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Case Study Analysis: Laburnum Group

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Question:

Write about the Case Study Analysis for Laburnum Group.

 

Answer:

Introduction

Laburnum Group is headquartered in Australia. The different business units of Laburnum Group are involved in clothing, energy, chemicals, office material, industrial products and home improvement. The origin of this group can be traced back to 1920. The business operations of Laburnum Group aim to maximize value for shareholders and return to shareholders. Special attention is given to the clothing and energy business portfolio because their combined contribution to the overall business is very high. At present, both the business portfolios are facing several challenges. Thus, the top management is evaluating the business strategies related to clothing and energy portfolio. A report regarding performance evaluation of these business has indicated that poor supply chain management is responsible for the challenges encountered in both portfolios. A cross-function team has been appointed to analyze the issues pertaining to supply chain management. Improvement areas are being identified by these cross-functional teams for improving the business efficiency. AusCotton is the business unit that deals with clothing portfolio and Sapphire Energy is the business unit that deals with energy portfolio.

Sapphire Energy provides electricity to the customer houses from the distribution pole. This business unit provides its services in Wodonga, Ballarat, Wangaratta, Melton, Mildura, Geelong, Sunbury, Bendigo, Traralgon, Wangaratta, and Shepparton. 1/0 AWG aluminum triplex cable is the most extensively used material by Sapphire Energy for providing services to its consumers. The installation of these cables takes place in the working days.

AusCotton is a producer of sports apparel. The summer collection includes footwear, shirts, shorts, backpacks and windbreakers. The winter collection for the company includes windbreakers, footwear, and fleece and ski jackets. The company distributes its products across Australia and different parts of the world. The products are distributed to retailers in North America, New Zealand, Australia and Europe. The customers can also order the products through the internet (mercuri, 2007). Online and offline presence makes AusCotton a major player in the Australian apparel industry. Most of the products are manufactured through contract manufacturers present in India, Vietnam, Taiwan and China. There are several factors that determine the lead time for manufacturing activities. Lead time varies on the basis of raw materials required, the complexity of products and product item to be manufactured (mercuri, 2007). The approximate lead time varies from 4 months to 1 year. Air transportation and water transportation is used by AusCotton for shipping the products to other countries. The choice of mode of transportation depends upon the urgency of product delivery. The company has 8 distribution centers in different parts of the world. This helps to manage the distribution of products in different countries in an efficient manner. The production of summer and winter product lines helps the company to utilize the manufacturing capacity of contract manufacturers and facilities of distribution centers in a proper manner.

 

Sapphire Energy

Eastern Power is responsible for procuring the 1/0 AWG aluminum triplex cable. Sapphire Energy has a contract with Eastern Power. Due to expanding service needs, the requirement for the cable will increase to 155,000 meters. Per meter inventory carrying the cost of this cable is 1.35 dollars. Eastern Power has entered into a contract with its supplier for dividing the annual requirement into twelve parts. Thus, the company will take one twelfth of it the total yearly requirement on a per month basis. The agreement between Eastern Power and its supplier aim to reduce the lead time. The lead time may increase to 12 weeks in the absence of this agreement (Doorasamy, 2015). Sapphire Energy is a customer of Eastern Power. The price for procuring the cable is fixed. No discounts are offered on the basis of quantity. The minimum quantity for placing an order with the supplier is 4500 meters. A major challenge is the presence of inflexible supplier. The supplier includes certain surcharges and does not provide any discounts (Doorasamy, 2015). For example, 10 percent of the purchase price is considered as the inventory carrying the cost. This inventory carrying cost becomes huge when the annual purchase requirement is around 90,000 meters. An additional 50 dollars is charged as ordering cost that is added to each shipment. This impacts the financial budget and makes the ordering system less efficient.

Inventory management is an important aspect of business efficiency. The existing ordering system can be improved by making certain changes in the contract. The inventory controller/ manager can negotiate with the supplier for proving discounts for bulk orders (mercuri, 2007). The Eastern Power storeroom should increase its storage space. It can store about 90,000 meters of wire whereas in the coming year the demand will increase to 155,000 meters of cable. There should be no terms and conditions regarding the minimum quantity of cable that can be ordered. Since Eastern Power is expected to pay 10 percent of the purchase price, the company should not have any restrictions regarding the order quantity. The present condition of ordering at least 4500 meters of cable should be discontinued.

 

Auscotton

Strategic sourcing aims to reduce operating costs. Companies are targeting countries like India and China that have relatively cheap resources and abundance of potential employees. For example, the cost of raw materials, transportation services, and labor is lower in developing countries (Jensen, 2017). Legal, socio-cultural, economic, political issues are relevant to strategic sourcing. Developing nations may be subject to political instability that can hamper the business operations. Cultural differences and language barriers may affect the buyer-supplier relationship (Jensen, 2017). Shifting the supply chain activities to a new geographical location requires a more diverse workforce. Supervising the manufacturing activities and ensuring quality control becomes difficult. Acquiring information on a real-time basis becomes a problem. Fluctuations in currency exchange rate may impact financial transactions. 

The inaccurate demand forecast results in frequent stock-outs at retail outlets. This has the adverse impact on brand image. This creates a mismatch between demand and supply of outdoor sportswear. Poor forecasting increases the inventory costs. The transportation services used for shipment of goods to other countries is not efficient. There is constant fluctuation in the transportation costs that affects the pricing of goods. Delayed delivery of goods and empty shelves causes dissatisfaction among customers. Collaborating with the staff members especially the sales force can help to improve demand forecast (Frankel, 2006). Demand forecasting should be done while taking into account the marketing activities like advertisements and special offers. The company should always keep a safety stock of inventory for responding to sudden demand shifts. The company should consider outsourcing of transportation services for improving efficiency.

Strategic sourcing can help AusCotton in improving the supplier performance, acquisition process, and saving costs. Choosing the right suppliers of raw material is the most important concern. It is important to negotiate the terms and conditions of the contract. The performance of suppliers should be evaluated on a regular basis so that the company can get rid of non-performing suppliers (Abdullaev, 2015). For example, if the quality offered by the supplier does not comply with the performance metrics, it should be replaced with a new supplier. Due to the negative impact of mismanaged transportation services, the company should consider outsourcing of transportation processes (Frankel, 2006). AusCotton should combine outsourced services with competitive strengths for becoming a market leader. The company should develop a risk management plan (Abdullaev, 2015). It is important to identify the risks involved in business and reduce their impact by taking timely measures.

A legal inquiry is required for establishing the claims regarding the counterfeit clothes being manufactured by contract manufacturers. If the claims are proved, then the company should end its association with the offender contract manufacturers. Global outsources increases the chances of manufacturing illegal merchandise (Voronina, 2011). The presence of counterfeit products in the market causes excessive damage to the company. This is the serious violation of intellectual property rights. Sometimes it even becomes difficult for the consumers to spot the difference between an original product and fake product.  The poor quality of fake products tarnishes the brand image. Poor durability, quality, and finish may lead to negative word-of-mouth through social media (Voronina, 2011). The competition between the original products and counterfeit products leads to loss of market share and reduction in revenue generation.

 

Challenges Identified In Both Business Cases

For Sapphire Energy, the procurement system pertaining to 1/0 AWG aluminum triplex cable is flawed. The inventory carrying the cost for the cable is considerably high. The contract between Eastern Power and the supplier of the cable is very rigid. The supplier does not provide discounts on bulk orders (Brown, 2014). The company has to pay several surcharges for procuring the cable. The storage space available The Eastern Power storeroom is less according to the increasing demand for cable.

For AusCotton, stiff competition from other industry players is a major challenge. Several other brands provide similar sportswear for summer and winter. The threat of new entrants is high in the apparel industry. High-profit margins attract new companies. The number of players operating in the apparel industry has increased considerably in the past few years. The demand forecasting done by managers in AusCotton is not accurate. The inaccurate demand forecast results in frequent stock-outs at retail outlets. This has the adverse impact on brand image (Brown, 2014). This creates a mismatch between demand and supply of outdoor sportswear. The transportation services used for shipment of goods to other countries is not efficient. There is constant fluctuation in the transportation costs that affects the pricing of goods. It has been established that the contract manufacturers are involved in selling counterfeit products in the market. This affects the reputation of the company and revenue generation (Brown, 2014).

 

Recommendations

Choice of suppliers should be made carefully. The performance metrics should be clearly communicated to the suppliers- price of material, quality standards and on-time delivery. Before entering into a contract with the supplier, it is important to negotiate on several parameters. These parameters include after-sale services, price, payment terms, delivery terms, overhead expenses, shipment charges etc. Demand forecasting can be improved by taking feedback from the right people- marketing managers, sales managers, and consumers. Accurate demand forecasting will help to improve ROI (Return on Investment) (Doorasamy, 2015). Forecasting should be done on the basis of a product lifecycle, market analysis, competitor analysis and past trends.

 

References

Abdullaev, A. (2015). Monitoring Of Enterprise Environment As An Aspect Of Strategic Management. Business Strategies, (4), p.1.

Brown, A. (2014). Challenges to Business Excellence: Some Empirical Evidence. Nang Yan Business Journal, 1(1).

Doorasamy, M. (2015). Product Portfolio Management: An Important Business Strategy. Foundations of Management, 7(1).

Frankel, R. (2006). The role and relevance of refocused inventory: Supply chain management solutions. Business Horizons, 49(4), pp.275-286.

Jensen, P. (2017). Strategic sourcing and procurement of facilities management services. Journal of Global Operations and Strategic Sourcing, 10(2).

mercuri, r. (2007). Book Review: Cross-Cultural Communication: Concepts, Cases and Challenges. Business Communication Quarterly, 70(1), pp.118-124.

Tamegawa, K. (2014). Demand uncertainty, inventory and business cycles. Journal of Business Economics and Management, 15(4), pp.664-683.

Voronina, N. (2011). Service Industry Management: Organizational Aspect. European Journal of Business and Economics, 3.

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