1. BY:
Hedie Mirimoghadam
Farid Khaheshi
Nassim Parsa

2. Product Analysis
Market Analysis
Company Analysis

3. Suppliers
Brazil, The
largest
Colombia
Indonesia
Ivory Coast
Mexico
Coffee
Arabica in
South
America
Robusta at
Ivory Coast
Buyers
United
States, The
largest
Europe

4. Origin
Country
Trade
Firms
Food
Processor
Coffee Business is a relationship Business.

5.  Drought and Frost
 The Level of coffee inventories in major
producing and consuming countries.
 Marketing policies of exporting countries.
 Premium and Gourmet Coffee Sales
increased.

7.  Nestle : The largest coffee company in the
world.
 Philip Morris and P&G: The largest coffee
producer in US.
Their resource:
Infrastructure, distribution network, brand
equity, production resources and marketing
expertise.

8.  The company operated 3 plants, each plant
with its own profit and loss responsibility.
 Headquarters presented monthly gross
margin statements for each plant.
 Every month, headquarters present plant
managers with production schedules for
current month and a projected schedule for
the succeeding month.
 Each plant has small accounting office to
record manufacturing costs and prepared
payrolls.

9.  Plant manager has no control over buying the
green coffer beans. A special unit within the
company handled the purchases.
 The purchasing unit kept all its records and
handled all financial transaction related to
purchasing, sales to outsiders and transfers to
the three company-operated roasting plants.
 Unit manager report directly to the company’s
secretary-treasure.
 The PU’s primary function: Obtain necessary
varieties and quantities of green coffee

10.  The purchasing group entered into forward
green coffee bean contracts with exporter.
 The group can also purchase on the spot
market- purchase for immediate delivery.
 Spot purchases are kept to a minimum.
 The difference between actual deliveries and
current requirements is handled through
either sales or purchases on the spot market.
 The company would sell to, or buy from,
coffee brokers and other roaster.

11.  The usual policy of a company is to make
purchase commitments based on maximum
potential plant requirements and sell the surplus
on the spot market.
 The company maintains a separate cost record for
each contract.
 The record is charged with payments for coffee
purchased, shipping charges and import expenses.
 For each contract, the purchasing group
computed a net cost per bag.

12.  The operating cost of running the purchasing
unit was charged directly to the central office.
 The cost was recorded as an element in the
general corporate overhead.
 The problem was in computing gross margin.

13. Q: Evaluate the current control systems for
the manufacturing , marketing and
purchasing departments of Aloha products.
Answer:
 The management control structure does not
give the plant managers control on any of the
major activities of a production facility.
 The plant manager does not control the green
beans purchase, production schedule or the
production mix, nor do they have control over
sales or marketing.

14.  Aloha Products has a cost center structure,
but the control system is attempting to
measure the roasting plants on a profit center
system.
 Having a profit center measurement approach
for infrastructure that operates in a cost
center approach, will not provide reasonable
measurements for the management control
system.

15.  The plant manager's concern regarding the
evaluation system is valid. Without proper
control over the input and output you cannot
expect the plant manager to perform well.
 Aloha, should not tie the gross margin of the
plant to the manager's evaluation without
giving them the ability to control all the
variables that affect the gross margin.

16.  Aloha, should not tie the gross margin of the
plant to the manager's evaluation without
giving them the ability to control all the
variables that affect the gross margin.
 Current measurement system is not
appropriate. Given the current situation, the
managers evaluation should not directly tied
the gross margin.

17.  Q: Considering the company’s competitive strategy, what
changes, if any, would you make to the control systems for
the three departments?
Answer:
 Purchasing
Given the volatile nature of the coffee market, having a
central purchasing unit is necessary. Expecting each plant to
handle the coffee purchases will add unnecessary overhead
cost to the company. One recommendation is to restructure
the purchase unit as an operational arm of all three plants.
Purchase department should take the requirements from
each of its plants and execute them. This gives Aloha to
achieve cost savings from bulk purchasing. This approach
also gives the plants an opportunity to control their inputs
according to their needs.

18.  Marketing
Aloha should continue its marketing from the
central office. The marketing resources will be
better utilized under one unit since all three
plants producing the same product. Under
strict profit center approach, the plant should
undertake the marketing function as well. In
this case, the parent unit would be served
better if a central unit handles the marketing
function, because the Aloha can promote its
brand in an efficient and integrated manner.

19.  Sales:
Sales function should be conducted at the
plant level. Aloha's target areas should be
divided into the three regions and each unit
should be assigned one sales area. This avoids
potential cannibalization within the three
plants if they are allowed to sell at free will.

20.  With sales under their supervision, the plant
managers can make long term sales forecasts.
Depending on their current and future sales
forecast, the plant manager can make green
coffee orders to the purchase unit and control
production levels accordingly.

21.  Plant Management:
Current system of evaluating plants on gross
margin can be applied with above
recommendations, but using EVA for plant
evaluation would be a better approach at this
point. EVA approach allows assigning same
profit objectives of each plant and also allows
assigning different interest rates for coffee
beans depending on the time of purchase.

22.  This approach also allows the plant managers
to make plant investments without negatively
affecting their performance. When plant
managers are evaluated and compensated
based on the EVA of the plant, they are
motivated to increase the EVA of their plant,
which in turn will benefit the whole company.