Procurement and Supply Chain Management 1 Case Study Analysis Report

This case study analyzes procurement and supply chain management challenges faced by Sapphire Energy and Auscotton. It begins with an evaluation of the current ordering system for Sapphire Energy, comparing its inventory costs with those of an Economic Order Quantity (EOQ) system, and suggests improvements. The study then examines the global issues relevant to strategic sourcing at Auscotton, including the impact of demand forecasting, volatility in transportation costs, and methods to mitigate these problems. Strategic sourcing methodologies employed by Auscotton are detailed, alongside the company's responses to assertions from contract manufacturers. The analysis covers inventory management, the importance of accurate record-keeping, optimal inventory levels, and supplier control. The study concludes by emphasizing the need for strategic adjustments, improved staff management, and the development of new programs to meet customer needs and improve profitability. The report references various academic sources to support its findings and recommendations.

casestudy –procurement and supply chain management

Procurement and supply chain management 1
Contents
Introduction................................................................................................................................2
Portfolio-1: Energy.....................................................................................................................2
Evaluation of effectiveness of current ordering system.........................................................2
Possibility of Improvements in the Current Inventory System..............................................4
Portfolio-2: Clothing..................................................................................................................5
Global Issues Relevant to Strategic Sourcing at Auscotton...................................................5
Impact of less than perfect demand forecast, Volatility of Length and Cost of
Transportation Service, and Steps to mitigate problem areas................................................5
Strategic Sourcing Methodology for Auscotton.....................................................................6
Response of Auscotton to the Assertions of Contract Manufactures.........................................7
Conclusion..................................................................................................................................7
References..................................................................................................................................8

Procurement and supply chain management 2
Introduction
Strategic management involves the process of analysing and monitoring the
organisation so that it can meet its goals. It is very important for an organisation to make
efficient and effective strategy for running the organisation on smooth lines. In simple words
inventory management mean, process of movement of goods from the place of manufacturing
to retailer (Chen and Shi, 2016). On the other hand, supply chain management involves
storage, movement, and managing of goods and services (Christopher, 2016). Many firms
who lack behind in proper management of their chain incur huge losses .There are number of
different elements of supply chain management such as carrying cost, annual requirement,
operating cost and so on. In this report discussion will be carried on the issues raised by the
management on Portfolio 1: Energy and Portfolio 2: Cotton.
Portfolio-1: Energy
Evaluation of effectiveness of current ordering system
Ordering system is the key element of management of inventory. The system may
differ from one firm to the other depending upon the business in which it deals. Few firms
may place order on regular interval of time. If the organisation is taking accurate ordering
decision then it will reduce the chances of obsolesce of stock, carrying cost, management cost
and so on. Every organisation tries to maintain EOQ that is economic order quantity. It
include number of activities such as keeping check on material, information related to that
stock specially when the goods move from supplier to wholesaler (Chiarini, 2017)
Inventory cost under current system
Annual requirement (mtr) 1,55,000.00
Carrying cost ($) per Mtr 1.35
Ordering cost per order 50.00

Procurement and supply chain management 3
Carrying cost total 6,075.00
Ordering cost total
No of orders 34.44
Ordering cost total 1,722.22
Total inventory cost 7,797.22
Inventory cost under EOQ system
Annual requirement (mtr) 1,55,000.00
Ordering cost per order 50.00
Carrying cost ($) per Mtr 1.35
1,14,81,481.48
EOQ (Mtr) 3,388.43
Carrying cost total 2287.192602
Ordering cost per order
No of orders 45.74385205
Ordering cost total 2,287.19
Total inventory cost 4,574.39
Table 1 calculation of different cost
After the quantitative analysis it could be said that if the company (Sapphire) follow
EOQ it is more beneficial. After the final calculation it could be said that total cost calculate
with the help of EOQ $4,574.39 is considerable low in comparison to current cost $7,727.22
Total cost comprises of two main elements.
1) Ordering cost – It refers to the cost that Sapphire energy have to incur at the time of
placing order. This may include transportation expenses. When the company place the

Procurement and supply chain management 4
order of 34 units then its ordering cost is$1,722.22 but when firm order 45 units total
ordering cost increase to2287.19 (Geunes, Romeijnn and Heuvel,2017).
2) Carrying cost – It mean amount of money that firm spent in order to keep its goods in
up correct condition. This cost in case of EOQ is 2287.17 whereas, it is 6075
currently.
Company should increase its order size as its beneficial for every one including
shareholders, shareholders and so on. (Shenoy and Rosas, 2017).
On the basis of above quantitative analysis we can say that for Sapphire energy it is
beneficial to increase the number of orders as through this overall cost of the firm is
reducing.
Possibility of Improvements in the Current Inventory System
Inventory management is very important for the efficiently running of the
organisation (Konur, Campbell, and Monfared, 2017). There are number of ways in which it
can be improved. Although it is not very easy but by keeping efficient staff firm can do.
Some of them are given below-
1) Maintaining proper records – By recording proper information on the regular basis
help the firm to take many decisions related to business efficiently and effectively. E.g. stock
left, amount of stock required and so on.
2) Optimal level of inventory- people who are engaged in small scale business face
many problems if they have excess stock with them because, to maintain that stock they need
to incur some extra cost commonly name as maintenance cost. Apart from this material also
get deteriorate with the passage of time as a result customer will no more prefer to purchase
it.

Procurement and supply chain management 5
3) Control over suppliers- Manager should regularly check the activities of supplier.
As in certain cases supplier may send extra then the required quantity. Apart from it firm
should identify its unreliable suppliers who are engaged in malpractice, dealing with such
people should not be carried further (Brandenburg et al, 2014).
4) Overstock and Understock- Both the situations are not good for the company.
Overstock refers to a situation in which firm have excess material then its requirement. This
problem can be solved by reducing the inventory level. Although in understock condition
organisation it not able to fulfil its customer requirement which result in negative image of
firm in their mind. These both the problems can be solved by maintain adequate stock level
(Stadtler, 2015).
It is very important for Sapphire energy to take all the above steps in order to improve
their current supply chain (Tseng, and Chiu, 2013).
Portfolio-2: Clothing
Global Issues Relevant to Strategic Sourcing at Auscotton
Reducing the cost is the main aim of strategic sourcing. Recently as per the supply
chain of the firm, main focus is to be drawn on keeping sufficient amount of raw material.
Apart from it the company focus on positioning it product by identifying appropriate target
segment. The company is supplying the material independently. Mainly two global problems
are mainly face by the company. First confusion that which outsourcing strategy is the best
that is making a product or purchasing it. Second as early as possible fulfilling demand of the
customers in order to reduce negative impact(Werner, 2000).In 2014 company made its first
report of sustainably growth of cotton. Complete information regarding different ways
adopted by the company to protect natural resources so that they can fulfil demand of entire

Procurement and supply chain management 6
globe efficiently and effectively is very important so that business can be run on smooth
lines. Auscotton has also invested sufficient amount of money in doing research as well as in
development so that better quality of cotton can be produce. In order to overcome global
issues and to work in better way the firm entered into partnership. By overcoming all the
problems the organisation managed to become producer as well as supplier of globally
widely use fabric that is cotton .
Impact of less than perfect demand forecast, Volatility of Length and Cost of
Transportation Service, and Steps to mitigate problem areas
Forecasting the demand of the commodity mainly focus on identifying future demand
of a particular commodity. This future demand depends upon past sales of the firm. Due to
imperfect demand forecasting many problems faced by the firm some of them are, excess
production, wastage of stock, increase in labour cost and so on. Properly demand should be
forecast as it is very important part of supply chain. Certain things can be done to overcome
the problem. E.g. company should analyse the need of its target customers properly, on the
basis of past climate records production should be done.
Transportation cost is effected by the prices of its fuels such as diesel and petroleum.
Therefore certain aspects are to be kept in mind while calculating cost. Such problem can be
solved very easily by analysing past changes in prices (2017).
Strategic Sourcing Methodology for Auscotton
It basically refers to the process which focus on improving purchasing activities of the
concern company (Chiang and Kocabasoglu, 2012). In order to improve sourcing company
have adopted many new things.
1 For expanding its market company have identified that student just after finishing
the school have interest in cotton as its now one of the good career opportunity for them. This

Procurement and supply chain management 7
all is been done under the program name The Cotton Gap.
2 CRDC has appointed few directors so that they can take care of agriculture as well
as water resources.
3LEADprogramme is also started in which they recently invited Gap Inc., so that
accurate amount of raw material can be maintain by the company.
4 In the month of November one course was organised in Griffith. Certain things that
were covered under it are, managing risk that occurs in supply chain, trading accounts, cost
and so on.
Response of Auscotton to the Assertions of Contract Manufactures
To over the problem of contract manufacturers is not so easy because for this
company have to make changes in its supply channel. Still certain steps can be taken such as-
1. Company should appoint a new manager as well as a new president. Both will
work together on identifying’s different strategy that can be adopted by the
company in order to overcome errors.
2. New owner should properly identify all loopholes and try to overcome them.
He can also identify honest and new retailers (Kennedy, 2017).
Conclusion
From the above analysis it can be concluded that company is facing certain problems
in its procurement and supplying chain. As at current order size company have to pay more in
the terms of expenses so it should be corrected by increasing order size. But by appointing
new staff and taking decisions after proper analysing demand, firm can reach new heights and
overcome its problems. Apart from this company need to develop more programmes,
policies, in order to attain its mission (Monczka, Handfield and Patterson, 2015).Firm can

Procurement and supply chain management 8
also design new programmes so that it can fulfil need of its customers along with reasonable
amount of profit margin. Apart from this president of the company should keep an eye on
different departments. As all the departments are connected together, so inefficiency in one
department may create a problem for other department.
References
Brandenburg, M., Govindan, K., Sarkis, J. and Seuring, S., 2014. Quantitative models for
sustainable supply chain management: Developments and directions. European Journal of
Operational Research, 233(2), pp.299-312.
Chen, Y. and Shi, C., 2016. Joint pricing and inventory management with strategic
customers.
Chiang, C.Y., Kocabasoglu-Hillmer, C. and 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), pp.49-78.
Chiarini, A., 2017. An adaptation of the EOQ formula for JIT quasi-pull system production.
Production Planning & Control, 28(2), pp.123-130.
Christopher, M., 2016. Logistics & supply chain management. Pearson UK.
Geunes, J., Romeijn, H.E. and van den Heuvel, W., 2016. Improving the efficiency of
decentralized supply chains with fixed ordering costs. European Journal of Operational
Research, 252(3), pp.815-828.
Hdl.handle.net. (2017). The impact of fuel price volatility on transportation mode choice.
Available at: http://hdl.handle.net/1721.1/53542201
Kennedy, A., 2017. Environmental justice and land use conflict: The governance of mineral
and gas resource development. Routledge. A., 2017. Environmental justice and land use
conflict: The governance of mineral and gas resource development. Routledge.
Konur, D., Campbell, J.F. and Monfared, S.A., 2017. Economic and environmental
considerations in a stochastic inventory control model with order splitting under different
delivery schedules among suppliers. Omega, 71, pp.46-65.

Procurement and supply chain management 9
Monczka, R.M., Handfield, R.B., Handfield, L.C. and Patterson, J.L., 2015. Purchasing and
supply chain management. Cengage Learning.
Shenoy, D. and Rosas, R., 2017. Inventory Control Systems: Design Factors. In Problems &
Solutions in Inventory Management (pp. 13-32). Springer, Cham.
Stadtler, H., 2015. Supply chain management: An overview. In Supply chain management
and advanced planning (pp. 3-28). Springer Berlin Heidelberg.
Tseng, M.L. and Chiu, A.S., 2013. Evaluating firm's green supply chain management in
linguistic preferences. Journal of cleaner production, 40, pp.22-31.
Werner, H., 2000. Supply chain management. Wiesbaden: Gabler.