Laburnum Case Analysis

This report analyses the problems encountered by Sapphire Energy and AusCotton, their implications, and recommendations for improvement. It discusses the significance of effective administration of the supply chain process and accurate demand estimation for cost reduction and minimisation of supply risks. The report also suggests strategies for evaluating supplier markets, demand analysis, and sourcing strategy. The report concludes that regular review of the supply chain process is essential for overall growth and success.

Laburnum Case Analysis
Laburnum Case Study Analysis
Assessment 2
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Laburnum Case Analysis
Contents
Introduction...........................................................................................................................................3
Discussion..............................................................................................................................................3
Conclusion.............................................................................................................................................8
References.............................................................................................................................................9
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Laburnum Case Analysis
Introduction
Supply chain forms an integral contributor for success of firm’s distribution of products in
market and hence its efficacy is vital to reduce cost and other supply uncertainties. In this
report problems encountered by Sapphire Energy and AusCotton have been analysed and
their implications are presented along with recommendation for improvement.
Discussion
Energy Portfolio: Sapphire Energy
1.
In the existing agreement with suppliers, the ordering arrangement for Eastern Power equals
1/12th of their yearly demand for each month
= 155000/12 = 12916.66 units per month
This represents Total inventory cost equals to C (Q/2) = F (D/Q)
= 1.35(12916.66/2) [phone]/12916.66)
= 8718.7455+600.00030= 9318.7458
Where, C= Carrying cost per unit/ year =1.35
Q= Quantity per order =12916.66
D= Demand in units/year = 155000
F= Fixed cost = 50
As such existing ordering arrangement of 1/12th of annual demand for each month
(155000/12= 12916.66 units a month) will mean overall inventory cost equaling to
9318.7458
2.
The least possible quantity that can be bought from supplier equals to 4500 m/ order
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Laburnum Case Analysis
1.35 (4500/2) [phone]/4500) = 4759. 7222
Thus even in case least possible quantity from supplier is secured, inventory cost will drop
down, as such the most favorable quantity of inventory can be gained by applying EOQ
formula, √2 UO/hC
=√ (2 X155000X50)/ (0.10 X 13.5)
= √15500000/1.35
=3388.4334
Where, U= Annual use = 155000
O= Ordering cost = 50
h= holding cost as % of unit cost = 10% or 0.10
C= cost/ unit = 1.35
Thus, overall inventory cost equals
1.35 (3388.4334/2) + 50 (155000/ 3388.4334)
= 2287.1925 + 2287.1926
= 4574.3851
Thus, by realizing EOQ formula, Sapphire energy and Eastern Power can save
9318.7458 - 4574.3851
= $ 4744.3607 every year
As such it is advisable for Sapphire Energy to attempt renewal for their contract so as to
lower minimal order to secure best possible savings. In event of non-renewal of contract
Sapphire Energy can still save money by securing minimal quantity required from the
supplier , 9318.7458- 3388.4334 = $ 5930.3124 each year
Thus, so as to reform existing arrangement of order, the new guidelines of reordering should
be made more enduring due to higher lead time. But with little amount of initiative and
practical management Sapphire Energy can reduce an expressive cost per year.
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Laburnum Case Analysis
Clothing Portfolio: AusCotton
1. Strategic sourcing is targeted by firms so as to secure more of cost minimisation and
reduction in scale of supply risks. In most firms activities such as strategic planning and
sourcing are not carried out in adequate and efficient manner inpite of the reality that proper
administration of supply chain process secures and confirms largest role towards attainment
of organisational goals successfully. There are different incidences which have demonstrated
that firms that focus on developing their performance through aiming to improve supply
chain attain greater performance in context to monetary and operational outcomes as
compared to other rivals in market (Chung-Yean, Kocabasoglu-Hillmer and Suresh 2012).
Hence by examining global business context and positioning of AusCotton among its
suppliers and within market it can be clearly confirmed that there are numerous global
concerns in AusCotton that can be realised in field of strategic sourcing. According to
Hadiyan, Zailani and Keah (2015) the first global concern that can be realised pertaining to
field of strategic sourcing is confusion that persists during selection of suitable outsourcing
approach such as whether to produce goods on own or to get them secured from other
suppliers. As stated by Su (2013) other global concern that has been realised pertaining to
field of strategic sourcing is in context of attaining favourable portfolio of suppliers who can
meet requisites as given in supplier norms of an enterprise in different category of goods.
Another global concern that has been realised related to strategic sourcing is that AusCotton
may encounter numerous forms of restrictions in context of administering each goods of the
firm in different categories of material that can depend on supply and spending tendency
(Borges 2015). The last global concern that has been realised pertaining to the field of
strategic sourcing is in context of selection of suitable markets and nations where AusCotton
can market their goods throughout the year so as to meet competitive leverage.
2. The overall implication of less than perfect demand estimation on AusCotton for their
goods as well as impact of scale of volatility and cost of transportation during movement of
their goods from contracted producers to distribution point is seen through depletion of
financial assets for AusCotton and depletion of market shares of the firms. This is due to the
fact that timely delivery and proper demand estimation are considered as significant aspects
in supply chain process of manufacturers and any form of inappropriateness in estimation of
actual demand can ultimately result into supply discrepancies including failure to fulfil
customer requisites and hence appropriateness in demand estimation is very significant for
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Laburnum Case Analysis
efficient allocation of resources (Kwak and Gavirneni 2015). Also appropriateness of demand
estimation and accurate demand presumption is significant for assembling within the supply
chain of a firm so any form of discrepancy can be damaging. Because of AusCotton’s less
than perfect demand estimation, volatility in scale and cost of transportation during shifting
of their goods to distribution units the firm faced shortfall in goods (Roberta, Christopher and
Silva 2014). Hence so as to use their contracts agreement with producers of goods,
AusCotton has decided to move their goods supply to seasonal demand which may not create
shortfall of goods due to varying demand. But as cost of transport and length needed during
movement of goods are also responsible for product shortfall so in this context AusCotton
needs to estimate their demands more accurately and in proper way so that the firm can use
contract producers to manufacture some of their goods throughout the year in a consistent
manner instead of relying on to move their goods supply to seasonal demand. This will help
AusCotton to maintain an appropriate inventory as per accurate demand estimation of the
firm so that they could fulfil demand for all seasons in different markets (Hançerlioğulları,
Şen and Esra Ağca Aktunç 2016). Also with accurate demand estimation and adequate
inventory, the transportation procedure of AusCotton can be planned as per adjustments in
demand and supply. According to Kumar, Himes and Kritzer (2014) course of actions that
can be undertaken by AusCotton so as to address the discussed concerns are development of
collaboration between suppliers and customers so that accurateness of demand estimation can
be secured, acknowledging response to demand changes rapidly so as to lower their
implication and cost of inaccurate demand estimation.
3. The components of strategic sourcing that can be considered by AusCotton so as to secure
improvement are:
Evaluation of supplier market: this evaluation can be done by AusCotton so as to review their
current suppliers and their competitive landscape. The outcome of this review will give
assessment of their current contract requisites and will also provide new outlook for sourcing
strategies, buyer integration and costs (Kim, Suresh and Kocabasoglu-Hillmer 2015). With
help of supplier market analysis information, AusCotton can secure competitive edge because
during this review they can consider their suppliers competitors as alternative by considering
whether they present a better choice and whether they should be considered for supply
opportunity.
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Laburnum Case Analysis
Demand analysis: AusCotton should review their existing state of utilisation and market
situation so that this information can be paired in demand estimation for future. This will help
to consider optimum workforce mix and the manner demand estimation can be secured in
light of supplier association and external market forces. AusCotton should review their
operation such as status of current supplier relations, adoption levels and external factors that
can affect decision making. Also prospective implication of skill shortage, emerging
workforce trends, technological advancement and their implication on workforce needs to be
reviewed during demand forecasting.
Sourcing strategy: AusCotton then needs to review their sourcing strategy which will help
them interpret their supplier markets support. Key performance indicators then needs to be set
up and aligned with optimum criteria for supplier selection so as to attain better supplier
performance. Next adequate standardisation in contract should be secured with focus on best
practices during negotiations to insure not only cost compliance with business needs but also
to ensure that supplier’s that are selected can align their willingness with goals of AusCotton
under management leadership (Cox 2015). Period demand estimation, adjustment in supply
mix and extending alliances will help to achieve improved strategic sourcing performance.
4. In order to respond to allegations that few contract manufacturers are engaged in
illegitimate manufacture of goods on behalf of company, it is significant that AusCotton at
first interprets and reviews their existing contracts with contract manufacturers and then opt
to consider renew of contract negotiations, so that clause of agreement could be revised
accordingly. AusCotton after review of their current contracts need to include intellectual
property safety clause which would include strict penalties in case of discrepancy (Yilmaz et
al. 2014). Secondly, to respond to allegations AusCotton needs to conduct a meeting with
manufacturers so as to communicate their expectations clearly and then should begin a
detailed investigation so as to evaluate whether allegations are reasonable or not. In case,
accusations are found genuine, then AusCotton should take legislative proceedings which
will help to set out an example for other contract manufacturers.
The evaluation of AusCotton presents that they are encountering numerous concerns due to
inaccurate demand estimation which may lead to depletion of market share due to shortage of
goods. Also inaccurate demand estimation, volatility in transportation cost and scale has le to
increased risks and loss for AusCotton. Moreover, AusCotton is encountering problems due
to allegation of illegitimate merchandising by contract manufacturers which has resulted into
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Laburnum Case Analysis
pressure despite the products being original and hence it is advised that management of
company should secure collaboration between customers and suppliers, so as to improve
appropriateness of their demand estimation procedure and to respond quickly to demand
changes in order to lessen implication and cost burden of inaccurate forecasting. Another
suggestion is that management should review all of their contracts and then should consider
renew of negotiations so as to include intellectual property safety clause in the contract as tis
will ensure penalties in case illegitimate merchandising of goods are made.
Conclusion
Thus it can be concluded that effective administration of supply chain procedure of a firm is
essential for efficient maintenance of supply chain which can result into competitive strength
for firms. Hence firms need to review their supply chain process regularly to check all their
aspects so as to timely recognise concerns and scope for development. This is due to the fact
that efficient administration of supply chain and accurate demand estimation can drive a firm
to cost reduction and minimisation of supply risks which eventually leads to overall growth
and success.
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Laburnum Case Analysis
References
Borges, M. A. V. 2015. An evaluation of supply chain management in a global perspective.
Independent Journal of Management & Production, 6(1): 1-29.
doi:http://dx.doi.org/10.14807/ijmp.v6i1.211
Chung-Yean, C, Kocabasoglu-Hillmer, C., & Suresh, N. 2012. An empirical investigation of
the impact of strategic sourcing and flexibility on firm's supply chain agility. International
Journal of Operations & Production Management, 32(1): 49-78.
doi:http://dx.doi.org/10.1108/01443571211195736
Cox, A. 2015. Sourcing portfolio analysis and power positioning: Towards a "paradigm shift"
in category management and strategic sourcing. Supply Chain Management, 20(6): 717-736.
Retrieved from https://search.proquest.com/docview/1748939471?accountid=30552
Hadiyan, W. I., Zailani, S., & Keah, C. T. 2015. A content analysis of global supply chain
research. Benchmarking, 22(7): 1429-1462. doi:http://dx.doi.org/10.1108/BIJ-04-2013-0038
Hançerlioğulları, G., Şen, A., & Esra Ağca Aktunç. 2016. Demand uncertainty and inventory
turnover performance. International Journal of Physical Distribution & Logistics
Management, 46(6): 681-708. doi:http://dx.doi.org/10.1108/IJPDLM-12-2014-0303
Kim, M., Suresh, N. C., & Kocabasoglu-Hillmer, C. 2015. A contextual analysis of the
impact of strategic sourcing and E-procurement on performance. The Journal of Business &
Industrial Marketing, 30(1): 1-16. Retrieved from
https://search.proquest.com/docview/1647632767?accountid=30552
Kumar, S., Himes, K. J., & Kritzer, C. P. 2014. Risk assessment and operational approaches
to managing risk in global supply chains. Journal of Manufacturing Technology
Management, 25(6): 873-890. doi:http://dx.doi.org/10.1108/JMTM-04-2012-0044
Kwak, J. K., & Gavirneni, S. 2015. Impact of information errors on supply chain
performance. The Journal of the Operational Research Society, 66(2): 288-298.
doi:http://dx.doi.org/10.1057/jors.2013.175
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Roberta Pereira, C., Christopher, M., & Silva, L. D. 2014. Achieving supply chain resilience:
The role of procurement. Supply Chain Management, 19(5): 626-642. Retrieved from
https://search.proquest.com/docview/1633971650?accountid=30552
Su, J. 2013. Strategic sourcing in the textile and apparel industry. Industrial Management &
Data Systems, 113(1): 23-38. doi:http://dx.doi.org/10.1108/02635571311289647
Yilmaz B, D., Iseri S, A., Kabasakal, H., & Rofcanin, Y. 2014. Quality of relationships with
alternative suppliers: The role of supplier resilience and perceived benefits in supply
networks. Journal of Management and Organization, 20(6): 808-831.
doi:http://dx.doi.org/10.1017/jmo.2014.51
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