Supply Chain Management (Laburnum Case Study)

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Laburnum case study

Executive summary

This report is based on Laburnum case study analysis with an aim of investigating two business portfolios in different aspects associated with supply chain. The report provides both quantitative and qualitative analysis based on the inefficiencies on the case study. The report helps in addressing specific questions that have been raised by the management in both energy and clothing business portfolios. Laburnum energy portfolio (Sapphire) and clothing portfolio (AusCotton) are both facing supply chain challenges which can be improved to enhance business operations. This is in the procurement and supply chain related issues.

Table of Contents

2Executive summary

41.0 Introduction

42.0 Energy Portfolio: Sapphire Energy

42.1 Effectiveness of the current ordering system

5Improving the current system2.2

53.0 Clothing Portfolio: AusCotton

53.1 Major global issues relevant to the strategic sourcing

63.2 Impacts of less-than-perfect demand forecasts for AusCotton products and of volatility

73.3 AusCotton elements of the strategic sourcing process

83.4 Response to the assertion of illegal merchandise

84.0 Conclusion

95.0 References

106.0 Appendices

1.0 Introduction

Laburnum is one of Australia largest listed companies and has its headquarters in victoria. The firm has a diverse business portfolio ranging from office supplies, energy to clothing. The firm has committed itself to satisfying their shareholders while at the same time addressing the needs for different stakeholders. The firm makes a constant performance monitoring for the diverse business portfolio based on their corporate strategy decisions. The energy and clothing portfolios are the largest and have the biggest share of their overall business. At the moment, both energy and clothing portfolios are facing inefficiencies and challenges which can be attributed to procurement and supply chain management decisions. This report will address the specific inefficiency areas within the energy and clothing business portfolio of Laburnum Group. As an inventory controller at Sapphire energy, the report will evaluate the effectiveness of the current ordering system and how the system can be improved. As a new Senior Vice President of Supply Chain, the report will address the procurement and supply chain issues being faced by AusCotton.

2.0 Energy Portfolio: Sapphire Energy

2.1 Effectiveness of the current ordering system

Sapphire energy is facing several inefficiencies in their supply chain. This is due to fact that the current ordering system leads to a lot of wastage and is inaccurate. The amount of cable that is ordered is not the optimum amount based on the business demands. There is lack of peak effectiveness based on the current ordering system (Lee, Padmanabhan & Whang, 1997). Based on the calculations, it is clear that the business should make about 14 orders every year. The current ordering system leads to the business ordering approximately 12687.3 metres or 41,625 feet in every month instead of 10587.228 metres or 34,735 feet. The difference on what is ordered and what should have been ordered leads to a difference of $23.61 every year. The difference is an indicator that there is lack of efficiency in the current ordering system. Another factor that shows inefficiency in the current ordering system is the expected time between orders. The current time between orders is estimated to be 21.7 days based on calculations. A calculation shows that the most efficient ordering system can lead to 18.6 days which is more efficient.

2.2 Improving the current system

From the above calculations, it is clear that the current ordering system can be improved. This is through enhancing it to make the optimal units to be 34,735. The business will be to attain its annual demand through the improved system. In this case, the annual demand to be met will be 499,500. In the improved system, the number of orders that will be made in each year is approximately 15. The improved system has the ability to meet an annual order of 521,025 feet. Economic Order Quantity (EOQ) is very applicable in this case to improve the current system (Khan, Jaber & Bonney, 2011). This is an accounting formula that will help the business to determine the point in which order costs and inventory carrying costs are least. This will lead to most effective quantity being ordered. The business has to reduce the order costs and also implement E procurement. This is due to fact that use of technology can help in reducing the costs which are accrued in processing an order (Monczka et al., 2015).

3.0 Clothing Portfolio: AusCotton

3.1 Major global issues relevant to the strategic sourcing

Strategic sourcing is supposed to help the business in reducing costs and minimizing the supply chain risks. Despite this, strategic planning is poorly implemented despite its contribution to the business goals (Talluri & Narasimhan, 2004). The probable global issues that are relevant to the area of strategic sourcing that can affect the business are; choosing the sourcing strategy, transportation, supplier relationships and optimum supplier performance. From the analysis, it is clear that transportation issue and supplier relationships are very important issues facing the business. The business is experiencing stakeouts caused by issues in transportations. In strategic sourcing, AusCotton must be able to address the transportation issue. In strategic sourcing, there must be appropriate planning to ensure that the products reach the market in good time and appropriate quantity. The current transportation is unreliable due to unexpected variations in length, consistency and costs of the transportation. Poor transportation is major cause of loss of customers when using strategic sourcing. When using strategic sourcing, the business has to ensure that there are no disruptions to their products delivery to the markets. Strategic sourcing is supposed to meet the business objective and this cannot happen with the current transport issuers. With the advent of internet, the business should consider using electronic space to enhance their services and reduce the transaction costs. The transportation of the products from different locations should be highly efficient to attain the goals for strategic sourcing (Christopher, 2016). This is due to fact that global sourcing is a vital aspect of strategic sourcing being used by AusCotton and this will only succeed if the products are able to reach the required destinations at the required time. The business may be required to redressing their transport system to ensure that they are able to offer effective services to their customers. It is also important for the business to analyze their current relationships with the contract manufacturers. This will help in selecting suppliers who can deliver in time and also eliminate rogue contact manufacturers (Talluri & Narasimhan, 2004).

3.2 Impacts of less-than-perfect demand forecasts for AusCotton products and of volatility

At the moment, the business is experiencing shortages of the products in their outlets due to poor demand forecasts being used. This has led to poor utilization of the contracts that the business has with various manufacturers. The clothing line is affected by trends and the poor demand forecasts lead to seasonal products losing market when overstocked. The transportation services are also leading to the shortages since it is unreliable. It is important to note that poor demand forecasts and transport issues leads to shortages which can affect the customers leading to dissatisfactions. Customers require a business that is able to deliver their products in good time (Coyle, Langley, Novack & Gibson, 2016). Customers fail to attain their products in good time which may lead to them switching companies. On the other hand, overproduction and delays in transport leads to wastage and high costs. The market is flooded with the product which is over the current demand. In addition, this leads to high storage costs since the inventory is made to store the excess products (Lambert & Cooper, 2000). This may lead to AusCotton losing revenue due to the incurred costs. There is need for business to have a faster response to changes in demand with an aim of minimizing the costs associated with forecasting errors.

3.3 AusCotton elements of the strategic sourcing process

Based on analysis, the elements which are top candidates for improvement at AusCotton are supply chain and strategy. There are issues with the demand forecasting and the transportation system. This is due to fact that strategic sourcing being used by AusCotton is highly reliant on transport and demand forecasting. The business must be ready to enhance their transportation system to ensure that the products are able to reach the market at the right time. The clothing business is highly reliant on timely delivery since fashion is trend based. The business has to utilize the most efficient mode of transport. This is through ensuring that the mode of transport in use can be monitored in real-time to ensure just in time delivery (Christopher, 2016). The method used for transport must also be cost effective. This may call for cost benefit analysis. The demand forecasting must be able to accurately predict what the market needs. This is due to fact that the business is facing wastage due to oversupply and in some cases there are cases of undersupply. The success of strategic sourcing is also dependent on the ability to make optimum orders. Through accurate demand forecast, it will be possible to minimize the inventory costs through use of ordering the optimum quantity (Coyle et al., 2016). Demand for the clothing lines fluctuate widely hence there is need for a forecast system that detect all forecast errors and address them. While sales forecasting is in most cases faced with imperfections, it is possible for the business to design an effective system which can improve the level of accuracy.

3.4 Response to the assertion of illegal merchandise

With these accusations, the first step is to meet the accused contract manufacturers and have an in-depth look at the issues. This would be followed by a thorough investigation to determine whether the accusations are true or not. If the allegations are true, this would be followed by termination of the contract with the accused contract manufacturer. The business should then consider hiring a new president on their supply chain. This will make it possible to evaluate the strategic sourcing and act on the existing loopholes that leads to illegal merchandising. The new vice president of the supply chain is then supposed to visit all global facilities look at the situation and address the problems that are being faced by the company.

4.0 Conclusion

To sum up, it is possible to enhance Laburnum operations in their energy and clothing portfolios. The portfolios current challenges are based on the procurement and supply chain management decisions. The effectiveness of the sapphire energy is below the required standards. From the analysis, it is possible to improve the current system. This is through ensuring that the business is able to make optimum order based on economic order quantity as evidenced by the calculations. For the AusCotton, it is possible to enhance their strategic sourcing. The less than perfect demand for AusCotton has to be addressed due to the negative impacts it has on the business. There is need to address the transportation system and demand forecasting. Lastly, the business must be ready to act fast on the claim about illegal merchandise by the contract manufacturers.

5.0 References

Christopher, M. 2016. Logistics & supply chain management. London, UK: Pearson.

Coyle, J. J., Langley, C. J., Novack, R. A., & Gibson, B. 2016. Supply chain management: a logistics perspective. Nelson Education.

Khan, M., Jaber, M. Y., & Bonney, M. 2011. An economic order quantity (EOQ) for items with imperfect quality and inspection errors. International Journal of Production Economics, 133(1), 113-118.

Lambert, D. M., & Cooper, M. C. 2000. Issues in supply chain management. Industrial marketing management, 29(1), 65-83.

Lee, H. L., Padmanabhan, V., & Whang, S. 1997. Information distortion in a supply chain: The bullwhip effect. Management science, 43(4), 546-558.

Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. 2015. Purchasing and supply chain management. Mason, OH: Cengage Learning.

Talluri, S., & Narasimhan, R. 2004. A methodology for strategic sourcing. European journal of operational research, 154(1), 236-250.

6.0 Appendices

Question 1

Division requires 155,000 metres of cable annually.

Routinely installed during 5 workdays per week

Current cost is: $1.35 per metre or $0.414 for every foot.

The division must take 1/12 of its yearly need monthly.

Without agreement, estimated lead time is 12 weeks.

Supplier requires a minimum of 4500 meters be on order

Division has storage space for a maximum of 90,000 metres

Ordering costs of $50

Inventory carrying costs =10% of purchase price per unit, per year.

The company is ordering approximately 12687.3 metres of cable per month based on the current ordering system.

Optimal number of units per month: 34,735

Annual cost = (D/Q)*S + (Q/2) * H

Current system of Q = 41,625

Total annual Costs = $1,461.64

Optimum number units in every order = 34,735

Annual costs = $1,438.03

Difference = $23.61 annually

Expected time between orders

= T + Number working days per year / N

5 Normal Workdays * 52 weeks= 260 workdays annually

Amount of time between orders

T = 260/14 = 18.6 days < more efficient

T = 260/12 = 21.7 days