Page 10 - CIMA OCS August 2018 Day 1 Suggested Solutions

CIMA AUGUST 2018 – OPERATIONAL CASE STUDY

CHAPTER FIVE – E1

1 SUMMARY OF CASE - SWOT

Strengths Weaknesses

• Thomas Fine Teas (TFT) imports tea leaves from • High levels of receivables and
around the world. payables.
• TFT produces its own tea bags of black tea, • Lack of governance awareness?
green tea and infusions. e.g. no NEDs.
• Products can be sold at premium prices due to • Limited infusion product range.
high quality and depth of flavour. • Private company so may face
• Established over 200 years ago. difficulty raising finance.
• One of Deeland’s largest tea blenders, so should • Lack of capacity for expansion.
have some economies of scale. • Green tea production line is old and
• Single site, so should have some production has less capacity.
efficiencies. • Span of control within production
• Private company so not subject to short-termist (70) may be too many for Steve
stock market pressure. Gomez.
• Distinctive taste of its blends. • Current approach to OH absorption
• Modern processing and packing equipment for via direct labour hours may be too
simplistic.
black tea, enabling high volume production.
• D$3.5m extra cash tied up in
• Experienced tea tasters working as TFT buyers
and blenders. working capital.
• 3 main competitors significantly
• Production Director has a key focus on quality.
bigger than TFT, so may have
• Production process has many quality checks to
additional economies of scale.
ensure that the right tea leaves are blended in • Falling market share of green teas
the right mix.
and infusions.
• TFT infusion tea bags range was launched 15 • Risk of budget padding / slack due to
years ago and has a loyal customer base. participation.
• Tries to be an ethical purchaser e.g. pay a fair
price to the tea plantations and factories.
• Highly automated processes used for both
blending and tea bag production.
• Direct relationships with all infusion raw
materials suppliers.
• Tea bags sold to all major supermarket chains in
Deeland as well as two wholesalers who sell the
tea bags on to convenience store chains.
• Also have four corporate customers, including
Deeland’s national airline and the national
government.
• Healthy financials – revenue, profit and margins
all increased.
• Healthy cash flow and cash position.
• Low levels of inventory.
• Participative approach to budgeting, which
should result in higher motivation and buy-in
from managers

52 KAPLAN PUBLISHING