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Laburnum group has engaged the services of a cross-functional group to analyse the challenges faced by Sapphire Energy and AusCotton. The company faces various challenges in the two sectors that hinder smooth flow of products to the market. Therefore, the Laburnum group would require the cross-functional group to develop solutions to the problems. Sapphire energy faces challenges with the inventory ordering system and would like the cross-functional team to undertake possible improvement plan. On the other hand, AusCotton wishes to solve problems relating to the supply of clothes to the customers in time to avoid delays and shortages.
The Sapphire Energy Company
The company provides reliable energy to the customers around Ballarat, Bendigo, Geelong, Mildura, Melton, Sunbury, Shepparton, Traralgon, Wangaratta and Wodonga. The energy company uses the aluminium triplex cable to deliver electricity. The energy company focusses on efficient and effective inventory management to ensure the availability of the cable.
Quantitative evaluation of the ordering system
Sapphire energy uses the economic order quantity method to manage inventory[ CITATION Mar181 \l 1033 ].
C= ordering cost
H= holding cost
The annual demand for the company is 155,000 meters while the ordering cost is 50$ and the holding cost is (13.5*10/100). Therefore, the quantity equals to 2916.30.
The quantity economic order quantity amount is 3388.43 units.
The inventory management method takes into account the timing of making new orders for the cables[ CITATION Pau181 \l 1033 ]. The reordering period ensures that the sapphire company does not incur shortages when meeting the customer demands. The energy company makes inventory orders when the inventory reaches the set quantity levels to reduce the ordering and carrying costs incurred[ CITATION Ish16 \l 1033 ]. Therefore, the energy company maintains low costs by avoiding the trend of making many small and random orders. The economic order quantity level of 3388.43 units signals the point of ordering new inventory to avoid losing customers to other suppliers who meet the demands with adequate products (Christopher, 2018).
Improvements in the current inventory system
The inventory management system should eliminate the use of assumptions when forecasting the demand and reordering points[ CITATION Mun15 \l 1033 ]. The method used assumed that the production levels will remain constant and the economic order quantity will indicate the period of reordering. However, the production could require more units at a certain point, which the inventory system does not consider. Therefore, in the case of a change in the normal amount of quantity, then the operations could fail to meet market demand due to less inventory[ CITATION Mun15 \l 1033 ].
Consequently, the inventory system requires adjustment to avoid assumptions in the ordering of inputs from the suppliers. The inventory system could improve to adopt a method that signals orders that match the existing demand. For example, the business could adopt the just-in-time system that ensures accuracy when making customer orders[ CITATION Sme18 \l 1033 ].
AusCotton is a global manufacturer of winter and summer outdoor sports clothing. The main winter clothes include outerwear such as windbreakers, footwear, fleece and ski jackets. The summer wear includes shorts, shirts, windbreakers, hydration systems and footwear. The business has headquarters in Geelong but does business through retailers in Australia, New Zealand, Europe and North America. Additionally, the company has established as a well-known internet retailer. Despite the success, the business is facing challenges in the operations that require an expert’s assessment to provide solutions.
Global issues relevant to strategic sourcing
The global issues presented to the company by the sourcing system include increased costs of supplies (Nigel, 2013). The increase in costs arises from the hidden charges that exist in the conversion of foreign currency. The global sourcing requires AusCotton to convert currencies to match the country of purchase. Therefore, the company faces conversion fees charged by the banks, which increases the total procurement expenses[ CITATION DrB18 \l 1033 ].
Other issues experienced by the company include discrepancies in quality due to cultural differences. The different cultural standards cause a challenge in the way people understand quality due to different languages and approaches to quality. Therefore, AusCotton faces difficulty in acquiring the exact quality of supplies[ CITATION Suz16 \l 1033 ].
Impact of poor capacity forecasts and volatile length and cost of transport
AusCotton faces various challenges due to inaccurate demand forecasts and variable lengths and costs of transport. The challenges include the failure to meet the customer expectations with timely deliveries. Additionally, the company suffers losses since the customers cancel orders due to delays in delivery[ CITATION Eri18 \l 1033 ]. However, the business could solve the problem by opening up more outlets and franchises to get close to the customers.
The other impact includes the failure to reach the market early before competitors. AusCotton experiences challenges of inability to introduce new products to the market early for the customers to purchase. Therefore, AusCotton faces difficulty in beating the competition in the global market. The company should use privately owned transport systems to ensure that the products reach the market in the required time[ CITATION Jun18 \l 1033 ].
Moreover, AusCotton should introduce information systems to enable quick communication with the market and retail outlets. The information systems collect useful data about market demand and communicate with the production sections. The production departments respond to the information by producing accurate amounts of outputs[ CITATION Ish16 \l 1033 ]. Furthermore, the information systems make accurate future demand predictions that allow the maintaining the output at a level that adequately meets the market demand.
Elements of strategic sourcing methodology
AusCotton should improve the supplier relationship management and maintenance to eliminate the challenges faced in the meeting market demands[ CITATION Pau181 \l 1033 ]. The maintenance of supplier relationships will ensure equal efforts towards meeting market demand. The suppliers collect market information and supply inputs that meet the required quality and quantity.
On the other hand, AusCotton should prioritise vendor selection activities. Vendor selection activities ensure that only qualified and ethical suppliers deal with the company[ CITATION Jun18 \l 1033 ]. The vendors who qualify the selection should show the commitment to supply inputs that match the required output to avoid market shortages. Furthermore, vendor selection will allow AusCotton to maintain a group of suppliers who will deliver timely to the retail outlets and avoid shortages.
The other element that the company should prioritise is market information. AusCotton should develop systems that collect timely and accurate information from the market[ CITATION Ish16 \l 1033 ]. The information will help AusCotton to identify the market demand and trends. Therefore, the company will have information about the competitors introducing competing products. AusCotton could respond to the competitor information by delivering products quickly to the market to beat the competition. Furthermore, market information will help the company to understand the demand patterns and produce products that accurate satisfy the customer needs. Therefore, the business will not experience shortages in the retail outlets located in distant regions (Nigel, 2013).
AusCotton response to allegations of illegal manufacture
The company should respond to the assertions by cancelling the manufacturing contracts[ CITATION Mun15 \l 1033 ]. The cancellation will ensure that the contractors cannot use the AusCotton brand illegaly. Additionally, the cancellation will ensure that the illegal manufactures lack the necessary expertise and resources to produce clothes bearing the AusCotton brand.
On the other hand, the company should make a requirement that the contracted companies include AusCotton staff and management in operations[ CITATION Smi18 \l 1033 ]. The inclusion of the staff will help to ensure that the contracted manufacturers do not engage in the illegal branding of products. The management and staff will inspect the operations and report any illicit activities. Therefore, the contracted companies will only stick to the production of AusCotton products.
With the improvement suggestions provided by the cross-functional teams, laburnum group will increase the operations in both sapphire and AusCotton. The solutions will enable Laburnum group to have better procurement plans that meet the customer demands. Improving the procurement system will allow the business to avoid wastage by producing more products that demanded. On the other hand, the business will prevent shortages by having accurate input that matches the necessary output.
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