Accounting For Managers For Global Reporting Framework – Blackmore Case Study

Blackmore’s Features

Describe about the Accounting for Managers for Global Reporting Framework.

The Global reporting framework is the most widely used Global Reporting initiative that gives direction to the company. This guideline helps the companies to improve their disclosure relating to the sustainability (Milne & Gray, 2013). In Australia Blackmore is one of the largest health care businesses. In this, report the social and environmental impact of the operation of Blackmore is discussed. The guidelines of the GRI and the changes that are required to be made in the annual report are also discussed in this report. The benefit that will be derived by the shareholders, potential investors and other stakeholders of Blackmore’s on implementing the GRI guidelines is also highlighted in this report.

History

Maurice Blackmore established the Blackmore Company in 1932 and it has now become the leading health care company in Australia. The founder had a strong believe on preventive measures, natural health and recycling process so he led the way in developing a health care system based on these principles. The company opened its first health food store in Brisbane in 1938 and by 1985; it has become a public listed company (Bebbington et al., 2014). The company has a history and reputation of providing best quality product and services to its customers. The main aim of the company is to gain the leadership position in the health market and to achieve growth and success for shareholders and other stake holders.

The company is listed in ASX and it has a market capitalization of $2.3 million. The market of the company was rapidly expanding in Asia and the company was unable to maintain the stock. In order to overcome this problem the company has entered into partnership agreement and invested heavily in the capacity building of the company (Ioannou & Serafeim, 2014). In order to maintain the stock of the product in the vulnerable market the company is also maintaining inventory of scare material.

In 2016, the company has experienced an increase of sale of 52% during the year and the total operational and sales related expenses incurred are of $454.00 and $225.00 million during the year. The operational and the sales related expenses have increased by 43% and 46% respectively during the year. This increase in expense shows that the company is focused in product innovation and sales. There has been a positive effect of the heavy expenditure as can be seen that in the last 12 months that the company has managed to produce 486 million tablets and 43 million capsules. This tablets and capsule were then shipped to the 25000 retail partners around the globe (Lozano, 2013). This shows that the demands of the company’s product are continuously increasing. In order to address the increasing demand the company is continuously undertaking various capacity building measures and to main the quality of the standard. The company has also increased the staff and has changed the packaging facility to suit the increasing demanding. The company in order to maintain the high quality of product chooses supplier after appropriately auditing the supplier. The company increased the warehouse facility so that demand of the domestic and international market can be met. The company has also increased the production capacity from 4000 tablets to 13000 tablets per minute by heavily investing in the plant and equipment (Fonseca et al., 2014).

Locations of the Blackmore’s

The head office of the Blackmore is New South Wales in Australia and the company has also office in another states like west Australia, Victoria, Queensland and South Australia.  The company also has its operations in the regional areas of the states. The company also has its operation in many different countries like Hong Kong, China, Indonesia, Vietnam, Singapore, Japan, Thailand and many other countries.

The company has more than 250 health products of vitamin, mineral and herbal products that is of highest quality. The company has uniquely combined the modern and traditional method of medicine for providing the best health care facility across the globe. The company produces range of product and the ingredients provided are sourced from around the world (Eccles et al., 2012). The products that are made by the company comply with all the rules provided in the Australian Manufacturing standards and the company at regular intervals conducts quality checks of the products.

The company for its wide range of product is heavily dependent on natural environment. The company is therefore committed in performing operation in an environmentally sustainable manner. The sustainable environment means progressing economically or developing without damaging or affecting the environment. The Blackmore focuses on environmental protection by incorporating sustainable development in the corporate governance responsibility in the community and workplace (Alonso?Almeida et al., 2014).

Impact on Environment

In order to minimize the impact of its operation on the environment the company is continuously engaged in innovation and exploring alternative ways of reducing the impact on the environment. The company has signed the Australian packaging convent in order to reduce the impact of the packing operation in the environment. The operating culture of the business is changing with the combined effort of the community, business and government so that a sustainable packaging solution for the business could be established. In order to reduce the waste the company uses glass for packaging its product so that impact of the environment could be reduced. The company has initiated a process of close loop in the year 2014 for bulk deliveries in the packaging facility. This initiative had helped the company to reduce the waste and cost of the company as a result the operating efficiency of the company has increased. The company has also adopted a process of paper less order picking to make its operation more environmental friendly. The environmentally sustainable features were adopted in the headquarters of the company by using its own electricity generating plant that runs parallel to the local grid. The company in local environment also helps in promoting bio diversity (Maas et al., 2016).

Product of the Blackmore’s

Impact on Society

The company followed the principle that if the people are taken care of then the people will take care of other issues. Based on this principle the company is committed for a long term social relationship. The company through education, social participation and research is positively influencing the society and promoting its corporate values. The company is also building global and local partnership so that a healthy and a wealthy culture could be established. The objective of the company is to develop a supportive workforce, marketplace and community. The company supports more than 50 charitable institutes and many individual for creating a better future.

The Global Reporting initiative has launched the G4 sustainability report so that it is helpful for the shareholders and reporters. The organizations that are preparing the sustainability report the guidance is provided in the GRI guideline that is applicable to all the organization. The guideline requires the organization to disclose the information that are critical to the business operation and has impact on the environment, economy and society. The guideline further states that the impact may be positive or negative but both are required to be disclosed by the organization. This has helped to analyze the opportunities and risk by providing standardized and reliable information.  These guidelines are designed in such a way that it can be implemented in any type of organization around the world. In 2001, GRI has recommended a report structure that has six key elements they are CEO statement, executive summary, profile of organization, key indicators, strategy and vision, management policies and performance. The executive summary statement was removed in 2002 and the CEO statement was removed to the vision and strategy sections. It is also provided in the guideline that the company is required to consult with the stakeholders and this consultation should be reported. The sustainability report aims to provide new opportunity for change and helps to make a better social development by providing long-term sustainable financial performance of the company. Blackmore has prepared the first sustainability report in 2016. It provided a basis for future reporting and the report was prepared after consulting with the stakeholders.

The guidelines provided in the G4 for sustainability reporting   should be applied in preparing the report. The contents of the report should have the following:

• The relevant areas should be identified and their effect on the activities should be assessed;
• The impact should be analyzed to identify whether it has occurred within the organization or outside the organization;
• The aspects that are identified should be prioritizing based on materiality and the decision should be made how much coverage is to be given.
• The approach of the management should be disclosed;
• The key indicators that has material aspect should be disclosed;

The sustainability report was first implemented in the year 2016 so the annual report prior to this are analyzed. The information gap that is in annual report is unearthed by this analysis. The materiality is given more emphasis in the G4 sustainability report. The guidelines in the GRI states that the content of the report should provide in details the matters that are more critical. The report therefore should be focused on “Material Aspect” and the materiality should be maintained throughout the report.  The initiatives that are taken by the management for addressing the material aspect should also be included in the report and it is provided under the heading “Disclosure on management approach”. The process of identifying the material aspect, the impact of the material aspect identified and the stakeholders that are involved in the process are provided in the report. The annual report of 2015 was not prepared in accordance with the GRI guideline. Therefore the report does not include the identification of material aspect and  no disclosure of the management approach was also provided in the report. If the company would have followed the guideline then the above-mentioned topics should have been included in the annual report.  

Environmental and social impact

The guidelines require the company to evaluate the impact of the material aspect. This process is known as boundary. If the annual report of the company is to be prepared in accordance with the GRI guideline then it should contain the process that is applied to assess the impact. The companies should maintain the document and the process should be highlighted in the annual report. The guideline states that the report of the company should be prepared by following any of the two methods (Antonia et al., 2013). The first method is in accordance level and the second method is without using the in accordance level and by just complying with the GRI guidelines. The supply chain issue is given more importance in the GRI guideline. The company is required to disclose the environmental and social impact of the supply chain management. The company is required to disclose the following as per the guideline:

• The procedure for selecting supplier particularly the screening process relating to their social and environmental impact;
• The identification of the impact of the supply chain whether positive or negative;
• The action that are taken by the company to minimize the impact;

The guidelines of the GRI provide a framework that highlights the issues relating to the society, environment and economy. It is a popular method of providing reporting and as a result, the comparability among the different organization is increased. The accountability of the company is increased by following the guideline. The trust between the companies and stakeholders are increased by the sustainability report. The potential investors those are sensitive to the environmental impact makes investment decision based on the sustainable business practice. The GRI guideline has provided more focus on the supply chain therefore it ensures that equal attention is given to all the stakeholder and not the investors.

Conclusion

This study has shown that GRI guidelines related to the sustainability reporting is an integral part of the holistic reporting. The reputation and the efficiency of the company increases if the reporting is based on the guidelines. It can be concluded that the Blackmore’s has gained immensely from the implementation of the sustainability reporting guidelines.

Byron Bay established Global Therapeutics in the year 1999. The company has ancient Chinese medicine and modern scientific medicines as its combination of the product line. The major expenses of the company after analyzing the financial statements is attributed to the expenses relating to the employee benefit and the inventories cost that are being sold and the other expenses comes from the operation of the lease payments of operations. The other expenses of the company in regard to its current costs of operation are the distribution and selling cost.

Guideline of GRI

Cost behavior is nothing but the changes that occur in the different types of cost due to the changes in the level of production. According to the cost behavior, there exist three types of cost that is variable cost, semi variable cost and fixed cost. The variable cost changes with the change in the level of production and the cost increases with the increase in the unit of output produced and decrease with the decrease in the output. The variable cost per unit that is the average variable cost does not change and remains constant. Semi variable cost is the mixture of both the fixed and the variable cost (Clinto et al., 2012). The telephonic expense is regarded as the semi variable cost. Fixed cost on the other hand remains fixed irrespective of the changes in the level of output. This cost is incurred by the organization if it does produce any level of output.

The cost of operation identified in case of Global Therapeutics are expense related to employees, inventory cost and lease payment. Here, semi variable cost is employee related expense, the fixed cost is the lease payment, and the inventory cost is the variable cost (DRURY, 2013).

In order to evaluate the desirability of the break even analysis for Global Therapeutic acquisition, it is essential to understand the advantages and disadvantages of the break even analysis. Break even analysis is nothing but the analyzing the relationship between the cost and profit.

Advantages of Break even analysis:

• Change in the selling price can be easily predicted
• Loss and profits can be measured at different level of sales and production
• The relationship between the fixed and variable cost is analyzed using this tool

Disadvantages of break even analysis:

• Time consuming process
• The sales price is assumed to be constant
• The tool is applicable to one product and one mix product

The break even analysis helps in generating the profit to the business after evaluating and identifying the excessive fixed and reducing it accordingly. The cost behavior of the acquired business needs to be appropriately analyzed. The inefficiencies of the business would be identifying the excess cost and reducing it. The only factor to be considered in decision making is the achievement of the break even early and the fixed cost reduction. The break even analysis is considered suitable if the primary decision making of the business in the short term is profitability (Horngren et al., 2013).

The organization is able to align the activities with the vision statement by suing the planning and strategic management tool of balanced scorecard which makes the organization’s holistic view. The business is analyzed into internal, financial, customer, business process, growth and learning using the approach of balanced score card (Kaplan & Atkinson, 2015).

Customer satisfaction is of primary importance in this regard as this would help in gaining the market share. If the medicines launched by the business helps in curing the disease and is authentic then the company would easily achieve customer satisfaction. The company needs to do the marketing aggressively to capture the share of the market (Merchant, 2012).

Financial perspective:

The objective of the company from the financial perspective is increase the return on capital employed and triggers the growth in sales. The company needs to create the distribution channel with the practitioner of Chinese medicine and increasing the expense on advertising of the Chinese medicine. The company would be able to generate the profits by increasing sales of medicines and reducing the cost and thereby increasing the return on capital employed (Luft, 2015).

Internal business process:

The management of the inventory and the modernization of the process involved is the objective of the business under this perspective. The company needs to be prudent in employing techniques as the medicines are based on ancient process. The inventories are needed to be properly accounted either on the basis of LIFO and FIFO if the objective of the inventory management needs to be attained (Shields, 2015).

Perception of learning and growth:

Under this perceptive, the learning and training opportunities of the employees and the satisfaction of the jobs of employees are the two objectives. The company needs to provide the educational and training facilities to the employees and the company should provide the best environment for the employees to work in and the jobs suited to the expertise of the employees should be provided (Nasseri et al., 2016).

a)

calculation of Breakeven point and sales
Particulars	Protein Shakes	Power up Vitamin	Recharge bars
Fixed Costs	$           58,783.78	$             58,783.78	$     27,432.43
Contribution per unit	$                     4.35	$                        5.55	$                2.80
Breakeven point	13512	10590	9794
Break even sales	$        105,392.81	$           100,609.41	$     54,849.19

calculation of profit after tax
Particulars	Protein Shakes	Power up Vitamin	Recharge bars
Units	15000	15000	21781
Selling Price per unit	$                     7.80	$                        9.50	$                5.60
Sales	$        117,000.00	$           142,500.00	$   121,973.60
Less: Variable costs
Ingredient costs	$        (46,500.00)	$           (54,000.00)	$   (59,897.75)
packaging costs	$           (5,250.00)	$             (5,250.00)	$     (1,089.05)
Contribution	$           65,257.80	$             83,259.50	$     60,992.40
less: Fixed costs	$        (42,003.82)	$           (42,003.82)	$   (60,992.35)
Profit Before Tax	$           23,253.98	$             41,255.68	$                0.05
Less: tax @30%	$           (6,976.19)	$           (12,376.70)	$                    –
Profit After tax	$           16,277.78	$             28,878.97	$                0.05

Suggestions for the strategic alternative

To: Retail head of Blackmore’s

From: Strategic consultant

Date: 06.10.2016

Subject: Suggesting the alternative changes

The memo is intended to show the initiatives, which are required to be achieved. The requirement is related to provide the attainment of the breakeven in the initial stages and increase the overall profit.

The level of breakeven can be attained in the early stages by making an increment in the contribution. Moreover, the increasing contribution will able to reduce the variable cost or make an increase in sales price. The increase in the selling price will decrease the competitive edge and increasing the marked price is not an option. The companies can look forward in reducing the cost excess expenses. In  the event of excess expenses company should look  forward to reduce the same for generating more profit and achievement of the early breakeven sales. Company can also consider increasing the overall sales (Bebbington & Thomson 2013). The analysis of “Profit after tax” (PAT) except recharge all the products are able to make profit. Additionally the recharge bar is observed to show a positive contribution, at the same time making a net loss.  It has been observed that the recharge bar attains the break even at the level 27181 units. Hence, the company should at least consider selling the aforementioned number of units to increase the profit and reduce costs.

Conclusion

The analysis shows that the company should increase its sales to increase the profit. The estimates show that the profit of the company will increase by the implementation of the strategy.

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