Challenges of Supply Chain Management in Sapphire Energy and Aus Cotton

This report discusses the challenges of supply chain management in Sapphire Energy and Aus Cotton. It suggests solutions to improve the current ordering system and solve procurement and supply chain issues. The report evaluates the effectiveness of the cable service ordering system in Sapphire Energy and recommends ways to enhance the ordering cost and reduce the carrying cost. It also analyzes the global issues affecting strategic sourcing in Aus Cotton and suggests solutions to improve the sourcing process. The report concludes with recommendations to address the problem of illegal merchandise and comply with the Intellectual Property Laws Amendment Act 2015 and the Competition and Consumer Act 2010.

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

1SUPPLY CHAIN
Executive Summary
This present report deals with the various challenges of supply chain management in the context
of Sapphire Energy and Auscotton. High carrying cost and low ordering price hampers the
supply chain management in Sapphire Energy. EOQ vale is low, which focuses on reduced
demand. Hence, it can be said that reduction of the carrying cost will be a valuable approach to
increase the annual demand for this organization. The second part of the report deals with the
problems solving regarding the procurement and supply chain issues that the company Aus
Cotton is facing as the increasing cost in transportation of the products and poor quality products
due to lack of research on the market trends and on consumers.

2SUPPLY CHAIN
Case Analysis: Sapphire Energy
Evaluation of the effectiveness of cable service ordering system in the context of Sapphire
Energy
Laburnum Group is an eminent organization of Australia. Its headquarters is present at
Victoria in Australia. This organization supplies clothing product, energy product, chemicals and
safety products. The major objective of their business is to provide satisfactory service to their
stakeholders. It is important for an organization to offer quality service to enhance their brand
image in the global market (Monczka et al. 2015). This company has two major brands that are
Auscotton for clothing and Sapphire Energy to deliver the energy across Australia. According to
the given scenario, it has been received that Laburnum Group has been facing some challenges in
their supply chain management. Sapphire Energy is an energy service provider across various
places in Australia. They offer reliable service to their customers. However, at present this
organization has been facing inaccuracy in supply chain procurement.
Based on the current scenario, it has been received that Sapphire Energy has made a
contact with Eastern Power. Eastern Power is their major stakeholder and ordered a large amount
of cable service form this organization. Eastern Power needs 155,000 meters of cable service to
complete their routine service work. However, the new ordering system confirmed that the cable
service will be installed within five working days. The main goal of this current ordering system
is to reduce the lead time. If Eastern Power did not make this contract with Sapphire Energy then
it would be difficult for them to reduce the lead time and the lead time might be 12 weeks.
Hence, it can be said that current ordering system of Sapphire energy is effective to minimize the
lead time. Reduction of lead time is an effective approach of sustainable supply chain

3SUPPLY CHAIN
management. Besides this effectiveness Sapphire Energy has faced challenges reading their carry
cost. By using Economic Order Quantity or EOQ an organization is able to understand its carry
cost for a product (Jawad et al. 2015). Economic order quantity is tool, which is used to add
value to inventory to cut the cost (Tat et al. 2015). Shortage cost, holding cost and order cost are
included in supply chain operating cost. Through the help of EOQ the cost of Sapphire Energy
can be measured based on which the challenges can be understood.
Figure 1: EOQ
(Source: Author)
The carrying cost of cable service was $1.35 per unit and the annual demand of cable
service is 155,000 that is required by Eastern Power. According to the above calculation it has
been found that EOQ value is 2,143.03. Hence, the EOQ value is not high in the context of
Sapphire Energy and the carrying cost is high, which caused low demand. High carrying cost is
the major challenge for Sapphire Energy in their supply chain management as it leads them to
face low demand. Due to this high carrying cost Eastern Power was not able to acquire more
cable service. According to the case study there is no discount offering from Sapphire Energy. If
any stakeholders offer minimum 4500 meters cable service then they will be able to get discount.
On the other hand, there is no quantity discount and the ordering cost is also low that is $50.

4SUPPLY CHAIN
From the above case study it has been revealed that the carrying cost and ordering cost is
high for the cable service, which hampers the demand in the context of Sapphire Energy. As
argued by (Mangan et al. 2016), high cost often affects the customer demand. However,
customers across the various cities of Victoria need to meet this high carrying cost if they want
to acquire this service. The ordering cost is based on the annual demand if the annual demand is
increased then the ordering cost is also increased. However, it has been found that the current
ordering system is effective to minimize the lead time but the carrying cost of cable service is the
major challenge of supply chain management. It has been received that Sapphire Energy and
Eastern Power both are associated with delivering electric energy to the customers. Sapphire
Energy is the energy providers and Eastern Power is the storeroom of this cable service. Thus,
high carrying cost affects the supply chain management in the context of Sapphire Energy and
Eastern Power.
Recommendations to bring improvement in the current ordering system
To bring improvement in the current ordering system is to enhance the ordering cost
along with the demand. On the other hand, the carrying cost needs to be decreased as it will help
to enhance the demand of the customers. However, if the carrying cost of a product is decreased
then the demand will be increased (Stadtler 2015). In the given scenario, it has been found that
Eastern Power takes cable service from its suppliers and then provides it to Sapphire Energy.
Annual demand will be increased if the EOQ is increased. In order to do this it is crucial to
enhance the ordering cost and to reduce the carrying cost. This will enhance the demand. As a
result, Sapphire Energy will be able to get high demand and to meet it. It is important for the
supplier to use low pricing strategy to maximize the demand and to provide quantity discount
(Mangan et al. 2016). However, reduction of the carrying cost will increase the value of EOQ,

5SUPPLY CHAIN
which also increases the annual demand. On the other hand, if the annual demand is increased
then the ordering cost will also increased, which will improve the financial performance of
Sapphire Energy. As a result, the revenue generation of Laburnum Group will be increased. In
order to improve the current ordering system it is crucial to minimize the carrying cost and to
maximize the ordering cost. Reduction in the carrying cost will be beneficial for an organization
enhance the demand of customers. Low carrying cost results in the high annual demand.
Reduction of inventory carrying system is effective to maximize the consumers demand as a
result; purchasing price or buying price will be maximized. This focuses the future growth of
Laburnum Group as well as the Sapphire Energy.
Analysis: Aus Cotton
1.
The major global issues that can affect the area of strategic sourcing relevant to the
market and supply resources of Aus Cotton can be identified as, it focuses more on the
manufacturing contract where it is necessary to show huge profits to the manufacturers and in
that case it becomes a difficult to deal with the products as it consist of the seasonal products
such as the winter and summer collection. The increasing demand of the products always makes
a path of decrease in supply. This factor gives rise to the prices of the product as it starts
increasing with the increase in its demand and decrease in its supply. The other reason for the
decrease in supply of the product is the unpredicted change in the volume of the product line,
which ultimately leads to delaying in the product supply.
The other important global issue that can be relevant in the strategic area can be the
gathering and evaluating the wrong data or the information that are required for the

6SUPPLY CHAIN
manufacturers such as the needs and the demands of the target segment which helps to make the
business grow. The trends of the market according to the product and the customer needs can be
informative and helpful while implementing positioning strategy in Aus Cotton.
2.
The impacts of less than perfect demand forecast For Aus Cotton products are:
Poor quality customer service- Poor quality service will negatively impact on the Aus Cotton
product as it will decrease the trust of the customers resulting from the poor quality of service
that will be served to the customers. This can also lead to the delivery of the product being late
and inconsistent to the consumers.
Decrease in production- The less than perfect demand forecast can result into decrease in
product manufacturing. It also leads to not meeting the estimated sales value and in turn making
loss of customers for the company.
Increased inventory cost- If the demand forecast is less than the perfect demand, it
automatically increases the inventory and the transportation cost. The cost of maintaining the
product in the inventory and carrying it to the customer can stand out to be an extra cost for the
Aus Cotton Company. The cost gets increase while in the shipment of the product from the
contract manufacturers to the distribution centers.
In order to solve the problems arising out of the less than the perfect demand, the
following solution can be implemented:
To cut out the cost of inventory and the transportation charges it can be helpful if Aus
Cotton could make the contracts with local manufacturers instead of international manufacturers

7SUPPLY CHAIN
which will gradually decrease the cost of transportation as the distribution centers will be nearer
to the sources of the company.
It is essential to analyze and evaluate a study taken over the market condition and trends
to observe the need and demand of the customer which will help the Aus Cotton to manufacture
quality product and gain customer loyalty and growth in revenue.
3.
Category Selection: It is another important factor that needs to be considered as it is important
to identify the size of the product manufacturing. It helps to estimate the cost of the production
that affects the financial cost.
Supply Market Evaluation: It is a useful tool for strategy making to analyze the suppliers that
are involved in the manufacturing operation to gain competitive advantage as compared to its
competitors.
Selection of Sourcing Process: It is an essential segment that contributes more on the product
specification which is important for the Aus Cotton’s production strategy.
Negotiating and Selecting the Suppliers: It is necessary to negotiate with the contract
manufacturers so that the ability to deliver variety of products is enabling for Aus Cotton.
Implement and Integrate: After designing the plan accordingly the company should inform the
potential suppliers to make the sourcing strategy operate smoothly.
Benchmarking and Tracking Results: As it is continuous cycles which will be repeated each
time to review the supply market in order to ensure full value (Hespin and Schiele 2015).

8SUPPLY CHAIN
4.
It would be unexpected that the contract manufacturers with whom Aus Cotton is
involved in producing illegal merchandise. This affects the code of ethics of operating business
of Aus cotton. The manufacturers are the important factor that affects the revenue and the
production of the company. In such case to evaluate strategic sourcing process and to improve
the errors it can be beneficial to hire new president of the supply chain. Or, the new owner of the
company can take a visit to the company’s global facility in order to evaluate the problem and
address appropriate solutions.
It can also turn out to be a decision where the company could end its contract with the
illegal partners as it affects the legal matter which teases the reputation of Aus Cotton in
Australia.
On the other hand, it becomes important to implement and follow the amendments stated
by the government of Australia. The Intellectual Property Laws Amendment Act 2015 is
responsible to provide a simplified and streamlined IP system in Australia. It was revised in
order to secure the Patents Act and Designs Act to make the manufacturing industries more
prone to secure their production and serve the customers with high quality products. The another
Competition and Consumer Act 2010 needs to be amended in the company to make fair relations
between the suppliers, wholesalers, retailers and consumer to enhance the welfare of Australians
by promoting trading with affair competition and protecting the provision of the customer
(Berger 2015).

9SUPPLY CHAIN
References
Berger, T., 2015. Road to failure is paved with good excuses: calls (again) to repeal s 51 (3) of
the Competition and Consumer Act 2010. Browser Download This Paper.
Hesping, F.H. and Schiele, H., 2015. Purchasing strategy development: A multi-level
review. Journal of purchasing and supply management, 21(2), pp.138-150.
Jawad, H., Jaber, M.Y. and Bonney, M., 2015. The economic order quantity model revisited: an
extended exergy accounting approach. Journal of Cleaner Production, 105, pp.64-73.
Mangan, J., Lalwani, C. and Lalwani, C.L., 2016. Global logistics and supply chain
management. John Wiley & Sons.
Monczka, R.M., Handfield, R.B., Giunipero, L.C. and Patterson, J.L., 2015. Purchasing and
supply chain management. Cengage Learning.
Stadtler, H., 2015. Supply chain management: An overview. In Supply chain management and
advanced planning (pp. 3-28). Springer, Berlin, Heidelberg.
Tat, R., Taleizadeh, A.A. and Esmaeili, M., 2015. Developing economic order quantity model
for non-instantaneous deteriorating items in vendor-managed inventory (VMI) system.
International Journal of Systems Science, 46(7), pp.1257-1268.