Management 14th Edition by Leslie Rue,Lloyd Byars ,Nabil Ibrahim

Exercise 11

Can You Manage This?
Bill Sterling had been reviewing the financial reports for the last quarter. Bill was president of the Advantage Company, makers of high-quality sports apparel. He was unhappy with the cost of materials for a popular line of shorts, shirts, and pants, and thought the company was paying too much for the cotton-knit fabric. He then called Debby Wood, vice president of manufacturing, and told her to cut fabric costs. She in turn called Eddie Perez, the purchasing supervisor, and said, "Mr. Sterling is upset about the cost of the cotton knit you're using and wants it brought down! Do what you need to do. You've let this get out of hand."
Eddie was a bit perplexed. Didn't they know the cost of cotton knit had risen from $1.77 to $2.20 per yard? But he had been instructed to cut costs, so he found a supplier who could sell the fabric for $1.85 per yard and ordered 120 yards, about enough for two weeks of sewing. When the cotton knit arrived, Eddie could tell that the fabric was a lower quality than they had been using, but it could be used.
The next month Heather Schotsky, the assembly supervisor, asked Eddie about the cotton knit they were using. It stretched out during the sewing process, making the garments look baggy. Eddie explained that Mr. Sterling had sent word to cut the fabric cost. "This was the best cotton knit I could find at the lower cost," said Eddie.
When Bill Sterling reviewed the next quarter's financial reports, he found that sales had dropped for their popular Gear Down line of shirts, shorts, and pants. To find out why, he called Keesha Freeman, the marketing director.
"Sears, the Sports Authority, and Belk have all cut back on orders, Bill," Keesha said. "They're saying the garments they've received lately just aren't selling. Customers complain they look baggy, and the fabric feels thinner than before. I talked to Debby, and she said you told her to cut fabric costs. So she told Eddie to do so."
Bill immediately called Debby and reversed his decision to cut fabric costs. He said, "Tell Eddie to start purchasing the better quality fabric." When Debby finally talked to Eddie, he asked her what to do with the lower grade fabric.
"That's your problem, Eddie. You shouldn't have ordered so much," Debby replied. Bill Sterling had really scolded her, and she was still angry about it.
Fortunately, Eddie found another company willing to buy the fabric for $1.45 per yard. He sold it to make room for the new shipment of cotton knit he just ordered.
Three days later Debby called Eddie into her office to find out why he sold the lower grade fabric. "Who told you it was OK to sell that fabric?"
"No one. I thought you said it was my decision. I needed to make room for the new fabric and this was the best price I could get," Eddie answered.
"With decisions like that, this company could end up in the tank. Maybe we could've used that fabric for another line," said Debbie. "Don't let this happen again."
Questions
1. Explain the communications problem?
2. Was the problem handled well?