Laburnum Case Study Report
Introduction
Since 1992, Laburnum Group, a Victorian cooperative has excelled in the domestic and global market in its diverse range of products. Among the wide range business portfolios, Laburnum pays high interest in the energy and clothing business portfolios when it comes to making strategic corporate decisions. The energy and clothing business portfolios of Laburnum Group form its biggest business share (Behrangrad, 2015, p. 280). In the recent past, Laburnum Group has been encountering procurement facility challenges in the energy business portfolio and supply chain management challenges in the cotton business portfolio. In this report, a detailed analysis of the key inefficiencies faced by the company in in these business portfolios of AusCotton and Sapphire energy will be done with theoretical concepts being applied. In the conclusion part, the report will give recommendations that Laburnum Group can adopt in order to end these cotton and energy related issues and to improve the company’s sustainability and competitiveness in the global marketplace.
Energy Portfolio: Sapphire Energy
Quantitative and Qualitative Evaluation of the Current Ordering System
Sapphire Energy has been providing dependable electric services to many people who stay at various Australian provinces. Sapphire Energy uses 1/0AWG aluminum triplex cable wire to supply electricity in these households. This 1/0AWG aluminum triplex power cable is procured by the Eastern Power store since this is part of contract with Sapphire Energy. In the coming years of electricity service procurement particularly for the extendable service network will rise by 155,000 and at the same time the cost per meter inventory will increase to $1.35, this is per one meter (Boström and Micheletti, 2016, p. 372). As a result of this, Eastern Power has established an agreement with Sapphire Energy’s suppliers for the distribution of 12 parts per annum as per the requirement; this implies that the corporation will strictly adhere to 1/12 of their annual requirement in every month. In addition, the contract between Sapphire Energy and Eastern Power is focused on lowering the lead time which may potentially rise by 12 weeks interference since the agreement will be nonexistence.
In the case of Sapphire Energy, the company incurs fixed charges/ price upon procurement of cables by Eastern Power. In this case, there is no discount offered by Eastern Power irrespective of the quantity ordered. In the same context, the minimum quantity to be ordered is now 4500m. For Sapphire Energy, this problem can be related with the absence of flexible supplier in the market as well as the implication for sub charges and devoid of any allowable discounts. Sapphire Company is suffering high stock carrying costs/ expenses since the yearly ordering/ purchasing limit is set at only 90000 m (Sedita and Apa, 2015, p. 1550). In this reference, the effectiveness or appropriateness of the company’s current ordering system in energy operations can be termed as a supplementary system where $50 is added on the ordering charges for every shipment unit. As a result, the financial budget of Sapphire Energy is adversely affected.
Improving the Current Inventory System
In order to improve the existing ordering system, Sapphire Energy needs to first modify the terms and conditions of contract with Eastern Power. Sapphire Energy has the opportunity to negotiate with Eastern Power that bulk orders be given some discounts. In reference to the Just-in-Time (JIT) inventory model, increases in demand for a product by the market requires that the producer produces more goods and thus easy to procure with little or no wastage (Tukuta and Saruchera, 2015, p. 8). In addition, the JIT theory explains that a company should effectively negotiate with the key suppliers when it comes to the arrangement of their supplier costs for all raw materials to ensure that it is easy to meet market demands while at the same time operating within their set procurement budget. In accordance to JIT theory, the supplier in this case has to raise his production and storage facilities in order to keep in pace with the increasing customer demands now and in the consecutive years (Tukuta and Saruchera, 2015, p. 4). In the case study, it is right to anticipate for increasing demand for energy consumption across all Australian cities that have to engage them when increasing storage capacity to 155000 m cables. Additionally, the terms requiring a fixed quantity amount needs to also get dealt away with to ensure that there is improved proficiency in the ordering system of Sapphire Energy.
Clothing Portfolio: AusCotton,
Global issues for AusCotton’s Strategic Sourcing
According to (Prendergast et al., 2013, p. 412), strategic resourcing entails the priority factors that a company must consider when propelling business growth. Strategic resourcing seeks to lower the operational costs that a company incurs. AUSCOTTON is a recognized merchandize firm for both winter and summer sports apparel outdoor events in Australia. The company has been using contract manufacturers in the developing nations such as Vietnam, China, India, and Taiwan in order to produce maximally in its product lines. As per (Vecchiato and Roveda, 2014, p. 450), the developing countries face political instability which greatly depresses their operational moves relating to a wide range of products that are produced in these nations. Also, stiff competition in the global market has been troubling AUSCOTTON. In addition, demand for labor market in international business environment along with the considerably cheaper resources for product manufacture in these developing countries is estimated to be very low; therefore, this has a potential to affect the business activities with the key manufacturers for the nations (Zhou et al., 2016, p. 220).
In the other side, the cultural differences in these different countries form a great forced requiring establishment of proper relationship between the suppliers and buyers. Also, these producers based in these countries may become a victim of strategic resourcing and this may prevent their business relationships with AUSCOTTON (Otmazgin, 2015, p. 100). In addition, the call for workforce diversity is a key supply chain network element in this case. The other significant issue relevant to AUSCOTTON’s strategic resourcing is quality control. Demand for products has been increasing and this potentially can affect merchandise quality that AUSCOTTON sells.
Impact of less than Perfect Demand Forecasts
AusCotton managers are not apprehending accurate demand forecasts and this leads to constant out of stock cases in the company. This is an ever challenging issue for AusCotton. As a result, there is an adverse effect to the company’s brand image advantage in the global arena due to the variance in the supply chain of outdoor sportswear goods (Giunipero and Brand, 2016, p. 30). It is clear that poor inventory is caused by increasing the company’s cost of inventory along with other inefficient transport services which are offered for product shipping to the different countries. Additionally, the transport costs instability makes products pricing for AusCotton become capricious when determining the goods pricing.
In order to mitigate these challenges, cooperating with the sales division staff is the major priority since thus would help in improving demand forecasting. AustCotton needs to ensure that all marketing and advertising costs are accounted for accurately in order to use this information in predicting stock demand in the market (Gentry et al., 2016, p. 250). The other segment to focus on is the supply chain management in order to catch up with the high demand reallocation. Costs of transportation need to get leveraged via outsourcing in order to improve efficiency.
Elements of Strategic Sourcing Methodology
AusCotton has been facing incompetence issues when it comes to strategic resourcing and this can be corrected by improvising acquisition process, suppliers’ performance, and cost-reduction phenomenon. AusCotton needs to choose the efficient and right supplier of raw materials by first ensuring negotiation for contract is well done. Supplier performance needs to get monitored regularly to help in terminating the suppliers who do not respect the contractual terms when it comes to the supplies of materials (Bauer et al., 2012, p. 302). Quality indicators are another crucial resource in strategic sourcing and needs to get accessed to ensure better performance in the market. Any supply chain company must have efficient transportation system. Increasing transportation costs for AusCotton needs acquisition of a new transport vendor in order to minimize transport/ delivery delays. Also, good culture-building and a new transportation system needs to be incorporated. Last, a risk management system should be established within all strategic resources to assist AusCotton in identifying its market strengths and evaluation operational risks in the global market environment.
Responding to Illegal Merchandize Manufacturers
The need for legal enquiry incurrence upon order to establish claims over counterfeit goods that the contract manufacturers of AusCotton produce is clear and mandatory. Where claims are provable, the company is always liable to close its association with the involved contract manufacturers due to their brand image fall since fake manufactured products are sold with their brand name (Welch and Nayak, 2014, p. 25). Counterfeit products can adversely affect the image and reputation of the company making it lose key market and credibility from key stakeholders. Presenting fake goods can be seen as a violation of IP rights (patent and trademarks) established by the company as no company aims to deceive customers with counterfeit goods (Angeles and Nath, 2017, p. 112). This is bad since customers who intent to purchase original products cannot get them ready in the market. Additionally, AusCotton can take legal actions against the contract manufacturers who produce fake goods and involve officials in the verification of products that come from the said manufacturers.
Conclusion
In conclusion, Laburnum has been encountering numerous challenges in its two key strategic areas; clothing and energy portfolios. The major challenges that these two portfolios face are in the area of supply chain and procurement management. The inefficiencies in the supply chain of the company have been negatively affecting its performance in the market as well as its image/ reputation. Therefore, Laburnum should understand that efficient supply chain is the secret behind success of any procurement and supply chain business. The need to choose the right suppliers and contract manufacturers should be the main priority of Laburnum. Also, the need for proper communication and excellent business relationship with suppliers and the contract manufacturers is very vital. Last, the company should initiate new terms with the suppliers prior to signing contracts requirements such as terms of payment, transportation costs, discounting rates and terms, and overhead costs.
References
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