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SHL F297 2015

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James Cullen

on 16 October 2015

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Transcript of SHL F297 2015

Acid Test
George
Smith & Haddon Ltd
Current Ratio
George
Financial Ratios
Liquidity
Profitability
Financial Efficiency
Shareholder
Gearing
Gearing
Interest Cover
Dividend per share
Dividend Cover
Price Earning Ratio
Creditor Days
Debtor days
Gross Profit Margin
Stock Turnover
Asset Turnover
Net Profit Margin
Return On Net Assets
Return On Capital Employed
Drew
Steeds
Miller
Miller
Tindale
Allen
Anstey
Anstey
Orr
Orr
Steeds
Hunkin
Current assets
Current Liabilities
17039
10660
2013
2012
15662
9206
Accounting Norm = 1.5
Current assets -stock
Current Liabilities
Gross profit
Sales
X100
Sales
X100
Operating profit
Net Assets
PBIT
Capital Employed
Sales Revenue
Net Assets
Debtors
Sales Revenue
x365
Creditors
cost of sales
Total Dividend
Number of shares issued
Market Share Price
Earnings per share
Interest Payable
X365
Tindale
Toby
Euan and Ilya
Nathan
James
Min
Edwards
Edwards
Sellers
Sellers
Parker
Emma
Shing
Jessie
Celine
Amy
Conner
Roman
Shing
Amy
Parker
Ross
Josie and Bert
Hilary
Matt and Helena
Patrick
Factors To Consider When Analysing Financial Ratios
Accounting Expectations
Industry Average - Benchmarking
Historical Data - Trends, patterns
The Book of Technique
Analysis - link terminology to make a succinct argument as how your content point impacts upon APSL. In both of these videos there is a chain (steps) of points brought together to justify an argument. Be sure to note the detail E.g The better school brings about an engineering job not just a better job. It seems a small point but detail and terminology is so important when achieving L3 (Analysis).
as a result of …
because …
due to the fact that …
furthermore, since …
while …
in addition to …
the result was …
this is why …
thus …
which meant that …
what this shows us is …
yet, while the …
which allowed for …
which resulted in the …

Below are phrases or words that allow to make the connections required.
L4
Evaluation
Heaven
Whilst trawling round the shops it became clear that explaining the advantages and disadvantages of certain types of coat was relatively straightforward (our analysis). For example if we look at a raincoat we can see that it will keep us dry and is fairly lightweight although it may not keep us warm on the coldest days. A duffle coat on the other hand will be warm and durable but may be heavy to carry when not being worn.

What is more difficult is making our final choice (evaluation-making a judgement).

Assuming we have a limited budget and can choose only one coat we need to make a choice and be able to justify it. We may argue that a duffle coat is our best option and that keeping warm is important to us. Can we improve our justification though by saying why keeping warm is more important than keeping dry? (relative importance and significance of points).

For a really good quality judgement we have to take into account our specific circumstances. Do I feel the cold? Do I need it for work or leisure? Do I need it to get to the end of this cold snap or to last 3 or 4 years (short run/long run)? The more applied our judgement is the better our chances of making a good choice.

When we consider evaluation in this light it is clear that it is not some new skill we need to learn but something we do all the time – often without realising it. What pupils need to do is get used to putting this process down in writing.
Below is a great explanation of evaluation. In short it's a reasoned judgement which could take the form of a recommendation. F297 and F293 are both strategic papers as a result you must write from a senior management point of view.
Evaluative Writing

Involves:

• Comparing - finding points of similarity.

• Contrasting – finding points of difference.


• Evaluating significance of similarities and differences. Do they
matter? Do they have important implications for which model should
be used? How did you decide what was significant?

• Making a judgement. Give reasons for your opinion, based on the
evidence.
Advise questions require you to make a justified judgement or recommendation.
Justification requires you to use evidence to back up your view. So in this question quote Terry's age, the relevant min wage and how much he will be paid under the new proposals.
Reasons for V's reasons against.
your recommendation
Assets life
Level of usage will influence assets life.
Technological development.
Demand for product
Net book value
The value of the asset minus the accumulated depreciation to give a current value of the asset.

Residual value
Value of the assets at the end of its useful life.
Historic cost
The initial cost of the asset - What was paid for the asset at the time of purchase.
Depreciation Key Terms
The Porter's Five Forces tool is a simple but powerful tool for understanding where power lies in a business situation. This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you're considering moving into.
With a clear understanding of where power lies, you can take fair advantage of a situation of strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an important part of your planning toolkit.
Conventionally, the tool is used to identify whether new products, services or businesses have the potential to be profitable. However it can be very illuminating when used to understand the balance of power in other situations.
Five Forces Analysis assumes that there are five important forces that determine competitive power in a business situation. These are:
Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are.
Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you.
Competitive Rivalry: What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength.
Threat of Substitution: This is affected by the ability of your customers to find a different way of doing what you do – for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power.
Threat of New Entry: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it.
Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you.
There are few barriers to entry in the market that APSL operates in, due to the nature of this market, however moving into more of a high quality niche market will have an influence on how easy it is for new businesses to compete against APSL.
One barrier to entry would be the finance needed to purchase the moulding technology that is used, although this technology itself is easy to access ‘The moulding technology used by APSL is not difficult to acquire’ (line 18).
Another barrier to entry is existing competition, if there are large amounts of competition in a market then it will make entry for a new business harder, as they will be trying to take market share from these businesses, also many customers will be loyal to an existing business and be reluctant to change. However APSL operate in a niche market so it is unlikely that there will be high amounts of competition.


Barriers to entry

APSL have the possibility to invest in flaxiboard, if they do this then they will get an edge over their competition as flaxiboard is not offered by many other competitors.
It is unknown how willing the Dutch company are to supply other firms with flaxiboard, meaning that the protection of flaxiboard is not within APSL’s control.
There is very little in the way of technology protection for APSL, the moulding technology used by APSL is easy to acquire and only requires a suitable amount of capital. There is no way that APSL can protect this technology.


Technology protection

APSL are considering investing into a heat extractor machine.
Although this presents a high initial capital investment, over time, it will reduce APSL’s energy costs.
By doing this, APSL’s variable costs will be reduced, allowing them to drop their prices whilst maintaining their profit margin.
A reduction in APSL’s prices could lead to an increase in demand (depending on the price elasticity of their products)
This will make it harder for new entrants as they will be unable to match these prices.

Cost advantages

Due to the nature of the market, orders from customers are small and far between.
This means that APSL and its competitors will not benefit from economies of scale to a large extent.
This makes it much easier for new entrants as they will be able to compete directly with established businesses almost immediately.

Economies of scale

APSL reaps the benefits by specialising in low volume, low lead time high quality parts (LINE 21)
APSL, now supplies it’s caravan business with “rear moulding which is delivered with its lights, maneuvering handles and other parts already fitted” (line 26). This is a feature that other competitors may not be able to offer, giving APSL the edge over existing and new competitors.
Certain factors that new entrants will not be able to acquire will allow APSL to have an advantage when It comes to selling products; characteristics such as innovation and creativity are prime example. These can influence the businesses ability to keep costs down, market their product in the most productive way, how to communicate with suppliers etc… New entrants will only acquire this status with time.

Specialist knowledge

APSL is described as a ‘Transitory Monopolistic company’ .
This alludes to the concept that ASPL are operating in a niche market; therefore with only limited amounts of companies competing with them directly.
ASPL will be able to exercise their stature in the market as a consequence of this, making it harder for other new or diversifying firms to enter the market. One example is the experience ASPL possess after starting up shop in 1976; this industry of thermo-moulding plastics is relatively new.
If the potential competitor is able to gather capital then entering the market may not be an issue; survival will. In the niche market customers will be fiercely loyal and for a new firm to earn consumers it will be hard.
“Gaining the moulding technology used by APSL is not difficult to acquire, it essentially rests on access to capital.”


Time and cost of entering a new market

Threats of new entrants

Due to the nature of the market, orders from customers are small and far between.
This means that APSL and its competitors will not benefit from economies of scale to a large extent.
This makes it much easier for new entrants as they will be able to compete directly with established businesses almost immediately.

Economies of scale


+
-
+
+
+
+
+
Introduction to Porter's 5 Forces
Porter's 5 Forces
Definition; the ability of customers to find an alternative method or provider of the same product/service

example, supply a unique software security program, people may substitute by doing the process manually or using a cheaper alternative. If this is easy and substitution is viable, then this weakens your power.

Threat of Substitution

Porters 5 Forces

Threat of Substitutes

Increases threat of Substitution

Flaxiboard;
Cannot be shaped easily, reducing product range.
Lead time could cause customer disloyalty

Price;
Higher price of FlaxiBoard products will cause reduction in production economy of scale of all other goods.
Changing exchange rates.. Whether making raw materials cheaper/ more expensive or alternatively the end product

Convenience;
Locality is key, thus a long distance customer will be attracted to closer competitors (will be able to visit to see quality. However could be prevented by sending samples)

APSL- Case Study

Reduces threat of substitution

“Transitory Monopolist”;
No other alternatives of the same product
Due to providing Flaxiboard products

Bespoke Products;
All products will be very much inelastic
Flaxiboard products satisfy the niche market.

Founded in 1976;
“Long established customers”,
Moulds are kept for 10 years thus customers less likely to turn to alternative methods.

APSL- Case Study


Definition; an analytical framework for assessing business competitiveness strategies in a particular market.

Porter's 5 Forces

ARR- Energy recovery machine. 15 year lifespan - £30,000 inflows PA. Initial installation cost - £10,000 Running costs of £5,000 PA Capital investment -£250,000
15X £30,000 = £450,000 - (£260,000+£75,000) = £115,000
115,000/15 = £7,666 PA /260,000 X 100 = 2.94%
V's a bank account at 3 % compound - result in £335,979 = Y1 £250,000 X 1.03 = 257,500 Y2 257,500 X 1.03 = 265,225 Y3 265,225 X 1.03 = 273,181.75
MADE UP!!!!
Payback - check with a independent source whether 4% is accurate.
£600,000 = energy costs per year - see laptop.
4% of £600,000 X 0.04 = £24,000
Energy cost go up by 24% from July of 2013 to July 2014. £24,000 x 1.24 = £29,760 = rounded to £30,000.
£30,000/£250,000 x 100 = 12% PA
£250,000/£30,000 = 8.33 years Payback period.
Time = Risk = longer the time the higher the risk.
The Pay Back
Time = Risk
Accounting Rate of Return
These calculations clearly show that flaxiboard has a detrimental impact upon the productivity of APSL. Although not a direct issue related to labour the material does curtail the volume of products an employee is able to produce in a certain period of time. The consequence of which is an increase in variable costs per product and therefore a reduction in contribution per unit, as a result APSL's break-even point is increased. This is particularly a problem considering the small volumes APSL produce. Upon this the considerable increase in waste will push fixed costs up and will further their issues regarding waste disposal (Mr Gilman's letter)
However these increased costs could be absorbed as APSL would be able to charge a higher price. Partly due to the superior credentials of Flaxiboard that include a significantly reduced environmental impact as well as being light weight. The later benefit is important to customers such as Albion Aerospace.
Applied Analysis
Long term Liabilities
Capital Employed
Competitors
F297 2015
64.0%
-9.3%
62%
-3.4%
17.4%
2575%
8.8%
15.8%
-1.2%
53.8%
17.2%
17.4%
17.2 %
39.8%
39.8%
39.8%
5.3%
37.6%
1622.9%
395.5%
82.5%
3516%
3486.1%
3529%
140.2 %
X100
2012

36599
8779
= £4.17
2013

51167
10285
= £4.97
2012- 15,662
9206
= 1.70
5454545
646464
= 6.6
2013-
17,039
10,660
= 1.59
2012-

15,662 - 6942
9206
= 0.94
2013-
17,039 - 6704

10660
= 0.96
2012-
1722
(15,662 + 4045) - 9206 = 10501
Net Profit
Dividend
Times
=
Gross profit margin:
2012: 20341/36599 X100 =55.57%
2013: 28438/51167 X100 =55.57%
Net Profit margin
2012: 176/36599 X100= 0.48%
2013: 4407/51167 X100 = 8.61%

1. 1722/10501 X100 = 16.4%
2. 17039-6704/10660= 0.97
3.£10501
4.Liquidity
5.Cashflow, Working Capital
6.83/627=0.13
7.Net Profit
8. 3012/51167X100=5.9% and 0.22%
B. Admin cost have only risen by 5% this is well below the %increase in revenue and therefore FC's have not risen in line with revenue leading to an increase in the net profit margin.
9.55.6% bulk buying economies of scale.

Financial Ratio Test 1
Show your working.

1. Calculate the Gearing for 2012. (1)
2. Calculate the Acid test for 2013. (1)
3. What is the capital employed in 2012? (1)
4. What type of ratio is the current ratio? (1)
5. What pieces of business terminology are associated with these types of Ratios? (1)
6. Calculate the dividend cover for 2012 and explain how this gives us an insight into a certain stakeholder group are treated. (3)
7. What type of profit is related to the phrase "the bottom line". (1)
8. Calculate the net profit margin for the two years and then explain these results in less than three lines. (4)
9. Calculate and explain the gross profit margin results. (Hint what have SHL not taken advantage of?) (2)


Strategy
Objectives
Recommendations as to how to achieve Objectives
Stakeholder
Factors in the achievement of objectives
Define
Exports to be 10% of total revenue by 2016
Sales Revenue 2016 £70M
Overseas
Areas to focus on: America - home of the preppy look. Meets SHL fashions. Americans enjoy all things British.No language barrier.

HarveyDirect
Maintaining or increasing market share in a growing market.
Aggressive
Franchise
Gearing
Risk
Purchase MARDIDI
Horizontal Integration
Which is most influential in achieving the Objectives.
Employees
Management
Suppliers
Interest rates
Sustained Unemployment
Economic growth
Tax
Political
Economic
Social
Technological
Legal
Environmental
E
P
E
S
T
L
http://www.ibisworld.com/industry/china/apparel-manufacturing.html
Chinese clothing manufacturing MR
Mardidi
For
Against
Stakeholder views
Financial vs Non Financial Rewards
Tim and Ian can use Porter's 5 forces to gather an understanding of how the business will perform in a number different business scenarios. It can also help them understand how different factors influence the balance of power between them and key stakeholders (Suppliers and Customers). If a competitor collapsed or there was a new entrant into the market it would be important to revise their strategies.
A scenario where Porter's would be particularly useful would be in constructing a cost benefit analysis of the possible acquisition of "Mardidi". A Porter's 5 forces could be constructed for "Mardidi" itself and revises version for SHL once the acquisition has taken place.
A medium to long plan for how to achieve an objective. This will be made up of tactics which are shorter activities that are implemented on the "shopfloor". A strategy will highlight the resources required to implement it successfully.
Harvey direct to achieve 40% of sales by 2016
Reduce risk and pursue aggressive growth

Name the two themes that can be identified in the 4 objectives.
Do they meet the SMART criteria?
Why do organizations use objectives?
To what extent are SHL's objectives appropriate? 18 Marks
What makes an objective appropriate?
Growth is clearly the overarching objective of the organization.
The organization appears to be risk averse.
Will these objectives aid SHL in being successful?
Do they work in harmony with one another?
IS one more important than the other?
On line of Revenue £28m by 2016
Require an increase of 6% PA
£2.6m - £7m by 2016
12 % growth PA
Significantly lower growth than the 40% growth between 2012-2013
Concessions - selling withing department stores.
Previously unavailable as a distribution channel. Only established and trusted brands will be able to sell within these stores. This is an important step in SHL's growth. Once established in these stores growth may reduce in terms of annual growth.
currently 22% as £11.4 of £51,1670,000m
Independent Retailer.
#Padstow
Taking business from competitors

Operating in new markets
Increase prices.
Revenue up to £70m by 2016
Restraints- what factors may prevent SHL from achieving this objective?
SHL operate within a niche
Local - national - hence 900% growth in retailer concession sales
Will an increase in Harvey direct say cannibalize growth in other distribution channels. Considering the market is nearing saturation this is likely
How realistic are these objectives?
Is the market already too saturated to allow the growth rates that are required to achieve these objectives?
Does the economic uncertainty in the euro zone make increasing exports unlikely?
Could pursing the reduction risk prevent SHL from gaining the maximum amount of market share before the market becomes entirely saturated. Is this a moment in time, a one off opportunity to grow and therefore it would be worth investing heavily in marketing and more shops whilst growth is viable. Easier to defend market share rather increase it.
Gearing - low gearing means the organization could borrow to fund this expansion.
Do they have the resources to fund expansion without borrowing? - retained profited therefore would expansion increase risk as it could be internally funded?
Questions or statements to consider for the 18 mark question.
13B
Strategies/Tactics to achieve objectives.
Ob 1
Investment in Mardidi suggests that the organization is doing well. This will give employees confidence and suggest greater job security and therefore lead to improved customer service which will lead to customer retention as a consequence increased sales.
Ob 2
Mardidi = increase exports?
Ob 3
Improve website - functionality (simplicity/ease of use), aesthetics. A more user friendly website will increase revenue as customers prefer a quick and easy shopping experience.
Ob 4
Franchises - push hard to open up many more stores.
Reduce discounting - Zara - fewer items sold at a discount = more items sold at full price = higher revenue.
Diversify product range to meet european customer needs. This will be based upon MR from the continent.
Social media presence. More and more of SHL's target market use social media and therefore this is a relevant place to have a presence. Could directly contribute to Harvey direct but will certainly contribute to the revenue target of £70m by 2016.
Increase price - reduce to the number products sold at a discount - increasing the accuracy of stock orders. Ensuring only required stock is ordered and therefore reducing the need to discount stock.
Marketing - PR - rugby players - relate to target market. Those who enjoy rugby tend to dress in a style that is relevant to SHL. Increased brand awareness.

Online only sale
Codes given out at county shows to encourage online spending.
These methods to encourage spending online could be counter productive as they may hinder the organization ability to meet the objective of £70m revenue by 2016 as they could simply take sales away from other distribution channels.
Improve website - aesthetics, user friendliness, simple and quick purchasing. Effective search tools. Clear sizing graphs. Clear, hassle free and free returns policy (Provide bag and sticker with free postage).
Australia/New Zealand/SA - language, culture and Rugby link.
MR into european customer needs. Develop products with overseas customers in mind. Could use feedback from overseas franchisees. Expensive and perhaps unnecessary option.
Europe - Exchange rate, Loyalty to domestic brands, stagnant EU economy, Language barrier.
Intro - Define key terms - dismiss certain factors.
Set parameters to large vague terms.
Set yardstick - how do you plan to evaluate? Cost, long term vs short term.
Paragraphs - detailed, this leads to this. Steps of implication.
Make a judgement - use your yardstick explain how your point answers the question.
Conclusion (Not a summary)- use your points to but don't summarise. Do not bring in new points. If it is not discussed in the body then it can not be discussed in the conclusion. Make a categoric judgement. Prioritize. It depends upon..... Finance available, long term vs short term.

For 1
V's
For 2

= For 2
For 2 Vs Against 1
End of paragraph or mini paragraph after for points
Against 1
V's
Against 2

=Against 1 wins
Conclusion
Because the market is nearing saturation it is vital that SHL take this opportunity to grow as it will benefit them significantly in the long term.
For2 is the WINNER = recommendation
RTQ - answer the question posed and not the one you want to be.

Intro - Define key terms - what does appropriate mean in this context? Define objectives.
Highlight factors that need to be considered.
list factors and select a few that are most relevant.
Yardstick - what are we using to measure the outcome? Revenue? Cost? Profit? Risk? Market share? Short term vs long term?

Point - explain - consequences - steps of implication. Use data and explain why this data helps answer the point. Be explicit in how your point answers the question. MAKE A JUDGEMENT OR prioritize YOUR POINT. LEVEL FOUR COMMENT AT THE END OF EACH PARAGRAPH.
Fewer points more detail.
Conclusion
Not a summary - dont repeat points using different
Stakeholders:
Management
Suppliers
Pressure Groups
Government
Employees
Customers
Shareholders
Local Community
Lenders/Banks
Competitors

Questions 7-10
Q 10
Revenue £70m by 2016
10% of revenue from overseas markets by 2016
40% of revenue to come from Harveydirect by 2016
Pursue aggressive growth and reduce risk
Name the three most influential stakeholders for each four of the objectives.
Have to ensure the supply chain is efficient enough to get overseas quickly with minimal costs
Makes sure they are providing to a standard, coherent to country specific clothing regulations

Suppliers

Have an extent of control over exchange rates.
How the EU, America, Australia, etc- how the relations are between them, how they interact

Government

Make sure that it reaches it's goal, independently from the domestic market.
Specifically from marketing department, they're in charge of the growth of the brand.

Managers

By Euan and probably not Toby

How stakeholders effect objectives-Exports to grow by 10% by 2016

Q10 - Evaluate which stakeholder group is likely to be the most influential in the achievement of SHL's 2016 objectives. (18)
So if SHL are going to increase revenue by selling more products, then suppliers will need to make more for SHL.
There will need to be a good relationship between SHL and suppliers, so there is trust between them, and SHL won't have to waste time looking for new suppliers.
Good relationships with suppliers, may make them more efficient and reliable. It may also mean they can make last minute orders or cancel orders and suppliers won't get annoyed.
Good relationship with suppliers would mean that they supply SHL with their very best quality.

Suppliers

Given that SHL is a lowly geared organisation they will need more funding from banks to achieve this objective
Although SHL already borrows a lot from
If they have more finance from the banks, they will be able to expand, improve marketing and improve efficiency.
Plus they already have £10660 that they owe to banks, etc.

Banks/Lenders

Will be heavily involved in increasing efficiency within the work force and helping to motivate the employees to keep working towards this goal.
Will have to be instrumental in trying to get capacity utilisation as close to 100% as possible.
Have to be organised and ready to adapt, keep shops well stocked up and keep new promotions coming in.

Managers

Bertie and Rossie

Stakeholders regarding SHL' revenue reaching £70m by 2016

Josie, Pat and Matt

Objective: 10% of revenue overseas

Mr Steal your girl's market

Competition will be different over seas.

This means that SHL will have to consider the different effect they will have on the US market compared to that in the UK.

SHL will have to stay competitive in order to keep up with Mardidi and achieve the objective of 10% of their revenue.

Competitors

Communication between SHL's base in the UK and the new management in the US is very important.

This is because the market will have changed and the staff for Mardidi should have clear objectives.

This requires an expert management team in the US, especially if the training of new staff is needed.

Management

Customers are a key stakeholder group in relation to SHL achieving this.

This is due to the fact that the customers are essential to revenue, as it is their purchases that make revenue.

Overseas customers are likely to have different tastes and styles to UK customers, so will need to be catered for accordingly. If they aren't, any overseas venture is likely to fail and their objective will not be reachable.

Customers

More people are starting to use the Internet to buy their clothes.
Target market of SHL is increasingly using the Internet. More are using social media and therefore an online presence is key. As they are not as tech savvy as younger market segments it's vital the website is easy to use.
Customers need to be aware of the site so advertisement of the website is key.
Customer spending in e-commerce has increased with advancements in technology, meaning as technology improves further SHL's customers will use their website more often and potentially spend more disposable income on the website.
Shopping online can be more convenient for customers, this means customers are more likely to use the website to buy SHL' s clothes therefor helping SHL reach their objective of 40% of revenue coming for Harvey direct by 2016.

Customers

Utilisation of special skills in e-commerce -
If necessary bring in expertise.
Website design - improving or streamlining.
Use of social media for advertisement- to bring about a good online presence

Management

Ensuring they have enough stock to supply demand at peak periods.
Maintaining small lead time to meet spikes in demand.

Suppliers

By Helena and Hillary

40% of revenue to come from Harvey direct by 2016


Work sheet 11:10 - 11:20

Level four... What is it and how to achieve it the abridged version. 1120-1135

Into groups of three: 11:35 - 1145
Tom, Georgia, Drew
Adam, Will, Allen
George, Jack, Alex

Present in groups of three - 1145-1157

Essay discussion - based around structure and intro.
Today's lesson: Fast paced - lots to do! - If in doubt ask.
Structure - Go through each stakeholder explaining how they contribute to the three objectives
or
Go through each objective explaining how different stakeholders contribute.
Intro
define stakeholders -
State the 2016 objectives
State which stakeholders are going to be relevant.
Yardstick - how are going to measure the influence of a stakeholder? Revenue as its relevant to all three objectives?
l4 at the end of each paragraph.
Market research - expensive
Changes in different countries
Different cultures and trends
Existing Customer loyalty

Customers

Recruitment of linguists.- language barrier
Different time zones- jet lag/ conferences difficult
Reduce productivity because of travel time.
Communication problems.

Management

Overseas sales to be 10% of revenue by 2016.

Long term- management- because they need to keep adjusting policies to keep moving towards goal
Short term: customers- they contribute directly to revenue, but easier to build on
with good management

Most important

They will have to expand supply chain.
They will need to keep the lead time short
Suppliers will have to be reliable
Suppliers may not be able to keep up with increased demand
Be able to build better links with suppliers- long term contracts

Suppliers

Efficient supply chain- contract with delivery service e.g.dhl to decrease postage, customers more likely to buy online due to cheap postage
Supplier motivation from Harveydirect

Suppliers

Customers more likely to purchase clothes if website is easy to use
By buying the products through the online store
Advertisements in SHL stores about website

Customers

Will have to implement objectives- recruitment drive for e-commerce experts, increase the brand awareness of Harveydirect by search engine optimisation
Simplistic website
Motivation- e.g. Improvements to website

Managers

Harveydirect to Make up 40% of Revenue by 2016

Managers
Because if the products meet the customers needs then they will be more likely purchase
Easy to use website- increases the chances of sales

Which is most important?

James
Forecasting - Time Series Analysis
(Moving Average)
How can Forecasting be helpful to SHL?
What is Forecasting?
Predicting future trends through the extrapolation of historical data.
Disadvantages of forecasting?
To set objectives - Ensure realistic objectives are set and therefore motivate the workforce. Revenue - £70m by 2016

The link between economic indicators such as GDP growth and its impact upon demand in the fashion due to a change in consumer confidence could be achieved.

Stock issues - Forecasting the demand for certain items in certain sizes will aid SHL's stock management. The consequence of this will be fewer items being sold at discount and no items running out and therefore revenue being foregone.
The consequences of poor forecasting can be significant. Consequences could be an increase in costs as a result of carrying too much stock, this could then lead to extensive discounting and therefore a reduction in profit margins.
Forecasts are at risk from exogenous factors undermining the validity - Financial Crisis - 9/11
Vital that the data used is accurate and has been collected using a respected methodology.
Year
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

120
110
115
130
112
121
133
121
127
145
133
138
154
144
151
Sales
3 Period Total
Moving Average/Trend
Cyclical Variation
345
355
345/3 = 115
120+110+115
Plot on the graph paper
The difference between the raw data and the moving average
Known as raw data
S
a
l
e
s

Time
Setting Objectives

Business Ethics

Cultural & Social Influences

Demand and Supply

Sampling

Market Research

Cash Flow

Types of Businesses

Sources of Finance

By taking into account its stakeholders a firm;

May attract more investors
Find it easier to recruit staff
May find the government is more attractive

Conflict could arise between stakeholders because employers may want to expand but partners don’t



Stakeholders

Provides;
A greater sense of direction for the business
A possible motivational force for all employees
An aid to controlling existing and future operations in the business

Tactical- the day-to-day (short-term) objectives needed to ensure the strategic objectives are achieved
Strategic- how a business plans to achieve its aims or goals


Setting Objectives

Authority- the right to make decisions and carry out tasks
Span of Control- the number of people a superior is responsible for
Chain of Command- the relationship between different levels of authority in the business
Hierarchy- shows the line of management in the business and who has specific responsibilities
Delegation- authority to carry out actions passed from superior to subordinate
Empowerment- giving responsibilities to people at all levels of the business to make decisions

Business Organisations

Distribution
After-sales service
Handling consumer enquiries
Offering advice to consumers
Dealing with customer complaints
Publicity and public relations

Customer Service

Acquiring resources
Planning output- labour, capital, land
Monitoring costs
Projections of future output
Efficiency
Production methods
Batch
Flow
Job
Cell


Production/Operations

Cash flow (income/revenue, expenditure)
Preparing accounts
Raising finance (shares, loans)
Links with all other functional areas

Finance and Accounts

New product development
Product improvements
Competitive advantage
Value added- aesthetics
Product testing
Efficiency gains
Cost savings

Research and Development (R&D)

Market research
Promotion strategies
Pricing strategies
Sales strategies
The sales team
Product- advice on new products

Sales and Marketing

The business department

Business Functions and Organisations

Marketing

With customers;
Database used
E-Mail

With suppliers;
EPOS (Electronic Point Of Sale) is used for stock control
EDI (Electronic Data Interchange) is used to share information

Communication

Electronic payment have enabled firms to accept secure payment. Use of the internet to sell has become a massive growth over the last decade.
Benefits
Sell wide range of products 24/7
Reach a wide audience
Reduced costs- expensive shops not required
Lower costs: lower prices
Suffer from
Security risks
Lack of trust from consumers
Only sell to those with internet access
Have to wait for the delivery of products

Selling

Can work 24 hours a-day if necessary
Can do boring jobs
Don’t need regular breaks
Work quicker
Consistently more accurate
Can work in dangerous situations
- Bomb disposal


Robotics

Automated factories mean that more can be produced in less time
Means that there is less waste
Business is more competitive


CAD/CAM and CIM

Human Resources
Production
Selling
Communication
Marketing

Types of technology;
CAD/CAM and CIM Robotics



Technology Impacting Business

Technological Change

Ethics are a set of values and beliefs which influence how individuals, groups and society behave
An organisation may make a decision that is believed to be morally right, rather than one that suits the needs of some of its stakeholders
Business ethics are concerned with how such values and beliefs operate in business
Ethics isn’t the same as law though the law should reflect the ethical views of that society.

Moral/Ethical Issues

Households
The structure of households
Increases in people living alone
Divorce rates

Ethnic Groups
Local areas aimed at different groups
Age structure of different groups
Immigration will affect the size of ethnic groups

Other Factors

Movement within the country affects business
There has been movement from urban areas toward rural areas
Younger people tend to live in urban areas
Younger people move around more than older people

Geography and Business

Number of firms
Freedom of entry to industry
Nature of product
Nature of demand curve

There are four main market structures
Perfect competition
Monopoly
Oligopoly
Monopolistic

Classifying Markets

Direct Competition is head-to-head rivalry between producers/sellers of highly similar products, e.g. key cutters.
Indirect Competition exists between producers/sellers who are competing for the same value of consumer spending, e.g. book shop/CD shop.

Some markets are highly competitive, while some are a bit less so. A good example of a competitive market which has many buyers and sellers is that of internet booksellers.

Competition

Businesses compete in two major areas;
Price
Differentiation
Price competition sometimes involves trying to undercut rivals in order to provide a more attractive package to customers.
However in other circumstances, rivals may seek to charge relatively high prices for premium products when they are competing through differentiation.
Differentiation involves providing a ‘different’ and, in some ways, ‘superior’ product to rivals. Businesses differentiate their products in all sorts of ways to develop a competitive edge.


Competition

Competition

If you have less than consumers are willing and able to buy then there is a shortage.

If you have more than consumers are willing and able to buy then there is an excess or surplus.


Market Demand and Supply

Decision on what to produce are normally made through the market place.
Most businesses will only produce a product if there are enough people to buy it.
The market has two groups of people;
- Buyers
- Sellers
In Business we use the concepts of demand and supply to explain the relationship between buyers and sellers

Demand and Supply

Consumer non-durable – doesn’t last long, can only be used once
Consumer durable – can be used more than once
Industrial goods – bought by other companies and used in industry
Services – purchases that do not involve buying a tangible item

What is Produced?

Pay for raw materials
Transform them into finished goods
Sell them
Customers will pay more for the finished product than originally paid for the raw materials used to make it

The difference between the cost of the raw material and the price paid for the finished product is the value added
Value added leaves a surplus
The business uses this to pay its other costs
Any money left over is profit

Adding Value

Meet the needs of stakeholders
Buy inputs- raw materials, labour, machinery, equipment and land
Produce outputs- goods and services
Focus on efficient use of resources
Generate profit/surplus

Customers- need to know that they are going to have the product they're going to have the product they are interested in
Government- employment- affect unemployment figures

What they do

What Businesses Do

Advantages and disadvantages

To predict changes in the market
What customers will do if the company raises prices
The effect of introducing a new model
Likely impact of increased competition
Possible future impact on market share
To explore future customer reaction
Explore customers’ reaction to new ideas
Find the target price
Establish the most appropriate outlets
Discover the best methods of promoting a new product

Market Research

Recruitment

Legal Identities

Listed companies find it easier to raise finance- shares
Lower risk investment- lower interest rate
More attractive credit facilities
People believe PLC to be bigger and more effective

Advantages of a PLC

Shares of PLC can be floated and traded on the stock market
Any member of the public can become an owner
‘PLC’ must appear after company name
Must have a minimum share capital of £50000 upon starting the business

Public Ltd Co.

Shares cannot be bought and sold without agreement from other directors
Cannot be listed on the stock market
Maintain close control over running of business
No share capital
‘Ltd’ must be after company name

Private Ltd Co.

Why become a shareholder?
Investing in a company could result in you becoming the owner (if you own 51% or more)
Successful business  value of shares increase
Receive some of the profits
Each year the company announces the dividend payment
More shares = more dividends received
Shares grant owners voting rights
More shares- greater influence over the company

Prices of Shares
Depends on how much people want it
Greater the demand means higher the price

Private and Public Ltd Co.

Revision

Business Studies
An Introduction to Business

Internal Constraints
Lack of finance to meet the chosen objectives
Poor communication within the business
Conflict of interest between the departments
An industrial dispute within the workforce
External Constraints
Changes in the law that affect the operation of the business
The state of the economy
The behaviour of competitors
Opinions and behaviour of external stakeholders

Constraints on Objectives

Specific – important that everyone understands what the target is
Measurable – objective statement should contain a measurement to ensure that success or failure can ascertained
Agreed – agreement between departments makes it more likely objectives will be achieved
Realistic – it is important to be realistic when setting objectives in order to avoid employees from becoming demotivated
Time bound – A timetable specifying the period over which an objective is to be achieved. This aids measurement and tends to focus people

SMART

Decentralised structure; the decision making process is delegated and undertaken on a regional or product basis

Organisational Structures

Recruitment and retention (job descriptions, person specifications)
Dismissal
Redundancy
Motivation
Personal development and training
Health and safety and conditions at work
Liaison with trade unions (strikes etc.)

Human Resources

An ageing population as a problem;
Greater demand for goods
Greater demand for service
Working population has less disposable income
Inequality;
Structure of the company will change
Could lead to the work force possibly striking to demand equal right

Other Factors

More women than men in the UK
Men die earlier meaning there is a market for goods and services aimed at older women
Women entering the labour market means that they have more money than disposable income


Gender and Business

Net migration is the difference between the people coming in (immigration) and those leaving (emigration) the country.
Positive migration when there is more people coming in than going out
Negative migration when there is more people going out than coming in

Medium Term

Migration

Competition occurs when there are two or more rivals (competitors) in a particular market each trying to win market share from each other.


Medium Term

Competition

Advertising – successful advertising can increase demand
Price – high price/low quantity
Income – high income/more bought. However for some goods inferior goods less will bought if income goes up.
Price of other goods – demand for one good will increase if the price of another related good goes up
Seasonal factors – products demanded more/less in some seasons
Tastes/Fashions/Trends
Expectations of consumers

Medium Term

Factors Affecting Demand

An example
At my job I get £8000/month. I work 157 hours every month and so I work for £50.96 an hour.
I waste four hours going to the shop which means it costs me £203.84.
The opportunity costs in the this situation is; I could have made a new connection in the business and made the company more money.


Opportunity Costs

Primary Data; data gathered by field research (gathering original data for a specific purpose). Observation, experimentation, interviews, surveys
Secondary Data; data gathered by desk research (gathering information that has been collected for some other purpose).
Internal data; information gathered inside the organisation
Sales figures, previous survey results, customer data
External data; information gathered outside the organisation
Government statistics, competitors, market research organisations, the internet, trade publications, newspapers/magazines, libraries

Data

Random – where everyone in the population has an equal chance of being included in the survey
Quota – where the number and characteristics of people surveyed are deliberately matched to the actual population
Stratified – where the population is divided into smaller groups, which are the ones most likely to be interested in the product being researched
Cluster – where a particular group is included, hopefully reflecting the views of the whole population when the information about the whole population is incomplete
Systematic – where a set formula is used to select the people in the research
Convenience – where any non-scientific method is used to help the speed of response and to lower the cost

Medium Term

The Types of Sampling

Collective term to describe different ways of gathering information

To describe the market
Exploring trends
Comparing market performance
Establishing market share
Finding out who the customers are
To explain the market
Why the market share has fallen
Whether a price reduction worked
Whether customers prefer their products or competition
How good a promotion campaign was

Market Research

Demand – Establishing that there is a demand for a job. (Increase in the demand for a product, seasonal)
Nature – Write a job description- what you’ll have to do. Will also need to write job specification/person profile. Internal or external
Job Advertisement – Advertising the job either internally or externally. Includes a job specification and a person profile
Selection – Business will look through application/CV/letter. They will then make a short list. Interview panels, aptitude tests and psychometric tests.
Appointment – Must ensure that the selection process is mindful of legislations
Induction – Ensure successful applicants settle into the company environment and knows the ethos of the business

Stages of Recruitment

Legal Identities

PLC can raise capital form the general public
Private Limited Company is prohibited
Minimum capital requirement for PLC is £50000 nothing for Private Ltd Company
PLC must provide detailed accounts

Difference between private and public Ltd Co.

System of selling off debts to another company.
Companies exist that will purchase these debts from you. They will pay you a percentage of the outstanding debt but will keep all the bash that the debtor finally pays. Some companies never pay and these are called ‘bad debtors’

Medium Term

Factoring

Has been declining since the war
Demand will change if there are increased elderly with high retirement incomes
The labour market has increased
Government policies and spending affected


Measured by counting the number of deaths per 1000

Medium Term

The Death Rate

Social attitudes affect the rate
Increased births may increase the demand for baby goods
Affect future labour market
- More people looking for jobs


Measured using the number of live births

Medium Term

The Birth Rate

Population and Business
The UK has a population of over 60 million
The average growth for the UK is around 0.3% per year
Increased population can lead to;
Greater demand for goods and services
A larger pool of labour
Increased pressure on scare resources

POPULATION GROWTH
Birth rate Death rate Migration

Deals with the influence of population on business in terms of labour and demands for goods and services

Medium Term

Social Influences

Working capital restructuring
Increasing sales
Selling off stock at sale prices
Factoring
Leaseback
Overdrafts
Reducing credit periods
Buying less stock and operating just in time

Methods of improving Cash Flow

Too much stock
Poor late payers
Poor economic conditions
Seasonal demand

Causes of Cash Flow Problems

Movement of cash each in and out of the business

Cash Flow

Stocks are products that a firm has spent money making, but they have not yet sold. Firms can improve liquidity by running down their stock levels.

Advantage
Simple
Associated costs might fall too; storage
Inexpensive
No increase in external control from creditors

Disadvantage
Unreliable long term
Delays in delivery of your own products
Couldn’t take advantage of bulk purchasing power

Medium Term

Reducing Stock

Firms can raise their cash by selling fixed assets such as machinery or buildings which are no longer productive

Advantage
Inexpensive
Fast

Disadvantage
Have to have surplus assets to dispose of
Second-hand and scrap value low

Medium Term

Selling Assets

When a business raises finance by selling an asset and leasing it back

Advantage
Considerable amount of money can be raised

Disadvantage
When lease expires there’s no guarantee that it will be renewed

Medium Term

Sale and Leaseback

Ordinary- allow you to have voting rights and a share of the profits (dividend) but it is at a variable rate and the company does not have to pay a dividend every year. Ordinary share holders dividends are the last to be paid out of profit. They are also the last to be paid when the company is wound up.
Preference- Do not usually allow you to have voting rights but do give you a fixed share of the profit. It is paid before the ordinary shares dividend at a fixed rate so you are more likely to get it. Preference shares are sometimes cumulative.

Advantage
It can be simple
Dividends don’t have to be paid when profits are low
Improve motivation by workforce investing

Disadvantage
Can be complex, time consuming and initially expensive
Existing shareholders interests in the company can be diluted

Medium Term

Shares

Method of obtaining items for a stated period of time. At the end the items are returned

Advantage
If the equipment breaks down the leasing company must repair it at their own expense

Disadvantage
The business which leases something never actually owns it

Medium Term

Leasing

A system of obtaining items in return for a monthly payment over a given period of time. The items don’t become your property until the final payment

Advantage
A large sum of money doesn’t have to be paid all at once

Disadvantage
Pay more for it over time than if you paid outright

Short Term

Hire Purchase

Advantage
Inexpensive
Fast

Disadvantage
Can create problems when restocking

Taking longer to pay your creditors can be used to raise finance.

Short Term

Trade Credit

Frequently provided by banks, as well as central and local government in the form of grants.
They can be both secured and unsecured. Also can short, medium or long term.


Short Term

Loan

Advantage
Take more money than you have

Disadvantage
High interest rates
Risky to the bank
Difficult to plan ahead in the business
Company may deliver goods which aren’t paid for until 30 days after. Customer uses company as an overdraft

An arrangement with the bank where a business will be able to withdraw more money from its account than it actually has

Short Term

Overdraft

Complementary/Alternative

Cost of production - Raw materials
- Wages
- Bills/expenses
Price of good itself
Price of other good
Technology

Medium Term

Factors Affecting Supply

Advantage
Simple
Reliable method of looking after surplus cash

Disadvantage
Cash could be better employed within the company. A strong company would generate wealth faster by employing within its own business rather than investing it outside

Firms may have retained profits from previous years to build up bank savings or buy stocks and shares. They can use these to get liquidity

Medium Term

Re-invest Savings

Profits the owners have decided to plough back into the business

Advantage
Inexpensive
Not subject to eternal control
Good method of financing long and short term acquisitions due to low cost and retention of company structure

Disadvantage
Can leave the company cash poor shareholders

Medium Term

Retained Profit

Problems

Benefits

Quicker
Reduced costs
Improved quality
Increased productivity
Reduce waste

Technology and Business

No

Yes

Brings new skills
New cultures
Variety
More labour
More money

Is Immigration Good for Society and Economy

Demand for labour
Do

Nature of job
Not

Job advertisement
Judge as

Selection
Simon’s

Appointment
An

Induction
Idiot

Stages of Recruitment

Private Sector
make a profit

Public Sector
provide a service

Police
Education
Public Transport
Fire Brigade
NHS
Recreational Facilities

Public and Private Sector

Different sources of finance
Overdraft
Trade Credit
Hire Purchase
Leasing
Shares
Sale and Leaseback
Selling Assets
Reducing Stock
Retained Profit
Factoring
Re-invest savings
Other
- Government grants
Small firms Loan Guarantee Scheme
Regional Development Assistance
- Venture Capital
- Business Angels

Over ten years

Long Term

Three to ten years

Medium Term

Up to three years

Short Term

Threats

Opportunities

Weaknesses

Strengths

S W O T

SWOT Objectives

Negative

Positive

Jobs should be less boring- repetitive jobs can be done by a machine
Worker environments should be safer
Jobs require higher skills so pay may be higher

Technology

Retail. Where the goods are sold

Tertiary Sector

Manufacturing- factories where goods are made

Secondary Sector

Farming/mining. Raw materials

Primary Sector

Different Sectors

Where only one producer exists in the industry
Rarely exists as there’s always some form of substitute available
Monopoly exists when one firm dominates the market
Firms may be investigated for example of monopoly power when market share exceeds 25%

Pure
Monopoly

Perfect

Monopolistic

Oligopoly

Mono
poly

Duopoly

Monopoly

Pure
Monopoly

Perfect

Monopolistic

Oligopoly

Mono
poly

Duopoly

May be a large number of firms in the industry but the industry is dominated by a small number of very large producers. Concentration ratio- the proportion of the total market sales (share) held by the top firms.
A four firm concentration ratio of 75% means the top four firms account for 75% of all the sales in the industry.
Example- Music Industry
Potential for collusion
Behaviour of firms affected by what they believe their rivals might doo
Goods can be homogenous or highly differentiated
High barriers to entry
Non-price competition may be prevalent



Oligopoly

Pure
Monopoly

Perfect

Monopolistic

Oligopoly

Mono
poly

Duopoly

Large number of firms in the industry
May have some element of control over price due to the fact that they are able to differentiate their product in some way from their rivals- products are therefore close but not perfect, substitutes
Entry and exit from the industry is relatively easy- few barriers to entry and exit
Consumer and product knowledge imperfect
Example- Hairdressers




Monopolistic Competition

Pure
Monopoly

Perfect

Monopolistic

Oligopoly

Mono
poly

Duopoly

Large number of firms
Products are homogenous
Freedom of entry and exit into and out of the industry
Firms are price takers- have no control over the price they charge for their product
Each producer supplies a very small proportion of total industry output
Consumers and producers have perfect knowledge of the product and market
Example- Shares



Perfect Competition

Profit

Revenue

OUTPUT

Costs- fixed and variable

Process/Manufacture

Take inputs

What they do

Centralised structure; the decision making process is undertaken by the leader at the top of the hierarchy

Production Staff

HRM Staff

Finance Department

Marketing Department

Organisational Structures

Q1

Q2

P2

P1

D

Quantity

Price (£)

More suppliers will enter the market (money to be made)
Existing suppliers will want to increase their quantities (more profit)
Government may give subsidies to business in order to increase supply

The quantity that will be supplied at a particular price

Medium Term

Supply

Sample size the number chosen to be included in the research
Population the total number of people who could be included in a particular survey

Systematic

Convenience

Cluster

Stratified

Quota

Random

6 TYPES OF SAMPLING:

Asking a smaller representative group in the hope of finding out the opinions of a larger group

Medium Term

Sampling

Q3

Q2

Q1

P3

P2

P1

D

Quantity

Price (£)

The demand curve slopes down because
People will be able to afford fewer items at higher prices
The higher the price, the less people will buy generally

The quantity that people will be willing to buy a product at a particular price

Medium Term

Demand

Government

Lenders

Environment

Retailers

Suppliers

Local
Community

Customers

Owners

Employees

Who can they be?

An individual or group which is affected by the actions of a business.

Stakeholders

Mechanical or tall structure

Shop-floor
workers

Managers

Nine levels of hierarchy

Narrow span of control

Shop-floor
workers

Supervisors

Managers

Three levels of hierarchy

Wide span of control

Organistic or flat structure

Organisational Structures

counterfeiting - stealing intellectual property through the illegal production of "fake" goods.
-5
Accurate Forecasting will allow SHL to make appropriate orders in terms of the size and colour of garments. This will prevent SHL from having to undertake extensive discounting and therefore allow SHL's sales revenue to continue to grow at a rate which will see them meet their objective of £70m sales revenue by 2016.
90 days to re order according to table 1.
Mcgregor Theory X and Theory Y


ARR- Energy recovery machine. 15 year lifespan - £30,000 inflows PA. Initial installation cost - £10,000 Running costs of £5,000 PA Capital investment -£250,000
15X £30,000 = £450,000 - (£260,000+£75,000) = £115,000
115,000/15 = £7,666 PA /260,000 X 100 = 2.94%
V's a bank account at 3 % compound - result in £335,979 = Y1 £250,000 X 1.03 = 257,500 Y2 257,500 X 1.03 = 265,225 Y3 265,225 X 1.03 = 273,181.75
MADE UP!!!!
Payback - check with a independent source whether 4% is accurate.
£600,000 = energy costs per year - see laptop.
4% of £600,000 X 0.04 = £24,000
Energy cost go up by 24% from July of 2013 to July 2014. £24,000 x 1.24 = £29,760 = rounded to £30,000.
£30,000/£250,000 x 100 = 12% PA
£250,000/£30,000 = 8.33 years Payback period.
Time = Risk = longer the time the higher the risk.
The Pay Back
Time = Risk
Accounting Rate of Return
Pay back measures the time that it takes for an asset to cover the initial investment.
The longer the payback period the higher the perceived risk.
ARR - Average/Accounting rate of return
Measures the total inflows that an asset provides over it's lifetime. Therefore the profitability of an investment is measured.
Investment Appraisal
Entering a new market in the form of teenage clothing
Cost
Financial
MR - Primary (Outsourced - more expensive but reduces impact upon Harvey's marketing performance - important if the organization is to meet 2016 objectives ) - Information required Price, Profit margins, competition in the market, growth?
Promotion - required
Synergy - does the new market have any similarities with SHL's core market?
Time - return on investment could be medium term - could compromise the objective of reaching sales revenue of £70m by 2016. Due to resources such as finance and managerial expertise being diverted to establish a new brand rather than growing Harvey and therefore reach its existing objectives.
Promotion - Advertising - extensive promotion required to ensure penetration in the new market. This is a finance intensive aspect of entering a new market. However it is also key to the success of this venture as without brand awareness there is little chance of achieving a level of sales that would allow the venture to be profitable.
Aston Martin - F293 - Marketing strategy

1. Who is "Charlotte"?
2. Why has "Charlotte" been developed and what is the consequence of this?
3.How many cars have they sold in their history?
4. What stakeholders have influenced the new strategy?
5. What has led to this new strategy?
6. What F293 theories can you apply to this story?
For entering the teenage market
Brand awareness - providing the Harvey brand is used. Enhance brand loyalty. Bring consumers on board in their teenage years and aim to retain them through their adult life. This reduces the need to attract customers which is costly from a marketing perspective.
Reduce risk through diversification into a different market and therefore relying less on the adult market to provide SHL with revenue.
Enhanced revenue streams and therefore bring about the achievement of the 2016 Revenue obejctive.
Reasons against
Very difficult to enter the market as Harvey due to the stated issue of teenagers - "quite like Harvey but do not want to wear the same clothes as their parents".
Cost - to buy into Mardidi or launch the Harvey Brand into the new market will require significant investment. Whilst the organization does have £1.5m in retained profits this will not cover the cost of either option. Therefore borrowing will have to increase leading to fixed costs rising die to larger interest payments. The implication of this is reduced profitability. Shareholders would disapprove of this as dividends will be lower.
This is a long term decision and is unlikely to have a positive impact upon the medium term 2016 objectives. If SHL moves into this market resources such as finance and managerial expertise will be diverted away from SHL's core activities. This is likely to lead to a stifling of sales revenue growth as other projects such as the sponsorship of rugby players may need to be forgone.
Broaden product portfolio to reduce the reliance on their core market. This is because entering the teenage market is a form of diversification. By reducing the reliance on a single market SHL reduces the risk to organization by having multiple revenue streams.
More revenue streams will lead to an increase in sales revenue and therefore their ability to achieve their objective of increasing sales revenue to £70m by 2016 is enhances.
As the adult clothing industry is nearing saturation SHL needs to find new revenue streams to maintain its sales revenue growth. As the teenage market is still growing and is likely to do so in the positive economic climate that SHL is currently operating in makes this an attractive investment.
Teenagers are more likely to shop online and therefore this will enhance the growth of Harveydirect which is a stated objective.
Against
Very competitive market with established brands which would requires extensive investment in marketing to bring about a viable market share. This investment, despite the £1.5m of retained profits require would require borrowing. This would be viable because SHL is profitable and is lowly geared (20%). Increased borrowing would lead to an increase in interest payments which would see fixed costs rise leading to SHL's profitability reducing in the short term. In the longer term this investment may see the revenue increases out-strip the initial investment.
Further to the issue of established brands Mardidi could still be associated with SHL and therefore the issue regarding teenagers not wanting to wear the same brand as their parents has not been overcome. The consequence of which would low sales revenue as market share would be hard to achieve.
Add up $-0.1 + $0.2 + $1 + $2 = $3.1 m
$5m-$3.1
Therefore 1.9 m is required in the last year.
In the 5th year Mardidi generates $4 m.
$4m/12 = $333,333.
$1,900,000/ $333,333 = 5.7 months
Therefore pay-back is 4 years 5.7 months.
Pay-back
ARR - Average rate of return
Average net return PA

Initial Capital outlay
x100
$7.1m - $5m = $2.1m
Total revenue taken over 5 years for the investment
Capital outlay
$2.1m
5
years of investment
= 0.42 - Average net return Pa
$0.42m

$5m
X100
= 8.4%
ROCE = 38%
Initial investment
Practice Questions
Diversification
Provides security as it will reduce the reliance upon one target market. This is particularly important as Harvey current market is nearing saturation. Therefore by entering a new market SHL will be able to continue to grow.
Financial against - ARR rate very low at 8% compared to the ROCE of SHL of 38%.
Costs - Significant investment - $5m for 25% - borrowing will be required in addition to retained profits. Associated costs such as extensive market research is also required.
Ideas could be exchanged which could invigorate the organisations further growth. Although SHL wont own Mardidi the nature of its relationship could be collaborative and therefore the exchanging of expertise would be mutually beneficial. SHL could investigate how Mardidi makes orders to enahnce its own processes.
Mardidi provides access to the american market and therefore reduces the reliance upon the UK market. Americas economic growth is one of the strongest in the developed world and therefore SHL can take advantage of the increase in consumer spending through receiving dividends.
Purchasing an established brand would take less time and therefore less risk than SHL developing their own teenage brand. A shorter period of time is desirable as would allow SHL to maintain it's current growth rate. By buying a partial stake SHL has minimized its exposure to the pitfalls of diversifying into a market outside of its normal sphere of operation.
Explanation of time - Less time = the time that it will take Mardidi to contribute positively to SHL in a financial sense. The time required to make an entirely new brand profitable will be a significant number of years.
Objectives - this investment will take financial resources away from Harvey's/ SHL drive to expand and meet their growth based objectives. Therefore if the Mardidi deal goes ahead it will be at the expense of 2016 objectives.
Are there more lucrative options within the fashion industry? Whilst the non financial argument is compelling the organization requires a bigger financial reward than the 8% provided by Mardidi. If this option was to be found then both the 2016 objectives and diversification could be achieved.
Cost! initial investment
Loan - additional risk.
Lack of financial reward.
outside of their normal sphere of operations.
Could Mardidi's current success be a flash in the pan.
Investment appraisal

Payback - shows the amount of time an invest requires to "Break-even". Time is associated with risk and therefore the longer the time payback period the higher risk the investment.
Capital employed - 12,933
Long term liabilities
Q 31 Stock Management
Why is Stock management important
1. Dont run out of stock - consumer choice - Porters five forces. Substitute products are available.
Q 31 - Strategy to aid the efficient management of stock.
One Strategy would be to focus of reducing the lead time from approximately 88 days (Table 1 Manufacture - 60 days + Transport 28 days).
Moving production to Europe would help by reducing the transport time and therefore the lead time would be reduced. A shorter lead time is a competitive advantage because SHL would have greater control over stock levels as order would not need to be placed so far in advance. This reduces the pressure on getting orders right first time. If the lead time was shorter it would allow SHL to make smaller orders of garments and therefore reducing the need to discount unpopular garments whilst ensuring that popular garments remain in stock. As a result SHL should see an increase in profitability as more garments are sold at RRP.

Due to SHL's consumers being relatively conservative fashion sense and therefore having similar expectations of the garments produced from one year to the next the organization can be more confident that historical data can be effectively used in the ordering process. Year on year sales for like for like garments would be similar and therefore using extrapolation on historical data SHL could ensure that its original order is as realistic as possible although a growth is sales would need to be take into consideration as suggested by figure 1. This is vital in ensuring that neither the issues of too much or too little stock are forced upon SHL. leading to a slower than necessary growth in both revenue and profit.
Use Figure 4 and PED figures to highlight that running out of woman's clothing would be particularly costly in terms of revenue forgone.
Reduce lead time by moving manufacturing to Europe. This will reduce the lead time through shortening the time that garments will spend in transit from 28 days. There are other cost benefits to this move such as no longer having to pay CET.
Possibly higher productivity and therefore the manufacturing time could be reduced from the current 60 day level (table 1).
Time zone/language - communication easier/quicker allowing orders to be made more efficiently.

if the lead time is able to be reduced significantly then SHL would be in the advantageous position of being able to employ JIT.
Using forecasting by extrapolating previous sales. Due to the conservative nature of the consumers SHL is able to forecast like for like sales with greater accuracy as the consumers demands will change less compared to more dynamic fashion segments such as teenagers and young adults.
Using forecasting will help ensure SHL orders are more accurate and therefore require fewer reorders or adjustments. This will reduce the detrimental impacts of running out of or having too much stock.

Improve the accuracy of order through the use of forecasting based on previous years data.
JIT
Lead time
Buffer stock
re order point
lead time 88 days aprox - table 1.
1. Too much stock - leads to discounting - foregone revenue - reduces the ability of achieving objectives.
Cost of storage - preventing the "next seasons" garments arriving ahead of it's launch.
Liquidity - cash can be tied up in stock and therefore is a possible cause of cash flow problems.
Detrimental issues as a result of poor stock management.
2. Too little - unable to meet demand - unable to reorder due to long lead times and seasons being short in comparison to the lead time.
Due to high levels of competition there are a significant number of substitute products giving consumers choice. Therefore if a garment is unavailable consumers will purchase a competitors product rather than waiting for the new batch.
Use Figure 4 and PED figures to highlight that running out of woman's clothing would be particularly costly in terms of revenue forgone. figure 4 and the PED figures suggests that SHL is more likely to sell woman's clothing at RRP compared to men's.
RRP - recommended retail price
Long lead time means that SHL are reliant upon getting their order right first time. It is difficult to forecast in the fashion industry as trends change quickly and therefore responding to these changes quickly provide organizations with a competitive advantage as being on trend will ensure demand for products and therefore encouraging revenue to grow yet further. However considering the conservative nature of SHL's target market this issue is reduced. Customer expectations are likely to be more consistent and therefore forecasting like for like sales year on year becomes more reliable. Therefore the use of extrapolation is key to ensuring the order are as accurate as possible, reducing the detrimental impact that poor stock control has upon SHL.
= 16.4 %
X100
2013 -
2648
(6554 + 17039) - 10660
x100
12,933
= 20%
Due Diligence
PBIT
Operating profit - Depreciation
288-112 = 176
4962-555 = 4407
Shareholder equity fund + Long term liabilities
2012 - 10501
2013 - 12933
176/10501 x 100 = 1.68%
4407/12933 x 100 = 34.08%
2012 = 206.68 (207)
2013 = 171.19
2012 = 87 days
2013 = 72 days
2012 = 155.85 days
2013 = 107.66 days
PBIT
Operating profit - Depreciation
288-112 = 176
4962-555 = 4407
2012 = 3.09
2013 = 42.38
2012 = £1.38
2013 = £3.30
Q 14 Offshoring V's bringing production into the EU/UK - Use the Analysis.
Define Offshoring
whats the alternative
Consider the ability to reorder more flexibly in meeting demand which will increase sales revenue. Fewer items need to be discounted. Seasonality of the industry makes the ability to respond quickly to consumer tastes vital particularly considering SHL customers are becoming more "discerning".
Cost of production is climbing in China and other far east economies as their economy develops and therefore workers expect a higher standard of living based upon improved wages.

V's

Lower cost production in the far east and therefore increased profitability which allows for greater retained profit which could be reinvested into the company to aid the organization in sustaining it's objective of growth.
Established relationship with the far east. Quality of the product is unknown.
Keeping production in the far east will aid the organization in achieving its 2016 through minimizing any disruption to the supply chain.

However lower transport costs and no CET could mean that bringing production to the EU may in fact be lower cost in today's climate.

The cost savings and the greater flexibility afforded to SHL by having production closer to it's main market outweigh keeping production in the far east therefore SHL should move production to the EU as to improve the profitability of the organization and therefore furthering its ability to grow. However the timing of this move is very important as there will inevitably be disruption to SHL supply chain. This disruption could possibly have a detrimental impact upon SHL's ability to achieve to its 2016 objectives due to there proximity. Therefore when SHL should implement this change in strategy depends upon how important it views the 2016 objectives.

Q33 - Discuss the extent to which ethical considerations are important to the future success of SHL.
Child labour
Working condiditions - H&S
Carbon footprint from transporting goods from FE

Achievement of the 2016 objectives.
Profitability

Offshore issues:
Future success -
E.g's GAP - suffered from a significant expose of their clothing being made in sweat shops. Nike and GAP saw nationwide boycotts across their geographical markets.
SHL customers is becoming increasingly discerning (line 49) - ethical issues will become more of an issue as the countries economy continues to strengthen it's growth rate (Providing Labour aren't voted in). More disposable income allows consumers to make choices based on factors other than price such as how ethically a product has been manufactured.
By meeting the needs of the consumer including their desire to wear ethically produced products would aid SHL in improving sales revenue. This would in part be due to SHL developing a USP or at least provide a competitive advantage over its competitors if it were to produce all it's garments in Europe. This would be further exaggerated if it were despite the case studies skepticism be able to produce all garments in the UK, as the made in Britain label is increasingly desirable for consumers and particularly among the demographic that SHL target market is made up of. This will contribute profitability/achieve the 2016 objectives

The consequences of being exposed as an unethical organization will filter through the organization. This will include the possibility of being dropped by department stores who provide the "retail concessions" distribution channel. Considering 31.25% of SHL's sales came from this channel the consequence of being "dropped" by a department store or other stores refusing to entertain the idea of stocking SHL's products would almost certainly end any hopes of achieving the 2016 revenue based objectives. Although the likelihood of this happening is low as sweat shop based scandals are rare due to less factories maintaining sweat shop conditions. The consequences are so severe, that SHL in line with it's desire to reduce risk would be best suited to moving production to the EU or UK to ensure this doesn't happen. This argument is furthered by other cost benefits (transportation) and strategic improvements (reduced lead times).
Refer to the question. - Final sentence in each paragraph answers the questions!
Develop points to highlighting how they increase revenue or lead to a reduction in costs.
The importance of stock management and the consequences as highlighted in the introduction mean that these tactics that together form an effective stock management
Ratio Practice Question
MR - SHL
Reminder list:
Recommend and Justify a strategy to increase the profitability of SHL. (18)

Issues stock question
If forecasting is already in use suggest that forecasting needs to be further improved. ~More subtle and shows that you think that an organization of SHL's size would already forecast.
Forecasting short term will contribute to the 2016 objectives. However is not as effective as reducing the lead time, however the time scale means that this will not contribute to the achievement of 2016 objectives.
Flexibility to meet to the changing demands of customers is brought about by a shorter lead time. This will lead to meeting if not exceeding customer expectations ensuring that SHL's continued growth.

Please calculate 4 Profitability Ratios from the information provided in the case study. 2013 figures to be used. (13)
Name of ratio:
Formula:
Show your working:
Answer:

Which stakeholder could be most influential in improving the profitability of SHL. (18)
Recommend and Justify questions
L4 - highlighting the extent to which your point contributes to answering the question.
A factor that will determine the extent to which it impacts on the yard stick.
If in doubt use "it depends upon"
Always write a level 4 comment at the end of each point.

A strategy is a long term plan of action that is designed to achieve a particular goal. This will be made up of a coherent group of tactics that move SHL towards it's revenue 2016/ overseas sales/Harvey direct/ aggressive growth/ reduce risk.
L1 - content
L2 - explanation
L3 - analysis in context
L4 - justified judgement

Q32/30 -
Moving production back to EU.
Type of transport.

This will depend upon Eastern Europe remaining politically and therefore economically stable. Diplomatic uncertainty could see prices rise in the area. Although the severity of this issue could be reduced through identifying factories in western Europe such as Portugal and Spain who have a thriving garment industry.
Acting ethically is when an organization operates in a way that all stakeholders are catered for and that it's operation contributes to society rather than act as a drain.
In the case of ...... this could include source its raw materials from fair trade suppliers, ensuring suppliers are paid a fair price for their goods, ensuring that packaging is produced using recycled materials, paying employees a living wage rather than the legal min wage...

Brand image -
Motivation -
Recruitment of the highly skilled -
USP -
Increased demand -

Focus on one strategy. This will be made of up of different arguments as to why this strategy is most relevant to achieving the objective that you've stipulated as its focus.
tactics within a strategy - long term vs short term - prioritize a certain tactic.
It depends upon -
an - profit
L3 -
EU production
reduced lead time
More flexible
satisfy needs
increase demand
increase revenue
IF costs do not increase in proportion
SHL will increase its profit
This can be reinvested to ensure SHL continues to grow.


Vital - you cant just say more revenue leads to more profit. It doesn't!
Evaluate the likely reasons why McD's chooses to act ethically. (14)
The brightest graduates will have a number of employment opportunity and therefore will base their decision as to who to work for on a number of different factors. one of these will be how ethical an organization is. Therefore Mcd's will need to be perceived as being ethical if it wants to recruit the most talented graduates to its HQ. By providing meals that don't contribute to the obesity epidemic Mcd's will improve its repuation and therefore be in a stronger position to recruit talent employees. This will benefit the organisation through more effective marketing campaigns that can increase demand for products leading greater sales revenue. This extent to which this will influence Mcd's long term success will depend upon the competition within the graduate job market.
demand due to people wanting to buy from ethical organizations.
advertise
competitive advantage
differentiate from competition
increase demand
meets social trends
increases revenue
providing costs remain stable
profit increases.
Profit could be used to developed more healthy products.

A 12.3% PA growth in revenue to achieve the organization 2016 objectives. This may be seen as a conservative objecvtive considering revenue grew 38.9% between 2012 and 2013. This could be due to SHL's management recognizing that the trading conditions within SHL's market segment have toughen due to it nearing saturation. This makes sales revenue growth significantly harder despite a growing economy and improved consumer confidence.
threats - Long lead time - long term consequences upon SHL future growth.

Demographics

Financial managemen
t

Level three

Processed Numerical Data
Ratios
% change

Gearing - level of long term borrowing within the organisation. 16.4% - 20%. This is lowly geared <50%. Relates to risk - the more debt the higher risk and vice versa.

Finance - This suggests that SHL will be in a position to acquire external sources of finance. Low level of existing debt and growing revenue and increased profitability makes SHL an attractive option for financial institutions.
Or
used to justify why it would be more likley that SHL management may choose to use internal sources of finance. The fact that SHL have grown into a significant and successful business despite a recession without requiring extensive external finance is to be applauded and could suggest that the management prefer to take low decisions. Further to this the reduction of risk is clearly stated as an objective line (22).
Interesting % change figures
Revenue - increased 39.8% significant growth.
objectives - £70m by 2016. - increase of 37% from the 2013 figures. Therefore SHL require revenue to grow at 12.33% PA over the next three years. This considering the

Gross profit margin for both is 55.7%
considering the growth in revenue it would be expected that the gross profit margin would increase as a consequence of purchasing economies. This an area that SHL needs to look at as to ensure the organization is a profitable as it can be.
Can be mentioned when discussing teh moving of prodcution from FE to the EU

Net profit margin significant increase from 0.48% to 8.61% this significant increase can be linked to the administration costs not increasing in line with revenue. The increase of only 5.3% suggests previous investment in this area but is also a reason why the operating was boosted significantly which has a positive impact upon the net profit margin.
Investment appraisal figures:
ROCE: 2013 - 34%
Return on investment

What is the :

Gearing 2012 -2013 16.4% - 20.5% - Sources of finance.

Percentage change in revenue - 39.8%
Percentage change in admin costs - 5.3%
Gross profit margin for both years - 55.6% both years (55.58%)
Net profit margin for both years 0.48% - 8%

ROCE: 38.4%
Return on investment (ARR) of Mardidi: 8.4%
Payback: 4 years 5.7 months - Risk

Dividend per share:2012 - £1.38 and in 2013 - £3.30.,
2012 -Ian 200,000 X 1.38 = £276,000 -were dividends of this size necessary?
2013 - Ian 200,000 X 3.30 = £660,000

To meet objectives they need to increase revenue by 12.33% PA for three years from 2013. Total increase of 37%. Conservative growth considering the % increase between 2012 and 2013 = 39.8%
In real terms this is a £19m increase.
Strategy

Concessions

What are the figures for:

Gearing 2012-2013
Percenatge change in revenue
% change in admin costs
Gross profit margin
Net profit margin
ROCE:
ARR for mardidi:
Dividend per share:
Ian total dividend for both years:
% increase PA for meeting the revenue objective:

Exchange rates and Interest rates
Pound weakens = increase SHL pays to suppliers = increase in cost of sales = reduction profit margins. £1 = $1.40
Pound strengthens = Decrease = the opposite happens. £1 =$1.60

Issues: more overseas sales = more currencies to take into consideration.

L4 it depends upon how long the change lasts
Depends upon how successful SHL has been in increasing exports.

£1= $1.50
If the pound remains strong for an extended period of time competitors who are also benefiting from the strong pound may decide to reduce prices leading to SHL's demand reducing. This will therefore offset the increase profit margins. Price elasticity of demand will play a key role in deciding whether or not a change in price for SHL garments is required.
However a short term strengthening of the pound will not require any changes in price and therefore demand should stay steady. Providing it does SHL will benefit from increased profit margins as the cost of sales will have reduced. This will see gross profit increase.
Mardidi = if the pound continues to strengthen against the dollar then this makes the purchase increasingly attractive.
This is a significant issue for SHL as they will be deal with a number of different currencies as their garments are produced in a number of different countries. This makes managing the cost implications of exchange rate fluctuations difficult. An advantage of bring production into EU and in particular into the Eurozone would be the simplifying of exchange rate issues faced by SHL.
Interest rates - Impact on SHL
Interest rates will have a bigger impact upon SHL financial performance if external sources of finance are used to acquire Mardidi. This will leave SHL more vulnerable to an interest rate increase by the BOE. Although an interest rate increase is unlikely whilst inflation remains exceptional low they will have to rise at some point. Therefore this is a medium to long term issue SHL will need to plan. They could do this through paying down their liabilities (debts) and therefore reduce the impact that interest rates will have.
An increase in base interest rates set by the BOE will lead to SHL's fixed cost increasing as the amount of interest paid on their debts will increase. This will result in a reduction in the net profit margin which stood at 8% in 2013.
This is particularly true if SHL have tracker loans.
Base interest rate = 0.5%
2.6m is 5% of 51m revenue.
82.5% increase in interest payments.
Liquidity - Short term financial health of the business. In short these ratios tell the user how much working capital the organization has available.
Effective management of this will ensure the organization has enough finance to pay its debts. Whilst too much means it is not using its finance effectively.
For these measures to be of any use we must have data to place the results in context. Historical data is the most common (I.e previous years). The most useful is an industry average however this is not always available.
Accounting norm: 1.5 - this is a generally accepted "healthy level".
Acid test
Stock is taken out of the equation because it is difficult to value because it fluctuates over time.
The majority of organizations fail due to cash flow problems. Therefore the two liquidity ratios are vital in giving stakeholders an understanding of how healthy an organisations cash position is.
Why the liquidity ratios are important.
Accounting norm = 1
Overdraft would be the most appropriate source of finance if there was a short fall. I.E if the figure of the acid test or current ratio was below 1.
X100
Any debts falling due outside of the current accounting period.
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