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BAO2204 Management Accounting Assignment
This is a solution of BAO2204 management accounting assignment in which we discuss environmental management accounting system, Toyota Industries Limited, Woolworth Company.
Part 1: Toyota Industries Limited
There has been major incidence in the past two decades like Japan Radioactive Leakage in 2011, chemical leakage in Bhopal in 1984 and Exxon Valdez Oil spill in 1989 that has diverted attention of companies towards environmental issues. This has led to stringent actions by different governments in their respective nations thereby controlling the damage on environment done by companies operating there and to make this process fair, the concept of environmental management accounting is introduced (Garriga & Mele, 2004). In this, companies generate and analyse the non financial as well as financial information thereby maintaining the internal process.
Environmental management accounting is applied major while deciding on price of product, deciding budget, cost calculation, assessing investment and while deciding on the targets. Author in this report will discuss EMA in regards to Toyota Company.
Choosing Socially Responsible Suppliers
Stakeholder interest and involvement in company affairs is increasing and so companies have become more aware of choosing their partners that carry themselves in more socially accountable way. To ensure these, companies have come up with codes of conduct for their suppliers and Toyota has also developed a supplier Corporate Social Responsibility that includes guiding principle at Toyota and guidelines for supplier on corporate social Responsibility (Marquez & Fombrun, 2005). Being associated with socially responsible suppliers ensures that company’s brand image will not be negatively affected since supplier itself has a good corporate image. When supplier is socially responsible, in case of raw material, Toyota can be sure that wastage in case if any in production will not harm environment and will help it in ensuring the quality standards as well as its goal of energy efficiency and green house emissions.
Toyota has framed policy of socially and environmentally responsible suppliers to ensure that safety of manufacturing staff is maintained, high quality of product is received from suppliers, adequate amount of production is done by supplier and delivery is hassle free with no damage to environment, cost reduction in product delivered and technological advancement to ensure environmental protection, safety of workers and comfort their comfort in working.
Terms and Condition for Suppliers
Toyota has made efforts to ensure that its suppliers are social and environmentally responsible for which it has issued guidelines named “TOYOTA SUPPLIER CSR GUIDELINES”. The third part of this report is divided into sub points like legal compliance, labour rights and global and local responsibility of suppliers.
- Communication to stakeholders: Toyota expects its suppliers to be responsible towards its stakeholders by disclosing financial, social and environment contribution and management condition to them thereby communication fairly (Toyota, 2013).
- Environment Responsibility: Toyota has a condition of responsibility towards environment for its suppliers by trying to ensure no emission for its activities, developing a system for environment management and follow the rules and regulations for environment preservation (Toyota, 2013).
- Material usage and procurement: Toyota has a put a condition that suppliers should not obtain its material through unlawful means or an unlawful or illegal material should not be used by them. It also mentions that in case of such procurement suppliers should take steps to stop usage of such material.
- Social Responsibility: On the social side, Toyota expects its suppliers to conduct and co operate in activities that contribute towards wellness of society thereby ensuring its development and prosperity.
Environmental Management Accounting System
Environmental Management Accounting is defined as the internal process of deciding on strategies to collect, identify and analyse information that includes physical attributes like electricity, raw material, material waste and monetary attributes like information on costs, and savings related to environment (Gray & Bebbington, 2001).
Toyota started implementing Environmental management accounting in 2002 on its Japanese and other units that were in production and sales of Toyota vehicles. Toyota incurred an environmental cost of 288.8 billion yen in 2011 thereby increasing it by 47.4 billion yen from previous year (Toyota Industries Limited, 2013). Various terms included by Toyota in its accounting are mentioned below.
- Environmental investment – it is considered an investment as it is the cost incurred that will have an effect in future.
- Cost of maintenance – cost incurred on environment excluding the environmental investment.
- Actual Effect- it is calculated by adding savings done in form of energy cost reduction to other savings like income earned by selling recyclable goods.
- Customer Effect- it is the effect on customer that is calculated when the normal vehicles are replace by hybrid vehicles.
This Toyota is very strongly following the process of Environment accounting system through thorough analysis and formulation of system that ensures a proper accounting of all environmental factors is done.
Stakeholders and their Influence
Stakeholders are the one that are directly or indirectly affected by organizations policies, procedures and actions. These stakeholders are divided into two types depending on their interest in company basically primary and secondary stakeholders. The same is depicted in the table below.
Shareholders are the one that invest in companies in form of shares and they look for company information in detail before investing. A company is in strong position if it has a fund dedicated to taking environmental and social responsibility generally termed as Socially Responsible Investment (Garriga & Mele, 2004). Especially institutional investors look for such funds and invest only when they analyse that company is in strong position.
A company will work with another company only if it has a strong reputation in market. So Toyota in its corporate responsibility policy itself has specified that it would not get involved in any illegal or unethical activity and expects same from its suppliers.
If Toyota employees are not socially aware and do not take proper steps to correct any wrong emission or disposal of hazardous waste in proper manner, this will finally affect company’s image.
Thus fro0km above discussion, one can say that a Toyota has a sound EMA system in its place where it makes sure that all environment cost and investments are well calculated and it also considers its responsibility to make sure that its suppliers are also socially and environmentally responsible by mentioning it in CSR.
Part 2: Woolworth Company
Right from its existence, human beings are dependent on environment for their needs and any disturbance in that environment will leads to major setback in complete society. People within the society now understand this fact that they cannot sustain without a healthy environment. People now prefer more environmental friendly products (even on higher prices) than ever before. This shift in focus is making a great impact and even industries are now trying to develop new products which are meeting these criteria. As a part of this assignment, a company named Woolworths supermarket will be evaluated on environmental factors. Woolworths established in year 1924 is having a super market chain in Australia with a revenue of A$ 59.56 billion (Greenblat, 2013).
Choosing Socially Responsible Suppliers
Woolworths is a major supplier of fresh foods to the people in Australia and hence it is bound to supply good food within the community. As a part of their strategy which is formed in year 2007, Woolworths is focusing to attend a 100% sustainable growth by year 2015 (Sharp, 2008). Below is a brief report of Woolworth’s strategy to attend a sustainable growth.
Woolworth’s major suppliers are either farmers or the one which are associated to food processing. Since Woolworths is targeting a sustainable growth, they can never able to attend it without having suppliers which are socially responsible. Woolworths are now came up with a strongsupply chain managementwhere they are focusing more on suppliers which are neither using pesticides or any other materials which can impact the environment in long run. They perform multiple tests to check the quality of material supplied to its stores. In case of products which are directly being sources from nature example seafood, Woolworths prefers suppliers which were focusing in reproducing the same (Carson, 2008). They are now coming up with a mechanism where they are ready to sell products on higher prices and pass extra benefits to suppliers producing generic food (Sharp, 2008). Woolworths is committed for animal welfare for example 98% of fresh pork meat is sourced from farms that only use stalls for less than 10% of the sows' gestation period.
Terms and Condition for Suppliers
Woolworth’s terms and conditions are pretty clear to its suppliers. They check supplier environment responsibility, material used for production, Social responsibility and at last their focus for sustainable growth.
- Environment Responsibility: It is the most important part as per Woolworth’s guideline. Any food product supplied should be environmental friendly and free from any kind of pesticides or chemical component (NZPA, 2007). The supplier should have a proper waste treatment mechanism and has to undergo a regular quality checks to prove its environmental friendliness.
- Row Material Used: Woolworths had put a condition that supplier should checks the row material at its own end before making a product out of it. Any unlawful practices should be avoided and they should abide by the law followed in country.
- Social Responsibility: The suppliers of Woolworths have to follow social responsibility of making the balance within nature. They have to take appropriate measures to rebuild equal amount of resources that they have used from Mother Nature (NZPA, 2007).
- Focus Towards Sustainable Growth: Unless and until supplier will focus for sustainable growth, Woolworths will not able to attend it. The supplier should follow strategy to attend a sustainable growth and has to notify to Woolworths quality department every year.
Environmental Management Accounting System
The United Nations Industrial Development Organization defines EMA (Environmental management accounting) as “Eenvironmental management accounting is a monetary tool which provides a management detailed accounts of financial impacts of environmental performance. With the help of this tool management can take major business decision of opting for a particular product or not” (Zappone, 2009).
As per the sustainability strategy target set (2007-2015) by Woolworths they have set targets and are committed to business to improve sustainability and reduce its impact on global environment. Their strategy covers:
- Carbon emissions and climate change:To have a positive effect in order to be sustainable and to decrease carbon foot print in retail supply chain. It covers key area mentioned as under :
- Waste and recycling
- Ethical Sourcing:To earn respect and trust of customers by providing informed choices and by behaving responsibly both inside and outside.
- Animal welfare:They are committed towards welfare of animals by remaining in touch with suppliers and maintain high standards.
- Sustainability : Woolworths has committed to stop contributing towards deforestation by 2020
- Sustainable Seafood:Their motto is to provide entire seafood by sustainable sources by 2015.
Stakeholders and Their Influence
They are the one who have interest in the company or work carried by them and can be divided in primary or secondary stakeholders. They affect or have effect on the decisions, policies and procedures of an organization.
Further they can be divided in primary and secondary stakeholders. In modern times it is not just the people who invest in the companies act as stake holders. A company is in strong position if it has a fund dedicated to taking environmental and social responsibility generally termed as Socially Responsible Investment. Everyone who is influenced by the decision of an organization falls under this category. For an organization like Woolworths it is all the more important to be in touch with its stakeholders, for it is not just the shareholders, they cover a vast range from consumer, environment to government. Woolworths is committed to take steps to achieve its environmental commitment that it has made (Carson, 2008).
Woolworths has a strategy in place that is designed keeping in mind for the future. The growing concerns of people for environment are creating a demand for environmental friendly products. Woolworths is very well aware of this fact and for the benefit of company they came up with such a strong supplier selection method. The company if religiously follows this path of sustainable development will attend all its goals by year 2015 (Greenblat, 2013). In this way they will provide maximum benefits to their stakeholders.
- Carson, V. (2008). "Check out Woolies' lead on Coles". Sydney Morning Herald. Retrieved 22 Sep 2013.
- Gray, R & Bebbington, J. (2001). Accounting for the Environment. Second edition. Sage Publications Ltd.
- Greenblat, E. (2013). "Lion boss adjusts to supermarket duopoly". The Age. Retrieved 22 Sep 2013.
- Garriga, E. & Mele, D. (2004). Corporate Social Responsibility Theories: Mapping the Territory. Journal of Business Ethics. Pp: 51–71.
- Marquez, A. & Fombrun, C. (2005). "Measuring Corporate Social Responsibility." Corporate Reputation Review 7. Pp: 304–308.
- Moore, Ali (2006). "Man of the Moment (Interview with Woolworths' boss Roger Corbett)". Business Sunday (Ninemsn). Retrieved 22 Sep 2013.
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