Laburnum Case Analysis

This case analysis explores the issues faced by Sapphire Energy and AusCotton in their supply chain management. It discusses the impacts and solutions related to supply chain elements such as planning, information, sourcing, inventory, production, location, transportation, and goods return. The analysis also focuses on strategic sourcing and demand forecasting in the clothing portfolio of AusCotton. Recommendations are provided to improve efficiency and gain a competitive edge.

Laburnum Case Analysis
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Laburnum Case Analysis
Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Conclusion..................................................................................................................................8
References..................................................................................................................................9
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Laburnum Case Analysis
Introduction
An important factor determining the successiveness and competitiveness of an organization’s
in the market revolves around its supply chain. This is because one can relate a supply
chain’s efficacy with its competitive advantage in the target market over competition. A
firm’s supply chain management comprises of various elements i.e. planning, information,
sourcing, inventory, production, location, transportation and goods return. According to Zhu,
Krikke and Caniëls (2017), for minimizing the risk and costs involved, these elements are
continuously reviewed by organizations thereby, making significant contributions to gain a
competitive edge over market competitors. The key purpose of this report revolves around the
different issues that Sapphire Energy and AusCotton, a major business unit of Laburnum
Group are facing and the impacts and solutions related with them.
Discussion
Energy Portfolio: Sapphire Energy
1.
The existing ordering system of the Eastern Power under the current arrangement with the
supplier is 1/12th of their monthly annual requirement i.e. 155000/12 = 12916.66 units each
month, which further means that total inventory cost will be
This means the total cost of inventory will be
C (Q/2) = F (D/Q)
1.35(12916.66/2) [phone]/12916.66)
8718.7455+600.00030= 9318.7458
C= cost to carry each unit per year =1.35
Q= each orders quantity =12916.66
D= demand in units every year = 155000
F= fixed cost = 50
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Laburnum Case Analysis
Therefore, a total cost of inventory of 9318.7458 is represented by the current ordering
system of 1/12 of their monthly annual requirement (155000/12= 12916.66 units a month)
represent
2.
The minimum amount purchased from supplier is 4500 meter per order is 1.35 (4500/2) +50
(155000/4500) = 4759. 7222
Therefore, while procuring the minimum amount from supplier the inventory cost will go
down. Usually by making use of the EOQ formula the optimal inventory amount can be
achieved
√2 UO/hC
=√ (2 X155000X50)/ (0.10 X 13.5)
= √15500000/1.35
=3388.4334
U= annual use = 155000
O= ordering cost = 50
H= holding cost as % of unit cost = 10% or 0.10
C= cost per unit = 1.35
Thus, the total cost of inventory will be
1.35 (3388.4334/2) + 50 (155000/ 3388.4334)
= 2287.1925 + 2287.1926
= 4574.3851
Therefore, by getting the EOQ implemented the Sapphire energy and Eastern Power can save
9318.7458 - 4574.3851 = $ 4744.3607 per year
Thus it would be highly recommended for Sapphire Energy to try and revise their contract to
decrease the minimum order, for the most savings. In case the contract can’t be revised then
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Laburnum Case Analysis
Sapphire Energy can yet save money by ordering the minimum amount needed by the
supplier
9318.7458- 3388.4334 = $ 5930.3124 per year
Thus, for bringing improvement within the current system of order, it is important that
reordering policies are made more consistent. This is because in longer lead times, with a
little more effort and effective management Sapphire Energy can every year lessen a cost
symbolically.
Clothing Portfolio: AusCotton
1. The primary purpose an organization’s strategic sourcing focuses on the achievement
of large scale reduction besides the minimization of the risks that are involved in
supply. However, often the task of strategic planning in most organizations is not
properly and effectively done. This happens in spite of the fact that the process of
supply chain management contributes greatly in attaining the organizational goals.
According to Singhry (2015), there exist numerous real evidences reflecting that
organizations focusing on the performance improvement of their supply chain secure
more gains in terms of their commercial and operative outcomes compared to others
who do not, in their particular market competitors. Conferring to the global business
environment awareness and AusCotton’s positioning in its market and supply sources,
numerous global issues have been determined related with strategic sourcing. The first
global issue revolves around its dilemma in getting the pertinent outsourcing strategy
selected, which focuses in whether or not manufacturing own products or buying
them from vendors. The second global issue identified is with reference to acquire the
suppliers’ optimal portfolio for satisfying the company’s requirements as per the
commodities category. The third global issue that has been identified is that
AusCotton is likely in facing different types of constraints in relation to manage its
every commodity and the materials category, which is dependent on the supply and
spending characteristics. And the forth global issue identified revolves around the
selection of suitable markets where AusCotton can sell their product all the year
around or close to it for achieving competitive advantage.
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Laburnum Case Analysis
2. The eventual impact of less-than-perfect projection of the demand for AusCotton’s
products and volatility in the length and cost of transport services used for
transporting the products from contract manufacturers unit to the distribution centres
is loss of financial resources and market share of the business. This is because in the
manufacturing supply chain a well-timed and précised demand forecast is imperative
for any company. According to Chowdhury and Quaddus (2016), inaccuracies in the
prediction of actual demand are likely to lead the company towards differences in
supply such as failures in meeting the customers’ requests. Hence, to ensure that
resources are effectively allocated, it is important to maintain accuracy in regard to
demand forecasting. Besides this, in order to assemble the supply chain of AusCotton
beneficial and definite assumption of the demand is very vital. It has been observed
that because of AusCotton’s less-than-perfect demand forecast and volatility in the
length and cost of transport services involved in products transportation, shortage of
products is experienced. For utilizing their networking with the products
manufacturers AusCotton switches its products line from one season to another,
which although may not themselves be the cause of shortage however, the
transportation cost and time invested is responsible for the products shortage. Thus, in
case AusCotton more appropriately and precisely forecasts demands, it is likely in
utilizing few of its contract based manufacturers in the production of specific products
for selling throughout the year rather than changing according to the seasons. Also the
correct demand forecasting will help the company in accordingly adjusting the
inventories for adequately meeting the demands of every season in across its different
markets targeted thereby, accordingly planning the effective usage of the
transportation facility.
For mitigating the aforesaid problematic areas the measures that AusCotton can take will
revolve around the development of alliance between the customers and suppliers with intent
of improving the accuracy of its demand forecasting process. Moreover, the rapid changes in
demand should also respond faster for reducing the affect and cost of inaccurate demand
forecasting.
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Laburnum Case Analysis
3. Below mentioned are the elements of strategic sourcing process which are AusCotton’s top
areas of improvements:
Supply market analysis: different potential new domestic and international suppliers for the
business can be re-analyzed by AusCotton, even if they are not using their facilities at
present. According to Per (2017), also it needs to analyze their products cost constituents.
Thereupon the suppliers’ marketplace can be reviewed for determining the different risks and
opportunities that are related with them.
Alternate strategy development: meeting should be organized by AusCotton’s management
for discussing issues of costs reduction and risks minimization. In addition to this, as stated
by Cox (2015) focus should also be given on evaluating the suppliers’ competitiveness for
making précised decisions whether or not they have the standards of remaining in company
contracts or even they can be considered for future relations.
Track and benchmark company results: as stated by Presley, Meade and Sarkis (2016)
keeping a track and benchmark for the company’s outcomes is an indispensable element of its
strategic process. This is because keeping tab on the results will significantly help the
management in providing its products and commodities prevailing status.
4. As a response for the allegations that a few of AusCotton’ contract manufacturers are
actively engaged in the production of illegal company merchandise, first comprehending
what kind of contracts are currently in place is utmost important for consider a renewed
contract negotiation accordingly. The company will also add intellectual property protection
clause in the agreement inviting hefty fines. Secondly, the company representative would
personally meet with the manufacturers for communicating what is expected from them.
According to Kim, Suresh and Kocabasoglu-Hillmer (2015), initiating a thorough
investigation is also quiet essential for AusCotton. This can be done by personally meeting
with the manufacturers for analyzing the validation of the allegations imposed on them. In
case the allegations turn out to be true, immediate legal proceedings must be undertaken by
the company. This approach can be set as an example for other contract based manufacturers.
Hence, it is derived from AusCotton’s overall analysis that various issues is faced by the
company as a result of improper demand forecasting of its products, which eventually results
into loss of market share owing to products unavailability across its target markets. In
addition, the inaccurate products demand forecasting and volatility in their transportation cost
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Laburnum Case Analysis
and time also results into increased risks and loss for the company. The issue of illegal
products merchandising the contract manufacturers is also faced by AusCotton further
resulting into escalated competition with its original products. Hence, it is highly
recommended that AusCotton’s management develops an alliance amidst its customers and
suppliers for improving accuracy of the demand forecasting process. Additionally, it should
also ensure faster response to the changing demand for lessening the negative impact and
costs of inaccurate demand forecasting. Moreover, understanding the types of contracts it
currently has with manufacturers is also recommended for renegotiation or addition of
intellectual property protection clause.
Conclusion
It can be concluded that for any organization efficient supply chain management is a critical
criteria because of its potential in securing competitive advantage. It is also evident from the
study that all the elements of a supply chain must be occasionally reviewed for determining
problems and improvements areas. Effective supply chain management leads to costs and
risks minimization eventually gaining competitive edge.
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Laburnum Case Analysis
References
Chowdhury, M. M. H. & Quaddus, M. 2016. Supply chain readiness, response and recovery
for resilience. Supply Chain Management, 21(6): 709-731. Available:
https://search.proquest.com/docview/1847873414?accountid=30552
Cox, A. 2015. Sourcing portfolio analysis and power positioning: towards a “paradigm
shift” in category management and strategic sourcing. Supply Chain Management: An
International Journal,20(6): pp.717-736, https://doi.org/10.1108/SCM-06-2015-0226
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. Available:
https://search.proquest.com/docview/1647632767?accountid=30552
Per, A. J. 2017. Strategic sourcing and procurement of facilities management
services. Journal of Global Operations and Strategic Sourcing, 10(2): 138-158. Available:
http://dx.doi.org/10.1108/JGOSS-10-2016-0029
Presley, A., Meade, L. & Sarkis, J., 2016. A strategic sourcing evaluation methodology for
reshoring decisions. In Supply Chain Forum: An International Journal, 17 (3): pp. 156-169).
https://doi.org/10.1080/16258312.2016.1215852
Singhry, H. B. 2015. Effect of supply chain technology, supply chain collaboration and
innovation capability on supply chain performance of manufacturing companies. Journal of
Business Studies Quarterly, 7(2): 258-273. Available:
https://search.proquest.com/docview/1755024806?accountid=30552
Zhu, Q., Krikke, H. & Caniëls, M.,C.J. 2017. Integrated supply chain risk management: A
systematic review. International Journal of Logistics Management, 28(4): 1123-1141.
Available: http://dx.doi.org/10.1108/IJLM-09-2016-0206
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