Value Chain Analysis of Rio Tinto

This article discusses the value chain analysis of Rio Tinto, a leading organization in the Australian mining sector. It explores the primary and secondary activities in the value chain and provides recommendations for improvement.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Table of Contents
Question 1:.......................................................................................................................................3
Introduction:................................................................................................................................3
Value chain analysis:...................................................................................................................3
Conclusion:..................................................................................................................................5
Question 2:.......................................................................................................................................6
Part 1:...........................................................................................................................................6
Part 2:...........................................................................................................................................6
Parts 3 and 4:...............................................................................................................................7
Question 3:.......................................................................................................................................7
Part 1:...........................................................................................................................................7
Part 2:...........................................................................................................................................7
Part 3:...........................................................................................................................................8
Part 4:...........................................................................................................................................8
Part 5:...........................................................................................................................................8
Part 6:...........................................................................................................................................9
Part 7:...........................................................................................................................................9
Question 4:.....................................................................................................................................11
Part 1:.........................................................................................................................................11

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Part 2:.........................................................................................................................................11
Part 3:.........................................................................................................................................11
Question 5:.....................................................................................................................................11
Part 1:.........................................................................................................................................12
Part 2:.........................................................................................................................................12
References:....................................................................................................................................13

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Question 1:
Introduction:
In this part, Rio Tinto is selected as the organisation, which is one of the leading
organisations operating in the Australian mining sector. The mission of the organisation involves
partnership with its key suppliers for maximising innovation so that there is minimisation in total
ownership cost (Riotinto.com, 2019). However, recently, it has been criticised owing problems
in transport, partnerships with the supplier and minimised visibility of operations. Thus, it is
essential for Rio Tinto to implement value chain for resolving the above-identified issues.
Value chain analysis:
There are two categories of activities in value chain analysis, which include primary
activities and secondary activities. For Rio Tinto, the primary activities include the following:
Inbound logistics:
These activities of the organisation are related to storing, receiving and disseminating the
product inputs. It could comprise of warehousing related to physical products, architecture and
material handling for receiving and storing customer information (De Waal et al., 2014). At
present, Rio Tinto has outsourced majority of its activities related to inbound logistics.
Operations:
These activities help Rio Tinto in transforming raw materials into finished products. Rio
Tinto uses its customer data so that it could serve advertisements depending on usage behaviour
to the clients and moulding plastic for manufacturing products.
Marketing and sales:

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Rio Tinto undertakes these activities for generating means through which the buyers
could purchase products of the organisation. The activities of outbound logistics for the
organisation mainly include wholesalers, scheduling and fulfilment of order of the retailers,
processing, network distribution and warehousing (Dorobantu & Odziemkowska, 2017).
Services:
Rio Tinto is required providing after sales services along with maintaining effective
product usage. The service activities of Rio Tinto mainly include backend software alignment
and product forward, supply parts, training, maintenance of post sales and installation services.
On the other hand, the secondary activities in the value chain of Rio Tinto mainly
comprise of the following:
Firm infrastructure:
The firm infrastructure activities at Rio Tinto provides support to the value chain, despite
the variation in scope by taking into consideration that Rio Tinto is a diversified organisation
even within the sector. For instance, Rio Tinto manages its finance and planning at the corporate
level, while it manages its accounting, quality management and legal issues at the business unit
level (Parker, Cox & Thompson, 2018).
Human resource management:
For Rio Tinto, the support activities of human resource management mainly include
people planning, recruitment, development and training, selection, compensation and skill
assessment. This is the major source of competitive advantage for the organisation.
Technological development:

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In Rio Tinto, the technology development concentrates on activities like component
design, process engineering, field testing, feature design and selection of technology.
Procurement activities:
These activities at Rio Tinto constitute of those activities, which are undertaken for
buying inputs used by its value chain. In addition, focus is kept on vendor management,
procedures, qualification rules of the supply chain partner, information system and ongoing
performance evaluation (Payne, Frow & Eggert, 2017).
Conclusion:
Based on the above discussion, it could be stated that Rio Tinto has used value chain
analysis effectively for enhancing its business operations. It has focused on improving certain
areas like technology development, human resource management and logistics system for
enhancing its relationships with the suppliers. However, it needs to work more on improving its
relationships with the suppliers. Finally, the organisation has to undertake necessary measures
for improving its transportation issues so that it could maintain enhanced relationships with the
suppliers in future as well.

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Question 2:
Part 1:
Part 2:

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Parts 3 and 4:
Question 3:
Part 1:
Part 2:

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Part 3:
Part 4:
Part 5:

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Part 6:
Part 7:
Memo
To: The Chief Financial Officer
From:
Date: 11/04/2019
Subject: Analysis of methods of cost apportionment
Support department costs could be allocated by utilising three methods and these methods
are step method, direct method and reciprocal method. Out of these methods, the simplest
method is the direct method. This is because in this method, there is allocation of cost of service
departments to the operating departments based on each department’s share of allocation base
(Hopper & Bui, 2016). However, this method fails to take into consideration of the services
utilised by the other service departments.
On the contrary, under step method, there is apportionment of costs to the support
departments by following a sequential manner. There has been initiation of the sequence with the
support department, in which the organisation has spent highest costs. After completion of the
apportionment of this departmental cost, the service department with the next greatest costs are

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apportioned and the procedure keeps on going until the lowest department cost has apportioned
its costs effectively (Ellul et al., 2015).
The final method of cost allocation is deemed to be the reciprocal method and it is the
most complex out of the three methods. With the help of this method, it is possible to allow the
support department expenses to the operating departments as well as service departments
(Bromwich & Scapens, 2016). In addition, this method assists in realisation of the association
between the support departments and cost is apportioned from and to support departments for the
given departments.
Therefore, by analysing the direct method, it has been found that the direct method does
not take into account interdepartmental services. On the other hand, step down method only
provides partial realisation, since costs are apportioned forward and not backward. For
overcoming this issue, reciprocal method needs to be used for full realisation of
interdepartmental services and increased exactness to apportion the cost of service departments
to the other departments. Moreover, this method using the technique of simultaneous equation
and it is considered as simultaneous equation method as well as algebraic method related to cost
allocation. Hence, by considering all the above-discussed aspects, it could be inferred that the
reciprocal method is the most effective method of cost allocation and the organisation needs to
use this method for better apportionment of cost.

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Question 4:
Part 1:
Part 2:
Part 3:
Question 5:

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Part 1:
Part 2:

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References:
Bromwich, M., & Scapens, R. W. (2016). Management accounting research: 25 years
on. Management Accounting Research, 31, 1-9.
De Waal, A., Orij, R., Rosman, J., & Zevenbergen, M. (2014). Applicability of the high-
performance organization framework in the diamond industry value chain. Journal of
Strategy and Management, 7(1), 30-48.
Dorobantu, S., & Odziemkowska, K. (2017). Valuing stakeholder governance: Property rights,
community mobilization, and firm value. Strategic Management Journal, 38(13), 2682-
2703.
Ellul, A., Jotikasthira, C., Lundblad, C. T., & Wang, Y. (2015). Is historical cost accounting a
panacea? Market stress, incentive distortions, and gains trading. The Journal of
Finance, 70(6), 2489-2538.
Hopper, T., & Bui, B. (2016). Has management accounting research been critical?. Management
Accounting Research, 31, 10-30.
Parker, R., Cox, S., & Thompson, P. (2018). Financialization and Value-based Control: Lessons
from the Australian Mining Supply Chain. Economic Geography, 94(1), 49-67.
Payne, A., Frow, P., & Eggert, A. (2017). The customer value proposition: evolution,
development, and application in marketing. Journal of the Academy of Marketing
Science, 45(4), 467-489.
Riotinto.com. (2019). Global home. Retrieved 11 April 2019, from https://www.riotinto.com/