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MGT5PSC Procurement And Supply Chain Management

tag 0 Download 0 Pages / 0 Words tag 21-06-2022
  • Course Code: MGT5PSC
  • University: La Trobe University
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  • Country: Australia



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)


Carrying cost ($) per Mtr


Ordering cost per order


Carrying cost total


Ordering cost total


No of orders


Ordering cost total


Total inventory cost


Inventory cost under EOQ system


Annual requirement (mtr)


Ordering cost per order


Carrying cost ($) per Mtr




EOQ (Mtr)


Carrying cost total


Ordering cost per order


No of orders


Ordering cost total


Total inventory cost


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.

  • 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 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).
  • 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.

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 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 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.

3. LEADprogramme 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).


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 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.


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. (2017). The impact of fuel price volatility on transportation mode choice. Available at:

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.

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.
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