Assessment 1: Individual module assignment (2 x 30%)
Overview: Quality module assessment: Journal article review (30%)
Please refer to the recent quality management literature (academic journals) and select one article published within the past three years. The focus of this exercise is on the development of analytical skills. Consult with the lecturer about the appropriateness of the article prior to starting the assessment; then conduct a thorough critique, addressing and considering the following points.
§ Overall “message” or objectives of the study/article.
§ Relevance of the article to:
– The broad total quality management literature.
– Industry practitioners.
§ Gaps/weaknesses/limitations of the article.
i Note: Be sure you understand what is meant by “critique”. Critique is an accepted and established process of orderly scholarly debate. Critique is influenced by the scientific method of analysis. Critique is based upon an informed opinion, and never upon personal opinion. Informed opinion is accepted as being technical knowledge, personal or professional experience, or specified training. If you use other academic journals to inform your opinion, be sure to reference and cite them properly using the Harvard referencing style. The university’s library website has an excellent referencing guide at http://library.uws.edu.au/FILES/cite_Harvard.pdf

Details
The format of the critique must include the following sections (in clear headings please):

Introduction This section is not an executive summary. Approximately, five per cent of the length of the entire document.
Analysis Analysis of the articles content, objectives, etc. Approximately, 30 per cent of the length of the entire document.
Gaps, limitations and weaknesses identified in article Gaps typically refer to the area of knowledge under investigation, for instance. Limitations refer to the scope of the study – its “generalisability” and/or applicability of the findings, etc. Weaknesses refer to the article itself: its arguments, methodology, and any problems you might identify in it. Approximately, 30 per cent of the length of the entire document.
Implications Implications of the study’s findings for:
1. The field of quality management.
2. Industry practitioners.
3. Policy makers (government).
Approximately, 30 per cent of the length of the entire document.
Conclusion Approximately five per cent of the length of the entire document.

Approximate number of words of the document: 1,000 words plus or minus 10 per cent.
Marking criteria and standards
The assessment is heavily reliant upon thoroughness, in-depth discussion, and critical analysis. In addition, clarity, proper sentence structure, grammar and other communication skills are largely expected of postgraduate students; these skills will also be rigorously assessed/evaluated and contribute 30 per cent of the assessment marks. The marking guide for this assessment item follows. The report should be submitted in Microsoft Word .doc or .docx format via Turnitin.

MARKS DEPTH AND BREADTH OF COVERAGE (70%) STRUCTURE, LANGUAGE, AND CONVENTIONS (30%)
Fail
49 and below Overall, the content was superficial, and/or inadequately addressed the areas of the critique, clearly illustrating lack of understanding, effort, commitment, time management, and competency. The written work is not of an academic/ professional business writing standard. For example, there are multiple errors in spelling, word use, grammar, sentence structure, etc.
Pass
64-50 Different aspects of the exercise/question were addressed and researched adequately. Discussion, interpretations and recommendations were brief and unorganised, demonstrating limited understanding, preparation, time management and overall limited preparation. The structure of the written work is very basic, demonstrating limited polishing and self-critique prior to completing the assessment. Several areas show gaps/shortcomings in spelling, word choice, grammar, and related issues.
Credit
74-65 Most aspects of the critique were addressed adequately but the overall quality of the report is far from being outstanding. For example, the discussion, implications, recommendations, and other critical areas of the answer/discussion were only minimally elaborated. Only some aspects of the written work conform to an acceptable academic/ professional business writing standard. Some spelling, word choice, and grammar issues are/were identified in the report.
Distinction
84-75 Most aspects of the critique were addressed in depth, though overall the quality of the content falls short from being outstanding. For example, the discussion, implications, recommendations, and other critical areas of the discussion were not elaborated as thoroughly and as extensively as they are expected to be at a postgraduate level. Most aspects of the written work conform to a high academic/professional business writing standard. However, there are gaps and shortcomings, for instance, concerning spelling, grammar other critical elements pertaining to business writing.
High distinction
100-85 The critique document was skillfully completed. For example, in terms of discussion, elaboration, and structure, the writer demonstrated thoroughness and depth. Outstanding analytical skills were demonstrated, especially in discussing gaps and limitations of the article being critiqued, as well as presenting the implications of the findings for the field of quality management and for industry practitioners. In essence: The written work shows great depth of thought, excellent development of argument, logical analysis, and insight into the subject. All aspects of the written work conform to a high academic/professional business writing standard, especially regarding word choice, spelling, grammar, sentence structure, length of sentences, use of headings, as well as other critical elements pertaining to business writing.

Approximate number of words of the document: 1,000 words plus or minus 10 per cent.

I found the following article to work on
International Journal for Quality research UDK- 378.014.3(497.11) Short Scientific Paper (1.03)
Vol. 6, No. 3, 2012 193
Ashwini Sharma1) Dixit Garg2) Ashish Agarwal3)
1) ITM University, Gurgaon, India [email protected]
2) National Institute of Technology, Kurukshetra, India, [email protected]
3) Indra Gandhi National Open University, New Delhi, India, [email protected]
QUALITY MANAGEMENT IN SUPPLY CHAINS: THE LITERATURE REVIEW
Abstract: Supply chain management is used by most of the organizations worldwide, therefore the large number of studies has been done to explore this field. Moreover, its interlinking with the quality management perspective is still very limited. It is worth mentioning here that, in the present competitive world, the dynamics of market does not allow any deviation in quality of end product. Therefore, the importance of quality management is universally espoused by the researchers and practicing managers working in this area. It has been found by the authors that the focused approaches in evaluating quality management issues within inter and intra organization supply chain contexts are indispensable. During review of the open literature available in this area, the authors investigated that in present scenario there are number of quality related issues (either at the suppliers end or at manufacturers end) in supply chain management which needs immediate attention of the researchers. In this context the quality of supply chain itself can provide a path breaking solution at different levels of supply chain management. Moreover, this concept may be applied to address the problems such as product recall, delay in delivery of products etc. regardless of type of industry. In this paper, the authors have reported intensive studies based on the work carried out by various researchers in the area of supply chain management. Further, an attempt has also been made to identify conceptual interlinking between Supply chain management and Quality management through literature review.
Keywords: Supply chain management, Quality, Quality management, Gap analysis
1. INTRODUCTION
Alexander the Great based his strategies and campaigns on his army’s unique capabilities and these were made possible by effective supply chain management. His strategy and tactics had very closely tied to his ability to get supplies and to run a lean, efficient organization. Several hundred years ago, Napoleon made the remark, “An army marches on its stomach.” Napoleon was a master strategist and a skilful general and this remark shows that he clearly understood the importance of what we now call an
efficient supply chain. Supply chain term was first coined in the early 1980s to describe the range of activities coordinated by an organization to procure and manage supplies (Oliver and Webber, 1982). Supply chains encompass the companies and the business activities needed to design, make, deliver, and use a product or service. Businesses depend on their supply chains to provide them with what they need to survive and thrive. Every business fits into one or more supply chains and has a role to play in each of them.

194 A. Sharma, D. Garg, A.Agarwal
Figure 1: Supply Chain Structure
Figure 2: Factors influencing the supply chain
Initially the term referred to an internal focus bounded by a single organization and how they sourced and procured supplies managed their internal inventory and moved goods onto their customers (Harland, 1995; Macbeth and Ferguson, 1990). “A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customers themselves” (Chopra and Meindl, 2006). Customers have so much choice nowadays from an enormous field of competitors that delays in supply mean delays for the customers who are probably not willing to wait when they can obtain the same or similar substitute product elsewhere. Based on the above facts it is observed that the supply chain management has become important and critical aspect to the profit making of any organization. But, the quality management issues have also impacted the performance of supply chain in one way or other. Therefore, one must understand the meaning of quality management.
The quality definition as specified by Joseph Juran, “Quality is the fitness of use” i.e. it is the value of the goods and services as perceived by the supplier, producer and customer. The measure also pertains to the degree to which products and services conform to specifications, requirements and standards at an acceptable price. Some of the definitions of Quality, provided by quality gurus are as follows: · Quality is conformance to requirements (CROSBY) · The efficient production of the quality that the market expects (DEMING) · Quality is what the customer says it is (FEIGENBAUM) · Quality is the loss that a product costs to the society after being shipped to the customer (TAGUCHI) · The totality of features and characteristics of a product or services that bear on its ability to satisfy stated or implied needs of the customers (ASQC)

Vol 6, No. 3, 2012 195
· A quality system is the agreed on companywide and plant wide operating work structure, documented in effective, integrated, technical and managerial procedures for guiding the coordinated actions of people, the machines, or the information of company in the best and most practical ways to assume customer quality satisfaction and economical costs of quality. (FEIGENBAUM) · BSI EN ISO 9001: 2000 defines the term “quality” as the “degree to which a set of inherent characteristics (distinguishing features) fulfils requirements” (BSI, 2000) whereas Crosby (Oakland, 1993) described quality as “conformance to customer requirements”. As per the above definitions for quality, Quality management in supply chain can be defined as conformance to requirements. Therefore, we can say that the quality requirements from the supplier’s point of view may be an efficient and seamless flow of activities and resources to the manufacturer so that the optimum gains in terms of profit and highest rating from the manufacturer can be achieved for maximum possible time. The quality requirements from the manufacturer’s point of view may be the optimum integration and utilization of resources to satisfy the internal as well as the external customers in terms of goods and services offered.
2. LITERATURE REVIEW
SCM was initially related to the management of inventory within a supply chain. This concept was later broadened to include the management of all functions within a supply chain. According to Chopra and Meindl (2001), supply chain management involves the management of flows between and among stages in a supply chain to maximize total profitability”. This definition suggests that SCM involves management of the flows of products, information, and funds upstream and downstream in the supply chain. SCM also entails making decisions about the locations of production facilities, which products to produce, how to produce them, and finally, how to distribute these products (Sila et al., 2006). In the quest for competitive advantage,
organizations, consultants, practitioners and academics have attempted to organize and integrate supply chain management (SCM) concepts and practices. The areas of Supply chain which has been researched predominantly includes Supply chain Performance, Supply chain collaboration, Supply chain Integration, Supply chain agility, Supply chain Network design etc. As a result, it has been discovered that this subject requires radical thinking because the vastness of the topics is neither well defined nor easily implemented. SCM involves challenges such as developing trust and collaboration among supply chain partners, identifying best practices that can facilitate supply chain process alignment and integration, and successfully implementing the latest collaborative information systems and Internet technologies that drive efficiencies, performance, and quality throughout the supply chain (Carol J. Robinson, Manoj K. Malhotra, 2005). Empirical quality management (QM) research has evolved over the last 20 years. Empirical research has defined and measured QM practices (e.g., Ahire et al., 1996; Flynn et al., 1994; Nair, 2006; Saraph et al., 1989; Sila and Ebrahimpour, 2005). Numerous studies have investigated the relationships among QM practices and various aspects of a firm’s performance (e.g., Adam et al., 1997; Ahire and O’Shaughnessy, 1998; Dow et al., 1999; Kaynak, 2003; Samson and Terziovski, 1999). As competition moves beyond a single firm into the supply network of multi firms, focus is shifting from management of internal practices alone to the management of external firms. Quality managers must integrate their firms’ practices with those of customers and suppliers (e.g., Flynn and Flynn, 2005; Kannan and Tan, 2005; Robinson and Malhotra, 2005; Sila et al., 2006). Integrating QM and supply chain management (SCM) will be important for future competitiveness (Flynn and Flynn, 2005; Matthews, 2006; Robinson and Malhotra, 2005). Quality assurance in supply chain management related to different kinds of goods and services have been researched by (Manning et al. 2007; V. John Peters 1999; Braglia and Petroni, 2000; Sroufe and Curkovic, 2008) in order to align the supply chain with quality assurance to derive the models which can be adopted by the organisations to assure the quality.

196 A. Sharma, D. Garg, A.Agarwal
The Supply chain performance measurement (Bongsug Chae, 2009; Verma et al., 2008; Rick Hoole, 2005; Khan et al., 2009; Hong et al., 2010; Kannana and Tan, 2005; Wickramatillake et al., 2007; Theeranuphattana and Tang, 2008; Sun et al., 2009; Chris Morgan, 2004; Yeung, 2008; Burgess and Singh, 2006; Fantazy et al., 2009; Hervani et al., 2005; Soo Wook Kim, 2006 ) models, methods and frameworks related to supply chain partnership (kim et al., 2010), supply chain integration (Flynn et al., 2010), supply chain interaction (Salvador et al., Salvador), Supplier relations (Giannakis, 2007; Ou et al., 2010; Simpson and Power, 2005; Mihalis Giannakis, 2007; Cox et al., 2004) Supply chain Information (Forslund and Jonsson, 2007; Visich et al., 2009; Fawcett et al., 2007; Kaipia and Hartiala, 2006; Sezen, 2008), supplier selection (Weber, 1996), Quality improvement (kuei et al., 2001; Cagnazzo et al., 2010; Mangiameli and Roethlein, 2001), Supply chain effectiveness (Zokaei and Hines, 2007), Supply chain collaboration (Papakiriakopoulos and Pramatari, 2010; Wiengarten et al., 2010) for different types of goods and services such as FMCG, perishable goods (aramyan et al., 2007), services etc. have been researched for increasing the performance of supply chain at different cross sections of it to derive the profit as well as sustained market position and growth for organisations. Supply chain quality management has been explored by researchers where six hypotheses related to Supply chain quality management developed through literature review and tested using survey data from US manufacturing companies (Sila et al., 2006). Relationship between supply chain quality management practices and organisational performance have been researched and it was found that organizational performance could be enhanced through improved supply chain quality management (Chu-Hua kuei et al. 2001). (Robinson and Malhotra, 2005) defined the concept of supply chain quality management as the formal coordination and integration of business processes involving all partner organizations in the supply channel to measure, analyze and continually improve products, services, and processes in order to create value and achieve satisfaction of intermediate and final customers in the marketplace. They also found out
its relevance to academic and industrial practice and proposed a Quality-SCM framework. (Taticchi and Brun, 2010) identified role of performance measurement systems to support quality improvement initiatives at supply chain level. (Gionata Carmignani, 2009) modified interpretation of ISO 9001:2000 norm and introduced a research to determine a standard to implement a management system for a whole supply chain through the identification of the main supply chain processes and drivers. (Vanichchinchai and Igel, 2009) found that TQM and SCM have same ultimate goal which is customer satisfaction. TQM emphasizes internal (employee) participation and SCM focuses on external (business partners) partnerships but there is a need to emphasize both internal and external partnerships to further strengthen the emphasis on “total” TQM and the entire supply chain in SCM. (Peters, 1999) discussed service quality and total quality management as a business strategy designed to add value to customers. (Lo et al., 2006) in their work on managing quality effectively in supply chain extracted ten critical factors for describing a Supply Quality Management system. These factors could be clustered into three major groups namely supplier selection, supplier development and supplier integration. This study has not covered the relationship among supply quality management, supplier quality and buyer quality. (Chu-Hua kuei et al., 2002) in their work developed a two stage frame work on supply chain quality and technology relate to only upstream of supply chain. Foster Jr. S. T. (2008) defined supply chain quality management (SCQM) to operationalize and understand the effect of increased emphasis on supply chain management on the practice of quality management. Reviewed current research in quality management and identified common themes found in the literature. Key quality management content variables identified are customer focus, quality practices, supplier relations, leadership, HR practices, business results, and safety. Based on these variables he proposed areas for future research in the field of supply chain quality management. (Fynesa et al., 2005) in their work on the impact of supply chain relationship quality on quality performance developed a conceptual framework incorporating dimensions of SC relationships and quality

Vol 6, No. 3, 2012 197
performance. (Kaynak and Hartley, 2008) found that the inclusion of customer focus and supplier quality management in the QM model supports the importance of internal and external integration for quality performance. (Beamon et al., 1998) proposed a process quality model for the analysis, improvement and control of supply chain and concluded that the coordination of logistics functions into integrated supply chain systems has increased the need for improved process quality. Improving the quality of all supply chain processes results in reduced costs, improved resource utilization, and improved process efficiency. (Seth et al., 2006) devised a conceptual model for quality of service in the supply chain and found that majority of studies on service quality have focused on service industries, not supply chain as a whole. On finding that there are certain service quality domains that have not been investigated sufficiently, they proposed a model for assessing the quality of service at various interfaces of supply chain using 3PL. (Mowat and Collins, 2006) worked on consumer behavior and fruit quality and found in their survey that 124 consumers revealed that 46 percent ranked price as the most important attribute influencing the purchase decision, followed by taste (25 percent), size (13 percent) and skin color (3 percent). Taste was the attribute most frequently associated with disappointment (84 percent of responses), followed by price (10 percent) and texture (6 percent). Supply chains in new and emerging agricultural industries typically lack information linking product quality with consumer behavior. (Ramudhin et al., 2008) worked on incorporating cost of quality in supply chain network design to ensure the lowest overall cost, because it reduces the probability of defects and hence the probability of additional cost which might be due to corrective action but further research could model cost of quality (COQ) at both supplier and plants simultaneously. In industries such as the aerospace industry, the variable production cost is high; hence producing extra parts to compensate for defectives would be a costly option. (Sengupta, 2010) worked on placing a quality-oriented coordination process between the supply and receiving partners by following the mathematical model which supports the development of an effective supply chain network that maximizes profit. (Romano and
Vinelli, 2001) worked towards understanding how quality can be managed using a supply chain which reports a case study conducted on Marzotto, an important Italian textile and Apparel Company, and its supply chain relationships. The study compares the quality practices in the two different kinds of supply network of which Marzotto is the focal firm. One is managed using a traditional customer-supplier approach and the other a broader and more coordinated perspective. In the latter case, it was found that the whole supply network could improve its ability to meet the expectations of the final consumer in terms of quality through the joint definition and comanagement of quality practices/procedures. (Yang et al., 2007) carried out a case study in Samsung, where they found that the effort and investment in synthesizing SCM and six sigma, and developing a unique six-sigma-based methodology to improve its SCM operation, have turned out to be fruitful. The Black Belt program has produced highly qualified and talented SCM specialists, who are currently training the methodology to members in their organizations and leading SCM projects. (Braglia and Petroni, 2010) describes a multiple attribute utility theory based on the use of data envelopment analysis (DEA), aimed at helping purchasing managers to formulate viable sourcing strategies in the changing market place. DEA has proved to be capable of handling multiple conflicting attributes inherent in supplier selection while simultaneously trading-off key supplier selection criteria. Burgess and et al. (2006) found that the supply chain field is a relatively “new” one; several disciplines claim ownership of the field; consensus is lacking on the definition of the term; contextual focus is mostly on the manufacturing industry; predominantly “process” conceptual framing prevails; research methods employed are mostly analytical conceptual, empirical surveys or case studies; the positivist research paradigmatic stance is prevalent; and theories related to transaction cost economics and competitive advantage dominate. (Das et al., 2008) found that with a few notable exceptions, there is no guidance in the literature for operations managers trying to understand the role that employee safety at their own or a supplier could play in quality outcomes. Empirical tests of these propositions provide initial evidence that safety does indeed

198 A. Sharma, D. Garg, A.Agarwal
contribute to quality outcomes in the supply chain.
3. RESULTS OF STUDY
The literature which has been reviewed
clearly shows that there are ample opportunities in quality management in supply chain. Figure 3 shows the papers reviewed for supply chain related areas in which majority of papers are related to Supply chain performance.
Figure 3: Papers reviewed in Supply Chain related area
Figure 4 shows the different methodologies adopted by the researchers for the research.
Figure 4: Methodologies adopted by researchers
In order to categorize outcome of the literature review as above, international journals have been referred and the related papers were found predominantly in Journal of manufacturing technology (11%), Supply chain management: an
international journal (21%), International journal of operation and production management (14%), Journal of operation management (21%), Supply chain management (11%) (Figure 5).

Vol 6, No. 3, 2012 199
Figure 5: Papers reviewed from Various International Journals
Out of the total 112 papers reviewed the related areas covered in the supply chain management field in terms of percentage of papers found to be SC Performance (21%), Quality
Management in SC (8 %), Supply chain collaboration (11 %), Supply chain management (16%), Agile Supply Chain (4%), Supply Chain Design (9%), Flexibility (8%), TQM (13%),

200 A. Sharma, D. Garg, A.Agarwal
Information (8%), Literature review (3%). The methodologies adopted by the researchers in the different areas of supply chain management literature review are Conceptual framework (16%), Gap Analysis (5%), Analytical (4%), Survey (19%), Hypothesis (10%), Case-study (20%), Onsite interviews (4%), Empirical(11%), AHP, QFD and Balance Score Card (4%), Modelling(4%), DEA (2%). Out of total papers reviewed 8% of the papers are based on quality management in supply chain where the main focus was the improvement in quality of product and merely 2 papers are on the supply chain quality.
4. GAPS IN LITERATURE
The different aspects of Supply chain have been studied and emphasized by the researchers at different cross section of the industries over the years such as supply chain performance, SC coordination, SC Integration, SC Communication and information sharing, SC Leadership, SC best practices etc. but there is a huge gap existing for the comprehensive research on quality aspects of supply chain (Carol J. Robinson, Manoj K. Malhotra). Most of the research and studies done on quality aspects of supply chain have focused on the management of quality of products in the supply chain. Many research articles in supply chain context are found to be on performance of supply chain but the question arises that what about Quality of supply chain itself. Does it imply that performance of the SC is same as quality of supply chain? If yes then why the definition is different for both and if not, what can be the
quality of supply chain? The qualities aspects of supply chain are not dealt specifically as do supply chains have the quality? If yes, then what are these quality parameters? How do these parameters affect the quality? How do supply chain quality practices affect performance? How is quality managed in the context of the supply chain? How is management integrated with customers and suppliers to improve supply chain performance? How do these changing relationships influence quality results in firms? Therefore, the above can be considered as the future scope of research in this field.
5. CONCLUSION
Supply chain management is key focus area in the current scenario of global competitive market. In this market the company or organization having the quality in supply chain will only survive. It has been observed that quality in supply chain has not been focused in the literature related to supply chain management. The 8% of the papers reviewed have focused on quality management in supply chain. Here the main focus was the improvement in quality of product and not on the supply chain quality. In this paper the authors have attempted to study the existing literature on supply chain management and quality management. Analysis has been carried out to categorize the research papers published in international journals on the basis of different areas of supply chain management. This paper will be useful for the researchers in their study.
REFERENCES:
[1] Agarwal, A., Shankar, R. & Tiwari, M. (2007). Modeling agility of supply chain. Industrial Marketing Management, Vol. 36, Issue 4, pp. 443-457. [2] Matopoulos, A., Vlachopoulou, M. and Manthou, V. (2007). A conceptual framework for supply chain collaboration: empirical evidence from the agri-food industry. Supply Chain Management: An International Journal, Vol. 12, Issue 3, pp. 177–186. [3] Ajay Das, Mark Pagell, Michael Behm, Anthony Veltri “Toward a theory of the linkages between safety and quality” Journal of Operations Management 26 (2008) 521–535. [4] Alistair Mowat and Ray Collins “Consumer behaviour and fruit quality: supply chain management in an emerging industry” Supply Chain Management: An International Journal Volume 5. Number 1. 2000. pp. 45-54.

Vol 6, No. 3, 2012 201
[5] Amar Ramudhin, Chaher Alzaman and Akif A. Bulgak “ Incorporating the cost of quality in supply chain design” Journal of Quality in Maintenance Engineering Vol. 14 No. 1, 2008 pp. 7186. [6] Andrew Cox, Glyn Watson, Chris Lonsdale and Joe Sanderson “Managing appropriately in power regimes: relationship and performance management in 12 supply chain cases” Supply Chain Management: An International Journal, Volume 9 • Number 5 • 2004 • pp. 357–371. [7] Andy C.L. Yeung “Strategic supply management, quality initiatives, and organizational performance” Journal of Operations Management 26 (2008) 490–502. [8] Aref A. Hervani and Marilyn M. Helms and Joseph Sarkis “Performance measurement for green supply chain mananagement” Benchmarking: An International Journal, Vol. 12 No. 4, 2005, pp. 330-353. [9] Arif Khan K B. Bakkappa Bhimaraya A. Metri and B.S. Sahay “ Impact of agile supply chains’ delivery practices on firms’ performance: cluster analysis and validation” Supply Chain Management: An International Journal 14/1 (2009) 41–48. [10] Assadej Vanichchinchai and Barbara Igel “ Total quality management and supply chain management: similarities and differences” The TQM Magazine Vol. 21 No. 3, 2009 pp. 249-260. [11] Aziz Ahmed, Naser Ahmed and Ahmed Salman “Critical issues in packaged food business” British Food Journal Vol. 107 No. 10, 2005 pp. 760-780. [12] B.S. Sahay, Jatinder N.D. Gupta and Ramneesh Mohan “Managing supply chains for competitiveness: the Indian scenario” Supply Chain Management: An International Journal, 11/1 (2006) 15–24. [13] Barbara B. Flynn, Baofeng Huo Xiande Zhao “ The impact of supply chain integration on performance: A contingency and configuration approach” Journal of Operations Management 28 (2010) 58–71. [14] Benita M. Beamon and Tonja M. Ware “ A process quality model for the analysis, improvement and control of supply chain systems” International Journal of Physical Distribution & Logistics Management, Vol. 28 No. 9/10, 1998, pp. 704-715. [15] Bongsug (Kevin) Chae “ Developing key performance indicators for supply chain: an industry perspective” Supply Chain Management: An International Journal 14/6 (2009) 422–428. [16] Brian Fynesa,_, Chris Vossb, Sea´n de Bu´ rcac “ The impact of supply chain relationship quality on quality performance” Int. J. Production Economics 96 (2005) 339–354. [17] Bu¨ lent Sezen “ Relative effects of design, integration and information sharing on supply chain performance” Supply Chain Management: An International Journal 13/3 (2008) 233–240. [18] Carol J. Robinson, Manoj K. Malhotra “Defining the concept of supply chain quality management and its relevance to academic and industrial practice” Int. J. Production Economics 96 (2005) 315–337. [19] Chandika Diran Wickramatillake S.C. Lenny Koh A. Gunasekaran Subramanium Arunachalam “ Measuring performance within the supply chain of a large scale project” Supply Chain Management: An International Journal 12/1 (2007) 52–59. [20] Charles A. Weber “ A data envelopment analysis approach to measuring vendor erformance” Supply Chain Management, Volume 1 • Number 1 • 1996 • pp. 28–39. [21] Chin S. Ou Fang C. Liu Yu C. Hung David C. Yen “ A structural model of supply chain management on firm performance” International Journal of Operations & Production Management Vol. 30 No. 5, 2010 pp. 526-545. [22] Chris Morgan “ Structure, speed and salience: performance measurement in the supply chain” Business Process Management Journal Vol. 10 No. 5, 2004 pp. 522-536. [23] Chu-Hua kuei et al. “ Developing supply chain strategies based on survey of supply chain quality and technology management” International journal of quality and reliability management, Vol. 19 No. 7, 2002, pp 889-901.

202 A. Sharma, D. Garg, A.Agarwal
[24] Chu-Hua kuei et al. “ The relationship between supply chain quality management practices and organisational performance” International journal of quality and reliability management volume 18, no. 8, 2001,pp 864-872. [25] Dayna F. Simpson and Damien J. Power “Use the supply relationship to develop lean and green suppliers” Supply Chain Management: An International Journal, 10/1 (2005) 60–68. [26] Desmond Doran and Peter Thomas and Nigel Caldwell “Examining buyer-supplier relationships within a service sector context” Supply Chain Management: An International Journal, 10/4 (2005) 272–277. [27] Dimitris Papakiriakopoulos and Katerina Pramatari “ Collaborative performance measurement in supply chain” Industrial Management & Data Systems Vol. 110 No. 9, 2010 pp. 1297-1318. [28] Dong-Young Kim, Vinod Kumar and Uma Kumar “Performance assessment framework for supply chain partnership” Supply Chain Management: An International Journal 15/3 (2010) 187– 195. [29] Edmund Prater Markus Biehl Michael Alan Smith “International supply chain agility Tradeoffs between flexibility and uncertainty” International Journal of Operations & Production Management, Vol. 21 No. 5/6, 2001, pp. 823-839. [30] Elcio Mendonc¸a Tachizawa and Cristina Gime´nez Thomsen “Drivers and sources of supply flexibility: an exploratory study” International Journal of Operations & Production Management, Vol. 27 No. 10, 2007 pp. 1115-1136. [31] Elcio Mendonca Tachizawa Cristina Gime´nez Thomsen “Drivers and sources of supply flexibility: an exploratory study” International Journal of Operations & Production Management Vol. 27 No. 10, 2007 pp. 1115-1136. [32] Emilio Esposito and Renato Passaro “ Evolution of the supply chain in the Italian railway industry” Supply Chain Management: An International Journal14/4 (2009) 303–313. [33] Fabrizio Salvador and Cipriano Forza Manus Rungtusanatham and Thomas Y. Choi “Supply chain interactions and time-related performances An operations management perspective” International Journal of Operations & Production Management, Vol. 21 No. 4, 2001, pp. 461475. [34] Frank Wiengarten Paul Humphreys and Guangming Cao Brian Fynes Alan McKittrick “ Collaborative supply chain practices and performance: exploring the key role of information quality” Supply Chain Management: An International Journal 15/6 (2010) 463–473. [35] Geir Grundva°g Ottesen “Do upstream actors in the food chain know end-users’ quality perceptions? Findings from the Norwegian salmon farming industry” Supply Chain Management: An International Journal, 11/5 (2006) 456–463. [36] Gionata Carmignani “ Supply chain and quality management The definition of a standard to implement a process management system in a supply chain” Business Process Management Journal Vol. 15 No. 3, 2009 pp. 395-407. [37] Go¨ran SvenssonHans Ba°a°th “ Supply chain management ethics: conceptual framework and illustration” Supply Chain Management: An International Journal 13/6 (2008) 398–405. [38] H.M. Wee Simon Wu “ Lean supply chain and its effect on product cost and quality: a case study on Ford Motor Company” Supply Chain Management: An International Journal 14/5 (2009) 335–341. [39] Hale Kaynak a,*, Janet L. Hartley “ A replication and extension of quality management into the supply chain” Journal of Operations Management 26 (2008) 468–489. [40] Helena Forslund Patrik Jonsson “ The impact of forecast information quality on supply chain performance” International Journal of Operations & Production Management Vol. 27 No. 1, 2007 pp. 90-107. [41] Hong Mo Yang, Byung Seok Choi, Hyung Jin Park, Min Soo Suh and Bongsug (Kevin) Chae “ Supply chain management six sigma: a management innovation methodology at the Samsung Group” Supply Chain Management: An International Journal 12/2 (2007) 88–95.

Vol 6, No. 3, 2012 203
[42] Ismail Sila, Maling Ebrahimpour & Christiane Birkholz “ Quality in supply chains: an empirical analysis” Supply Chain Management: An International Journal 12/4 (2007) 304–315. [43] Jao-Hong Cheng, Chung-Hsing Yeh and Chia-Wen Tu “Trust and knowledge sharing in green supply chains” Supply Chain Management: An International Journal, 13/4 (2008) 283–295. [44] Jari Collin Elisa, Helsinki, Finland, and Eero Eloranta and Jan Holmstro¨m “ How to design the right supply chains for your customers” Supply Chain Management: An International Journal 14/6 (2009) 411–417. [45] Jens Hamprecht, Daniel Corsten, Manfred Noll and Evelyn Meier “Controlling the sustainability of food supply chains” Supply Chain Management: An International Journal, 10/1 (2005) 7–10. [46] Jiun-Sheng Chris Lin and Ching-Rung Chen “Determinants of manufacturers’ selection of distributors” Supply Chain Management: An International Journal, 13/5 (2008) 356–365. [47] John K. Visich Suhong Li Basheer M. Khumawala and Pedro M. Reyes “ Empirical evidence of RFID impacts on supply chain performance” International Journal of Operations & Production Management Vol. 29 No. 12, 2009 pp. 1290-1315. [48] John K. Visich, Suhong Li, C Basheer, M. Khumawala, Pedro M. Reyes “Empirical evidence of RFID impacts on supply chain performance” International Journal of Operations & Production Management, Vol. 29 No. 12, 2009, pp. 1290-1315 [49] John Noonan and Michael Wallace “Building responsive contract manufacturers through valuefocused strategies” Supply Chain Management: An International Journal, Volume 9 • Number 4 • 2004 • pp. 295-302. [50] K. Das S. Sengupta “ Modelling supply chain network: a quality-oriented approach” International Journal of Quality & Reliability Management Vol. 27 No. 5, 2010 pp. 506-526. [51] Kamel Aissa Fantazy, Vinod Kumar and Uma Kumar “ An empirical study of the relationships among strategy, flexibility, and performance in the supply chain context” Supply Chain Management: An International Journal 14/3 (2009) 177–188 [52] Karkoszka, T. Estimation of processes realization risk as a manner of safety management in the integrated systems”, International Journal for Quality Research, vol. 5, no. 2, pp. (2011), 131141. [53] Katerina Pramatari “Collaborative supply chain practices and evolving technological approaches” Supply Chain Management: An International Journal, 12/3 (2007) 210–220. [54] Keivan Zokaei and Peter Hines “ Achieving consumer focus in supply chains” International Journal of Physical Distribution & Logistics Management Vol. 37 No. 3, 2007 pp. 223-247. [55] Kenneth J. Preiss and Peter A. Murray “Fashions of learning: improving supply-chain relationships” Supply Chain Management: An International Journal, 10/1 (2005) 18–25. [56] Kevin Burgess and Prakash J. Singh “A proposed integrated framework for analysing supply chains” Supply Chain Management: An International Journal 11/4 (2006) 337–344. [57] Kevin Burgess Prakash J. Singh Rana Koroglu “ Supply chain management: a structured literature review and implications for future research” International Journal of Operations & Production Management Vol. 26 No. 7, 2006 pp. 703-729 [58] Kevin Lindermana, Roger G. Schroedera, Srilata Zaheera, Charles Liedtkeb, Adrian S. Choob “ Integrating quality management practices with knowledge creation processes” Journal of Operations Management 22 (2004) 589–607. [59] L. Manning, R.N. Baines and S.A. Chadd “ Quality assurance models in the food supply chain” British Food Journal Vol. 109 No. 4, 2007 pp. 291-304. [60] Linda Boardman Liu, Paul Berger. Amy Zeng and Arthur Gerstenfeld “Applying the analytic hierarchy process to the offshore outsourcing location decision” Supply Chain Management: An International Journal, 13/6 (2008) 435–449. [61] Luc Cassivi “Collaboration planning in a supply chain” Supply Chain Management: An International Journal, 11/3 (2006) 249–258.

204 A. Sharma, D. Garg, A.Agarwal
[62] Luca Cagnazzo Paolo Taticchi and Alessandro Brun “ The role of performance measurement systems to support quality improvement initiatives at supply chain level” International Journal of Productivity and Performance Management Vol. 59 No. 2, 2010 pp. 163-185. [63] Lusine H. Aramyan, Alfons G.J.M. Oude Lansink, Jack G.A.J. van der Vorst and Olaf van Kooten “SC Performance in agri-food supplychains: a case study” Supply Chain Management: An International Journal 12/4 (2007) 304–315. [64] Lutz Preuss “Addressing sustainable development through public procurement: the case of local government” Supply Chain Management: An International Journal 14/3 (2009) 213–223. [65] Manisra Baramichai, Emory W. Zimmers Jr and Charalambos A. Marangos “Agile supply chain transformation matrix: an integrated tool for creating an Agile enterprise” Supply Chain Management: An International Journal 12/5 (2007) 334–348. [66] Manisra Baramichai, Emory W. Zimmers Jr and Charalambos A. Marangos “Agile supply chain transformation matrix: an integrated tool for creating an agile enterprise” Supply Chain Management: An International Journal 12/5 (2007) 334–348. [67] Marcello Braglia Alberto Petroni “A quality assurance-oriented methodology for handling tradeoffs in supplier selection” International Journal of Physical Distribution & Logistics Management, Vol. 30 No. 2, 2000, pp. 96-111. [68] Mihajlović, M.. “Quality of Inter-Organizational System (IOS) framework for Supply Chain Management (SCM): Study of six collaborative factors from supplier and customer perspectives.” International Journal for Quality Research 4.3 (2010): 181-192. [69] Mihalis Giannakis “ Performance measurement of supplier relationships” Supply Chain Management: An International Journal, 12/6 (2007) 400–411 [70] Mihalis Giannakis “ SC Performance of supplier relationships” Supply Chain Management: An International Journal 12/4 (2007) 304–315 [71] Nitin Seth S.G. Deshmukh Prem Vrat “ A conceptual model for quality of service in the supply chain” International Journal of Physical Distribution & Logistics Management Vol. 36 No. 7, 2006 pp. 547-575. [72] Paul C. Hong David D. Dobrzykowski A d Mark A. Vonderembse “ Integration of supply chain IT and lean practices for mass customization Benchmarking of product and service focused manufacturers” Benchmarking: An international Journal Vol. 17 No. 4, 2010 pp. 561-592. [73] Paul Levy, John Bessant, Bob Sang and Richard Lamming “ Developing integration through total quality supply chain management” Integrated Manufacturing Systems, Vol. 6 No. 3, 1995, pp. 4-12. [74] Paul mangiameli and Christopher j. Roethlein “ An examination of quality performance at different levels in a connected supply chain: A preliminary case study” Integrated Manufacturing Systems 12/2[2001] 126-133. [75] Peter c. weber and Thomas w. speh “ Using Balanced scorecard to measure supply chain performance” Journal of business logistics, vol. 21, No. 1, 75-93, 2000 [76] Pietro Romano and Andrea Vinelli “ Quality management in a supply chain perspective Strategic and operative choices in a textile-apparel network” International Journal of Operations & Production Management, Vol. 21 No. 4, 2001, pp. 446-460. [77] Premaratne Samaranayake “ A conceptual framework for supply chain management: a structural integration” Supply Chain Management: An International Journal 10/1 (2005) 47–59. [78] R. Cigolini M. Cozzi M. Perona “A new framework for supply chain management Conceptual model and empirical test” International Journal of Operations & Production Management Vol. 24 No. 1, 2004 pp. 7-41. [79] R. Mason-Jones and D.R. Towill “Information enrichment: designing the supply chain for competitive advantage” Supply Chain Management, Volume 2 • Number 4 • 1997 • pp. 137–148. [80] Raul Rodriguez Rodriguez, Raul Poler Escoto, Josefa Mula Bru and Angel Ortiz Bas “Collaborative forecasting management: fostering creativity within the meta value chain context” Supply Chain Management: An International Journal, 13/5 (2008) 366–374.

Vol 6, No. 3, 2012 205
[81] Richard Oloruntoba and Richard Gray “Humanitarian aid: an agile supply chain?” Supply Chain Management: An International Journal 11/2 (2006) 115–120. [82] Rick Hoole “ Five ways to simplify your supply chain” Supply Chain Management: An International Journal10/1 (2005) 3–6. [83] Riikka Kaipia and Helena Hartiala “ Information-sharing in supply chains: five proposals on how to proceed” The International Journal of Logistics Management Vol. 17 No. 3, 2006 pp. 377393. [84] Robert E. Spekman, John W. Kamauff Jr and Niklas Myhr “An empirical investigation into supply chain management: a perspective on partnerships” Supply Chain Management Volume 3 • Number 2 • 1998 • pp. 53–67. [85] Robert Mason, Chandra Lalwani and Roger Boughton “Combining vertical and horizontal collaboration for transport optimisation” Supply Chain Management: An International Journal, 12/3 (2007) 187–199. [86] Robert Sroufe, Sime Curkovic “ An examination of ISO 9000:2000 and supply chain quality assurance” Journal of Operations Management 26 (2008) 503–520. [87] Roger G. Schroeder, Kevin Linderman, Charles Liedtke, Adrian S. Choo “Six Sigma: Definition and underlying theory” Journal of Operations Management 26 (2008) 536–554. [88] S. Thomas Foster Jr. “Towards an understanding of supply chain quality management” Journal of Operations Management 26 (2008) 461–467. [89] S.M. Disney and D.R. Towill “A methodology for benchmarking replenishment-induced bullwhip” Supply Chain Management: An International Journal 11/2 (2006) 160–168. [90] Samual H Huang, Mohit Uppaland J shi “A product driven approach to manufacturing supply chain selection” Supply Chain Management: An International Journal Volume 7 No. 4, (2002) 189-199. [91] Shams-ur Rahman “Quality management in logistics: an examination of industry practices” Supply Chain Management: An International Journal, 11/3 (2006) 233–240. [92] Sharon Ordoobadi “Application of Taguchi loss functions for supplier selection” Supply Chain Management: An International Journal 14/1 (2009) 22–30. [93] Shin-Chan Ting and Danny I. Cho “ An integrated approach for supplier selection and purchasing decisions” Supply Chain Management: An International Journal, 13/2 (2008) 116– 127. [94] Siddharth Varma Subhash Wadhwa and S.G. Deshmukh “ Evaluating petroleum supply chain performance Application of analytical hierarchy process to balanced scorecard” Asia Pacific Journal of Marketing and Logistics Vol. 20 No. 3, 2008 pp. 343-356. [95] Simon Croom “Restructuring supply chains through information channel innovation” International Journal of Operations & Production Management, Vol. 21 No. 4, 2001, pp. 504515. [96] Soo Wook Kim “Effects of supply chain management practices, integration and competition capability on performance” Supply Chain Management: An International Journal, 11/3 (2006) 241–248 [97] Stanley E. Fawcett Paul Osterhaus Gregory M. Magnan James C. Brau Matthew W. McCarter “ Information sharing and supply chain performance: the role of connectivity and willingness” Supply Chain Management: An International Journal 12/5 (2007) 358–368. [98] Stanley E. Fawcett, Paul Osterhaus, Gregory M. Magnan, James C. Brau and Matthew W. McCarter “Information sharing and supply chain performance: the role of connectivity and willingness” Supply Chain Management: An International Journal 12/5 (2007) 358–368. [99] Stefan A. Seuring “Assessing the rigor of case study research in supply chain management” Supply Chain Management: An International Journal, 13/2 (2008) 128–137 [100] Stephen J. New “The scope of supply chain management research” Supply Chain Management Volume 2 • Number 1 • 1997 pp. 15–22.

206 A. Sharma, D. Garg, A.Agarwal
[101] Su-Yol Lee “ Drivers for the participation of small and medium-sized suppliers in green supply chain initiatives” Supply Chain Management: An International Journal, 13/3 (2008) 185–198. [102] Szu-Yuan Sun and Meng-Hsiang Hsu Wen-Jin Hwang “ The impact of alignment between supply chain strategy and environmental uncertainty on SCM performance” Supply Chain Management: An International Journal 14/3 (2009) 201–212. [103] Theeranuphattana, A. & Tang, J.C.S. (2008). A conceptual model of performance measurement for supply chains Alternative considerations. Journal of Manufacturing Technology Management, Vol. 19, No. 1, pp. 125-148. [104] Theodore P. Stank and Thomas J. Goldsby “A framework for transportation decision making in an integrated supply chain” Supply Chain Management: An International Journal, Volume 5. Number 2. 2000. pp. 71-77. [105] Theodore P. Stank, Patricia J. Daugherty and Chad W. Autry “Collaborative planning: supporting automatic replenishment programs” Supply Chain Management, Volume 4 • Number 2 • 1999 • pp. 75–85. [106] Togar M. Simatupang and Ramaswami Sridharan “ A benchmarking scheme for supply chain collaboration” Benchmarking: An international Journal Vol. 11 No. 1, 2004 pp. 9-30. [107] Uma V. Sridharan and W. Royce Caines and Cheryl C. Patterson “Implementation of supply chain management and its impact on the value of firms” Supply Chain Management: An International Journal, 10/4 (2005) 313–318 [108] V. John Peters “ Total service quality management” Managing Service Quality Volume 29 • Number 1 • 1999 • pp. 6–12. [109] V.M. Rao Tummala, Cheryl L.M. Phillips and Melanie Johnson “ Assessing supply chain management success factors: a case study” Supply Chain Management: An International Journal, 11/2 (2006) 179–192. [110] Victor H.Y. Lo and Alice Yeung “ Managing quality effectively in supply chain: a preliminary study” Supply Chain Management: An International Journal 11/3 (2006) 208–215. [111] Victoria Bordonaba-Juste & Jesu´ s J. Cambra-Fierro “Managing supply a collaborative and chain in the context of SMEs: customized partnership with the suppliers as the key for success” Supply Chain Management: An International Journal 14/5 (2009) 393–402. [112] Vijay R. Kannan And Keah Choon Tan “ The impact of operational quality: a supply chain view” Supply Chain Management: An International Journal 12/1 (2007) 14–19. [113] Vijay R. Kannan Keah Choon Tan “The impact of operational quality: a supply chain view” Supply Chain Management: An International Journal 12/1 (2007) 14–19. [114] VijayR. Kannana; Keah Choon Tan “ Just in time, total quality management, and supply chain management: understanding their linkages and impact on business performance” Omega 33 (2005) 153 – 162 [115] Xiaoming Li and Festus Olorunniwo “An exploration of reverse logistics practices in three companies” Supply Chain Management: An International Journal 13/5 (2008) 381–386.
send me plz an email to provide u some the docs with a proper way

please check the attached assignment file for full details and the following notes must be followed :

Note

• Maximum word limit for this assignment is 2000 words excluding financial analysis and calculations.

• Other instructions on submission can be found on Studynet and your module handbook.

• Follows Harvard style for in-text citation & Reference List.

 

7BSP1123- Accounting for Business Decisions

 

Assignment 1 (35% of the overall mark)

 

Submission deadline: 28^th March, 2015

 

Please read the case study below and answer the questions that follow

 

Leisure Outfit Ltd (LOL)

 

“This is absolutely typical of British banks. As soon as you have any success they want to pull the plug and stop you trading” Jill Dempsey was very angry. She is the managing director of LOL and had just received a letter from the company’s bank requiring a significant reduction in the overdraft. “This is ridiculous” agreed Mike Greaves, the production director. “Last year we had a cracking year and it looks set to continue. We had a big order in from Arena just this morning. If we can’t keep up the overdraft, we won’t be able to fulfil that order”. Arena was one of several national chains of casual and sportswear stores that were placing substantial orders with LOL, usually to be sold under the LOL label but in some cases under the stores’ own-brand label.

 

Leisure Outfit Ltd was started by Jill Dempsey and Mike Greaves five years ago. The business is a designer and manufacturer of casual and leisure clothes aimed particularly at the younger, higher-income market. Before starting the company, both had been employed as senior managers with Cassini plc, a large UK clothes manufacturer. They decided to form Leisure Outfit Ltd after their ideas for developing a new range of clothes for younger people had been rejected by Cassini Plc. Although their former employer liked the ideas proposed, it was restructuring its operations after three consecutive years of losses and had decided to focus on certain core brands aimed at meeting the needs of older people requiring smart day and occasion wear. The proposals by Jill and Mike did not, therefore, fit with the strategies that Cassini had just begun to implement.

 

From the outset, Jill and Mike decided that LOL would be a design-and-marketing led business. Both felt that many of the problems experienced by Cassini could be traced to weaknesses in these areas and they were determined that this would not occur in their newly formed business. Much of the forward planning was concerned with integrating the product design and development with the sales and marketing operations of the business. The new company had taken a lot of trouble and spent a lot of money on employing a young and talented design team, led by Jane Barker who had been employed previously as a chief designer for a leading sportswear brand. The range of clothes designed by Jane and her team was greeted with enthusiasm by the major buyers, and this was converted into firm orders by the marketing team led by Jill Dempsey. The order book began to grow and, for the new season, orders had reached their highest level ever.

 

Leisure Outfit Ltd began trading during a period of recession when people did not have a great deal of money to spend on clothes. However, sales started to increase significantly as the economy began to come slowly out of recession and as export markets in France and Switzerland were opened. Jill and Mike were both surprised and delighted by the speed with which the sales of the business had grown in recent years and by the growing base of regular customers. The order just received from Arena was seen as particularly important. If Arena became a regular customer, the sales of the company were likely to increase rapidly over the next few years and would establish LOL as a major player in the market.

 

Jill and Mike had both invested their life savings in the business and had taken out large mortgages on their respective houses to help finance the new company. However, this provided only a relatively small amount of the total ordinary share capital needed. In order to raise the remaining share capital, friends, family and business contacts were approached. The largest shareholder of the business was Keeble Estates Ltd, owned by David and John Keeble. The two Keeble brothers had made large profits by land speculation over the years but were keen to diversify into other areas as their business had been particularly hard hit by the recent recession. They had known Jill for many years and were convinced that she and Mike would make a success of the new business.

 

The board of directors of Leisure Outfit Ltd and their shareholdings were as follows:

 

Jill Dempsey    Managing director and marketing director (350,000 shares)

Mike Greaves Production director (350,000 shares)

Jane Barker      Design director (20,000 shares)

David Keeble   Chairman (1,000,000 shares owned jointly with brother John through

Keeble Estates)

John Keeble     Non-executive director

In addition to his role as production director, Mike tended to look after financial matters.

 

Though the company had accounts staff who dealt with the day-to-day transactions, there was no one within the company who had any great financial expertise. When there was a problem, the company’s auditors were normally asked for advice.

 

On the day that the letter from the bank was received, a board meeting was due to take place to consider the draft accounts of the business for the year that had ended two months earlier. At this meeting, the letter from the bank was also distributed to board members for discussion.

 

Mike Greaves began the discussion by saying:

 

We’ve just received the draft accounts from the auditors, which seem to confirm our success. Profit has more than doubled. I really can’t see how the cash situation is so poor. I know that we spent a lot on that additional plant and that we didn’t get anything from the old machines we got rid of, but most of that was covered by the bank loan. Really, the cash situation should be even better than the profit level implies because the expenses include about £2.6 million for depreciation and we don’t have to write a cheque for that.

 

Jill Dempsey, who was still angry at what she regarded as the high-handed attitude of the bank, pointed to the difficulties that the bank’s demands would cause:

 

The bank wants us to reduce the overdraft by half over the next six months! This is crazy. I tried to explain that we have important orders to fulfil but the manager wasn’t interested. How on earth can we find this kind of money in the time available? We are being asked to do the impossible.

 

Both Mike and Jill had, before the meeting, hoped that the Keeble brothers would be prepared to help out by purchasing further shares in the company or by making a loan. However, it was soon made clear by David Keeble that further investment was not a possible option. Keeble Estates had been experiencing considerable problems over recent years and simply did not have the money to invest further in Leisure Outfit Ltd. Indeed, the Keeble brothers would be prepared to sell their shares in LOL to generate much-needed cash for their ailing company.

 

Finding a prospective buyer for the shares was not, however, a likely prospect at this point. Both David and John Keeble had been heavily involved in recent years with the problems of Keeble Estates and had taken little interest in the affairs of LOL. The board meeting made them realise that they should have been much more attentive, and they now faced the prospect of being major shareholders of two failed companies unless things could be radically improved.

 

The accounts of Summer Bodysuit Ltd for the past two years are set out below.

 

Income statement for the year ended 31 December:

Year before last            Last year

£000                  £000

Revenue                                                                                   14,006              22,410

Cost of sales                                                                            7,496                11,618

Gross profit                                                                              6,510               10,792

Operating expenses                                                                  4,410                6,174

Operating profit (before interest and taxation)                             2,100                4,618

Interest payable                                                                         432                  912

Profit before taxation                                                                1,668                3,706

Taxation                                                                                    420                   780

Profit for the year                                                                      1,248                2,926

Note:

Dividends proposed in each year

These are paid in the following year.

600                      800

 

Balance sheet as at 31 December                                 Year before last         Last year

₤000                ₤000

Non-current assets                                                                     8,600               14,470

Current assets

Inventory                                                                                   2,418               5,820

Trade receivables                                                                      1,614               3,744

Other receivables                                                                         268                  402

Cash                                                                                              56                       8

4,356               9,974

Total assets                                                                              12,956              24,444

Equity

Ordinary shares of ₤0.50 each                                                    3,600                3,600

Retained profit                                                                          3,274                5,400

6,874                9,000

Non-current liabilities

Loan notes                                                                                3,600                6,600

Current liabilities

Trade payables                                                                         1,214               2,612

Other payables (inc. taxation)                                                     1,268               1,982

Bank overdraft                                                                                                  4,250

2,482              8,844

Total equity and liabilities                                                           12,956             24,444

 

The board of directors was not able to agree on a way of dealing with the financial problem faced by the company. Jill believed that their best hope was to continue to wrangle with the bank over its demands. She felt that there was still a chance that the bank could be persuaded to change its mind once the draft accounts for last year were made available and once the bank was informed of the implications for the company of paying off such a large part of the overdraft in such a short period of time. Mike and Jane, on the other hand, were not optimistic about the prospects of changing the bank’s position. The company had breached its overdraft limit on several occasions over the past few years and they knew that the patience of the bank was now wearing thin.

 

The directors believed that the only real solution was to look for someone who was prepared to make a significant investment in the business. They felt that only a large injection of new funds could keep the business on track. Like Jill, the other board members believed that the draft accounts demonstrated the success of the business over recent years and that this evidence would make the business attractive to a potential investor. The Keeble brothers rejected both of these views as being impractical. In addition, they were against the idea of introducing another major shareholder to the company as this was likely to dilute their influence over the future direction of the business. The brothers believed that drastic and immediate action was required by the board, although they were not sure what form of action should be taken.

 

After several hours of discussion, it was clear that the financial issue was not going to be resolved at the meeting. Instead, it was agreed that expertise from outside the company should be sought to help the company find a feasible solution to the problem. The board decided to approach Smarty Management Consultants, which specialises in helping businesses with financial problems, and to ask the firm to produce a plan of action for the board’s consideration. Jill agreed to contact the firm of consultants on behalf of the board and to agree to the terms of reference for the work required. She was, however, apprehensive about what the proposed plan of action would contain. Immediately after the board meeting she discussed her concerns with Mike. She said, ‘It seems we have to pay a penalty for our success. I only hope this penalty won’t involve undoing all our good work over the years.’

 

 

Required:

 

Assume that you are a member of Smarty Management Consultants.

 

1. Prepare a report for the board of directors of Leisure Outfit Ltd that analyses the problems faced by the company and sets out a detailed plan of action for dealing with its financing problem.

       (70 Marks)

 

2. Would you support the bank’s request for a significant reduction in the overdraft facility granted to Leisure Outfit Ltd? Full justification required to support your position.

 

       (30 Marks)

 

Note

 

• Maximum word limit for this assignment is 2000 words excluding financial analysis and calculations.

 

• Other instructions on submission can be found on Study-net and your module handbook.

 

• Follows Harvard style for in-text citation & Reference List.

 

 

the following outline needs to be used:
1) Facts of the case
2) Key issues
3) Alternatives/Options
4) Recommendations
I have attached a Netflix case as a guide but keep in mind that its missing recommendations/conclusions.
This paper should mention should mention the below topics that are applicable. The teacher wants more emphasis on the business strategies and implementations of the strategies.
Mission/Vision, Internal audit process (company culture, planning, organizing, motivating, staffing, controlling, marketing, finance/accounting, production/operations, R&D, Benchmarking, etc), External assessment (economic forces, social, cultural, demographic, and natural environment forces, political, governmental and legal, technological, and competitive, etc) Business Strategies (forward integration, backward integration, horizontal integration, market penetration, market development, etc) Identify important behavioral, political, ethical, and social responsibility considerations, organizational culture in strategic analysis and choice, role of board of directors in choosing amount alternative strategies,, Implementing Strategies: Management and Operations Issues (organization culture importance, restructuring and re engineering, link performance and pay to strategies, etc) Implementing strategies: Marketing finance/accounting, R&D issues (market segmentation, product positioning, business analytic and data mining)

INSTRUCTIONS TO STUDENTS

Phase 2 – Case Study

Case-Study Information

The Case Study has been made available from the reading week of your course. You can

begin to work on the assessment from that date onwards. At 09.00 on the morning of the

controlled assessment (January 9, 2015) further information regarding this case (including

all the specific question requirements) will be made available.

You are expected to consider this supplementary information and to include it in your final

submission. The completed assessment must be uploaded onto Turnitin by 16.00 on the day

of the controlled assessment.

Explanation of the assessment criteria and how the marking scheme works

Your assignment will be marked according to the Level Assessment Criteria for Level 4. The

criteria are designed to test your knowledge of concepts i.e. your understanding of relevant

financial terms, ideas, theories, notions and principles and your ability to apply those

concepts in a practical situation. You will also need to show your understanding of what

elements should be included in a professional report.

Word count policy

The maximum word count for the report is 1500 words (excluding headings, references and

appendices). The examiner will stop marking your submission at the point it reaches this

word count. Candidates should show how many words they have used on the front of their

assignment

It is best to allocate your word count in direct proportion to the weighting of the marks – so for

example, if one section has 30% of the marks allocated and as such you should aim to

allocate 30% of your word count to this section, i.e. approximately 450 words.

Referencing and the Harvard system

During the course of writing an essay, a report or an assignment, you would normally

support your points and your arguments by referring to the published works of others. The

nature of this assessment means that it is expected you will have minimal or no

referencing.

If you are going to reference the work of others, for the purposes of this assessment these

references may be from work presented in journal or newspaper articles, government

reports, books or specific chapters of books, or material from credible sources on the

Internet (Wikipedia is not a credible academic source).

Giving a reference is the practice of referring to the work of other authors in the text of your

own piece of work. Within your assignment, each time you use the work of others it needs to

be referenced back to the ‘Bibliography’ at the end of the work; this gives the full details of

the source item and should enable it to be traced. Referring accurately to such source Understanding Financial Statements – Assessment

Page 3 of 17

materials is part of sound academic practice and a skill that should be mastered – it’s

important to give credit to others whose ideas you have used.

The Harvard referencing (Author, date, title) is the mandatory approach and a full

explanation as to how this system works is available in the Assessment section of the VLE.

Advice on plagiarism and collusion

Copying material i.e. plagiarism, from a third party source is a serious offence and may

result in your work not being accepted. Plagiarism involves presenting work as though it

were your own or using ideas of another author without acknowledging the fact.

Collusion takes place when two or more students submit work that is too similar i.e. similar in

words, content and style, such as might be put down to coincidence. Make sure that the

work you submit is your own or is appropriately referenced. If in doubt you should speak to

your tutor or the module leader.

Writing your report

The report should be presented in a professional manner. The writing should be clear,

concise and persuasive. The report should be well structured and the tone used should be

business-like.

Please use Headings and Sub-Headings throughout the report to provide the reader with a

logical flow of content. You may use presentation aids such as colour and diagrams to

support the text where appropriate.

Candidates are advised to use a professional format for their work e.g. Ariel font type, font

size 11 or 12 and 1.5 line spacing to provide an overall proportion of 25% white space.

Understanding Financial Statements – Assessment

Page 4 of 17

Indicative requirements

The format of your assessment is as follows.

Question 1 will cover the purpose and key features of Sandell Arnold’s financial statements,

it will be split into 3 sub-requirements labelled ‘a to c’ which will total 12 marks, which will be

released at phase 3.

Questions 2-5 are set out below (but will also be released again at phase 3 along with

question 1 to provide you with the full set of requirements).

Auditing and Corporate Governance (14 marks)
Consider the comments made by Sandell’s external auditors and the Non-executive

Director in Exhibit four in Sandell’s governance arrangements.

Explain what type of modified (Not-so-Clean) audit report, the external auditors would
give Sandell if the accounting treatment of the £30 million damages remains

unresolved.

(2 marks)

If Sandell revised their financial statements for the £30 million damages in line with
Exhibit 5, the external auditors would give Sandell an unmodified (Clean) audit

report.

Explain why the external auditors have changed their opinion on Sandell’s
financial statements when compared with part 2(a).

Describe ONE reason why companies prefer receiving clean audit reports.
(4 Marks)

Review the narrative in Exhibit 4 from the Non-Executive Director relating to the
decision to increase director’s remuneration by 50%.

Identify and explain TWO corporate governance deficiencies demonstrated by the
board’s decision to approve this remuneration increase.

Describe TWO pieces of corporate governance good practice which Sandell
could put in place to make better quality decisions about director’s remuneration

going forward.

(8 marks) Understanding Financial Statements – Assessment

Page 5 of 17

Interpretation of the Income Statement (35 marks)
Use the case study information to analyse and comment on FIVE movements in
Sandell’s Income Statement (financial performance) during the year 2013 compared

to 2012.

Use the additional financial information in Exhibit 2 and the relevant ratios shown in

Exhibit 3 to enhance the quality of your analysis.

For each item you select to analyse and comment upon

Ensure you use an appropriate financial technique (Ratio, Trend analysis)
to ascertain the movement between 2013 compared to 2012;

Reflect and comment upon whether the movement is having a positive or
negative impact on Sandell’s financial performance; and

iii. Use the case study to identify and explain at least ONE reason why the

movement in part 3a(i) has happened.

(25 marks)

Using the revised financial statements set out in Exhibit 5: (You cannot answer all
of this question until Phase 3)

Calculate a revised net margin ratio (show your workings via a separate
Appendix to your report);

Explain how the net margin ratio helps assess a company’s financial
performance; and

iii. Compare your calculation in 3b(i) with the present net margin ratio

(Exhibit 3) and discuss whether the Chief Executive’s statement that the

company has managed to improve its profitability since 2012 remains

valid.

(10 marks)

Interpretation of the Statement of Financial Position and Statement of Cash Flows
(35 marks)

One of the main reasons that £22 million of operating profit earned by Sandell is only
producing £2 million of operating cashflow is due to how the company is managing its

working capital.

Identify which parts of the Statement of Cashflow show how working capital is
being managed;

Identify and use appropriate working capital ratios to illustrate movements in
working capital for 2013 as compared to 2012;

iii. Use the ratio’s in 4a(ii) above to calculate the Operating Cash Cycle (OCC)

for 2012 and 2013;

Comment on whether the movement in the OCC calculated in 4a(iii) is having
a positive or negative impact on Sandell’s cashflow; and

Use the case study to identify and explain at least TWO reasons why the
OCC movement (in part 4a(iii)) has occurred. Understanding Financial Statements – Assessment

Page 6 of 17

(15 marks)

Consider this quote from the sector briefing in Exhibit 4:
“This is a considerable expansion of the company’s operations and therefore Sandell

has been required to seek external finance to support this investment, they have

managed to raise some equity funding from the AIM market, some debt funding

through bank loans but it is generally known that the funding secured has not

been sufficient to cover this total investment.”

Identify and describe how Sandell’s Statement of Cash Flow supports the part of the

quote highlighted and demonstrates that the investment in Western Europe has not

been fully supported by external financing.

(5 marks)

Using the revised financial statements set out in Exhibit 5: (You cannot answer all
of this question until Phase 3)

Calculate revised interest cover and gearing ratios (show your workings via a
separate Appendix to your report);

Explain how the interest cover and gearing ratios help assess a company’s
long-term financial condition; and

iii. Compare your calculation in 4c(i) with the present interest cover and gearing

ratios (Exhibit 3) and discuss what impact losing this court case (and paying

£30 million damages) will have on the company’s solvency.

(15 Marks)

Professional report format (4 marks)
Marks are allocated for setting out your answer in the format of a professional business

report.

(4 Marks)

TOTAL: 100 MARKS

The report should be no longer than 1500 words (excluding headings, references and

appendices), a suggested format in which to incorporate your answer is set out below. Understanding Financial Statements – Assessment

Page 7 of 17

Suggested report format

To: Parveen Rostom

From: Made up name (not your own)

Date: Assessment Day

Title: To complete

Introduction: To complete

Executive summary: To complete

Main Report:

Include Subsections/Paragraphs etc for each of the 4 main areas listed below

Part one – Purpose and key features of Sandell’s Financial Statements

Part two – Auditing and Corporate Governance

Part three – Interpretation of the Income Statement

Part four – Interpretation of the Statement of Financial Position and Statement of

Cash Flows

Understanding Financial Statements – Assessment

Page 8 of 17

CASE STUDY – SANDELL ARNOLD PLC

Background – Sandell Arnold plc

A friend of yours, Parveen Rostom, has approached you seeking some advice. She has

been offered the position of Sales Director within a company called Sandell Arnold (referred

to from now on as Sandell)

Sandell is a building merchant, which has been trading for more than 40 years supplying a

range of materials to the building and construction industry. This includes ironmongery,

plumbing and heating, landscaping materials, timber and sheet materials, painting and

decorating, dry lining and insulation, doors and joinery, and hand and power tools.

A few years back, in 2011, Sandell become a plc and is listed on the UK’s Alternative

Investment Market (AIM), which seeks to raise capital for smaller but fast growing

companies.

The growth which Sandell desired has not yet happened and therefore Parveen has been

offered a very generous remuneration package to implement a new aggressive sales

strategy to support Sandell’s expansion into new Western European markets. However

Parveen has been with her current employer for six years and wants to ensure her future

would be secure.

Your role

Though Parveen is a friend, she has approached you because you are a Financial Analyst

who is a specialist in the building and construction industry.

You have agreed to analyse the financial performance and position of Sandell and produce

a report for Parveen which sets out your findings and makes a recommendation as to

whether she should accept or reject the offer to become Sandell’s Sales Director.

To assist you with this task you have put together a pack of information as follows:

Exhibit 1: Extracts from Sandell Arnold’s Financial Statements for 2013, including the

Income Statement, Statement of Financial Position and Statement of

Cashflows.

Exhibit 2: Additional Financial information which supports the Financial Statements in

Exhibit One.

Exhibit 3: Key ratio analysis for 2012 and 2013 of Sandell Arnold’s financial statements.

In addition to this pack, you have

Exhibit 4: Your Notes from various document reviews and industry discussions.

One further exhibit will also be provided at phase 3.

Exhibit 5: Revised financial statements which reflect the impact of losing the case for

damages.

Understanding Financial Statements – Assessment

Page 9 of 17

Exhibit 1: Extracts from Sandell Arnold’s Financial Statements for 2013

Financial Statements

Sandell Arnold plc Income Statement for the year ended 31/12/13

2013 2012

£’m £’m

Revenue 252 248

Cost of Sales (203) (223)

Gross Profit 49 25

Other operating income 7 0

Overheads

Administration expenses (16) (11)

Distribution costs (18) (13)

Operating Profit/(Loss) 22 1

Finance costs (12) (8)

Profit/(Loss) before Tax 10 (7)

Income Tax expense (2) (1)

Profit/(Loss) for the period 8 (8)Understanding Financial Statements – Assessment

Page 10 of 17

Sandell Arnold plc Statement of Financial Position as at 31/12/13

2013 2012

£’m £’m

ASSETS

Non-current Assets

Property, Plant and Equipment 278 198

Current Assets

Inventories 53 44

Trade and other receivables 36 24

Cash and cash equivalents 0 6

89 74

Total Assets 367 272

EQUITY AND LIABILITIES

Equity

Share Capital 60 45

Retained Earnings 109 103

Total Equity 169 148

Non-current Liabilities

Long-term borrowings 111 91

111 91

Current Liabilities

Trade payables 48 33

Bank overdraft 39 0

87 33

Total Liabilities 198 124

Total Equity and Liabilities 367 272Understanding Financial Statements – Assessment

Page 11 of 17

Sandell Arnold plc Statement of Cashflows for the year ended 31/12/13

£’m £’m

Cashflows from operating activities

Operating Profit 22

Adjustments for:

Depreciation 2

24

(Increase)/Decrease in inventories (9)

(Increase)/Decrease in trade and other receivables (12)

Increase/(Decrease) in trade payables 15

Cash generated from operations 18

Interest paid (12)

Income tax paid (2)

Dividend paid (2)

Net cashflow from operating activities 2

Cashflows from investing activities

Purchase of Property, Plant and Equipment (82)

Net cashflow from investing activities (82)

Cashflows from financing activities

Proceeds from issue of share capital 15

Proceeds from long-term borrowings 20

Net cashflow from financing activities 35

Net increase/(decrease) in cash and cash equivalents (45)

Cash and cash equivalents at the start of year 6

Cash and cash equivalents at the end of year (39)

2013Understanding Financial Statements – Assessment

Page 12 of 17

Exhibit 2: Additional Financial information which supports the Financial

Statements (set out in Exhibit one)

Sandell Arnold plc Supporting Notes to the Financial Statements for the year ending 31/12/13

Note 1 – Extract of supporting notes for the Income Statement

2013 2012

Administration expenses £’m £’m

Employee expenses 6.2 4.5

Directors remuneration 1.4 0.9

Bad Debt charges 1.2 0.1

Utility costs 1.3 1.2

Legal and Professional fees 1.1 0.5

Depreciation charges 2.0 1.5

Sundries 2.8 2.3

16.0 11.0

Distribution costs

Distribution & Transport costs 12.4 7.2

Marketing & Advertising costs 5.3 5.3

Other distribution costs 0.3 0.5

18.0 13.0

Note 2 – Extract of supporting notes for the Statement of Financial Position

Statement of changes in Equity (Extract)

Retained earnings column only 2013 2012

£’m £’m

Opening balance 103 111

Profit for the year 8 (8)

Dividend Paid (2) 0

Closing balance 109 103

Retainsed EarningsUnderstanding Financial Statements – Assessment

Page 13 of 17

Exhibit 3: Key ratio analysis for 2012 and 2013

Profitability

ROCE Profit b Tax/Int

Equity + Debt* 22 x 100 = 6.90% 1 x 100 = 0.42%

169 + 150 148 + 91

* Includes bank overdraft

Gross Margin

Gross Profit 49 x 100 = 19.44% 25 x 100 = 10.08%

Revenue 252 248

Net (Operating) Margin

Operating profit 22 x 100 = 8.73% 1 x 100 = 0.40%

Revenue 252 248

Liquidity

Current Ratio

Current Assets 89 = 1.02 74 = 2.24

Current Liabilities 87 33

Quick Ratio

CA – Inventories 89 – 53 = 0.41 74 – 44 = 0.91

Current Liabilities 87 33

Inventory Days

Inventories 53 x 365 = 95.30 44 x 365 = 72.02

Cost of Sales 203 223

Receivable Days

Receivables 36 x 365 = 52.14 24 x 365 = 35.32

Revenue 252 248

Payable Days

Trade payables 48 x 365 = 86.31 33 x 365 = 54.01

Cost of Sales 203 223

Solvency

Gearing

Debt* 150 x 100 = 47.02% 91 x 100 = 38.08%

Debt + Equity 150 + 169 91 + 148

* Includes the bank overdraft

Interest cover

Profit b Tax/Int 22 = 1.83 1 = 0.13

Finance costs 12 8

2013 2012Understanding Financial Statements – Assessment

Page 14 of 17

Exhibit 4: Your Notes from various document reviews and industry discussions.

As a financial analyst in the construction industry you have various contacts across the

sector both inside and outside the company with whom you have been able to hold various

discussions and from whom you have been able to obtain various document.

The extracts from these have been set out below.

Review of Sandell’s annual report – Chief Executive’s review

The Chief Executive’s report was very positive in both reviewing the 2013 year and looking

to 2014 onwards, the following statements were specifically of interest to me:

In 2013 the company had a focus on improving profitability, which it managed to achieve
through securing new supplier relationships that year.

It meant that the company was able to declare and pay a dividend to shareholders for
the first time since the global financial crisis occurred in 2008.

Now that profitability issues have been fixed, the focus of the company in 2014 onwards
is growth and the expansion of the company into new markets in Western Europe, the

infrastructure for which has been put in place during 2013.

Discussion with Sandell’s operations manager about the new supplier relationships

put in place in 2013.

Key points from that discussion are set out below:

With the issues around the company’s financial performance (in particularly its
profitability) we sought to retender the supply of timber and ironmongery materials to us,

which are two of our main product lines making up around 60% of our revenue across

the last 10 years.

It was a very competitive tendering process, which a supplier called Ashwell won due to
the low price they were offering to supply goods to us. This was on average 10% lower

than our previous suppliers of these materials.

However since the Ashwell contract commenced in January 2013 we have had various
problems with it including:

o An issue with quality which has meant we have been provided with a higher

proportion of faulty goods, this has included split timber and ironmongery of

incorrect dimensions.

o These quality issues have resulted in two business issues, firstly unhappy

customers, who when receiving faulty goods are disputing the invoices that follow

and are either slow in paying the invoice or are not paying the invoice at all, Understanding Financial Statements – Assessment

Page 15 of 17

which we then have to write off as bad debt.

o Secondly, because the goods are faulty it means we have to pick up the items

from the customer sites and deliver new product so effectively we are having to

make a number of deliveries twice.

We do have penalty clauses in the contract with Ashwell which are linked to quality and
because of these issues they have had to pay us around £7 million in compensation

during 2013.

Review of a construction industry sector briefing covering Sandell.

The briefing focused on Sandell’s expansion plans into Western Europe, the key points of

interest are listed below:

Sandell has an established presence in the UK construction industry (with 10 distribution
centres) and has now identified Western Europe as a potential new market to access

and obtain growth from.

During 2013, Sandell focused on putting infrastructure in place across this new market
from which it will then seek create sales, this infrastructure included:

o 4 new distribution warehouses in Rouen (France), Koln (Germany), Utrecht

(Netherlands) and Bern (Switzerland)

o A fleet of Lorries to enable distribution to each new warehouse.

o Additional employees to staff the above functions, taking the company’s

workforce from 100 to 130 employees.

o Purchasing inventory to ensure various product lines are available at each new

site.

This is a considerable expansion of the company’s operations and therefore Sandell has
been required to seek external finance to support this investment, they have managed to

raise some equity funding from the AIM market, some debt funding through bank loans

but it is generally known that the funding secured has not been sufficient to cover this

total investment.

To date this investment has resulted in minimal return (around £4 million of sales in
2013) but the scope for growth from this new market is considerable (pessimistic

estimates put potential annual sales from these markets at around £80-100 million per

year). Therefore an aggressive and effective sales strategy is needed to benefit from this

opportunity. Understanding Financial Statements – Assessment

Page 16 of 17

Sandell has been seeking to put a Sales director in place to since the middle of 2013 to
develop this strategy and are hoping to make an appointment shortly.

Notes from discussion with Sandell’s external auditors regarding the 2013 financial

statements.

The audit is near to completion, the key points are set out

We have one remaining audit issue which is in regard to the accounting treatment of a
claim from one of Sandell’s main customers. The background for which is set out below.

A major customer, a House Builder, is suing Sandell, claiming that it has supplied faulty
goods. The customer had to rectify some of its building work when investigations

discovered that a building material, recently supplied by Sandell was found to contain a

hazardous substance.

Sandell’s legal team has stated that Sandell is very likely to lose this case, though the
timing of payment and the amount of damages to pay is presently uncertain, a reasonable

estimate has put the likely amount at around £30 million.

Presently Sandell’s directors have not made any disclosure of this in the financial
statements on the basis that it is uncertain and that they feel confident that they would be

able to seek damages from Ashwell (who supplied the original materials).

The external auditors think that Sandell should make a provision in their financial
statements for this £30 million of potential damages.

The external auditors consider this matter to be material and therefore are considering
issuing a modified audit opinion (known as a ‘not so clean’ audit report from the syllabus)

if the matter remains unresolved.

Sandell’s finance team are keen to obtain a ‘clean’ audit report and therefore are
presently producing amended financial statements (which will be provided in exhibit 5) to

reflect this £30 million provision.

Notes from discussion with a Sandell Non-Executive Director (NED) regarding

Directors Remuneration

Sandell’s board voted to increase directors’ remuneration in 2013, the decision for which this

NED had some concerns. Key points from this discussion set out below:

Sandell have been seeking to put in place a Sales Director since the middle of 2013, as
this position has been deemed a key factor in establishing the company in new markets Understanding Financial Statements – Assessment

Page 17 of 17

in Western Europe.

At present the company’s board is made of 5 executive directors and 1 non-executive
(NED).

The other directors were aware as to how generous the remuneration package was for
this new post (50% higher than other directors) as the company were keen to secure

someone with the talent and experience to fill this post.

Because the level of remuneration was higher, it was felt that the remaining directors
needed their remuneration packages increased to bring them in line with this new post.

At the meeting this NED raised a concern that the 50% difference was all performance
related pay (linked to success in growing the Western European Market) but the increase

proposed for the other directors to bring them in line was on basic salary (which is not

performance related).

The Board meeting noted this concern, but when it was voted on the results were 5 in
favour of the increase and 1 against. So the NED felt he was effectively outvoted.