Janis Walker, president of Western Mills, Inc., a leading textile manufacturing firm, was out jogging after a strenuous day at the office. While jogging, she focused her thinking on the firm’s Commercial Carpeting Division. The major customers of the division are companies that are building new office buildings, hotels, and motels and need quality carpet in their buildings. The Carpet Division is doing quite well, but Walker has a nagging feeling that the division could be doing better. She decided to discuss the performance of the division with the division manager.
The next day, Walker asked the division manager how long it took to deliver an order to the building site after production started. The manager’s answer was 17 days. Walker then asked what the industry average was for delivery. The answer was 15 days. Walker wanted to know why Western Mills took longer than competitors to meet order requirements. The manager answered that its product was of a higher quality, so customers were willing to wait longer for the order to be filled. With this information in hand and without hesitation, Walker said, “I will give you six months to reduce the delivery time to 10 days. Study the problem and tell me what resources you need to meet this 10-day delivery goal. I want a report from you as soon as possible.”
1. Assuming that the division already has a standard cost system, what limitations of that system contributed to two more days of delivery time than its competitors?
2. Assuming this company has a standard cost system, what changes is the division manager likely to make in order to meet the president’s 10-day delivery mandate?