Wilkinson is a transportation company and one of wholly owned subsidiary of Lex Service Group Limited. Lex has a decentralized approach for their businesses; top management is involved with Wilkinson in terms of reviewing and approving annual budgets, accounting and performance budgets for each month. Wilkinson has a very effective and efficient operational method for collection and delivery of parcels, which leads to a successful company. Wilkinson collects 58,000 parcels a day with 2,300 customers; the greater amount of customers leads to greater revenue. The collection and delivery operations are divided based upon the nearest locations, which are then sent to the coordinated depots. This allows for the ease of finding and delivering parcels to the correct locations with the least amount of time. Speed is the key to reduce customer waiting periods. The faster one can deliver its products and services will increase customer satisfaction. The "trunking" operation is known as when vans deliver the parcels to the correct depots and then collect the parcels for the consignee within its area. Wilkinson has a system that determines the optimal trunking relationship based on previous data. The computer generates an optimal route which reduces the length of determining the appropriate and efficient direction to deliver the parcels. Wilkinson's provides a straight forward process of what a delivery schedule should be for the week and this creates efficiency and effectiveness for the work that is being done. For example, on Monday, the parcel is collected from the customer and delivered to the depot. The following day the parcel is assigned a location and then delivered to the final destination. With this method there are lower chances of confusion between the workers and their tasks. Marketing with the correct resources and skills allows for a successful business. Wilkinson's marketing strategy was developed based upon the speed of their service, pricing and the way they interact with their customers. Wilkinson was able to capture new customers due to the reliability of delivery and the ability to claim for lost or damaged goods. This industry, transport business, is highly competitive which implies that pricing is a key factor that will determine where customers want to do business with. Wilkinson is able to offer customers with a comfortable pricing range as they have gained new customers and retained previous ones as well. It should be noted that customers are the ones who help generate sales for businesses, as a business helps satisfy their needs with the correct resources and skills, customer satisfaction and sales are guaranteed. Wilkinson's success factors also arise from the use of technology for the systems that are implemented to conduct and run the transport business. The company's computerized system WILKONTROL, which was completed 2 years ago, allows Wilkinson to follow upon the consignments during the collection and delivery period and provide operational data for management to analyze. Implementing WILKONTROL adds to the success of this company because of the enhanced features it includes. First, the idea of tracking the goods is critical for any transport business because it would allow the company to locate and missing goods. This would lower the risk of theft because goods are being tracked with individual identification. The process of transferring parcels from one depot to another or from customer to customer is also very highly monitored which in return lowers the chances of items to have gone missing. This overall, reduces disruptions for the company and the customers. Another key feature of this computerized system is the statistics that are generated on a daily and weekly basis and again allows management to make key decisions as to what changes can be made based on the analysis received. With an appropriate business strategy companies are able to achieve success. Wilkinson Transport developed a strategy where they were able to attain a larger customer base because of the services they offered. Wilkinson's idea of business strategy mainly consisted of providing customers with an exceptional price and offering the fastest and optimal delivery for their products. This transport business is in a very competitive industry which means that Wilkinson's strategy should includes the idea of offering the lowest prices to capture many customers. Along with pricing, another element of their business strategy involves delivering products to their destinations with the least amount of time involved. Wilkinson implemented many systems of information technology to develop to determine how to reduce deliver time. Such systems organize the parcels and send them to the correct depots. This allows for less errors and time for delivery. Another function within their operation helped determine the fastest routes for the final destination to reduce travel time. The business strategy provided customers with products and services at affordable prices and time. Customers are always looking for something effective and efficient. The Wilkinson's strategy has helped attained reasonable profits and great success.
What is the role of the current profit center system in helping Wilkinson attain its business objectives? Is it effective as part of the control system? The Wilkinson organization is a highly monitored business in terms of the profit that is generated through the Depots. The role of the current profit center system that is helping Wilkinson to attain its business objective is passed to the depots, where sales are attained from all its customers. Each Depot is the profit centre of the organization. The Depot managers are responsible for operations, sales, accounting the repair shop. Revenues are recorded when they are received and expenses are recorded when incurred within each depot. The core of the business begins at each Depot. The interaction among customers and employees starts at this level, where profit is measured and determined. The decentralized approach of the organization has initiated profits to individual depots and then to the company as a whole as well. By allowing each profit centre to conduct business as a separate entity entails ease for the entire organization because of division of labour and less pressure from top management. As decisions are made at the lower level, it decreases the amount of work done by top management, who are not part of the day to day business at each depot. Where authority is passed down to the profit centers, the depot managers have to make decisions for their locations and focus on depots. Where there is attention paid to one location at a time, there is less potential for error and greater chances of increasing profits. Decentralization is the modern approach which has helped many companies attain their desirable profits. Transfer pricing is the idea of intra-company sales, such as delivering parcels from depot to depot and are charged per metric ton along with a flat fee. Transfer pricing at the depots allows for the depots to compensate for the delivery costs and provides a profit also. Another method to generate sales within the profit centers is when one depot delivers parcels for another depot; the cost of that is $0.25/km. Not only are profits generated through customers, but also internally among the profit centers. The ability to create revenue is not a difficult task for Wilkinson, but is it important for Wilkinson to track these numbers and provide reasoning for this financial information to top management. The Depots are divided among coordinated regions. From the regions, profits are consolidated and are reported to the main body, Transportation Business Group. There are many measures put into practice by the company to ensure that there is not manipulation within the organization, since the profits are generated and handled at the individual depots. The responsibility of the depots is to provide profit budgets to the regional managers who either accept the budget or determine the need for revision. These budgets are again approved by the president of Wilkinson. Not only is there a control implemented at this subsidiary, there are also reports prepared by Wilkinson as a whole business and again revised by the Transportation Business Group. This allows for an effective control because sales and expenses are monitored by the owners of Wilkinson as well. As financial information must be given with reasoning, it is also important that there is operational control put into practice. The mangers at each level of the organization are evaluated based on their performance. This is an important part of control, as managers are the ones who are directly involved in handling generating sales for the whole organization from region to region. It is essential for management performance to be assessed to offer changes and or provide rewards for the ability to maintain success for the company. Monitoring at higher levels will decrease the chances of fraud and increase the chances of profits. This is one tactic that is put in place by the organization to ensure profits by an effective control system. Another key aspect of Wilkinson and the Transportation Business Group that ensures effectiveness of controls is that all numbers on the budgets and on the financial statements must have explanations. Starting at the profit centers along with Wilkinson as a whole organization must submit explanations for the variances between the actual amounts occurred and budgeted amounts. This again ensures that each level of the organization must not have any incurred expenses without a reason and must show all sales with the appropriate documentation. The profits that are generated throughout the organization involve effective control procedures and reasoning behind key financial information, which decreases misleading information. The effective control measures put in to place at Wilkinson ensures that all information coming in and going out of the business is highly monitored to allow the profit centers to work under ethical standards.
What changes would you suggest? How you would evaluate the depot managers to ensure goal congruence. The president of the company decided that 2004 sales should be about two and half times greater that of 1998 sales. With the current structure of the organization, the management of Wilkinson determined the 16 different profit centers would not help achieve this goal. From the Hub, the parcels are delivered to the depots. With the change in the structure of the organization to increase the sales volume, it would be required to implement significant changes and responsibilities for the Hub, rather than the depots. Although there are advantages of using the depots due to the current profits they have generated, however, for the increase in sales volume the president has decided to change the structure of the organization, which includes the profit centers. One of the concerns of the depots was, did the depot managers actually control the critical elements of the profits that were being generated. For example, some of the depots major revenues were from other depots. The question arises, why did those depots not deal with a similar customer as other depots did? The depot managers could have potentially ignored business with major customers and relied on the ease of dealing with other depots. The depot managers could have potentially ignored external sales because of their responsibly and authority; hence decentralization, where authority is passed down to each level of the organization. There are 16 different depots and it should be suggested that profit centers should be divided at the regional level, which should be the lowest level of the organization. At the regional level, this is where the sales should be handled and generated. By dividing and creating more levels of the organization, leads to loss of sales due to the distance from top management. For example, the gap between top management the depots was large, so depots may be able to take advantage of this and ignore important factors of profits for the whole organization. As the depots are grouped together there will be more personnel in one location than there would have originally been. This allows for further division of labour and allows for employees to focus on micro aspects of their jobs because there will be more employees in one profit center than having to deal with many responsibilities when there were more profit centers. At the regional level orders should be processed and delivered to their optimal destination. Within the current system, parcels were delivered to the depot from the hub and then passed on to the customers. By removing the depots, it would cut down on the time taken to process the orders because they can be processed as soon as it reaches the hub; parcels can be processed right away. This would reduce costs involved with the depots and lower the time between delivering the parcels, therefore, sales would increase to Wilkinson's desired level. The second concern of the profit centers was that the depot level managers had many responsibilities. Not only did they have to determine and plan for the operational aspects of the depot, but were responsible for sales, accounting, and purchasing. The individual responsibilities required lots of attention due to the significance of each department within each depot. For example, accounting alone has many aspects that require professional expertise and should not be given this responsibility to one person per depot. The sales, accounting and purchasing department should not be handled by the depot managers as they require extensive knowledge and expertise. As the depot manager handles all the significant responsibilities for the depots to function, there is potential for error in the other due to the lack of expertise and skills. If the responsibility of operations is passed down to the depot managers there is a greater possibility of determining efficiency and effectiveness which will enhance the sales of Wilkinson. By improving on effective and efficiency of the operations at Wilkinson, managers would be able to focus on the quality of the services that they can provide. Increasing the quality of their services would permit managers to decide on which activities would add value and which one are the non value added activates. By removing non value added activities again will reduce costs. Sales would also increase because of the benefits from the value added activities and allowing them to focus on those activities. The depot managers optimized their profits at the company's expense. The profits benefited the individual depots than the company as a whole. As depots were able to turn down sales due to their authority at each depot level, there should be a system in place that ensures control over the sales and business for the company. This may be improved as the sales department would not be dealt by the depot manger, however it should be handled by someone with a sales background and knowledge. As the depots are abandoned and sales passed at the regional level this would ensure that all sales and not at the company's expense should be taken into consideration. As there are more sales personnel, it would not be difficult to track and deal with all types of business received by the company. There would be more scrutiny within the each department along with the increased number of staff. As sales are dealt by more staff, there would be greater volume of sales and great satisfaction of the services Wilkinson is providing. Internal sales, such as within depots, did create profits amongst the depots, however there was a concern of misleading information from the paperwork. While abandoning sales at the depot level, there would still be internal business, from region to region. At the regional level again there would be individual sales departments at each location that would deal with all types of sales, including internal. As the sales responsibility is given to the sales department, they would be able to focus on efficiency and effectiveness method of recording information regarding transfer pricing. Transfer pricing should still include a discounted price charged for internal sales but since these are sales within the profit centers, they should be monitored by top management as well. Internal sales do increase profits for the company, therefore these should not be eliminated but they should involve increased amount of information controls to lower the chances of misleading information. Top management could monitor sales to determine any changes in the trends of sales such as false sales. By maintaining internal profits with more control from management, Wilkinson is able to grow the sales within the company.
What problems might occur in implementing your revised organization and measurement system? How would you handle these problems? To revise the organization and address the company's goal at the same there are however prospective problems that can occur within the system. All the concerns were taken into consideration which involved revision of the organization. Abandoning the profit centers at the depot level is a structural change in the organization. The depots had advantages as they delivered parcels to customers with the least amount of time, due to the determination of optimal routes. The more depots meant that there was less travel time per driver. As the depots will be consolidated into larger region levels, the distances from customers to deliver parcels would increase as well. To address this concern is to hire addition staff and locate the regional profit centers at an optimal location, such as in core of major cities. For example, if there was a regional center for Ontario, it would make sense to have a regional center in Toronto as that is the capital and most of the population of Ontario is in Toronto. By locating the profit center in the core of the city, this would allow for a larger customer base due to the larger populations within the capital cities. Another concern with the revised origination may include potential increase in the cost of staff due to the need to hire experts in the area of sales, accounting and purchasing. It was possible to hand down these responsibilities to one manager and the wages for him or her would be reasonable. By examining the chart that indicated the responsibilities for each authority in the organization, starting from the president, he was in charge of four of the top managers at the organization, starting from the personal manager to the commercial manager. This alone shows that the president's responsibility is heavily weighted and requires extensive due care. After the president there should be other authorities for the top managers to report and discuss their issues with. As we take a look at the lower level of the organization, the general depot mangers, again their job also consists of many authoritative and direct responsibilities. As a change in the organization, to disregard the depots, it may cause disruptions in terms of new responsibilities and a new level of authority, but there will be segregation of duties. Segregation of duties is critical for the success of the organization, and it is recommended that Wilkinson should include more authorities in the organization for mangers to report to despite the costs of implementing this new strategy because the benefits will be greater. Due to the lack of expertise it is essential to hire additional staff for those departments, which increases wages expense, for the entire organization. As wages increase, the benefits of hiring additional with expertise in certain areas of the organization would outweigh the costs of doing so. Overall, with increases in costs and potential difficulties from reallocating staff from a small part of the organization to a larger part, the benefits will help the president of the company achieve its goal to increase sales in 2004 from 1998. Not only would sales increase, but the efficiency and effectiveness of the services provided by the organization as a whole will help capture new customers and maintain existing customers.