Shepherd Plc. has a retail store located in London in the UK selling a luxury brand of clothing and accessory range for the high-end fashion market. The company receives finished products from a supplier in China.

Therecent shift inoil prices andslowdown in theChinese economy has meant that cost of production and freight has fallen and the company expects high margins due to lower charges from suppliers. Unfortunately, the management accounts ofShepherd plc donot reflect suchexpectations. Shepherd plc is suffering from low product demand because of a significant fall in online orders from its top customers that make up a large percentage of its market share. The top customers that account for 43% of its market share are from the Middle East and China.

The company has identified the leather bag product as a crucial product that requires great attention. Therefore, the company has decided to examine the wholevalue chain forthe leather bagproduct line. Thecompany through close contactshas been ableto obtain figuresrelating to 100leather bags supplied in 2018:

Leatherproduction

process: BagFactory Retailer

Materials 5,400 Production process 7,300 Leather Bags 27,800

Labour 400 Othermaterials 150 Labour 200

Machine 200 Labour 150 Shipping cost 5,500

Overheads 140 Maintenance 700 Overheads 500

Freight 160 Overheads 200 Revenue 40,000

Revenue 7,300 Freight 2,300 Assets 20,000

Assets 4,000 Revenue 27,800

Assets 44,000

Additional information:

Each leather bag is packaged separately in a large container when shipped fromChina to London.The objective ofthis packaging processis to make sure that the leather bags are sorted and ready to be displayed on the shelf as soon as the leather bags are delivered to the shop floors.

Theleather for makingthe bags issourced from Morocco.The production process involves preparatory stages, tanning, and crusting. The recommended suppliers use an outdated technique, which is labour intensive. However, the suppliers are reliable and dependable.

There is a potentially untapped market in Europe that is yet to be explored. Although there is a lack of any formal data, it appears that a major competitor has recently expanded into the European market.

Required

1. Calculate the percentage margin and return on assets per 100 leather bags for eachstage of the value chainand comment brieflyon your calculations.

2.Provide advice asto how themanagement of Shepherdplc might sensibly reducecost and improveprofitability based onevaluation of

the whole value chain.

3. Discuss the appropriateness ofsolely relying onthe value chain analysis asa strategic managementtechnique for understandingthe problems faced by Shepherd plc. Discussion should also highlight the limitations of value chain analyses.