a manufacturer of packaging materials for several food, medical, and industrial applications. The company buys raw materials from large plastics manufacturers in the United States, converts and prints the materials, and sells the finished products to large and small customers throughout the United States, Canada, and Mexico. Most customers order custom-printed items displaying their name. In many cases, they have from 3 to 20 different types of items to be custom-printed. Companies that co-pack may also have several private labels for any number of their customers. Furthermore, with over 20 different raw material products to work with, the number of unique items supplied to even one customer can be in the hundreds.
Because of the nature of the business, sales tend to be seasonal, with the Thanksgiving, Christmas, and New Year's holidays being the busiest. The holiday season creates the biggest potential for capacity problems. Conversely, summer is the slowest period for Poly.
Poly competes with other packaging material manufacturers-some very similar to Poly and some that are vertically integrated in the industry to some extent. The local and regional players in the field tend to be the most competitive on price, while those that are in the national arena do not compete on price. Without a concerted effort, Poly has established a reputation of very high-quality products. This is due, in part, to the quality of materials it uses. Another reason is that Poly, being a young company, has had the benefit of acquiring state-of-the-art machinery, while others in the industry are getting by with antiquated and inefficient technology.
In the area of packaging materials where Poly competes, customers have traditionally looked for a high-quality product that performs well. In addition, many food companies rely on prompt delivery. Late deliveries of food packaging materials would cause the company's operations to shut down due to the inability to procure packaging materials elsewhere in a reasonable time. The industry is notorious for long lead times, less than adequate delivery, and being anything but customer-focused. While Poly does better than most in these areas, its general manager, Mr. Pine, believes that much improvement is possible. Because Poly is unable to compete on price, the issues of lead times, delivery, and customer focus will become increasingly important if Poly is to stay competitive. Customers are looking for the best value in terms of quality, delivery, and service for the price.
In the past four years, Poly has experienced a period of rapid growth, with sales in excess of $60 million and a workforce of 150 people. While profit margins in the industry tend to be less than 10 percent, Poly has been able to command margins averaging 15 percent. While the financial rewards have been welcome, Poly has found it difficult to keep up with the expansion and the problems associated with it-disorder, lack of communication, overlooked orders, late shipments, and customer complaints.
Poly chose eastern Pennsylvania for its sole manufacturing plant and operation. The national sales force, while traveling throughout the Americas, is based out of the Pennsylvania location. All other departments and functions operate from this location.
THE MANAGEMENT ORGANIZATION
Pine has a substantial financial interest in the company. He runs the company with little or no input from his top managers. With the exception of the controller's financial consultations, Pine is solely at the helm of the organization. Also answering to the general manager are the heads of the production, sales, and research and development (R&D) departments. Beyond the top staff managers, the organization is devoid of structure and has worked this way since its inception 12 years ago.
The finance department is responsible for all accounting documentation (billing, purchasing, and so on). The controller tends to take on all departmental responsibilities, leaving him little time to do much more than ensure that day-to-day responsibilities are discharged. Production is the largest department in the company and is responsible for scheduling jobs, purchasing raw materials, shipping and receiving all goods, developing and applying graphics, and overseeing a small quality control area. The department manager's primary focus has always been getting the product out the door. The sales department functions as a marketing, sales, and customer service group. This department tends to concentrate much of its efforts in sales and customer service while neglecting the marketing function, which is vital to the existence of the organization. Of all the departments, R&D has the most freedom and control of its destiny. The leader of this group is laid-back and has the reputation of being the first to develop creative new packaging when it is needed.
For the most part, each department functions on its own, and disputes between departments are not unusual as each acts in its own best interest. With the implementation of a new system, Pine knows that the structure needs change, but is unsure what changes need to be made.
CURRENT PROCEDURES
SALES AND CUSTOMER SERVICE. When the sales department gets a customer order, a great deal of documentation must be completed. Because of the complexity of the orders, a sales or customer service representative typically goes back and forth with the customer several times to finalize structure, colors, copy, quantity changes, and so on. When most of the information is gathered, customer service enters the order into the department's only computer. Often, squabbles arise over use of the computer, and delays in entering orders frequently result in orders not being entered and deemed lost in the system. After a sales order is entered in the computer, order acknowledgments are prepared for customers upon request.
The software package used by customer service is nothing more than a word processing program that provides a "neat" order for production to follow. The prepared order functions as both the sales and the production order. For items previously manufactured, an old order is pulled out for retyping under the new sales order number. A copy of the order is printed and hand-carried to the production office. A second copy is printed and attached to the original customer order, if it exists, and then filed in the sales order file. Occasionally, the production copy of an order may be "misplaced" and never reach the production department. Production orders that do reach the department head's open work order file are often missing information needed to complete the job, causing delays.
PRODUCTION. At this point, the production manager sits down with an assistant to place the job in the production schedule. The placement of the job depends on several factors-the due date requested, the customer, and the salesperson. Production likes to do jobs for the large customers because these orders usually run several days with few changeovers. This helps the production department improve its production statistics for the month. Salespeople who are out of favor with production, for however trivial a reason, may see their jobs develop extraordinarily long lead times.
For an old item, the production department will look at the work in process and finished goods inventory sheets to see if there are any items left over from the last time the job was run. Over- and underruns are neither unusual nor publicized. Customer service doesn't like underruns because that means an undershipment. Meanwhile, accounting scorns overruns because of the unnecessary inventory generated. However, where enough of the completed product exists to fill the new order, customer service is notified. Customer service then drafts a ship order on the word processing software, delivers a copy to the production department for shipping, and retains a copy for the sales order file. Problems arise here from the inaccurate inventory records kept on the overruns. Failure to confirm the overrun inventory figures with a physical count sometimes causes Poly to falsely tell customers that their order is ready. Customers, in anticipation of their order, schedule their plants accordingly, only to find out that Poly has not sufficiently prepared their order. This situation has occurred several times, and it is not uncommon for customer service to physically count the overrun inventory as a guard against this happening.
INVENTORY CONTROL. If insufficient overruns exist or if the job is new, the job is scheduled for production. A few days to a week before the job is scheduled to run, the production department checks to make sure an adequate supply of raw materials is on hand for that order. Typically, a high level of inventory is kept on hand to facilitate production. Inventory is monitored through physical counts done weekly by the production department. Each month, an accounting representative accompanies the production department on the count. Accounting adjusts its records for any discrepancies found. Times arise when raw material inventory may be the wrong size, damaged, or even obsolete. In these cases, production must either incur the high cost of immediate procurement of the right materials; use oversized material, resulting in a large scrap rate; or move the order back in the production schedule. Delaying the order does not sit well with the customers.
Large orders are handled differently because of the preferential treatment they receive and the large amounts of raw materials needed. The production department manager spends time planning these jobs.
PURCHASING. While a clerk keeps a running tabulation of the major raw materials on a word processor, the system is prone to human error because it relies heavily on the clerk's memory. In addition, system error occurs because no hard copy of the inventory record is retained. Production takes on the responsibility of purchasing the raw materials it uses and does so on the basis of sales orders received. (There is no system for sales forecasting.) Production selects vendors carefully and purchases on a volume discount basis, even in the slow summer months. Production phones in the order to the supplier and then notifies accounting to prepare a physical purchase order.
RECEIVING. When materials arrive at the warehouse, the quality control function inspects the goods. Occasionally, if a material is desperately needed, the production manager instructs quality control to accept goods it might otherwise reject. At this point, the receiving clerk fills out a receiving ticket based on the supplier's attached packing slip or on Poly's purchase order. One copy of the receiving ticket is sent to the main production office, a second copy is sent to accounting, and a third copy remains in the shipping and receiving department. Production records the inventory increase in the inventory record, accounting attaches the receiving ticket to the purchase order for accounts payable to process, and the receiving function keeps a copy in case the other is misplaced.
SHIPPING. When finished goods are shipped out of the warehouse, a ship order from customer service is sent to the production department. The production office then creates a packing slip and bill of lading for the shipping area. The shipping clerk gets a copy of the packing slip and bill of lading and attaches these two forms to the goods. Shipping then sends a copy of the ship order, the packing slip, and the bill of lading to accounting for accounts receivable processing.
COST ACCOUNTING. After a job is completed, the production department accumulates all the paper documentation on materials, machinery, and labor time used for a particular job. This packet of information is given to accounting for job order costing. Inaccurate inventory information and human error in raw material usage reporting require the cost accountant to use some degree of guesswork in compiling variance reports.
THE CURRENT INFORMATION SYSTEM
With its recent rapid growth, Poly is no longer able to provide its customers with the service level they have grown to expect. Lead times are growing longer, order status requests are slow and inaccurate, and product quality is diminishing. Management is becoming frustrated with the lack of performance and status reports available.
The current system is primarily manual, with some computer technology. With the exception of the accounting area, computers are used primarily for word processing. The accounting area uses a small computer system to process the payroll, job costing, accounts payable, accounts receivable, and financial reporting and documentation. This system is not interactive with any other department, leaving accounting clerks with a great deal of hard-copy data entry.
For the most part, performance and status reports are done only in the accounting area and are primarily used for internal review and external audits. Other than the scheduled system-generated accounting reports, management reports are prepared only upon request. Management reports are manually prepared on a word processor.
CASE REQUIREMENTS
Develop a formal organizational structure chart of the poly corporation.