Laburnum Case Study

1
Running head: LABURNUM CASE STUDY
Laburnum Case Study
Student Name
Institution Name

2
LABURNUM CASE STUDY
Introduction
Laburnum group was formulated in 1920 as a farmer’s cooperative, from there it has
risen to be one of the largest listed companies in Australia with operating headquarters in
Victoria. Laburnum group operates diverse business area; energy clothing being one of them.
The AusCotton section of the company specialises in clothing while Sapphire energy is the
branch concerned with the supply of energy. As a way of optimising the firm’s profitability, the
management takes keen interest on the business internal processes. Due to the various factors
affecting the organization, this report will analyse Laburnum supply chain as well as the nature
of the global business challenges. Afterwards a recommendation will be made to the
administration of the company to assist improve overall performance.
Energy Portfolio: Sapphire Energy
Effectiveness of the current ordering system
To gauge the effectiveness of the ordering system, the Economic Order Quantity (EOQ)
value is applied. This is a measurement in the field of supply chain that assist determine the
volume and frequency of orders that is required to meet a certain level of demand while at the
same time minimizing the cost of each order (Sandun, Ganesh, & Shun-Chen, 2017). It is given
by the formula;
EOQ= √ 2 SD
H
Where S is the ordering cost, D the annual quantity demanded and H the holding cost.
D is given as 155000, S is $50, while H is
H=iC
Where i is the interest rate and C the unit cost.
Hence H=1.35
EOQ= √ 2∗50∗155000
1.35 =3388.43 m
Under the current system three conditions have to be met, that is
 No quantity discount is allowed
 A minimum of 4500m is needed for each order.
 The eastern power store room needs to take 1/12) of its annual need monthly that is
12916.67m.

3
LABURNUM CASE STUDY
Currently the firm has to make a minimum purchase of 4500m per order which is higher than the
EOQ hence does not optimize the business operation costs.
Assuming a uniform demand of the material per week, the weekly demand will be
155000
52.1429 =approximately 2973 m. Without the current deal the lead time is 12 weeks which
means the Eastern power storeroom need to have 35,676m of the cable at the time of placing an
order (Caplin & Leahy, 2010). The current system even though account for the lead time, its
quantity per order is not economical and hence needs to be revised.
Suggested improvements
One of the areas that need to be improved is the order quantity, the current system entails
making a minimum of 4500m per order. Even though this meets the monthly demand of
Sapphire energy, it does not optimize the costs of operations. Making an order similar to the
EOQ will mean forfeiting the current deal and hence having to encounter the 12 weeks lead time
(Elyasi, Khoshalhan, & Khanmirzaee, 2014). This will mean an increased acceptable minimum
stock level a factor that will go ahead to increase the inventory holding cost. So as to optimise
the operations of Sapphire, the company need to negotiate for a lower minimum quantity that can
be ordered at a given time to reflect the EOQ value. This will allow the firm to minimise the cost
of operations while at the same time maintaining a stock level that can sustain daily service
delivery of the firm.
Clothing Portfolio: AusCotton
Global issues affecting strategic sourcing
By definition strategic sourcing is a technique applied in the supply chin management
process that entails formalising the methods of data collection and application. This enable a firm
leverage its consolidated purchasing power as away of finding the best possible market values. It
demands an analysis of what the firm needs to buy, who they buy from, the volume of purchase
as well as the prices (Roth & Pullman, 2008). The process of strategic sourcing is globally
affected by a number of challenges, some includes;
Diverse cultural norms, a firm that undertakes global strategic sourcing is occasionally
faced with different cultures that practice unique ways of doing business. This cultural variation
demands that a firm have a set of employees that are able to mitigate the barriers so as to get the
best deals in the market. Also, language barrier is another challenge that interferes with strategic