Evaluation of Agency Problems Caused by Control Deficiencies

Date: February 12, 2018

To: Kitty Li

From: RuBix Consulting

RE: Evaluation of Agency Problems caused by Control Deficiencies

Introduction:

You have asked us to review your control system and address the issues that took place with Sunshine Fashion Co. Ltd. (Sunshine). In this report, you will find our identification of the causes leading to staff misbehavior, and an analysis of the deficiencies of your personnel and cultural controls resulting in agency problems. We will follow our discussion with recommendations and alternatives that can be implemented to improve your control system and organizational culture.

Background:

In 1993, Sunshine Fashion originated as a Sino-Japanese venture differentiating in original equipment manufacturing (OEM), and has since become the reigning leader in the fashion industry. Sunshine’s efficient production and retailing of cashmere sweaters through minimal overhead costs and economies of scale, are a result of the company’s competitive advantage of a vertically integrated organizational structure. In the vying environment of the fashion industry, Sunshine must maintain its critical success factors in the innovation and quality of high value products, flexibility in supply chain management and fast responsiveness to market and trend changes. Likewise, due to the continuous expansion of the company’s factories and workforce, leading to diminishing control of retail operations and direct management over employees, Sunshine should consider the critical success factor of strategy formulation and implementation to combat the company’s difficultly in establishing an effective control.

Identification and Analysis:

        Firstly, we have identified that your most compelling action control is the implementation of enterprise resource planning (ERP), to network the branch offices and update head office on sales and inventory as an efficient information exchange system. Through ERP, you are able to demonstrate effective inventory control by retaining history of customer and supplier interactions, thereby synchronizing the flow of information with the flow of materials to reduce rework and overhead costs of product introduction. Moreover, ERP encourages the use of barcodes to automate the planning and scheduling of materials to be shared throughout the organization in real-time, giving management the opportunity to make data driven assessments and decisions contributing to maximize productivity, reduce the likelihood of human error and engage in efficient supply chain management (DuBrin, 2011). As a result, your effective practice of decentralization is enforced by ERP in terms of facilitating diversification, providing product and market emphasis and promoting quick decision making.