MANAGEMENT ACCOUNTING STRATEGY

MAA8X00

ASSESSMENT OPPORTUNITY 2
Scenario-based question
MARK PLAN AND SUGGESTED SOLUTION
9 May 2022
QUESTION ONE

Evaluate the macro and industry factors impacting the CEP business ecosystem. Evaluate
how DKX could use its strengths to take advantage of opportunities or mitigate the risks
resulting from these factors. Discuss why the company could not secure growth in line with
that of the industry over the last two years.

Macro factors (PESTEL)

For each of the following factors correctly identified and discussed 1 mark each
For identifying a strength that could help take advantage or to 1 mark for each
help mitigate the risks identified above relevant observation
For explaining the reasons for DKX is lacking behind in terms of 1 mark for relevant
growth observations
Relevant observations may include:
 Economic/Political (Shift in power from the West to the 3 marks
East). Most of the growth in e-commerce is resulting from
high population growth, rising disposable incomes and
living standards, and international trade growth. The
demand for CEP services is also expanding in developing
countries. The majority of DKX’s sales revenue comes
from the Europe and America resulting in the company
lagging behind in sales growth. DKS does however have a
global presence and it should therefore be easy for them
to expand its operations in the East.

 Legal and Social – The lockdown rules imposed by 2 marks
governments have changed the buying behaviour of
people. This has resulted in significant growth in e-
commerce mainly on the B2C side. This trend is expected
to continue into the future. The majority of DKX’s business
comes from B2B sales which may have resulted in them
not capitalizing on the increase in this area.
 Technological (also drivers of change) Technological 2 marks
infrastructure is an enabler of efficiency and therefore
critical. DKX is at the forefront of developments in IT and
logistics in this area and should therefore continue
innovation in this area.
Environmental - Not specifically addressed in the case study. 1 mark
Should the student have mentioned the impact of emissions from
vehicles and airplanes and discussed DKX’s response – 1 mark

Industry factors (Porter’s five forces)

 Bargaining power of the customers (Economic) – Average 3 mark
selling price per delivery is decreasing in real terms. B2C
and C2C markets. These customers are more price-
sensitive as the cost of delivery is passed on to them.
 DKX’s branding, superior IT infrastructure, real-time cloud
tracking, and ability to offer reliable service further reduce
the bargaining of customers, i.e., customers wanting the
quality offered by DKX would therefore be prepared to pay
more.
The threat of new entrants and competition 2 marks
 Barriers to entry in the local market are low resulting in the
number of small local CEP companies increasing, (i,e, any
person with a van, motorcycle or vehicle can enter the
market).
 However, unlike DKX these small companies are unable
to compete effectively in an international market as this a
requires large infrastructure, including a fleet of trucks,
vans, and aircraft
Competition 7 marks
 The market is fragmented with intense competition.
Smaller companies are entering and being competitive in
the local markets and are being acquired by larger
companies.
 DKX is not strong in small local deliveries but is sufficiently
large to acquire smaller companies to copy other larger
CEP companies to acquire small local economies.
 However, growth in this area may have caused DKX to be
lacking behind in terms of sales. Innovation to improve
efficiency, cost, and customer services is taking place in
the last mile delivery. It seems as if DKX only uses its
shop desks to service this market (individuals and small
 businesses). T
 The company should use its technological advantages and
brand reputation to ensure they do not fall behind in this
area and take advantage of the growing B2C and C2C
markets.

 DKX’s strong brand also protects them from increased

competition, with customers preferring to do business with
a company that they know.
 Large online retailers are starting to insource deliveries,
this is a great threat to DKX as it is directly impacting the
market they operate in.
 Handling the logistics of e-commerce start-ups presents a
lucrative opportunity and DKX should capture this market
by selling the software that integrates with the systems of
online retailers.

 Substitutes
Done deliveries and autonomous vehicles may in the future
substitute physical deliveries by employees. DKX should use its
strength in technological innovation to invest in the research and
development of these technologies.
 Bargaining power of suppliers is not a large threat
Max = 15 marks

QUESTION TWO

Identify two industry and three company-specific critical success factors for DKX.
(5 marks)
Identify two industry and three company-specific critical success 1 mark each (max 2)
factors for DKX.
For any of the following industry CSFs identified:
 Economies of scale
 Reliability
 Security
For any of the following company-specific CSFs identified 1 mark each (max 3)
 Technological innovation (is becoming an industry factor)
  Global presence
 Branding
 Efficiency
Max = 5 marks

QUESTION THREE

Explain why DKX would prefer large corporate clients over individuals and small businesses.
(Consider the behaviour of industrial clients and customer account profitability)

Marks
For each valid explanation of why DKX prefers large corporate
clients
Customer account profitability is impacted by improved 1 mark
efficiency and revenue.
Deliveries to large corporate clients are more efficient because 1 mark
of access and the availability of staff. Private customers are
often not available requiring the driver to return
Corporate clients are less price-sensitive allowing for increased 1 mark
revenues
The billing and collection process is more efficient with corporate 1 mark
clients.
Corporate clients (industrial customers) also require large 1 mark
volumes of repeat deliveries to the same clients.
This improves efficiency as it requires one driver to collect
several parcels at once. 1 mark
They also offer repeat orders securing the company’s revenue
1 mark
Any other relevant mark Max 1
Maximum marks = 5