| CASE STUDY: COCA COLA COMPANY

CASE STUDY: COCA COLA COMPANY2015

Table Of Contents

ITEMSPAGES

ABSTRACT2

INTRODUCTION3

CONTENTS : COCA COLAS LIFE CYCLE & VALUE CHAIN OF COCA COLA6

SPACE MATRIX9

MAL

ANALYSIS OF ISSUES & PORTERS FIVE COMPETITIVE FORCES12

ALTERNATIVE ACTION14

CONCLUSIONS15

RECCOMENDATIONS16

BIBLIOGRAPHY17

ABSTRACT

The purpose of this study is to identify a role of management accounting in managing an issue faced by Coca Cola Company. It is a well-known brands that has leads the beverage industry crossing all over the countries. The company runs in more than 200 countries and had a license for 400 brands of non-alcoholic beverages. Despite of having the popularity for being the top ranked in beverage industry, Coca Cola had undergoes many circumstances on surviving in this industry. The issues focused here is ever happen at Belgium in 1999 regarding to lack of consciousness of the consumers health. The company were struggles hardly on this issues and that the functions of management accountant is compulsory in allocating the cost incurred. By using a wide knowledge of an accountant on helping to overcome the issues, this studies highlighted the importance role of management accounting in shaping the companys reputations and to gain trustworthy from the consumers back.

INTRODUCTIONHistory Coca Colahave been known ascarbonatedsoft drinkand been sold in mall, vending machines and restaurants andall around the world.It is produced by The Coca-Cola CompanyofAtlanta,Georgia. It is category as one of multinational company. Since March 27, 1944 Coke has become a trademark of Coca-Cola Company that has been registered in the United States. In 1885, Pemberton registered his French Wine Coca nerve tonic. In 1886 The Coca-Cola have been founded by John S. Pemberton and served Coca-Cola at a local Pharmacy in downtown Atlanta, Georgia on May 8, 1886. It been sold as a patent medicine for five cents for the first time. Candler purchased and incorporated the Coca-Cola Company as a Georgi Corporation in 1892. Fourteen years later, under Candlers leadership, bottling operations began in Canada, Cuba, and Panama. In 1919, the Coca-Cola Company was purchased by a group of investors lead by Ernest Woodruff and W. C. Bradley for $25 million (Christopher H., 2014). From its early years, Coca-Cola Company made significant innovations in the beverage industry, such as six-bottle carton and steel 12-ounce cans. Additionally, it continued to expand internationally. After four years have gone by into 1923, Robert W. Woodruff which is Ernest Woodruffs son was elected as president of the Coca-Cola Company, who also served as a Chairman of the Board in 1939. The very first new product distributed by the Company was Fanta Orange in Naples, Italy. After the success of this product, it established a diverse portfolio through acquiring Minute Maid Corporation and adding a line of juice products. In 2008, Sprite became the third Company product to sell more than 2 billion cases annually, joining Coca Cola and Diet Coke. Their product variety is also impressive with the current brand list reaching up to 3,500 different beverages. Apart from soft drinks, Coca Cola produces fruit juices, waters, energy and sport drinks, teas and coffees. In 2014, the Coca-Cola Company has been serving for more than 127 years and is one of the largest beverage companies headquartered in Atlanta, United States. The company is engaged in the production, distribution, and marketing of non-alcoholic beverages and syrups. It is listed on the New York Stock Exchange (NYSE) and the Dow Jones Industrial Average. On March 16, 2014, the share price of the Coca-Cola Company is recorded at $38.17 under NYSE (The Coca-Cola Company). The Coca-Cola Company has over 3500 products and serves over 200 countries. Some of its brands include Coca-Cola, Sprite, Fanta, Diet Coke, Dasani, Minute Maid, Power Ride, Simply Orange, Fresca, and Vitamin Water. Moreover, it has partnered with approximately 250 bottling companies worldwide. The companys segments include Eurasia and Africa, Europe, Latin America, North America, Pacific, Bottling Investments and Corporate (MintGlobal, 2014). Some of the companys customers include bottling and canning operators, distributors, fountain wholesalers, and fountain retailers. Lastly, in the beverage industry, the Coca-Cola Company competes with PepsiCo Inc., Nestle, and the Dr. Pepper Snapple Group Inc (Christopher H., 2014).

Current Status The underlying effective annual tax rate on operations in 2015 is currently expected to be 22.5%. Today, The Coca-Cola Company is the world's largest beverage company. Coca Cola Company operational reach encompasses of more than 200 countries worldwide across six operating regions which include Eurasia, Africa, Europe, Latin America, North America, Pacific and Bottling Investments. The Company is targeting net share repurchases of $2.0 to $3.0 billion. The company owns the majority of the soft drinks available in coolers and in vending machines in the western world. Some of these brands include, Coca-Cola and sub brands Dr Pepper, Fanta, Sprite, Oasis and PowerAde.

Mission Statements Coca Cola Company mission statement is: To refresh the world in mind, body and spirit. To inspire moments of optimism through our brands and actions. To create value and make a difference everywhere we engage.

Vision Statement In order to achieve our mission there is several things to be done which is:1. Maximizing profits in order to be able return the shareholders, while being mindful of our overall responsibilities.2. For people, being a great place to work, where people are inspired to be the best they can be. 3. For portfolio, bringing to the world a portfolio of beverage brands that anticipate and satisfy people's desires and needs. 4. For Partners, nurturing a winning network of partners and building mutual loyalty.5. For planet being a responsible global citizen that makes a difference.Their Productivity need to be a highly effective, lean and fast-moving organisation.

Problem Faced By The Company Coca Cola had been faced health crisis where their products get banned from operation in Belgium that leads to decreasing sales. Around 100 people in Belgium which most of them are children and 88 people in France suffered nausea, headaches and diarrheal, the other of them also suffered till admitted to hospital. The crisis effects were not felt only within Europe but also in other countries such as Japan and India.

Graph of Coca Colas Life Cycle

In the introduction phase, Coca Cola was hurled and at first promoted. Hard work were fitted out for creating its responsiveness in the market towards the consumers, bringing sample of the product and lock up a space in the outlet shelf. As soon as their costs were high, sales volume were low, and there was no standing demand for Coca Cola in this point.

In the growth phase, Coca Cola experienced swift growth in sales volume and its rivalry began to escalate. People got more awareness about Coca Cola and the increase in the rivalry indicates it to decrease the prices. The ineffective competitors at making any cash or fascinating enough consumers away from the inventors, soon will drop out of the race. As a final point, at the top of the growth phase, only a few winners live on.

Coca Cola is in the maturity phase from years at this time. The marginal costs of Coca Cola are low in this point, sales volume is at the uppermost meanwhile the market is enclosed. There is escalation in rivals which are entering in the market. Coca Colas brand differentiation and features diversification is emphasized to maintain and increase market share. By the time it reaches maturity, the manufacturer paid for all the main costs of production and product development. Since a mature product has recognized an effective distribution technique, the costs of sales and distribution are low. As a result, products at the maturity phase frequently make great returns. The company can use income produced by their mature products, often called cash cows, to progress and fund new products.

Decline phase in which sales of the product initiate to drop. Obviously, Coca Cola Company has not reach this stage. Whichever everyone that desires to, has bought the product or new, more innovative products have been produced that substitutes that product. The only way to upsurge sales throughout this point is to cut the cost of the product.

Here, Coca Cola Company tried to monitor their products during maturity stage by took an account of marketing profitability analysis. This analysis aspects at the cost on the side of marketing and the profitability of products, sales territories, market segments and sales people. There are three ratios to observe marketing profitability which is market research to sales, advertising to sales and sales representatives to sales. The results of these three tools can help Coca Cola to select any emerging tendencies, for instance the need for a different product. By comparing these outcomes with actual results, it gives the company an indication on when to make an adjustment.

Value chain of Coca cola

The term 'value chain' was projected in 1985 by Michael Porter, and he well-defined a company's value chain as a system of independent activities which are joined by linkages. According to Porter (1985), linkages exist when the way in which one activity is performed affects the cost or effectiveness of other activities. Every company has an assortment of activities that are carry out to design, produce, market, deliver and support its product. Each activity conducted by Coca Cola are related to improvise their new value chain together with supply chain to overcome the issues that they faced.

The figure above summarizes Coca Colas value chain by showing both the support and primary activities. The primary activities include sales & marketing, inbound logistics, operation, outbound logistics and services. Meanwhile, support activities include company infrastructure, human resources, management, technology development, and procurement. Those activities list were the things that Coca Cola would be done in handling the problems arises.

Support activities : Under firm infrastructure, the finance and accounting department has practiced in public company disclosures, financial accounting, and reporting processes, merges and acquisition. This team were in charge for maintaining detailed operating records and preparing financial statements. Given that Coca Cola is widely traded on the Dow Jones exchanges, its accounting reports were audited by Ernst and Young LLP and conform to GAAP. Coca Cola Company commonly used data warehousing together with business consolidation and planning just to ensure the senior executives can have admission to global consolidated results also scheme the information based on actual and accurate data. These data were used by Coca Cola for generate financial reports, monthly forecast on sales, operating expenses, budget of sales also profitability.

The Human Resource Department on the other hand were responsible for trained, recruited, payroll the employees which is related to the overall organizational development. Coca Cola are very concern that the company itself took a whole elements to reward and recognize employees to ensure a complete work have been done. Developing a program to unleash the employees potential were conducted such as Coca Cola University. The management accountant is responsible to allocate the cost of the program to make sure the continuity companys growth.

For technology development, Coca cola are focusing more on R&D (research and development). The company is investing in technology product and process. One of the ambitious project is implementing under process development is the six-sigma project which merely a tool to improve an operation or a process. Just before, there are various technology adopted by Coca Cola which is reduce the cost simultaneously has a strong setup such as Water Treatment at Coca Cola Company.

Procurement states purchasing the necessary resources, raw materials or inputs for Coca Colas primary value adding activity. The purchasing function significantly enhance cost position relative to the rivals and an emerging issues. Coca Cola are using EBP (Enterprise Buyer Professional) for many its procurement functions. EBP makes the procurement becomes convenient that the paper-based via process online. Procurement practices letting Coca Cola to achieve a significant amount economic of scale.

Primary activities :

Inbound logistics refers on how to handle inputs and inventory or stocks. The operational procedures and tasks surrounding inbound logistics include storage, warehousing and control of inputs. It became the first activity because they represent the beginning of Cola Colas adding conversion of raw materials. The initiatives in handling the storage are improved such as location of distribution facilities to minimize shipping times, inventory control system. These initiatives were implemented to improve Coca Colas cost position and significantly capital investment are required.

The operation in Coca Cola are the process of transforming the inputs into an outputs which is the products. It is essentially to make a syrup and concentration and sells to the canning and authorized bottling for packaging and distributions. Finally, the product will be transferred to warehouses. Some of the important key that the company done is efficient plant operation to minimize the cost such as choose an appropriate level of automation in manufacturing, enhance quality and efficient plant layout and workflow design also quality production control system to cut expenses.

Meanwhile, outbound logistics carried out the management of the flow and distribution concentrate to the bottlers. The activity are mostly referred in handling the inventory control, storage, warehousing and also the transportation of the finished goods. Coca Cola company in outbound logistic had really have an outstanding responsibility in making an efficient shipping process to ensure quick delivery, minimizes damages, and reduce the transportation cost incurred.

For marketing and sales department, marketing is vigorous in helping Coca Cola to determine the competitive scope and to recapture the attention from their customers. The key competencies of this department are selection of the most appropriate distributions channel, proper identification of customer segment and needs, highly motivated, also innovation approaches to advertising and promotion under controllable budgeting manner.

Coca Cola redefining the customer service as the method to copes its customer service activities. It is crucial part as Coca Cola needs to solicit customer feedback after certain issues arise. The other activity have to be done such as furnished replacement product as required, effective management of product inventory, appropriate product quality and quality of service personal. Customer service is important for Coca Cola because it enables the company to bring back the trustworthy from their customers.SPACE MatrixThe purposes of SPACE Matrix analysis to determine the organization's strategic posture in the industry upon two internal and two external strategic dimensions. The SPACE matrix is based on four areas of analysis which is financial strength (FS), competitive advantage (CA), environmental stability (ES) and industry strength (IS). Most of the factors in SPACE Matrix are underneath the internal strategic position. Obviously the financial strength factors are from the accounting department which plays a crucial part in Coca Cola Company. The SPACE matrix calculates the importance of each of these dimensions and places them on a Cartesian graph with X and Y coordinates.

The Coca Cola Company are well-known by history and range over the world. Based on the above diagram, it conveys us that Coca Cola Company had to develop an aggressive strategy. Since the company has a strong competitive position in the market with rapid growth, they are required to use its internal strength to develop a market development and market penetration strategy. This comprises an activity such as providing to health consciousness of people through introduction of dissimilar coke flavour, emphasis on Water and Juices products, and maintaining basic coke flavour. Moreover, the company should fit in with other companies, acquisition of potential competitor businesses, make an innovation in branding and aggressive marketing strategy for a long term cost-effectiveness.

Analysis of Issues facing the companyThe main issues facing this company was its attempts at overcome the crisis in Belgium as well as creating new value for Coca Colas product to gain the customers trustworthy. The need to overcome the crisis and all the negative perspectives about Coca Colas product could cause the company become too exposed and risks its ability to gain the customers trust. Their main competitors such as Pepsi could be a potential threat of competition.

PORTERS FIVE COMPETITIVE FORCES For soft drink industry, usually it is divided into two segments namely production of soft drink syrup and manufacturing and/or distribution of soft drinks (Cowell. A ,1999).Coca Cola operates their operation more to production of soft drink syrup which is depending more on independent bottlers companies. It is basic for the firm to engage into mixing raw material ingredients (product planning), packaging in plastic containers (market research) and shipping to bottlers (advertising).

Porters Five Competitive ForcesThe bargaining power of suppliers is low because of the main inputs for Coca Colas products are sugar and packaging. The sources of sugar is on open market that makes the power of supplier at low level, which same applied to suppliers for packaging, because there are many suppliers can supply an inexpensive aluminum. The threat of new entrants is medium because Coca Cola has long-term relationship with their retailers and distributors which make it impossible for new bottlers to enter areas where an existing bottler operates. For Coca Cola, even there are Belgium crisis, they believe that new entrants provide a health competition, which gives Coca Cola a challenge to hold on to its loyal customers. The industry competitor is on the rise because of PepsiCo creating a new line. Threat of substitutes is wide and thick. Apart from the primary rival (PepsiCo), the firm finds varies competitions on companies in same industry had causing a slightly decline in Coke prices. Even Nestle products are substitute of Coke for health conscious people. Therefore, to reduce the threats, Coke embraced the idea of bottling and concentrated on product diversification.

Alternative ActionThere are alternative actions that Coca Cola can take to overcome their crisis and gain the customers trustworthy as well as secures its competitive advantage that it has gained for so long. Below is the current value for Coca Cola and its competitors PepsiCo and Dr Pepper Snapper.

Dr Pepper shows a similar curve but much lower in all levels. The competition is very tight between Coca Cola and Pepsi. The rest is similar, which shows a threat to Coca Cola is high with Pepsi. Dr Pepper has an opposing curve, which could be a threat but their lack of quality and varieties that limits them from competition.

In order overcome the crisis, there are several alternatives actions that Coca Cola conducted. First, Coca Cola focused on stabilize their capital budgeting decision process, whereby the budgeting involves all the activities that reflects the companys past, present, and also forecasting the future (Benneth I., 2014). The company adopts the budgeting in order to determine what should be done, to whom it should be done for, why it should be done and how it should be done.

The company started their research on their intangible assets to gain information of what the market needs, meanwhile for the development of the product of their tangible asset, they make research to provide the market with products that meet their needs and manage to generate sales for the company. In order to be globally acceptance by majority of its product, Coca Cola show their commitment in customizing their products by offered 3,500 products in over 200 markets.

Besides that, Coca-Cola also adopts the cost accounting approach (ABC) whereby this approach is what governs Coca Colas daily business process as the company determines the cost of each product based on the activities involved in the production process. This production process involves three activities that are syrup manufacturing, blending and packaging. Here, it is clear that Coca Cola makes use of activities based on costing because it does determine the price of its products based on the activities undertaken in the manufacturing process such products. Coca Cola also budgets its cost of operations based on the number of activities in the production. In other words, the higher the activities in production, the higher the Coca Cola will budget in its production and vice versa.

By using the companys budgeting and costing method, Coca Cola also adopts weighted average cost of capital (WACC) for its capital decision process which means the capital for investment is known by calculating the cost of capital at each of activities involved and proportionally weighted of capital (Investopedia,2013). Therefore, through this process, the sources of capital are considered and it will increase its capital investment if the rate of return for equity is increase.

My suggestions based on the management accounting information from Coca Cola would be to create more customization by doing more research and allow the users to taste a new flavors that healthier beyond the options they have now.

Conclusion

Management accounting is important that helps the company in forecasting and measuring expected outcome from its business activities. This is why management accounting is used in Coca Colas accounting system and its overall management process. It is normal that company adopts ABC accounting measure as their cost approaches because it maintains operation over the world and offers 3,500 products to the global market. Therefore, instead of combining budgeting, company need to spend as it operates so the company able to reduce overall costs while gain benefits from increased economies of large scale production and generates high profitability in the process.

Overall, management accounting is very important for companies as it does assist in the whole management process. Coca Cola Company has started to gained acceptance from society again after the strategy had been implemented. Coca Cola also use spends more on marketing purposes to attract more customers as well as gain the customers trustworthy. Other than that, the company being able to less the amount of overall costs as well as raise the amount of its profitability in the process.

RECCOMENDATIONS

Despite Coca Cola has overcome the issues, Coca Cola Company still need to put an attention on the health and regulatory safety at the first priority. Such as improvise the application of Coca Cola Quality System (TCCQS) eagerly. By doing that, the company could possibly maintained their ranking of being the top safety beverages in the eyes of the consumers. Coca Cola Company should also maintaining their relationship with the bottlers under cost effectiveness. It is compulsory for maintaining it for the continuity in supplied the product were all in controlled together with an appropriate budgeting. For instance, working with variety of bottlers such as supermarkets, retail chains, small grocers, school & colleagues also sport and entertainment venues could accomplish the ideas of the company which is one face to the customer.

Bibliography :

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