You have been newly appointed as the assistant management accountant and you have been asked to produce a report for the new CEO addressing the following points:
a) Advise the new CEO on how to use the balanced scorecard to improve the performance management system of FarmFreshs food stores and delivery service.
b) Critically evaluate the use of the balanced scorecard for FarmFresh, your answer should examine the characteristics that differentiate service industries from manufacturing/production businesses, using FarmFresh to illustrate your answer. (25 marks) (750 words maximum)
FarmFresh operates a small chain of supermarkets in the UK and currently has 300 stores and 4 distribution centres nationwide. The company has strong established links with local food providers for fresh produce as well as supplying a wide range of well-known fair trade brands. In addition, FarmFresh produces some of its own ranges of ready meals, freshly baked breads, patisseries, sandwiches and salads in the 4 distribution centres. FarmFresh's main objective is to maximise shareholder wealth. The company has an established customer base and enjoyed growth in sales for many years as customers supported buying locally and increasing awareness of fair trade values. The company tries to offer good value for money, local customer service and environmentally friendly supply choices. However, in the last five years competition from other supermarkets has resulting in falling sales and lower profit margins. FarmFresh also offers a home delivery from store service, customers can shop in-store and arrange for home-delivery within 24 hours. Each store has one delivery van, these were purchased over 15 years ago for a low price and are all diesel powered vehicles. FarmFresh has received customer complaints about the low number of slots available and there is increasing demand for online deliveries. FarmFresh is considering investing in an online delivery platform and new hybrid electric vans which are more fuel-efficient with lower carbon emissions. A large rival supermarket chain has recently increased online delivery services where customers can order online and deliveries are scheduled 24 hours later. FarmFresh is concerned by the volume of fresh food waste in stores, they have tried offering discounts for fresh products nearing sell by dates. They have considered cutting range of fresh produce concentrating on seasonal fresh produce and also ways to re-use unsold food by using old produce in new recipes for their freshly made meals and products. In order to keep costs low, FarmFresh changed to a new low-cost cleaning service provider last year, since this change there have been several customer complaints concerning cleanliness. Last month a store was forced to close the bakery section for 7 days following a food safety inspection, to allow for additional cleaning and pest control. FarmFresh has always prided itself on being a good local employer, however, recently it has been harder to recruit new staff as better wages and career progression is offered in larger rival supermarkets and retail chains. This has led to staff shortages in-store. In order to address concerns FarmFresh has commissioned market research to perform stakeholder analysis to explore gaps in services offered and assess customer expectations, with the following results: Quality and freshness of produce available Cleanliness of stores Range of products and item variety Speed at checkout Helpfulness of staff and knowledge of products Value for money Convenience of location and opening hours Separate market research data estimates that online sales account for 12% of all UK supermarket sales. 158 Page For reporting purposes the company has divided itself into four geographical divisions based on their distribution centres. Each division manager is awarded an annual bonus by the board of directors, however, there is very little stated about the award setting process and shareholders have raised concerns that bonus payments do not seem to be related to market share growth or improved performance. At operational level each store manager within a division is responsible for their own profit-centre budget assigned centrally by head office finance department Store managers are paid an annual salary and receive an annual bonus decided by their divisional manager, the store managers are unhappy with this system and there is a sense of demotivation. One store manager has suggested the managers should be involved in bonus target setting. Operational staff receive hourly pay contracts and are not part of any incentive scheme. FarmFresh financial performance summary: 2019 2020 2021 Change 2020/2021 m m m Revenue 1,725 1,690 1,650 -2.37% Operating Profit 320 315 305 -3.17% ROCE 15.8% 15.5% 15.25% The new CEO has stated that new online sales facility and improved customer experience will increase sales revenue by 5% in 2022
