Case Introduction

Established in 1978, Mainfreight is a large international logistics company that was

listed on the New Zealand Stock Exchange in 1996. The company aims to be the
largest company in New Zealand in terms of size and market capitalization by 2028.
Mainfreight has a unique corporate culture in that it does not produce an annual
budget like most other companies and the company rarely markets itself, believing
that by providing a quality service to its customers, profits will take care of
themselves. The company is part of a flat organizational structure and is committed to
creating a non-bureaucratic, non-hierarchical, decentralized organization. However,
Mainfreight’s management control system is not perfect and we would like to give
suggestions for the following aspects.

Planning：
2. consider fixed annual budgets or rolling quarterly or annual forecasts
Planning and budgeting are about strengthening management control, thinking long-
term, achieving alignment (top-down, bottom-up, sideways), and establishing
"challenging-but- achievable" performance objectives. Mainfreight does not produce a
traditional annual budget to manage its performance as they consider it to be a waste
of time and a distraction for managers from day-to-day operations. However, we
cannot completely ignore the importance of budgetary management. The development
of comprehensive budget management has significant implications for cost control in
logistics companies. The logistics budget management system of modern logistics
companies is important to achieve the strategic objectives of logistics companies(Bai,
n.d.). Specifically, the branch manager, guided by the guidelines issued by the Budget
Committee, makes a preliminary budget proposal, which is negotiated between the
budget department and the branches and finally agreed with the manager.
Although every logistics business is a whole, there are different divisions within the
business, as in this case Mainfreight has a total of three main divisions: Domestic
Freight, Air and Ocean freight (international freight), and logistics. The fixed costs of
branches are relatively stable, but direct and variable costs also need to be managed.
Improving communication between each department promotes collaboration and
budget management helps internal control. At the same time, annual budgets or rolling
quarterly budgets can also be used to reflect the performance of employees by
comparing data with actual performance, enabling monitoring of employees, and
improving their efficiency.
So, we think Mainfreight should consider introducing a budget system to improve its
management control system.

Reward & Compensation：

1. Financial rewards- Include other indicators in the calculation of the base bonus.
The bonus structure at Mainfreight is applied to each team member. Profitable
branches receive a base bonus of 10% of the branch’s net earnings. However, there
seems to be a problem with such a performance management system. The potential to
earn bonuses varies from department to department. Specifically, team employees in
the Domestic Freight sector can earn thousands of dollars in bonuses, but the potential
for the Logistics sector is low because of the high cost of capital charged to the profit
and loss statements. So, some branches are more likely to meet performance targets
than others.
A reasonable suggestion for this would be to include other indicators in the
calculation of the basic bonus. 10% of the branch's net profit for the bonus calculation
should not be based on a single indicator in the income statement. For example, in this
case, for the logistics division, 5% of the base bonus could be based on the branch's
net profit, while another 5% could be based on the percentage of on-time deliveries,
which would bring its potential base bonus on a level with the other divisions.

Administrative controls:
1. Keep an internal audit function.
The Listed Firms Manual states that listed companies are required to keep an internal
audit function that gives management and the audit committee ongoing evaluation
controls over the organization's corporate systems and risk management procedures.
At the same time, internal audit helps to strengthen the internal management control
system of the enterprise, to identify problems and correct errors in a timely manner, to
minimize losses, to protect the safety and integrity of assets and to improve the
authenticity and reliability of accounting information. Soh & Martinov‐Bennie (2011)
said that the nature of current internal audit work frequently entails risk evaluation,
control assurance, and compliance monitoring.
In this case, Mainfreight, as a large international logistics company, needs to have a
well-established internal audit process in place. For example, the branches receive at
least two internal audits per year by the audit team and an annual visit by the branch
manager. These visits can give branches comments on whether they are fulfilling the
required performance standards. We also propose to break down and quantify audit
quality control indicators into specific job responsibilities, conduct regular audit
quality assessments and implement a system of rewards and penalties.

2. Job description
A job description is a document that clearly states the basic job requirements, job
duties, and skills required for each position. A detailed job description will also
include who the person holding the job must report to and how success will be
measured for performance evaluation purposes. This is crucial for the company to
recruit the right people. Especially in a corporate culture where Mainfreight places
such an emphasis on decentralization, the right employees are critical to the
company's people control. A common job description should usually include the
following: job title, regular tasks, job position, responsibilities, immediate boss
(whom the employee reports to), qualifications or skills the person must have, salary
range, commissions, bonuses, allowances, candidate temperament, etc.
In this case, the branch manager believes that work includes anything that needs to be
done. For the employee, it is likely that the employee will be unclear about his or her
work objectives, which will result in negativity. The absence of a rational
organizational division can lead to redundancy and crossover, reducing organizational
efficiency. Without a certain separation of duties, it is easy to make job errors due to
improper job setup.
This is why we strongly recommend that Mainfreight has job descriptions.

3. Formal approval process

A formal approval process is a business process that includes a range of items such as
holidays, expense budgets, invoices, marketing plans, etc. It is a standard workflow
that includes different levels of approval. A good approval process standardizes the
operation of all parts of the business. In order to save costs and improve efficiency, we
recommend that Mainfreight introduces an automated approval process.
In this case, there was also no formal paperwork or approval process for resource
allocation, for example, and the branch manager simply gave unlimited approval to
any request that seemed reasonable. This gives the manager a great deal of autonomy
but also raises the risk of misuse of resources or poor managerial judgement. If
Mainfreight could introduce an automated approval process, it can avoid errors in
manual approval and automate the flow of data and business processes involved in
approval; at the same time, automated approval can also flexibly adjust the approval
authority of each level of approver and record each approval process to ensure that
each approval can be completed quickly, reasonably, and efficiently, greatly
improving work efficiency. With IR4.0, there are many examples of successful
adoption of automated approval processes, such as Chatsworth's fully digitalization of
its procurement request process.
We therefore recommend that Mainfreight consider setting up an automated formal
approval process.

Reference
Bai, N. (n.d.). Discussion on Financial Budget Management System of Modern
 Logistics Enterprises.

Soh, D. S. B., & Martinov‐Bennie, N. (2011). The internal audit function: Perceptions

of internal audit roles, effectiveness and evaluation. Managerial Auditing

Journal, 26(7), 605–622. https://doi.org/10.1108/02686901111151332