Page 1 - CIMA OCS August 2018 Day 2 Suggested Solutions

Day 2 Suggested Solutions

SUGGESTED SOLUTIONS

CHAPTER EIGHT

EXERCISE ONE (COSTING)
BRIEFING NOTES

1. Why awareness of the environmental impact of Thomas Fine Teas is important

Many organisations are now recognising that awareness of the environmental impact and
management of environmental costs are important for long-term survival.

Recent trends would suggest that it is highly likely that our consumers will use environmental
credentials as part of their decision making criteria to choose between suppliers. While we can
hope that loyalty to our brand and distinctive blends will prevent consumers switching which tea
bags they buy, we still need to gain new customers, particularly in the green tea and infusion
sectors. Given the static nature of the black tea market, other differentiating factors, such as
environmental credentials, are likely to become increasingly important.

The need to demonstrate effective environmental management has become a necessity in order
to maintain a good public image. Organisations which are perceived by the public as lacking
concern for the environment can considerably weaken their position in their marketplace.
However, this needs to extend to the whole supply chain - if any of Thomas Fine Teas’ suppliers
get bad publicity due to worker safety or inappropriate disposing of waste chemicals, then this
will affect our reputation as well.

At the moment, consumers will not be aware precisely where our tea leaves are sourced, so will
not be able to tell if we have bought from a plantation using traditional techniques or one with
more compact growing and a higher use of pesticides. However, if calls to have additional badges
and kite marks are adopted, then the resulting transparency will require greater control over our
environmental and social footprint.

Closer to home, failing to respond to calls to eliminate single-use plastics in packaging may result
in us being ‘named and shamed’ as being uncaring. If we are to continue to develop our own
brand presence to younger consumers, it is vital that we are perceived to be environmentally
aware in order to maintain a good public image.

Another perspective relates to pricing. At present we can charge higher than average prices due
to the distinctive blend sand strong brand. Some customers may be willing to pay more for
products of organisations who promote their concern for the protection and maintenance of the
environment, which means the potential to increase margins. Alternatively our customers might
switch to more environmentally aware manufacturers if they perceive us to be falling short,
leading to a loss in revenue and profit.

2. How environmental costs can be categorised and reduced

Environmental prevention costs:

Environmental prevention costs are those costs associated with preventing adverse
environmental impacts.

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