Sapphire's Procurement System Analysis

The assignment requires students to analyze Sapphire's procurement system and identify areas where the company can improve its operations. The system is found to be inefficient, resulting in higher costs due to smaller shipment quantities and increased fixed order expenses. The document also discusses various references related to supply chain management, including articles and books that provide insights into optimizing cost and service levels in the presence of supply chain disruption risks.

Running head: PROCUREMENT AND SUPPLY CHAIN MANAGEMENT 1
Procurement and Supply Chain Management
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PROCUREMENT AND SUPPLY CHAIN MANAGEMENT 2
Procurement and Supply Chain Management
Introduction
The Laburnum Group is a major company with diverse business under one fold. The
company is keen on its performance which ensures that all stakeholders are contented. However,
time to time organizations are faced with issues that may be affecting their processes. Part of
entities under Laburnum, particularly energy and clothing, are currently impacted by challenges
and inefficiencies which have brought about the need to re-evaluate the systems. This report
aims to provide adequate evaluation and analysis on the businesses and the relevant factors
involved.
Sapphire Energy
Sapphire Energy and Eastern Power have quite a functional business relationship. Eastern
Power shows financial strength and capacity to deliver on the arrangements. The system displays
a good degree of reliability but the system can achieve much more. The reduced lead time is
instrumental in enhancing the performance of the company (Treville et al, 2014). Customer lead
time is essential for continued business relations. Reduced material lead time is important to the
operations of Sapphire. The current system has regular production schedules which increases
efficiency through reduction of the lead time (Christopher, 2016; Stadtler, 2015).
The shipping system is effective in delivery of products. The costs associated are
relatively standard for quality shipping. Procurement of the products in the established quantity
has saved the company on carrying costs which makes the system sufficient. The Eastern Power
storeroom size is essential in achieving this. Inventory holding costs are higher with less space

PROCUREMENT AND SUPPLY CHAIN MANAGEMENT 3
utilization. This shipment of material reduces cycles required. Subsequently, this reduces the
total ordering costs of the whole inventory. It is also important to be aware of the minimum order
quantities albeit the orders of Sapphire are above. Without the discounts, purchases made in
minimum order quantity helps in cost saving. The system is more effective with appropriate
tracking of the inventory movements (Wisner, Tan & Leong, 2014).
Recommendations for Improvement
There are some aspects that can be done to the system to enable improvement and better
operations overall. The company should prioritize store keeping units (SKUs). These should
conform to the objectives of the company and have the necessary class size to maximize
investment. The SKUs should be repeatedly evaluated to ensure the company ahs adequate SKU
intensity. The purchase of the cables should be done when customer lead times, acquisition lead
times and order quantity relationships are suitable helps reduce inventory. The acquisition
capacity should nevertheless surpass the demand (Hugos, 2018).
Communication is of utmost importance. Clear and consistent communication with
suppliers through the process should always be emphasized so that expectations of the customer
are always met. Effective information systems should be applied to further reduce lead times
(Hugos, 2018). This will automatically increase efficiency. Joint procurement procedures can be
utilized to purchase products to help reduce unit purchase costs. This reduces the annual
purchase transactions and cycle stock inventory. Cross-docking is also a vital strategy that can be
applied in the case. Terms of payment between Sapphire and Eastern Power should be extended
to improve the effectiveness of working capital (Shih et al, 2012).

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Calculations
Economic Order Quantity: sqrt (2*155000*10/1.35) = 1515.4
Annual ordering cost: 155000/1515*50= $5115.5
Annual holding cost: 1515/2*1.35= $1022.6
Number of orders: 155000/4500=34
Total cost= (4500/2)*1.35+(155000/4500)*50
=3037.5+1722.2= 4759.7
AusCotton
Strategic sourcing is key in supply chain management (Cox, 2015). The process evaluates
methods, procedures and sources in maximization of the value of the business. Strategic sourcing
entails negotiations, assessment of supply transactions and analysis of purchasing budget
(Monteiro & Birkinshaw, 2017). This process is sometimes impacted by some global factors.
One global issue that is impacts strategic sourcing is the political environment. Political
instability poses a huge threat on strategic sourcing by supply chains operating on the global
stage. Politics plays a major role in the productivity and quality of sourcing. Calm in politics
ensures that there are no sourcing delays, change in sources and routes for moving the supply.
The opposite occurs when there are political tensions around the world. Volatile political

PROCUREMENT AND SUPPLY CHAIN MANAGEMENT 5
situation destroys strategic partnerships and threatens global sourcing strategy (Eltantawy,
Giunipero & Handfield, 2014).
Global economy is major factor in strategic sourcing. A stable economy ensures that
there the financials are consistent and supply chains gain value form their investment. Conducive
global financial climate promotes global businesses. This allows strategic sourcing by companies
globally. Instability brings the aspect of risk in global sourcing. Fluctuations of the currency
exchange rates affects the business as money has to be exchanged between nations in the global
market. Strategic sourcing in this case is enhanced through management of information on
currency values (Lasserre, 2017).
Global companies have to abide by code of business ethics. In strategic sourcing, this
code is very relevant. In global sourcing, supply chains need to operate with transparency and
accountability in their activities. There are laws that govern how trade is conducted. It is crucial
for businesses to ensure full compliance for continuous improvement in the system. The working
conditions of the global companies are also vital to their sourcing (Lasserre, 2017).
Regulations are diverse across countries due to difference in industrial standards. The
regulations affect sourcing substantially. Companies therefore need to evaluate the circumstance
and gain clear perspective on differences. In the case of AusCotton, the differences are vital to
understand given they have interests in a number of countries (Eltantawy, Giunipero &
Handfield, 2014).
Impact of Forecasts
The forecasts carried out are in some cases inaccurate. As such, there are resulting effects
on the business. The company’s products can overstay their specified period. This means that

PROCUREMENT AND SUPPLY CHAIN MANAGEMENT 6
changes in season happens while the stores are still stocked for the just-ended season. The other
effect is that there may be a shortage in the products while there is still demand. In this case, an
example is that summer may come while the stores are still stocked with products developed for
winter, or stocks get finished before the season ends (Schmitt & Singh, 2012).
The volatility that affects the business makes it hard for the companies to follow their
strategy. This volatility means that the process gets distorted by the challenge of varying lead
times. This situation has the potential of causing much risk. In some situations, however,
volatility may work to the advantage of the business.
The costs of transport are relatively given that the service requires numerous trips as
orders are made. The problem with transport can be partly taken care of through enabling early
orders which can then be transported together to avoid numerous trips for deliveries. Early
preparation is also effective with volatility and the imperfect forecasts. This will mean fewer
disruptions based on these aspects. There period between production and shipping should not be
substantial to minimize carrying costs (Schmitt & Singh, 2012; Sawik, 2014).
Elements of Strategic Sourcing
There are elements that need to be reassessed and improved. Risk analysis is one key
element. Given the challenges observed from the case, there is need for more assessment of the
risks that are presented in sourcing. This will enhance capabilities of the organization in handling
risks. It is very crucial to improve on gathering market information. This should provide the
company with more insight on the market. In total cost of ownership, there is room for
improvement. This should help comprehend better true costs of products and services provided
(Presley, Meade & Sarkis, 2016).

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Handling Contract Manufacturers
The contract manufacturers are ethically wrong in their actions. Selling of counterfeit and
illegal products goes against the business code. This is a breach of trust between the company
and the constructors. Given that their efforts are unauthorized and work against the performance
of AusCotton, the contract should be terminated. The contract manufacturers are going against
the objectives of the company which the contractors should conform to with the contract in
place. Change of contract manufacturers is necessary in this situation.
Assessment Two
AusCotton displays a business model that has been able to fulfill the needs of clients
competitively and sustainably. The organization is a premier clothing company in Australia. The
success of the model has seen a decline due to the disruptions and challenges. The model needs
improvement in sourcing strategy to maximize the profits from the products and services. The
sourcing regions are significant towards the business. They regions have affordable and
sufficient labor and surplus raw materials (Rajesh & Ravi, 2015).
The company presents remarkable capabilities in the clothing business. The entity is well
established and prominent in a number of continents. The range of products offered across all the
distribution centers show that the company is a force to be reckoned with in the market. The
range of products and locations show the financial capabilities of the organization (Heckmann,
Comes & Nickel, 2015).

PROCUREMENT AND SUPPLY CHAIN MANAGEMENT 8
The relationship with contractors leaves a lot to be desired in AusCotton. Contractual
agreements are binding and in enforced through rules and regulations of business conduct.
Partners need to show integrity and commitment towards the set goals (Heckmann, Comes &
Nickel, 2015; Rajesh & Ravi, 2015). The relationship with contract manufacturers is less than
ideal because of their involvement in illegal counterfeits. In Sapphire, the relationship portrayed
in the partnership is ideal. This association promotes customer and supplier satisfaction, unlike in
AusCotton.
Economic order quantity describes the appropriate order quantity that the company
should purchase for its inventory. The calculated figure shows that the system that Sapphire
employees does not effectively reduce inventory costs. This means that the inefficiencies
experienced are resulting in higher costs (Sawik, 2014). Smaller quantity of shipments will mean
higher fixed order expenses and less holding costs. There is lesser need for space in Eastern
Power and less money in form of cables. This results in more savings. The procurement system
in Sapphire incurs additional costs based on the variables. The system requires higher number of
orders of lower quantities of shipments to realize cost minimization (Heckmann, Comes &
Nickel, 2015).

PROCUREMENT AND SUPPLY CHAIN MANAGEMENT 9
References
Treville, S., Schürhoff, N., Trigeorgis, L., & Avanzi, B. (2014). Optimal sourcing and lead‐time
reduction under evolutionary demand risk. Production and Operations
Management, 23(12), 2103-2117.
Christopher, M. (2016). Logistics & supply chain management. Pearson UK.
Stadtler, H. (2015). Supply chain management: An overview. In Supply chain management and
advanced planning (pp. 3-28). Springer, Berlin, Heidelberg.
Wisner, J. D., Tan, K. C., & Leong, G. K. (2014). Principles of supply chain management: A
balanced approach. Cengage Learning.
Shih, S. C., Hsu, S. H., Zhu, Z., & Balasubramanian, S. K. (2012). Knowledge sharing—A key
role in the downstream supply chain. Information & Management, 49(2), 70-80.
Hugos, M. H. (2018). Essentials of supply chain management. John Wiley & Sons.
Schmitt, A. J., & Singh, M. (2012). A quantitative analysis of disruption risk in a multi-echelon
supply chain. International Journal of Production Economics, 139(1), 22-32.
Sawik, T. (2014). Optimization of cost and service level in the presence of supply chain

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disruption risks: Single vs. multiple sourcing. Computers & Operations Research, 51, 11-
20.
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), 717-736.
Eltantawy, R., Giunipero, L., & Handfield, R. (2014). Strategic sourcing management’s mindset:
strategic sourcing orientation and its implications. International Journal of Physical
Distribution & Logistics Management, 44(10), 768-795.
Monteiro, F., & Birkinshaw, J. (2017). The external knowledge sourcing process in multinational
corporations. Strategic Management Journal, 38(2), 342-362.
Presley, A., Meade, L., & Sarkis, J. (2016, July). A strategic sourcing evaluation methodology
for reshoring decisions. In Supply Chain Forum: An International Journal (Vol. 17, No.
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Heckmann, I., Comes, T., & Nickel, S. (2015). A critical review on supply chain risk–Definition,
measure and modeling. Omega, 52, 119-132.
Rajesh, R., & Ravi, V. (2015). Supplier selection in resilient supply chains: a grey relational
analysis approach. Journal of Cleaner Production, 86, 343-359.
Lasserre, P. (2017). Global strategic management. Palgrave.