Case 2 Bell Jeans Berhad
Bell Jeans Berhad was founded in the mid-sixties. The firm survived several lean years and economic recessions largely as the result of the market durability of its dominant product—blue denim jeans. Bell Jeans had been a market leader with "wash-and-wear," bell-bottom and flare jeans, and modern casual pants. By 2009 it was one of Malaysia’s largest clothing manufacturers. It offered a wide variety of dress and fashion jeans for both men and boys and a complete line of pants for women. It enjoyed a reputation for reasonably priced, quality pants. The company sold 40 million pairs of pants last year.
In each of the last 30 years, Bell Jeans sold virtually all its production and often had to begin to ration its pants to buyers as early as four months prior to the close of the production year. The company owned 25 manufacturing plants. The plants' capacity varied, but the average output was about 20,000 pairs of pants per week. With the exception of two or three plants that usually produced only blue denim jeans, the plants produced various types of pants. The firm augmented its own production capacity by contracting with independent manufacturers. Currently, there were 20 such contractors making all lines of Bell Jeans’ pants (including blue denim jeans). Last year contractors produced one-third of the total pants sold by Bell Jeans. Tahir Wahab, vice president for production operations (see organization chart in Exhibit 1), commented on the firm's use of outside contractors: "The majority of these contractors have been with us for five years or more. Several of them have served Bell Jeans efficiently and reliably for over 30 years. In our eagerness to get the pants made, 1
we understandably link with some independents who don't know what they are doing and are forced to go out of business after a year or so because their costs are too high. Usually we can tell from an independent's experience and per unit contract price whether or not he's going to survive.
"Contract agreements are made by me and my staff. The ceiling or maximum price we are willing to pay for each type of pants is very well established by now. If a contractor impresses us as being both reliable and capable of making quality pants, we will pay him that ceiling. If we aren't sure, we might bid a little below that ceiling for the first year or two, until the contractor proves himself."
Due to intense domestic and foreign competition, the failure rate in the garment industry was quite high. Hence, new entrepreneurs often stepped in and assumed control of existing facilities.
The Control System
En. Tahir continued: "We treat our 25 plants as expense (cost) centres. Operations at each plant have been examined thoroughly by industrial and cost engineers You know, time-and-motion studies and all. I'm quite proud of the standard times and costs we have in place. We have even developed learning curves that tell us how long it will take production of a given type of pants to reach the standard hours allowed per pair after initial start-up or a product switch-over. We know the rate at which total production time per pair reaches standard for every basic style of pants we make. We use this information for budgeting a plant's cost. The marketing staff estimates the quantity of pants of each type it wants produced each year. That information is used to divide total production among the plants. If possible, we like to put one plant to work for a whole year on one type of pants. That saves start-up and changeover costs Since we can...
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