Case Analysis: Sapphire Energy
Discuss about the Supply Chain Management of Sapphire Energy and Auscotton.
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 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.
Evaluation of the effectiveness of cable service ordering system in the context of Sapphire Energy
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.
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.
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, 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.
Challenges faced by Sapphire Energy in their supply chain management
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 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:
Recommendations to bring improvement in the current ordering system
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 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).
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).
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Mangan, J., Lalwani, C. and Lalwani, C.L., 2016. Global logistics and supply chain management. John Wiley & Sons.
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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.
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