ES295 Lecture Notes - Lecture 15: Sustainable Tourism
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1.) Using the computed financial ratios from question 1, compare Grounds Keeper’s performance from 2011 to 2012. Address what areas the company has improved and what areas it has not
a.) Liquidity
b.) Activity / turnover / efficiency
c.) Profitability
d.) Leverage / use of debt / solvency
2.) If you were the CEO of Grounds Keeper, what area(s) would you concentrate on to improve the performance of the company?
2012 | 2011 | |
Current ratio | 2.54404052 | 2.37843623 |
Quick ratio | 0.91950568 | 0.81560714 |
Inventory turnover | 3.0658051 | 2.37047444 |
Average Collection Period | 37.5274142 | 46.9735877 |
Total asset turnover | 1.07567837 | 0.82629249 |
Net profit margin | 0.09345852 | 0.07608566 |
Operating profit margin | 0.15403918 | 0.13639319 |
Times Interest Earned | 26.0681373 | 6.25082817 |
Debt/Net worth Ratio | 0.59903778 | 0.67234699 |
Return on Equity ratio | 0.16075336 | 0.1051388 |
Below is the provided information/scenario.
Grounds Keeper is considering adding fair trade coffee to their line of products. Other larger coffee companies are now including it, at consumers’ insistence. At a recent strategic management meeting, the company’s officers identified the following points:
Fair trade coffee may attract new customers.
Fair trade coffee would allow Grounds Keeper to demonstrate its social responsibility.
Fair trade coffee would require more paperwork to meet certification and contract requirements.
The higher cost of Fair Trade Coffee would require a higher price or a reduced profit margin.
If coffee prices worldwide continue to increase, consumers may be reluctant to pay extra for Fair Trade Coffee.
Current suppliers of coffee to Grounds Keeper might be in competition with Fair Trade Coffee cooperatives.
One officer present asked the following question: Should we as a company have a good reason to try to influence actions in other parts of the world? Don’t we have governments to do that?
Fair Trade Coffee
What is fair trade certification?
Much like organic certification, fair trade certification lets you know about the origin of a product. Fair trade certified products come from all over the world, but share a common history. Farmers who grow fair trade products receive a fair price, and their communities and the environment benefit as well.
Fair trade certified coffee directly supports a better life for farming families in the developing world through fair prices, community development and environmental stewardship. Fair trade farmers market their own harvests through direct, long-term contracts with international buyers, learning how to manage their businesses and compete in the global marketplace. Receiving a fair price for their harvest allows these farmers to invest in their families' health care and education, reinvest in quality and protect the environment. This empowerment model lifts farming families from poverty through trade, not aid, creating a more equitable and sustainable model of international trade that benefits producers, consumers, industry and the Earth. The Fair for Life label is backed by IMO, one of the third-party certifiers of fair trade products for the U.S. market.
The Fair for Life label guarantees:
Fair price: Family farmers receive fair prices for their harvest, and premiums specifically earmarked for community development projects; even higher premiums are given for certified organic products. Farmer organizations are also eligible for pre-harvest credit.
Environmental sustainability: Harmful agrochemicals and GMOs are strictly prohibited in favor of environmentally sustainable farming methods that protect farmers' health and preserve valuable ecosystems for future generations. Fair trade farmers protect the land and wildlife habitat by intercropping plant species to improve soil fertility and protect against erosion. Stringent environmental management programs, including water conservation, proper waste disposal and prohibitions on planting in protected areas further encourage environmental stewardship.
Fair labor conditions: Workers on fair trade farms enjoy freedom of association, safe working conditions and fair wages. Forced child labor is strictly prohibited.
Direct trade: Importers purchase from fair trade producer groups as directly as possible, eliminating unnecessary middlemen and empowering farmers to develop the business capacity needed to compete in the global marketplace.
Democratic and transparent organizations: Fair trade farmers and farm workers decide how to invest fair trade revenues, and proof of a democratic process is required.
Community development: Fair trade farmers and workers invest fair trade premiums in social and business development projects like scholarship programs, healthcare services and quality improvement training.
Examples of community projects include:
Members of the COSURCA coffee cooperative in Colombia successfully prevented the cultivation of more than 1,600 acres of coca and poppy used to produce illicit drugs.
In the highlands of Guatemala, indigenous Tzutuhil Mayans in the La Voz cooperative are sending local kids to college for the first time.
Near Lake Titicaca, in Peru, the CECOVASA cooperative is assisting members from Quechua and Aymara indigenous groups in improving coffee quality and transitioning to certified organic production.
The CECOCAFEN cooperative in Nicaragua established a reproductive health program providing tests for the virus that causes cervical cancer.
What is IMO "Fair for Life" fair trade certification?
"Fair for Life" is a brand neutral third party certification program for social accountability and fair trade in agricultural, manufacturing and trading operations. The program complements existing fair trade certification systems. Social accountability and fair trade have become important indicators to select business partners in a global market place. The Fair for Life Social & FairTrade Certification Program offers operators of socially responsible projects a solution for objective inspection and certification by a highly qualified external verifier. It combines strict social and fair trade standards with adaptability to local conditions.
Why is fair trade certification needed today?
Throughout the global south, family farmers follow generations of tradition to cultivate food products we enjoy every day. Yet many family farmers in the developing world don't receive a fair price for their crops. These isolated rural communities lack direct market access, often selling their premium crops below the cost of production to local middlemen who misrepresent global prices. This cycle of debt forces many to abandon their land and years of agricultural heritage, destroying the social and cultural fabric of these communities. When farming communities in the developing world suffer, the whole world suffers - forced immigration, inferior-quality products and large-scale farming methods that often compromise the environment.
Who benefits from fair trade certification?
Producers: Beyond receiving a fair, stable price, fair trade also empowers producers to invest in their organizations, improve their communities and protect the environment.
Consumers: Fair trade certification enables consumers to "vote with their dollar" by providing an independent guarantee that products were produced and traded fairly. We all lead busy lives, and we want to do the right thing, but we're busy. What if we could make a positive impact just with the purchases we make every day? And not have to go out of our way to do this? That's the compelling proposition of fair trade.
The Earth: Fair trade certification requires and rewards environmentally sustainable farming practices that protect farmers' health and preserve valuable ecosystems for future generations, and provides the resources and technical assistance needed for organic certification.
Question 1
In order to compete effectively in today’s increasingly globalised market, many companies have used features related to environmental sustainability to “win” new customers.
In relation to the company you work in or one that you are familiar with,
(a) Explain the term “sustainable business strategy” and how this strategy relates to operations and supply chain management.
(8 marks)
(b) Identify an operations and supply chain-related "disruption" that impacted the company. What could the company have done to minimise the impact of this type of disruption prior to it occurring?
(7 marks)
(c) You have recently been appointed as the production manager of the company. To meet the demands of its global market, the company has set up production locations in two different countries. One is located in the USA while the other is located in a Southeast Asian country. You want to find out what is the productivity of the current operations at the two production locations. You have obtained the following results from the production supervisor (Table 1).
Table 1
*FC – Foreign Currency where $1 = FC 10
USA | Southeast Asia | |
Sales (units) | 100,000 | 20,000 |
Labour (hours) | 20,000 | 15,000 |
Raw materials (currency) | $20,00 | *FC 20,000 |
Capital equipment (hours) | 60,00 | 5,000 |
(i) Calculate the multifactor productivity figures for labour and capital together. Do the results make sense?
(5 marks)
(ii) Calculate raw material productivity figures (units/$) and explain any differences in these figures.
(5 marks)
Question 2
(a) A Japanese fast food restaurant, OiShi is concerned about its ability to provide quality service as they continue to grow and attract more customers. Its management has collected data from Friday and Saturday nights, its busiest times of the week. During these nights, about 75 customers arrive per hour for service. Given the number of tables and chairs, and the typical time it takes to serve a customer, the restaurant can serve on average about 100 customers per hour.
Analyse the restaurant service process in these nights where the data are collected and comment on whether the services are in the zone of service, the critical zone, or the zone of non-service? (Refer to Figure 2 when providing your answers)
Figure 2: Relationship between the Rate of Service Utilisation (r) and service quality
(4 marks)
The management anticipates that the restaurant’s demand will double in one year as long as it can provide good service to its customers. How much will the restaurant have to increase its service capacity to stay out of the critical zone?
(4 marks)
(b) Describe the characteristics of service processes of a typical fast food restaurant based on your service encounters.
(10 marks)
(c) Examine the strategies to manage service encounters. You should provide details on any TWO (2) possible customer-introduced variability in the service processes and propose THREE (3) accommodating strategies to effectively address these variabilities.
(7 marks)
Question 3
(a) Consider your organisation or one that you are familiar with that plays a role in the global supply chain network. This organisation can be a supplier, manufacturer, distributor, logistics service provider or retailer in a particular industry (e.g. fast-moving consumer goods, electronics, oil and gas, and pharmaceuticals). In your answer, you should relate the concepts and strategies in operations and supply chain management to the work environment.
Explain how the aggregate operations plan can help match supply with demand and optimise operational costs in this organisation.
(4 marks)
Provide TWO (2) strategies that can be used to influence demand and TWO (2) strategies that can be used to adjust capacity to match demand.
(8 marks)
(b) The development of web-based tools has allowed companies to collaborate on a larger scale and perform its operations and supply chain activities with greater ease. Demonstrate how collaborative techniques can be used to forecast demand. You should provide details such as the various stages of activities that are involved.
(8 marks)
Discuss the risks of being too reliant on the internet as a collaboration tool in demand forecasting and management.
(5 marks)
Question 4
Kee Wah Store sells a variety of exquisite European cookies and candies to the consumer market. The demand for cookies and candies is volatile and varies from month to month. The store orders from its suppliers. The lead time is normally one month, mainly consisting of the sea freight transportation time from Europe to Singapore. The store keeps a certain level of inventory at its warehouse.
The total demand for chocolate cookies is estimated to be 7,200 packets a year. The chocolate cookie packet is sourced from the supplier at $5 per packet and is sold to the end consumer at $15 per packet. It costs $100 to place an order to the supplier, and costs 20% of unit cost to store a packet of chocolate cookies for one year.
(a) Give FOUR (4) reasons why Kee Wah Store needs to maintain some inventory at its warehouse.
(8 marks)
(b) Examine the inventory situation for Kee Wah Store by applying the EOQ model to solve for order quantity and reorder point. What is the annual ordering cost, annual holding cost and total annual cost?
(10 marks)
(c) One supplier, Nee Ann Import Inc., approaches Kee Wah Store and proposes that it could shorten the lead time from one month to one week using airfreight.
What are the factors that Kee Wah Store needs to consider before deciding to accept or reject Nee Ann Import’s offer?
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(7 marks)