Accountants play a role in supporting ________ of the value-chain functions.
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Despite slavery being abolished by most countries more than 150 years ago, its modern equivalents can still be found in supply chains across many industries. The term “modern slavery” is wide-ranging and covers human trafficking, slavery, servitude, forced labour, debt bondage, forced marriage, deceptive recruiting for labour services, and child labour. Show
The latest Global Slavery Index, published in 2018 by Walk Free Foundation, an initiative of philanthropic organisation Mindaroo, estimates that 40.3 million people were in some form of slavery in 2016. It also states that G20 countries are estimated to import A$547 billion of at-risk goods – goods that are considered to be at risk of being produced by forced labour each year. Reports of children in Thailand being forced to peel prawns bound for Australian tables have gained global attention and widespread condemnation. The 2013 collapse of the Rana Plaza building in Dhaka, Bangladesh, which killed at least 1132 people working in its five garment factories, also highlighted the hazardous working conditions inside the supply chains of many global fashion brands. Developed nations such as Australia are not immune to modern slavery – an estimated 15,000 people are living in conditions of modern slavery in the country right now. In 2015, five karaoke bars in Melbourne and Perth were raided by a joint taskforce, including the Fair Work Ombudsman and Border Force, following allegations of wage fraud, sham contracting and sexual slavery of female hosts. In October 2016, the Migrant Workers’ Taskforce, chaired by Professor Allan Fels, was set up with a focus on domestic slavery, sex slaves and wage fraud. Fels’s taskforce delivered its first report in March 2019, revealing that more than half of all temporary migrant workers were underpaid and subject to poor working conditions. Reporting the risksAustralia has several measures in place to help organisations identify the risks of modern slavery in their supply chains. Under Australia’s Modern Slavery Act 2018, modelled on the UK’s Modern Slavery Act 2015, from 1 January 2019, about 3000 organisations based or operating in Australia with a consolidated revenue of more than A$100 million must report annually on the risks of modern slavery practices in their operations. In addition, under the Act, organisations are required to report on the action they are taking to assess and address modern slavery risks and the effectiveness of their response. The reports must be submitted to the Australian Government. Against the backdrop of COVID-19, now more than ever, attention must be paid to the supply chains struggling to survive in a globally depressed economy, says Vanessa Zimmerman, CEO of business and human rights consultancy Pillar Two. "Right now, we are encouraging entities to consider how the impact of COVID-19 might increase the vulnerability of workers in their operations and supply chains to modern slavery."— Vanessa Zimmerman “It might be stating the obvious, but I think one of the key messages that has come out is that people who were already at risk for modern slavery may become even more vulnerable, because the desperation to have any work at all might mean they’ll be much more willing to accept situations they wouldn’t previously have accepted,” Zimmerman says. David Brightling is assistant secretary at the Australian Border Force’s modern slavery and trafficking branch, which is responsible for implementing the Modern Slavery Act. He says the most at-risk areas for modern slavery in Australia include cleaning, agricultural work, construction and hospitality. “We know that modern slavery happens here in Australia, as well as overseas. Right now we are encouraging entities to consider how the impact of COVID-19 might increase the vulnerability of workers in their operations and their supply chains to modern slavery. “Factory shutdowns, order cancellations, workforce reductions and sudden changes to supply chain structures can disproportionately affect some workers and increase their exposure to either modern slavery or other forms of exploitation,” Brightling says. A value chain is a series of consecutive steps that go into the creation of a finished product, from its initial design to its arrival at a customer's door. The chain identifies each step in the process at which value is added, including the sourcing, manufacturing, and marketing stages of its production. A company conducts a value-chain analysis by evaluating the detailed procedures involved in each step of its business. The purpose of a value-chain analysis is to increase production efficiency so that a company can deliver maximum value for the least possible cost. 1:24 Value ChainKey Takeaways
Understanding Value ChainsBecause of ever-increasing competition for unbeatable prices, exceptional products, and customer loyalty, companies must continually examine the value they create in order to retain their competitive advantage. A value chain can help a company to discern areas of its business that are inefficient, then implement strategies that will optimize its procedures for maximum efficiency and profitability. In addition to ensuring that production mechanics are seamless and efficient, it's critical that businesses keep customers feeling confident and secure enough to remain loyal. Value-chain analyses can help with this, too. The overarching goal of a value chain is to deliver the most value for the least cost in order to create a competitive advantage. BackgroundMichael E. Porter, of Harvard Business School, introduced the concept of a value chain in his book, Competitive Advantage: Creating and Sustaining Superior Performance. He wrote: "Competitive advantage cannot be understood by looking at a firm as a whole. It stems from the many discrete activities a firm performs in designing, producing, marketing, delivering, and supporting its product." In other words, it's important to maximize value at each specific point in a firm's processes. Components of a Value ChainIn his concept of a value chain, Porter splits a business's activities into two categories, "primary" and "support," whose sample activities we list below. Specific activities in each category will vary according to the industry. Primary ActivitiesPrimary activities consist of five components, and all are essential for adding value and creating competitive advantage:
Support ActivitiesThe role of support activities is to help make the primary activities more efficient. When you increase the efficiency of any of the four support activities, it benefits at least one of the five primary activities. These support activities are generally denoted as overhead costs on a company's income statement:
Examples of Value ChainsStarbucks CorporationStarbucks (SBUX) offers one of the most popular examples of a company that understands and successfully implements the value-chain concept. There are numerous articles about how Starbucks incorporates the value chain into its business model. Trader Joe'sAnother example is privately held grocery store Trader Joe's, which also has received much press about its tremendous value and competitive edge. Because the company is private, there are many aspects of its strategy that we don't know. However, when you enter a Trader Joe's store, you can readily observe instances of Trader Joe's business that reflect the five primary activities of the value chain. 1. Inbound logistics. Unlike traditional supermarkets, Trader Joe's does all of its receiving, shelving, and inventory-taking during regular store hours. Although potentially maddening for shoppers, this system creates a ton of cost savings in terms of employee wages alone. Moreover, the logistics of having this work take place while customers are still shopping sends the strategic message that "we're all in this together." 2. Operations. Here's an example of how a company could apply the value chain creatively. In primary activity number two above, "converting raw materials into finished product" is cited as an "operations" activity. However, because converting raw materials is not an aspect of the supermarket industry, we can use operations to mean any other regular grocery store function. So, let's substitute "product development," as that operation is critical for Trader Joe's. The company selects its products carefully, featuring items that you generally can't find elsewhere. It's private-label products account for more than 80% of its offerings, which often have the highest profit margins, too, as Trader Joe's can source them efficiently in volume. Another vital piece of product development for Trader Joe's is its taste-testing and chef-partnership programs, which ensure high quality and continuous product refinement. 3. Outbound logistics. Many supermarkets offer home delivery, but Trader Joe's does not. Yet here, we can apply the activity of outbound logistics to mean the range of amenities that shoppers encounter once they are inside a Trader Joe's store. The company has thought carefully about the kind of experience it wants us to have when we visit its stores. Among Trader Joe's many tactical logistics are its in-store tastings. Usually, there are a few product tastings happening simultaneously, which create a lively atmosphere, and often coincide with the seasons and holidays. The tasting stations feature both new and familiar items that are prepared and served by staff. 4. Marketing and sales. Compared to its competitors, Trader Joe's barely does any traditional marketing. However, its entire in-store experience is a form of marketing. The company's copywriters craft product labels to appeal specifically to its customer base. Trader Joe's' unique branding and innovative culture indicate that the company knows its customers well—which it should, as the firm has actually chosen the type of customers it prefers and has not deviated from that model. Via this indirect marketing of style and image, Trader Joe's has succeeded in differentiating itself in the marketplace, thus sharpening its competitive edge. 5. Service. Customer service is paramount for Trader Joe's. Generally, you see twice as many employees as shoppers in their stores. Whatever work they are doing at the moment, the friendly, knowledgeable, and articulate staff are there primarily for you. Employees welcome shoppers' interruptions and will instantly rush to find your item or answer your question. In addition, the company has always employed a no-questions-asked refund program. You don't like it, you get your money back—period. This list could go on and on before ever reaching the four support activities cited above, as Trader Joe's is a wildly successful example of applying value-chain theory to its business. How can accountants contribute to the value chain?Accountants can help in identifying costs and value add to processes across organizational boundaries and to support different types of relationships between companies.
What is value chain in accounting?According to CIMA Official Terminology, the value chain is a sequence of business activities by which, in the perspective of the end-user, value is added to (or costs incurred by) the products or services produced by an entity.
What is the role of the accounting function?The main functions of accounting are to store and analyze financial information and oversee monetary transactions. Accounting is used to prepare financial statements for a company's employees, leaders, and investors. Accounting also functions to ensure the payment of funds into and out of a company.
How does accounting help supply chain management?Reporting: Accountants analyze and evaluate the supply chain management process to generate analysis and other reports used by management for monitoring and decision-making. They also report on the performance of the supply chain and help identify problem areas and bottlenecks that need improvement.
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