(a)

Professor Michael Porter analyses the competitive forces facing businesses under five headings, and these are used as the framework for discussing the position of Freight Flow below:

• Rivalry among competitors:
  The company faces strong competition for haulage work, and haulers operate on a low-margin basis. This makes successful competition difficult, since competing on price is limited. Smaller companies often subcontract from large-scale haulers, making it harder for Freight Flow to obtain profitable jobs.
• Threats from potential entrants:
  Kofi set up Freight Flow by taking out a loan and buying a vehicle. This illustrates that barriers to entry are low, and the threat from potential entrants is high. New entrants can acquire a customer base by subcontracting from larger firms.
• Bargaining power of customers:
  Customers have a strong position due to the large number of haulage firms, providing ample choice. Competition limits margin increases. Freight Flow is critically dependent on Soft Furniture Ltd, which is undesirable, especially as Soft Furniture reduced business by one-third.
• Bargaining power of suppliers:
  Supplies like vehicles and labor are not problematic for Freight Flow. However, finance is a concern. The bank currently supports loans, but this is precarious, as past financial difficulties nearly led to liquidation, endangering future financing.
• Threats from substitutes:
  Freight Flow offers road haulage, but alternatives include rail or air freight, plus intense competition within the road sector.                                                                                                                                                                                                                                                                                                                                                                                                                                                          (b)

  In preparing a position appraisal, it is usual to distinguish between internal factors (namely strengths and weaknesses of the organization) and external factors (namely opportunities it can exploit and threats it faces). These are examined in turn below:

  Internal factors – strengths:
  (i) The personal abilities of Kofi. These have been demonstrated by single-handedly founding and managing the business over the past 12 years.
  (ii) The customer base and goodwill built up over the same period. Although new firms can enter the market easily, they lack these advantages. However, this strength is declining due to reduced business from Soft Furniture Ltd.
  (iii) Strong financial discipline introduced since the appointment of Ama.
  (iv) Kofi living on-site enables a 24-hour service, giving a competitive advantage. However, this may diminish with the move to a new site.
  (v) Diversification into fork-lift training has reduced risks by providing alternative income.

  Internal factors – weaknesses:
  (i) Over-dependence on Soft Furniture Ltd, which provides 70% of revenue, and has now started using other suppliers.
  (ii) Lack of liquidity. The company has heavy debt, recently increased to finance new land. The bank is currently supportive, but this could change, especially if Ama leaves. Further finance needs for vehicle replacements may worsen the situation.

  External factors – opportunities:
  (i) Exploit new premises and tractor units recently invested in.
  (ii) Grow the training course side of the business.
  (iii) Win back lost sales from Soft Furniture Ltd by re-establishing close links.

  External factors – threats:
  (i) Numerous competitors trading on low margins, risking a price war.
  (ii) Local residents’ objections to business disturbances, which could lead to activity restrictions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      (c)

  (i) Internal and external sources of information for marketing strategy:
  Internal sources should enable Kofi to identify past customers not currently using FreightFlow’s services, or those using them less, and enquiries that didn’t result in business but indicate potential interest. External sources, like local directories, trade journals, and databases, identify new customers. External sources, particularly trade journals, also help determine how to convey marketing messages.

  (ii) Strategic management accounting information:
  This is a broad question, and the following are particularly relevant to FreightFlow:

  1. PEST factors: Monitor political, economic, social, and technological developments (e.g., haulage regulations, local government actions).
  2. Competitive environment: Analyze market size, shares, and growth potential, including Freight Flow’s position.
  3. Financial position: Estimate receivables, loan repayments, interest, and vehicle replacement needs.
  4. Information systems: Assess current resources and systems.
  5. Marketing strengths: Evaluate customer perceptions of service quality versus competitors.
  6. Cost assessment: Detail service provision costs.
  7. Customer profitability: Assess profitability, especially of Soft Furniture Ltd, given its revenue dominance.
  8. Committed costs: Evaluate repairs, maintenance, fuel, and other major expenses.
  9. Financial controls: Introduce cash flow forecasts and variance analysis, currently absent.
  10. Cost of capital: Estimate for investment appraisal.