Business Studies Case Studies for hsc PDF

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Business Studies: Case Studies HSC Topic 1: Operations (RIPS) A. Role of Operations Management 1.1. Strategic role of operations management (IKEA)

IKEA engages in cost leadership through its aim to price products at a minimum of 20% below competitors at all times, 50% being the goal. This is achieved partly due to control over design, manufacture, distribution and selling within a vertically integrated supply chain. Investments in leading edge technology e.g. automation, as well as Ready-toassemble (RTA), flat-packed furniture and ‘self-serve warehouses’ contribute to cost savings. Savings → lower price for consumers → more demand → economies of scale. E.g. LACK side table incorporates ‘Board-on-Board’ materials → easier to manufacture, cheaper to transport → 40% price reduction. IKEA is a self-developed and strictly private label - 9500 product line differentiated from competitors via price. Product/service differentiation comes in the form of the opportunity for consumers to take home furniture on shopping day, without a waiting period. Value-add services (e.g. ‘picking service’, ‘assembly service’) available for customers to customise shopping experience according to financial capacities → appeals to a wide market.

1.2. Goods and/or services in different industries (Apple)

Goods that are mass produced on a production line such as Apple’s iPhone are referred to as standardised goods. They differ from customised products which are tailored to the customer’s needs, such as the customisation features of online ordering of Apple Watches (customised good) or post-purchase services (customised services).

1.3. Interdependence with other key business functions (IKEA)

Operations must incorporate implementation and recycling of ‘Loading Ledges’ into operations processes of transformation and transport. Finance provide initial funds to purchase Loading Ledges, and ongoing costs of recycling for future uses. Human resources must be retrained in technologies related to Loading Ledges and disposal methods (recycling). Loading Ledges must be marketed as a sustainable alternative to wooden loading pallets that were rigid and difficult to reuse or recycle.

3.1. Inputs (IKEA)

Transformed resources (Materials): monitoring of input sustainability, safety, ethics and origin major task to be met at IKEA to maintain positive brand image. Product/food safety/quality paramount towards consumer satisfaction and increased profits. Some achievements of IKEA include: IKEA stops using lead crystal in drinking glasses (1994), 100% sugar in jams is certified organic (2015).

B. Operations of Operations Management

Transforming Resources (Human Resources): Deputy project leader for supply chain management in Sweden, Bimal Patel said that at IKEA “there is not much hierarchy, everyone is approachable”. Patel works in process development in the supply chain to foster an informal atmosphere which focuses on complaint yet collaborative workspaces. There is an “enormous flexibility in how to do things, and opinions are valued”. 3.2. Transformation processes (IKEA)

IKEA and Sequencing and Scheduling: IKEA utilises computer scheduling software, Kronos. This is a “fully automated employee scheduling system that analyzes historical trading data, labour standards, projected sales figures and employee availability to create optimum staffing schedules” for various operational activities. This is accessed via ‘ico-worker’ which is an

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Business Studies: Case Studies online IKEA portal. Kronos boosts efficiencies! IKEA heavily invests in leading edge technology, many of which are patented designs, e.g. Their ‘Loading Ledges’ is substitute wooden packing pallets. The polypropylene plastic can be constantly used and re-used, and heavily reduces IKEA’s operational costs. IKEA’s operations are lean and efficient; the 100% automation of factories has allowed them to constantly produce vast quantities of goods which are uniform in construction. 3.3. Outputs (IKEA and Apple)

Customer Service: customer experience is quite unique; display items direct customers to RTA furniture stored in self-serve warehouse. Co-workers, signage and ‘how-to’ videos assist customers to shop at IKEA. Warranties: Apple gives at least 1 year of warranty as a complementary feature with the purchase of their products, but further services (Apple Insurance) can be purchased per month to insure the product further.

C. Influences on Operations Management 2.1. Globalisation, technology, quality expectations, cost-based competition, government policies, legal regulation, environmental sustainability (IKEA) The Queen Gives

Establishment of Free Trade Agreements (FTAs) by World Trade Organisation (WTO) promote increased trade between countries due to decreased trade barriers (globalisation). IKEA globally sources rugs from India, wood from Poland and drinking glasses from China. Global sourcing results in decreased costs in operations decreased wages in operations; favourable exchange rates and more lenient govt. regulations. South Australia was the first state to phase the bags out back in 2009, punishable by fines of up to $5000 for distributing banned bags and retailer suppliers could be fined up to $20,000. Queensland, Victoria and Western Australia will ban them from July 2018. Woolworths announced that not only would it be abiding by the ban in those states, it would also withdraw the bags in NSW. Hours after Woolworths, Coles matched the pledge (government policies). Some legal regulations affecting IKEA include those regarding product safety, returns, operations auditing, waste disposal and sourcing. During 2013, European Commission declared that illegally sourced timber would be deemed officially ‘illegal’ to sell within the European Union (EU). IKEA response included involvement in Forest Stewardship Council (FSC) certified timber plantations → plan for 100% FSC certified plantations by 2020.

Gummy Lollies Every Christmas

IKEA heavily invests in leading edge technology, many of which are patented designs, e.g. Their ‘Loading Ledges’ is substitute wooden packing pallets. The polypropylene plastic can be constantly used and re-used, and heavily reduces IKEA’s operational costs. IKEA’s operations are lean and efficient; the 100% automation of factories has allowed them to constantly produce vast quantities of goods which are uniform in construction. Products need to not only be capable of being produced for a small cost, but also capable of being replicated in large volumes (quality expectations). ‘Quality Centres’ allow remote monitoring of product quality, possible through lasers, cameras and computer programs all used in real-time and automated to eliminate human error. IKEA engages in cost-based competition through their implementation of automated technology within factories enables them to undercut their competitors. IKEA aims for 20% lower prices than competitors, though 50% is the goal. This is achieved partly

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Business Studies: Case Studies due to control over design, manufacture, distribution and selling within a vertically integrated supply chain. Investments in leading edge technology e.g. automation, as well as Ready-to-assemble (RTA), flat-packed furniture and ‘self-serve warehouses’ contribute to cost savings.

2.2. Corporate social responsibility (SEE) (IKEA)

IKEA uses 1% of the world’s commercially harvested wood and 0.7% of the world's commercially harvested cotton. IKEA’s ‘People and Planet Positive’ environmental sustainability strategy has ambitious environmental and social development goals, to be achieved by 2020. IKEA is developing idea of ‘closed-loop’ resource chains, which promote circular use, recycling and re-use of materials. IKEA’s Projs desk pad is an example of a closed-loop product. The Westpac Group is considered one of the most socially responsible banks in Australia. Its 2011 Sustainability objectives included: to increase the % of women in senior management positions to 40% by 2014, to reduce Scope 1 and 2 emissions by 30% on 2008 levels by 2013, and to launch a major initiative to help address social disadvantage.

D. Operations Management Strategies 4.1. Performance objectives (IKEA)

Quality: IKEA’s Total Quality Management (TQM) framework allows KPIs to determine customer satisfaction. Dissatisfaction expressed through complaints and returns → negative influence on IKEA’s brand. Suppliers are randomly audited to ensure complete compliance towards best manufacturing practices. Service quality is measured by the expertise, service skills and product knowledge of IKEA employees. Dependability: customers depend on IKEA to provide them with solutions to furnishing problems. IKEA has high dependence on suppliers to meet demand → improved through vertical integration of supply chain. Dependability on logistics improved by strategically placed distribution stores near deep-sea ports and other IKEA stores, reducing reliance on road transport and inefficient handling of products. Flexibility: through decentralising of core businesses within the wider IKEA corporate structure. August 2016: IKEA Group finalises selling of IKEA Supply (logistics) and IKEA Industry (factories) to their owner, Inter IKEA Systems. → allows IKEA to focus on retail activities and makes business much more agile. adaptable and flexible.

4.2. New product or service design and development (Telstra) 4.3. Supply chain management (IKEA, CostCo)

Cost: minimised through implementation of efficient processes. E.g. IKEA’s use of Chemical Leasing, whereby they pay for amount of output, not input, minimises costs and helps environment. IKEA are cost leaders. From FY 2000 to FY 2010, IKEA globally made 2-3% price reductions every year → accumulates globally. The telecommunications giant Telstra is constantly innovating their new goods and services. After being one of the pioneers of the 4G network in Australia, Telstra is hard at work building its 5G network, having switched on over 200 5G sites since August 2018. Telstra intends to launch 5G in 25 cities in 2019, including all major regional cities in Australia. This will bring Telstra 5G to a total of 35 cities. Logistics: Costco, the retail giant making inroads into the market share of Coles and Woolworths, is building its first Australian warehouse distribution headquarters in Western Sydney at a cost of $77 million. The facility at Kemps Creek, near the site of the future Western Sydney Airport, will create up to 1000 jobs. Costco entered the Australian market in 2009 with a single store in Melbourne and with prices on average 20% cheaper than the major players. E-Commerce: IKEA has been extremely slow to act on consumer desires to shop from home. By going online, iconic IKEA

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Business Studies: Case Studies shopping ‘experience’ is lost. Development of online shopping would require establishment of an entire new distribution channel within IKEA’s supply chain. eCommerce sales contributed 3% IKEA’s global sales in 2015 → over 1 billion euro. However, the implementation of e-commerce is expected to account for 10% global sales in 2020.

4.4.Outsourcing (QANTAS)

4.5. Technology (Telstra)

4.6. Inventory management (IKEA, Woolworths)

4.7. Quality management (IKEA)

4.8. Overcoming resistance to change (IKEA, NAB)

Global Sourcing: sourcing of goods from China (25% in 2015) is advantageous due to decreased labour costs; favourable exchange rates; strategic positioning; access to greater talent; decreased overheads etc. Past few years has seen clear decrease in number of suppliers to IKEA and operating countries → greater control over supply chain due to supplier rationalisation. Since 2014, QANTAS has outsourced its maintenance for 747s. Part of some measures to save costs and have more leverage. QANTAS sent two 747s to Hong Kong for maintenance checks, also initiating a “rigorous tender process to choose a suitable maintenance provider to maintain our Boeing 747 fleet for the long-term.” Leading edge technology: The telecommunications giant Telstra is constantly innovating their new goods and services. After being one of the pioneers of the 4G network in Australia, Telstra is hard at work building its 5G network, having switched on over 200 5G sites since August 2018. Telstra intends to launch 5G in 25 cities in 2019, including all major regional cities in Australia. This will bring Telstra 5G to a total of 35 cities. Vs. the traditional copper wire networks and standard internet plans by other providers (established technology). Supermarket chain Woolworths uses FIFO method of inventory valuation for fresh fruit and consumables. This is because vegetables will spoil and become obsolete in a shorter period of time, so the fresh stock must go out first. Inventory Valuation (Just-In-Time): Inventory is sold in large volumes and exist stores quickly, therefore it is essential that IKEA value inventory through the JIT methodology. SKUs or ‘stock keeping units’ are identification labels fitted onto every IKEA product with product information. IKEA uses these to realise the ‘cost-per-touch’ philosophy of inventory, meaning that the more hands that touch the product, the more costs associated with it. Quality Control, Assurance and Improvement: Important facet of IKEA’s TQM program is the ‘IKEA Supplier Quality Standards’ or ISQS - name given to framework which consists of two essential processes that IKEA suppliers must conduct: ‘GO/NOGO’ requirements and the ‘Special Process Appendices’. Testing Laboratories that are third-party accredited towards ISO standard. Some of IKEA’s rigorous testing methods include: Climate Chamber, Fire, Assembly, Strength and Washing Tests. Purchasing new equipment: In January 2011, IKEA reduced reliance on 10 million wooden pallets per year by developing paper-based, corrugated-cardboard pallets that reduced transport costs by 10%, and were 90% lighter and smaller than traditional wooden pallets. In order to accommodate this change, IKEA had to purchase new forklifts to make the change → co-worker retraining. Financial Costs and Retraining: New and improved pallets gave savings of about 140 million Euros per year. Despite initial costs, IKEA would be able to save approximately 50 million Euro a year. The change also reduced carbon footprint, associated with product transport, by 6%. Inertia: Under BCI farmers in Pakistan and India were trained on how to reduce water fertiliser and pesticide use on their cotton crops. During 2015, 10% cotton was growth under BCI standards in over 20 countries. Inertia experienced by farmers demanding premium price for cotton, despite raised profits due to reduced input costs. Buyers of Better Cotton have had to

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4.9. Global factors (IKEA, Boeing)

ensure that they do not give in to demand for premium prices because in order for Better Cotton to become widely accepted commodity, it needs to be affordable. Companies like Boeing source globally as international countries may possess expertise in specific areas of sourcing. For example, Italian firm Alenia Aeronautica makes the center fuselage, French firm Messier-Dowty makes the landing-gear system and German Diehl Luftfahrt Elektronik supplies the cabin lighting. As IKEA’s market share increases through store openings and e-commerce, they will experience a greater demand for goods and thus will benefit increasingly from purchasing in larger volumes (economies of scale). IKEA has a history of passing savings onto customers through price reductions. On average, IKEA China has made 54% price reductions in over 100 product categories since 2005. About 2500 products are added to IKEA’s product line every year. During 2010, IKEA opened their first ever test laboratory outside Sweden. As well as researching and developing their own products, IKEA also heavily invests in leading edge technologies to place their product range at the forefront of their competition.

HSC Topic 2: Finance (RIPS) A. Role of Financial Management 1.1. Strategic role of financial management (McDonald’s)

The Strategic Role of Financial Management for McDonalds McDonald’s corporate vision is “to move with velocity to drive profitable growth and become an even better McDonald’s serving more customers delicious food each day around the world”. They want long term growth and profitability and a distinguished competitive advantage. This strategic role of growth was evident in their 2017 annual report, “in 2017 global comparable sales increased 5.4% and global comparable guest counts increased 1.9%, with positive results achieved on all segments”.

1.2. Objectives of financial management (Woolworths)

Woolworths’ Wants to Reduce Reliance on External Debt In Woolworth’s 2018 annual report, solvency was an objective made evident. Explicitly Woolworth’s Group wanted to limit their external financing. This was achieved, 2018 annual report, “Our balance sheet was also stronger with net repayable debt reduced by a further $677 million, through business growth and good working capital management”.

1.3. Interdependence with other key business functions

C. Processes of Financial Management 3.1. Planning and

McDonald’s and Financial Planning and Implementation

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Business Studies: Case Studies implementing - financial needs, budgets, record systems, financial risks, financial controls (McDonald’s)

McDonald’s continuously assesses their present financial position and determines their financial position. In 2015 McDonalds identified the need to reimage and modernise restaurants. The company budgeted for this, “The company expects capital expenditures for 2016 to be approximately $2.0 billion. About half of this amount will be used to open new restaurants...The remaining capital will be used to reinvest in existing locations.” In terms of maintaining record systems McDonald’s uses a POS system called NP6. McDonald’s uses an external auditor, Ernst and Young to assess the effectiveness of financial controls annually.

3.2. Monitoring and controlling - cash flow statement, income statement, balance sheet (Woolworths)

Woolworth’s Financial Statements in Annual Report 2018 The use of income statements are interwoven throughout the report. For example, through the use of income statements, in its Annual Report 2018, Woolworths via observing cost of sales, income tax expense, branch expenses etc.determined that its profit for the period 2018 was $1795 million, and increase from 2017 of $1593 million. As such Woolworth’s can monitor its performance and implement appropriate financial controls.

3.3. Financial ratios 3.4. Limitations of financial reports - DR CEN has TINEA (Woolworths)

Valuing Assets at Woolworths Woolworth’ accordingly uses an estimation for intangible assets such as Goodwill. As reiterated by the 2018 Annual report, Woolworth’s valued its goodwill as approximately $5 million as part of its financial reporting.

3.5. Ethical issues related to financial reports (McDonald’s)

McDonald’s Independent Audit by Ernst & Young McDonald’s was independently audited by company, Ernst & Young in accordance with relevant legislation in the United States. It was declared that “the company’s international control over financial reporting is designed to provide reasonable assurance.” However “Ernst & Young, an independent registered public accounting firm” audited financial statements in 2018, 2017 and 2016”. “Management evaluates the audit recommendations and takes appropriate action”. This upholds ethical financial reporting.

B. Influences on financial management 2.1. Internal sources of finance - retained profits (Tax Review)

Level of Retained Profits in Australian Businesses According to a Tax Review conducted by the treasury in 2008, at that...