Produces and Markets Wooden Baskets Case Study - Management Assignment Help

Assignment Task

Task
Organization DEX Enterprises is a small, family business that produces and markets wooden baskets. The company was founded in 1937 in Oakland, California by Autumn Martinez as a way of supplementing the family income. The business remained small until 1990, when Mary Martinez took it over from her mother. Until then, all orders were taken by the senior Ms. Martinez and all baskets were handmade by her. In 1990, Mary moved to a model of having "dealers" take orders and opened a small workshop where part time labor produced the baskets. The dealers were also looking to supplement their incomes and, supplied with a small display inventory, displayed the baskets at home or at parties, and took orders. Order fulfillment was handled directly by DEX Enterprise personnel, who shipped finished baskets directly to customers. Little production inventory was kept. In January 2000, Mary Martinez evaluated the costs and benefits of two alternative distribution channels in an attempt to expand the business beyond the San Francisco Bay Area. One alternative was to franchise the business. Mary was concerned that she and the managers of DEX would lose control, especially control over quality, which she felt distinguished DEX baskets.

The other alternative was to begin taking orders over the Internet. Mary chose the Internet option. The company added a new managerial position, Chief Technology Officer, established a subsidiary, DEX.com, to handle the new business. In an unusual move for the company, Mary went outside the small circle of family and friends and hired as the CTO Jessica Brown, who had experience on both the technical and management side of a Local internet start-up. Jessica was looking for something new where she could be in charge of an entire operation and was excited that she could combine this with her interest in basket weaving. It was agreed that if she could meet or exceed her budget for the first year of operation, she would be given a substantial piece of DEX.com. The executives of DEX Enterprises considered the initial launch on the Internet to be an experiment to see if the "anonymous" approach would be effective in selling baskets. Until this time, DEX considered its network of dealers to be crucial in the growth it had experienced since 1990. To this end, a separate workshop (factory) was established near Harrisburg, Pennsylvania. One of the reasons for selecting Harrisburg was the availability of part-time labor at lower costs than the Bay Area. Another was to attempt to penetrate the East Coast Market by locating a workshop there, taking advantage of more immediate access to local market tastes and trends. It was decided that the Harrisburg operation would produce exclusively for DEX.com business and the Bay Area workshop would continue to handle the orders from dealers. Most of the staff functions for DEX.com were provided and controlled by DEX Enterprises. The marketing budget was decided jointly by Jessica and Donna Cunha, the Senior VP of Marketing for the parent company. While the budget was decided jointly, media decisions and advertising campaigns were run directly from the parent organization. Personnel and financial services were also centralized.

Exhibit 1 shows the organization chart for DEX Enterprises. Jessica contracted with Bell Atlantic (now Verizon) to provide Web hosting services for the operation. She wanted to go with a major telecommunication company rather than a local Internet Service Provider (ISP) for reasons of reliability. The back office operations (billing, payroll, etc.) would be maintained on personal computers at the DEX.com office. The Initial Plan DEX Enterprises (and DEX.com) have a July 1 fiscal year and the launch of DEX.com was designed to coincide with the beginning of FY2001 (July 1, 2000). It was decided that DEX.com would initially offer only one of the company's many baskets for sale. Company managers believed this would simplify production scheduling and help maintain quality control for the workforce. The basket to be offered was the round basket, one of the company's most popular baskets. The standard cost sheet for the basket is shown in Exhibit 2. The cost accounting system at DEX Enterprises and the one adopted for DEX.com is a full absorption, standard cost system. Overhead is assigned to products (at standard cost) and not recognized in income until the product is sold. Variable overhead is allocated on the basis of direct labor hours and fixed overhead on the number of units. The fixed overhead rate is based on an estimated production level for the quarter. All variances from standard are recognized in the period recorded. Because of the uncertainty surrounding the demand for baskets using this new channel, the first quarter budget was designed to be "easy" to meet. In addition, relatively large marketing expenses were budgeted for promoting the new channel at related web sites and in craft publications. This was especially important in some of the East Coast publications because DEX had a small share in these markets. The first quarter operating budget is shown in Exhibit 3. The marketing and administration budget included the costs incurred by the parent for providing these services, as well as the cost of the small staff assisting Jessica and Jeffrey Grange, the Production Manager at DEX.com.

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