N4U4 Accounting In Organization And Society : Fountain Essays

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Question:

Assume you are a newly appointed accountant in a local fashion company -RTXM Clothing Company (RTXM) – based in Melbourne, Australia. This is a private family business with 20 shareholders. Currently, the company has seven different departments, include Accounting and Finance, R&D (product design and development), Sales and Marketing, Human Resources, Information Technology, Distribution and Logistics, and Merchandising, with a total of 130 employees. Managers in each department are given the authority regarding operational decisions and their performance is measured based on the company’s profit, and all the other employees receive the fixed salary package. The company pays taxes to Australia Taxation Office (ATO) on a regular basis.

Originally, the business offered only t-shirts and jeans. As the business was trying to join the growing fast fashion industry, it expanded its product lines to include dress, trousers, shorts, hoodies & sweats, socks, shoes, and bags. The objective was to provide a wide selection of product lines in order to reach more fashion conscious consumers. A characteristic of them market is consumers are mainly attracted by low price, and frequent new styles and designs, so the company also seeks to find the suppliers with low prices. The business has retail stores in the major city across Australia and online store. Since the company expanded its product line, managers from different departments found the number of complaints received from customers have tripled. Most complaints are related to the product quality (products are either defective or damaged), items consistently out of stock, online shopping experience (delivery of wrong items and long response time to emails), and in-store experience (lack of attention from sales representatives), and some customers have posted complaints on RTXM social media.

In order to enhance the overall performance, the company is considering using a range of key performance indicators in managing its performance. This is to ensure that the company keeps track of its performance and to achieve the objectives they set for the identified issues.

In addition, the CEO and senior management decide to find new suppliers to improve the product quality, however, they encountered a dilemma. On the one hand, they found a supplier in Bangladesh, Super Cheap who can provide a large range of products to fit in their business expansion plan with a competitive price and all products can be supplied in a short time frame. However, after a careful investigation into this company’s background, they found this supplier has a major issue with labor conditions throughout their supply chains, including the use of child labor, low wages, and health and safety hazards, and long working hours. In terms of the environmental aspect, Super Cheap consumes a few thousand litres of water to produce a cotton t-shirt and over ten-thousand litres to produce a pair of jeans, and wastewater discharge into the local river, and it did not take any action to solve this issue. The polluted water is no longer fit for drinking or laundry, fishes no longer exist in this river, and local residences complain that their homes are flooded by dirty water.

On the other hand, RTXM has another potential supplier, called Green Fashion, who only provides limited product range with a higher price, and products can be supplied in a reasonable time frame. However, Green Fashion takes account of sustainability and makes it as part of their business, and their sustainability agenda has been presented on its website, including fashion designs that is kind to the environment, they also ethically source materials and labour, promote work-life balance of the employee in the retail business, and provide incentives to their local and outsourcing partners and their employees if their targets are met. The CEO and management of RTXM learnt that Green Fashion has very similar values and sustainability agenda. RTXM considers sustainability as part of the business. It is reported on their websites that the company wants to rethink fashion designs so that they are kind to the environment, to ethically source materials and labour, promote work-life balance of the employee in the retail business, and provide incentives to their local and outsourcing partners and their employees if their targets are met.

Answer:

Introduction:

Objectives

Measures

Targets

Initiatives

Financial

· ROCE

· Asset Utilization

· Profitability

· ROCE

· Cash Flow

· Net Profit Margin

· 15%

· $50 m

· 10%

· Increase in sales

· Effective financial strategies

Customer

· Delight the Customers

· Increase in Customers’ Loyalty

· Mystery Shopping Rating

· Customer Satisfaction Rating

· 4.5 Points

· 85%

· Introduction of mystery shopping program

· Introduction of Loyalty Programs

Internal Process

· Innovative Products and Services

· Inventory Management

· Cost Leader

· Improvement in EHS

· New Fashion Garments ROI

· Inventory Level

· Perfect Orders

· Sustainability Activities

· 20%

· 15% of Sales

· Introduction of Review Programs

· Introduction of Safety Training Programs

Learning and Growth

· Satisfaction of Employees

· Competencies

· Employee Survey

· Personal BSC (percentage)

· Strategic Competencies

· >5

· 80%

· 85%

· Introduction of skill development and competency development programs

Table 1: Balance Scorecard of RTXM
(Source: As created by Author)

The above drawn Balance Scorecard (BSC) is a management system helping in the measurement of the company’s performance from four different perspectives. They are Financial; Customer; Internal Process; and Learning and Growth. As per the above table, there are certain objectives under each perspective along with the means to measure them. The achievement of each objectives will be measured against the previously set targets so that the performance gap can be analyzed. The BSC matrix also shows the required initiatives to be taken for the achievement of these objectives (Bititci et al. 2012).

The four important metrics are mentioned below:

Return on Capital Employed (ROCE): ROCE is considered as an important metric as it is used for measuring the profitability of the company after considering the factors of capital used for it.

Increase in Customers’ Loyalty: Increase in customers’ loyalty refers to the retention of customers and for this reason, it is considered as a fundamental metric for the success of the companies (Taylor and Baines 2012).

Innovative Products and Services: The introduction of innovative products and services is considered as an important metric as it is highly necessary for increasing the revenue of the companies.

Employee Satisfaction: Employees are considered as the greatest assets of the businesses as they help in the achievement of the goals and objectives of the companies. For this reason, it is considered as one of the major matrices for measuring the organizational success (Nørreklit et al. 2012).

Super Cheap

Benefits: The main benefit is that RTXM will get their required products in a large range from Super Cheap for the purpose of their business expansion plan. Most importantly, this supplier is offering these products to RTXM on a very low price than its competitors. Apart from this, RTXM will be getting these products delivered in a short time. All these aspects will increase the profitability of RTXM that is helpful for their business expansion (Kiron et al. 2013).

Cost: It needs to be mentioned that Super Cheap is not an environmentally sustainable company, as they do not take any action against their anti-sustainable business activities. In addition, this supplier is also involved in the issues like child labor, low wages, health and safety issues and others. Thus, RTXM will lose their business goodwill by involving with this supplier (Fischer et al. 2012).

Green Fashion

Benefits: Green Fashion is well known for their sustainability activities. As per their sustainability agenda, this supplier extract resources on ethical basis and their product material is kind to the environment. In addition, the company promote work-life balance of the employees and provides inventive. By involving with this supplier, RTXM will get sustainable recognition among the customers that will increase the revenue and profitability of the company (Willard 2012).

Costs: By involving with Green Fashion, RTXM will not be able to get the required products in a large variety of range for the purpose of their expansion. In addition, RTXM will have to pay high price for the products from Green Fashion that can increase the overall cost of the company. Apart from all these, RTXM will not get the delivery of their products from the supplies in quick time. All these aspects can affect the profitability and expansion of the company.

From the above figure, it can be seen that there are four states in Life Cycle Analysis (LCA). Among these, two major stages are Inventory Analysis and Impact Analysis. From the combination of these stages, it can be seen that there are four areas that has either social or environmental impact. They are discussed below with suggestions for improvement:

Raw Materials Extraction: It needs to be mentioned that RTXM has to depend on the farmers for raw materials. Thus, this process has a social impact as it is the reasonability of the company to pay the fair amount to the farmers.

Use of Natural Resources: RTXM has to use various natural resources like water, land and others. Thus, it has an impact on the environment. It is recommended to RTXM that they needs to extract the exact amount of resources required for the production process (Tas 2013).

Waste Management: In the manufacturing process of RTXM, the presence of various wastes can be seen like the wastage of water, electricity, cotton and others. For this reason, it is required for RTXM to implement effective waste management strategy for the reduction of manufacturing wastes (Guerrero, Maas and Hogland 2013).

Manufacturing Process: The manufacturing process of RTXM has both environmental and social impact. Social impact is there as the wellbeing of the workers is involved in this. Thus, it is recommended to RTXM that the company needs to make timely and fair payment to their workers. In addition, RTXM is also required to develop effective environmentally sustainable strategies after taking into consideration the negative effects of their manufacturing process on the environment.

It needs to be mentioned that the business organizations or industries use specific techniques to increase the value of shares in long-term by considering the major stakeholders. For this reason, the garment industry of Singapore is selected to know the ways to increase the value of the shareholders. They are discussed below:

One major way to increase the value of the shareholders is to comply with the policies and regulations of environmental sustainability. In the recent years, environmental sustainability has attracted the attention of the customers. Thus, it can be done to increase the value of the shareholders (Verbeke and Tung 2013).
The company can also increase the value of the shareholders by increasing the revenue of the company by the selection of right types of customers. At the same time, the company needs to offer the customers different attractive products with better after sales services (Stout 2012).
The increase of the value of the shareholders also depends on the increase in gross profit with the selection of right suppliers and to maintain a good relationship with them.
The company can also increase the value of the shareholders by increasing the return on operating cost investments with the selection of right employees as it will help in the increase of productivity of the company (Armour and Gordon 2014).
Another major ways to increase the value of the shareholders is to lower the cost of capital of the companies with the optimization of assets.

References

Armour, J. and Gordon, J.N., 2014. Systemic harms and shareholder value. Journal of Legal Analysis, 6(1), pp.35-85.

Bititci, U., Garengo, P., Dörfler, V. and Nudurupati, S., 2012. Performance measurement: challenges for tomorrow. International journal of management reviews, 14(3), pp.305-327.

Cabeza, L.F., Rincón, L., Vilariño, V., Pérez, G. and Castell, A., 2014. Life cycle assessment (LCA) and life cycle energy analysis (LCEA) of buildings and the building sector: A review. Renewable and sustainable energy reviews, 29, pp.394-416.

Fischer, J., Dyball, R., Fazey, I., Gross, C., Dovers, S., Ehrlich, P.R., Brulle, R.J., Christensen, C. and Borden, R.J., 2012. Human behavior and sustainability. Frontiers in Ecology and the Environment, 10(3), pp.153-160.

Guerrero, L.A., Maas, G. and Hogland, W., 2013. Solid waste management challenges for cities in developing countries. Waste management, 33(1), pp.220-232.

Kiron, D., Kruschwitz, N., Reeves, M. and Goh, E., 2013. The benefits of sustainability-driven innovation. MIT Sloan Management Review, 54(2), p.69.

Nørreklit, H., Nørreklit, L., Mitchell, F. and Bjørnenak, T., 2012. The rise of the balanced scorecard! Relevance regained?. Journal of Accounting & Organizational Change, 8(4), pp.490-510.

Stout, L.A., 2012. The shareholder value myth: How putting shareholders first harms investors, corporations, and the public. Berrett-Koehler Publishers.

Tas, E., 2013. Integrated water resources management. Aerul si Apa. Componente ale Mediului, p.217.

Taylor, J. and Baines, C., 2012. Performance management in UK universities: implementing the Balanced Scorecard. Journal of Higher Education Policy and Management, 34(2), pp.111-124.

Verbeke, A. and Tung, V., 2013. The future of stakeholder management theory: A temporal perspective. Journal of Business Ethics, 112(3), pp.529-543.

Willard, B., 2012. The new sustainability advantage: seven business case benefits of a triple bottom line. New Society Publishers.

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