Procurement and Supply Chain Management

The report discusses the supply chain management issues of Sapphire Energy and AusCotton. It evaluates the effectiveness of the current ordering system of Sapphire Energy and suggests ways to improve it. It also highlights the global issue of AusCotton regarding its strategic sourcing and the impact of less-than-perfect demand forecast. The report further suggests vital elements of strategic sourcing methodology to bring improvement in the supply chain of Auscotton and the response of Auscotton to illegal merchandise.

Running head: SUPPLY CHAIN MANAGEMENT
Procurement and Supply Chain Management
Name of the Student:
Name of the University:
Author’s Note:

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Executive Summary
The current report deals with the supply chain management issues in the context of Sapphire
Energy and AusCotton. However, Sapphire Energy and Auscotton are two brands of Laburnum
Group one is energy manufacturer and other is clothing manufacturer. In the recent years,
Sapphire Energy has been facing issue due low value of EOQ. Their carrying cost is high as a
result, demand becomes low. Hence, use of discount strategy will be helpful for this business to
enhance the demand in the market. On the other hand, the demand forecast process is poor in
Auscotton, which leads them to face huge challenges and high competition in the global market.
BY using proper market analysis they can reduce the effect alternative product. Therefore, by
following the intellectual property Act this organization will be able to protect the unique feature
of their business.

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Table of Contents
Evaluation of the effectiveness of current ordering system in the context of Sapphire Energy......4
Ways to improve the Current System of Sapphire Energy..............................................................6
Global issue of AusCotton regarding its strategic sourcing............................................................7
Impact of less-than-perfect demand forecast regarding the products, length, volatility, and cost of
transportation and justify the ways to mitigate such problems........................................................8
Vital Elements of strategic sourcing methodology to bring improvement in the supply chain of
Auscotton.........................................................................................................................................9
Response of Auscotton to illegal merchandise................................................................................9
References......................................................................................................................................11

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Evaluation of the effectiveness of current ordering system in the context of Sapphire
Energy
Sapphire Energy is a popular brand of Laburnum Group. However, Laburnum Group is a
well-known organization of Australia, which has both energy and clothing business. This
organization has got the position among the largest organizations in Australia. The major
objective of Laburnum Group is to provide a satisfactory return to their customers. Supply chain
management issue becomes a big issue among the energy manufacturing industries at present
time (Christopher, 2016). In the recent years, this business group has been facing supply chain
management issues regarding their clothing and energy area. Thus, it is necessary for this
organization to identify the areas of problem where necessary improvement can be implemented.
Sapphire Energy provides reliable electric service to their consumers across Bendigo, Sunbury,
Wodogona, Geelong, Melton, Miduara and many other places. The major material used in this
service is 1/0 AWG aluminum triplex cable. This cable is responsible to distribute the energy
from distribution pole to the meter loop.
Electricity distribution is the major business activity of this organization. However,
Eastern Power storeroom is the main stakeholder of Sapphire Energy and has made a contract
with them. In the given scenario, it has been observed that Sapphire Energy focuses on high-
quality service to satisfy their stakeholders. In the recent years, Eastern Power needs 155,000
meters of this cable service from Sapphire Energy. This cable is required to carry out the routine
service work. Hence, an agreement is made between Eastern Power and Sapphire Energy.
According to this order agreement, Eastern Power should use one-twelfth of its total annual
demand. As per this new ordering system, the cable service needs to install within five normal

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working days. The main aim of this ordering system is to reduce the lead time besides ensuring
their customers to get a regular spot in the production schedule of the concerned suppliers. The
carrying cost of the materials of current ordering system is $1.35 per meter, which is quite high.
Current ordering system of Sapphire focuses on the reduction of lead time, however; this aim is
fulfilled otherwise the lead time could be 12 weeks instead of 5 days. As argued by Mamani &
Moinzadeh, (2014), lead time reduction is necessary for the suppliers to enhance their supply
chain management otherwise they may face an issue.
Sapphire Energy needs at least 4500 meters for a single order and the capacity of Eastern
Power Storeroom is 90,000 meters. This will be effective for this ordering system as Sapphire
Energy will get more order from this shareholder. Based on the EOQ or Economic Order
Quantity the total cost of this current ordering system can be defined. Economic Order Quantity
system refers to the number of units that an organization adds to its inventory in order to
minimize the total cost of inventory management (Chen et al., 2014). Inventory cost includes
shortage cost, holding cost and order cost. Application of EOQ is useful to review the inventory
system. In the context of Eastern Power, they require 155,000 meters of service cable and the
carrying cost is $1.35 per unit. As per the EOQ calculation:
Figure 1: EOQ of Sapphire Energy

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(Source: Author)
From the above calculation, it has been received that value of EOQ is low and the
carrying cost is high. Due to low carrying cost, the demand becomes decreased. Hence, it can be
said that the carrying cost is high, which may affect the business of Sapphire. From the given
scenario and the above calculation, it has been identified that due to high carrying cost it will be
difficult for Eastern Power to take cable service from Sapphire Energy. On the other hand, based
on the contract system Eastern Power has to take at least one-twelfth of its annual need from
Sapphire Energy. Hence, due to the high carrying cost Eastern Power faced difficulties to take
service form its supplier. High carrying cost often hampers the demand of customers (Stadtler,
2015). As per this scenario, it has been received that the current ordering system based on the
contract between Sapphire Energy and Eastern Power is effective to minimize the lead time. On
the other hand, this ordering process is not cost effective as it enhances the carrying cost, which
is the main issue of supply chain management in the context of Sapphire Energy. For the
effective management of a supply chain, lead time should be reduced (Nguyen & Wright, 2015).
Hence, Sapphire Energy is able to reduce the time between the initiation and the completion of
their cable service project. This is a major benefit of their current ordering process. Despite this
effectiveness, Sapphire Energy did not offer any quantity discount, which is a major drawback of
their supply chain management. Based on the above analysis it has been found that high carrying
cost, low demand and lack of discount are the major drawbacks of the supply chain process of
Sapphire Energy.

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Ways to improve the Current System of Sapphire Energy
From the above analysis, it has been received that current ordering system of Sapphire
Energy is good to decrease the lead time however, the carrying cost is high. Eastern Power has a
high demand for cable service from Sapphire Energy. Due to the high carrying cost may affect
this demand. High cost of suppliers often decreases the customer numbers (Tyagi et al., 2015). In
the context of Sapphire Energy, they need to reduce their carrying cost per unit to enhance the
demand of customers. However, it will be helpful for Sapphire Energy to provide service with
low carrying cost and reduced lead time. This process will be effective to enhance the demand
for Sapphire Energy. Customers always prefer high-quality service with low cost (Cooper,
2017). Sapphire Energy needs to change their pricing strategy for carrying the cost. By using low
carrying cost this organization will be able to increase the demand. On the other hand, offering
quantity discount will be an effective strategy for Sapphire Energy to enhance the demand.
Discount pricing and high-quality service with reduced lead time will be beneficial to improve
the current ordering system in the context of Sapphire. Therefore, this process will help this
organization to cover a large number of stakeholders across Australia.
Global issue of AusCotton regarding its strategic sourcing
Auscotton is a global manufacturer of clothing products and it offers both winter and
summer sports apparel. In the recent years, Auscotton has started contract manufacturing with
Taiwan, India, China, and Vietnam. At present Auscotton has been facing issues due to a high
level of competition in a global market. Many competitors provide similar products such as
winter and summer products to customers, which affects the unique business feature of
Auscotton. Some new competitors offer similar products as like as Auscotton with an attractive
profit margin. Therefore, Auscotton has an inaccuracy in demand forecast. This hampers their

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business as well as strategic sourcing in the global market. Poor competitive strategy and
forecasting affect the growth of an organization in the global market (Kim & Chai, 2017). Due to
these major issues, Auscotton faced a high cost of transportation, inconsistency and unexpected
variation in their supply chain management. From the given scenario, it has been found that the
strategic sourcing of Auscotton or contract manufacturing process with foreign countries was not
effective as a result they have faced a huge competition in the global market. Threat of
substitutes occurs in the context of Auscotton, which hampered their business.
Impact of less-than-perfect demand forecast regarding the products, length, volatility, and
cost of transportation and justify the ways to mitigate such problems
According to the given scenario, it has been found that the demand forecast is not strong
in the context of Auscotton. However, inaccuracy of demand forecast in Auscotton leads them to
face threat of alternative product, high cost of transportation and reduced lead times. Less-than
product demand forecast leaves a negative effect on Auscotton business. Proper forecasting is
required for a business to understand the current market position based on which an organization
is able to measure their future profit margin (Kotabe & Murray, 2018). In the context of
Auscotton their demand forecast was failed to measure the current demand of global market as
well as the entire operating cost. As a result, they failed to identify the severity of the
competitors in the global clothing industry. Hence, many competitors enter in market easily and
hamper the unique product feature of Auscotton by offering a similar product. On the other hand,
due to poor forecast Auscotton failed to select the lead time as selection of lead time is based on
the type and materials of the product. Proper forecasting helps an organization understand the
urgency of the shipment based on the demand. Hence, inappropriate demand forecast Auscotton
failed to measure the urgency of shipment and failed to deliver the product within promised date.

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As a result, they need to pay more to transport the product during the emergency. Less-than-
perfect demand forecast also brings unnecessary variations in the existing supply chain
management.
In order to reduce the poor forecast Auscotton needs to carry out a proper demand
forecast within the scheduled time. Therefore, they need to carry out a proper market analysis to
understand the strength of the competitors. On the other hand, to reduce the high transportation
cost this organization needs to complete the shipment within the promised time (Kim & Chai,
2017). Therefore, this organization should employ supply-demand forecasting model as it will
help them to reduce delay in supply chain operation. Application of granular model will help this
organization to identify the purchasing behavior of customers and optimum pricing in global
market.
Vital Elements of strategic sourcing methodology to bring improvement in the supply
chain of Auscotton
Supply and market analysis, negotiation, development of product and pricing strategy and
identification of proper sourcing process will be the effective elements of sourcing methodology
for Auscotton to improve their clothing business. Market analysis and pricing are the major
components to bring improvement in a supply chain process (Presley, Meade & Sarkis, 2016).
However, Auscotton needs to select loyal partners for their sourcing process. Therefore, they can
make a contract with their partners, which will help them to reduce legal obligation. Low pricing
strategy and discount pricing will be beneficial for this organization to gain competitive
advantages. Therefore, negotiation should be implemented to enhance the demand in this
organization.

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Response of Auscotton to illegal merchandise
Some of the contract manufacturers of Auscotton are involved in illegal merchandise and
they sell their product through gray market channels. These contract manufacturers produce
similar products, which competes with the branded merchandise of Auscotton. In order to deal
with this situation, Auscotton needs to follow the Intellectual Property Laws Amendment Act
2015 (Legislation.gov.au 2018). By following this Act Auscotton will be able to protect their
intellectual property from the competitors. Therefore, by following Competition and Consumer
Act 2010 Auscotton will be able to take necessary action against the suppliers those are
misleading the consumers by using the brand name of Auscotton.

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References
Chen, S. C., Cárdenas-Barrón, L. E., & Teng, J. T. (2014). Retailer’s economic order quantity
when the supplier offers conditionally permissible delay in payments link to order
quantity. International Journal of Production Economics, 155, 284-291.
Christopher, M. (2016). Logistics & supply chain management. Pearson UK.
Cooper, R. (2017). Supply chain development for the lean enterprise: interorganizational cost
management. Routledge.
Kim, M., & Chai, S. (2017). The impact of supplier innovativeness, information sharing and
strategic sourcing on improving supply chain agility: Global supply chain perspective.
International Journal of Production Economics, 187, 42-52.
Kotabe, M., & Murray, J. Y. (2018). Global Sourcing Strategy: An Evolution in Global
Production and Sourcing Rationalization. In Advances in Global Marketing (pp. 365-
384). Springer, Cham.
Legislation.gov.au. (2018). Intellectual Property Laws Amendment Act 2015. Retrieved 30
March 2018, from https://www.legislation.gov.au/Details/C2015A00008
Mamani, H., & Moinzadeh, K. (2014). Lead time management through expediting in a
continuous review inventory system. Production and Operations Management, 23(1), 95-
109.
Nguyen, T. H., & Wright, M. (2015). Capacity and lead-time management when demand for
service is seasonal and lead-time sensitive. European Journal of Operational Research,
247(2), 588-595.

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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.
3, pp. 156-169). Taylor & Francis.
Stadtler, H. (2015). Supply chain management: An overview. In Supply chain management and
advanced planning (pp. 3-28). Springer, Berlin, Heidelberg.
Tyagi, S., Choudhary, A., Cai, X., & Yang, K. (2015). Value stream mapping to reduce the lead-
time of a product development process. International Journal of Production Economics,
160, 202-212.