Southern District Dairy case \"l'm really not sure our information systems are as well placed as they could be to help us drive our performance. The industry data and my own observations suggest we need to do better in this regard. l worry about how we can best drive revenue growth and what are the best tools we could be using to help us achieve this. The volatility in our markets means our data for monitoring performance and facilitating decision-making is the best it can be, particularly as it relates to our performance against industry trends and our competitiveness in the industry. Also, we need to improve our planning processes and l'm really not too sure how to best plan for our expenditures in areas like R&D\" ACCBODOZ Enterprise Performance Management Sample Review Questions Page 5 Brad McEwen {who has been CEO for three years) was reflecting on recently released industry information and his own experiences as CEO of Southern District Dairy (SDD). SDD, a privately-owned company, produces a variety of milk, cheese and yogurt products. Dairy ingredients for production are sourced largely from dairy farms owned by SDD. The company has a strategy of producing high quality products targeted at consumers prepared to pay a premium price. Seventy (70) percent of the company's output is exported to parts of Asia. SDD has three investment centres each run by a business unit manager. The dairy farms business unit provides much of the required raw materials for the other two divisions. These three investment centres are supported by four support cost centres {research and development; accounting and finance; human resources; and, marketing and logistics) as reflected in Figure 1. The investment centre (business unit) managers are responsible for meeting specified return-on-investment (ROI) targets, calculated for each business unit on the basis of prot divided by assets. Both prot and assets include allocations from central ad ministration. Figure 1: SDD Structure \\ SDD Board and CEO Cheese plant Milk and yogurt Dairy farms BU manager: Scott plant BU manager: Sam Pike Simpson BU manager: Prue Lee TlTlTl Research and Accounting Human Marketing development and nance resources and logistics The accounting and finance department is responsible for budget preparation and the preparation of variance reports across the various levels and activities of SDD. For example, at present flexible budgets are used to guide performance monitoring of production-related costs and activities. In addition, the flexible budget is used to identify sales variances but no further analysis is conducted. This reflects Brad's frustration in the opening quote. For the support cost centres, budgeted versus actual cost is the key performance metric. The budget targets for the support cost centres are usually set on the basis of negotiation with Brad although the common starting point is always last yea r's budget. For example, with the research and development (R&D) cost centre, Brad has linked the annual budget estimate to sales targets. The manager of R&D is then held accountable for managing the department within the annual budget estimate. SDD, and the dairy industry in general, experiences volatile demand for their dairy products from their major trading partners and extreme fluctuations in the price at which they can purchase milk for production of dairy ACCT 30002 Enterprise Performance Management Sample Review Questions Page 9 products and sell milk produced on their dairy farms. For example, the price of milk per litre in June 2008 was 51.2 cents, while the corresponding price in April 2009 was 18 cents per litre. Brad has spent some time over the last few days reading and considering the latest industry report prepared in April 2009. Some of the items attracting his attention included: 0 Annual industry milk production was 3.1% higher [at 6.3 billion litres] than the same time last year; 0 Annual dairy exports were up in volume but cheddar cheese volumes were down by 29% and other cheeses were down by 43%; 0 Annual exports of skim milk and whole milk powders were up by 33% and 27% respectively; and 0 There had been some stabilization of world prices over the last few months of the year and some signs of recovery in global demand were emerging. 1. Outline suitable tools Brad could implement to assist with analysing revenue and enhancing the competitive effectiveness of SDD. Explain how these tools would be used in this setting