An apparel manufacturer centrally plans production schedules and treats each manufacturing…

An apparel manufacturer centrally plans production schedules and treats each manufacturing facility as a cost center. Well-engineered standards are in place for each facility, and the major evaluation measure is cost incurred relative to budgeted cost given the output achieved. Output quotas are closely monitored. Depending on market conditions, the production plan will be revised on a monthly basis. It also turns out that a facility that has exceeded its output quota can expect a more ambitious quota whenever the schedule is revised. An internal review of operations has discovered the production managers routinely hold back some output whenever they exceed their quota. The resulting secret safety stock is then used to cushion the inevitable shortfall when the quota is not met. In response, the review team has recommended the manufacturing facilities be upgraded to profit centers. This would, they argue, elevate the prestige of the production managers, make them more conscious of the larger goal of profitability, and better align their local interests with those of center. Evaluate the review team’s suggestion.

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