Section B – TWO questions ONLY to be attempted
Booxe is a furniture manufacturing company based in the large, developed country of Teeland. Booxe is the largest furniture manufacturer in Teeland supplying many of the major retail chains with their own-brand furniture and also, making furniture under its own brand (Meson). In a highly competitive market such as Teeland, Booxe has chosen a strategy of cost leadership.
Booxe has been in business for more than 70 years and there is a strong sense of tradition and appreciation of craft skills in the workforce. The average time which an employee has worked for the firm is 18 years. This has led to a bureaucratic culture; for example, the company’s information systems are heavily paper based. In addition and in line with this traditional culture, the organisation is divided into a set of functional departments, such as production, warehousing, human resources and finance.
In order to drive down costs, the chief executive officer (CEO) decided to re-engineer the processes at Booxe. She decided that there should be a small pilot project to demonstrate the potential of business process re-engineering (BPR) to benefit Booxe and she selected the goods receiving activity in the company’s warehousing operations for this.
The CEO has asked you as a performance management expert to complete the post-implementation review of the pilot project by assessing what it has delivered in financial terms. The project identified that 10 of the warehouse staff spend about half of their time matching goods delivered documents to purchase orders and dealing with subsequent problems. It was noted that 25% of all such matches failed and the staff then had to identify the issue and liaise with the purchasing department in order to get the goods returned to the supplier and a suitable credit note issued. The project introduced a new information system to replace the existing paper-based system. The new system allowed purchase orders to be entered by the purchasing department and then checked online to the goods delivered as they arrived at the warehouse. This allowed warehouse staff to reject incorrect deliveries immediately.
The following are further details provided in relation to the project:
Notes relating to old system:
1 Average staff wage in warehouse $25,000 p.a.
2 Purchasing staff time in handling delivery queries 8·5 days per week
3 Average staff wage in purchasing is $32,000 p.a. for working a 5-day week
Notes relating to new system:
New IT system costs:
The CEO now plans to apply BPR across Booxe and as well as completing the post-implementation review, she also needs to know how BPR will change the accounting information systems and the culture at Booxe. Booxe’s current accounting system is a traditional one of overhead absorption based on labour hours with variances to budget used as control indicators. She has heard that an activity-based approach using enterprise resource planning (ERP) systems is fairly common and wants to know how these ideas might link to BPR at Booxe.
The CEO is concerned that middle management unrest may be a problem at Booxe. For example, the warehouse manager was uncomfortable with the cultural change required in the BPR project and decided to take early retirement before the project began. As a result, a temporary manager was put in place to run the warehouse during the project.
The CEO has also begun to reconsider the human resources system at Booxe and she wants your advice on how the staff appraisal process can improve performance in the company. The existing system of manager appraisal is for the staff member to have an annual meeting with their line superior to review the previous year’s work and discuss generally how to improve their efforts. Over the years, it has become common for these meetings to be informal and held over lunch at the company’s expense. The CEO wants to understand the purpose of a staff appraisal system and how the process can improve the performance of the company. She also wants comments on the appropriate balance between control and staff development as this impacts on staff appraisal at Booxe.
Required:
(a) Assess the financial impact of the pilot business process re-engineering (BPR) project in the warehousing operations. (6 marks)
(b) Assess the impact of BPR on the culture and management information systems at Booxe. (11 marks)
(c) Advise on the appraisal process at Booxe as instructed by the CEO. (8 marks)