Procurement And Supply Chain Management
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Executive summary: Supply chain network is one of the most critical segments of any business, in the present competitive era. Using this ideology, in the present report case analysis of two companies, viz. Sapphire energy supplies and Auscotton is analyzed. The former case, the analysis is based on economic order quantity, market orders, and feasible decision-making process. While, in the latter case the strategy framework based on demand forecast, customer preference, and market orientation were analyzed. Overall it is learned that customer orientation and market positioning is of high importance while designing this strategy framework for the company. Correspondingly, the supply chain network and related decision-making standard determine the analogous outcome of operational procedures. In the present report, these points were discussed in detail, in the form of case analysis.
Tasks: You have recently been hired as the new Inventory Controller at Sapphire Energy. You are asked to address the following questions:
1. Evaluate the effectiveness of the current ordering system.
Answer: Sapphire energy supplies Electric Service within the area Ballarat, Bendigo, Mildura, Geelong, Sunbury, Traralgon, Shepparton, Wodonga, and Wangaratta. One of the extensively used material by the brand is 1/0 AWG aluminum triplex cable. This cable is used for delivering electricity from the distribution pole to the meter loop present on the house. Sapphire energy has given the contract to the Eastern power storeroom for the procurement of this cable. The present carrying cost of the cable is $1.35 per meter. According to the current arrangement with the supplier, the Eastern power storeroom should take 1/12th of its yearly requirement each month. Even the storeroom has a maximum space of 90000 meters of 1/0 AWG aluminum service cable. However, the minimum order for the supplier is 4500 meters. In addition to this, the supplier also does not offer any quality discount on the supply cables. The company has to also bear an additional ordering cost on each shipment which is around $50. Apart from this, the inventory carrying cost is considered as 10% of the cost price of each purchase. Hence, it can be concluded that the procurement of the Eastern power storeroom is not cost effective. With the current ordering, system, the supplier is unable to fulfill the basic requirements aux cable that is 155000 meters, which has to be installed in five normal working days. Here, the total annual stocking cost is (Q/2) x C'+(D/Q) xS' = $9318.75.
Q = current order quantity = 12917 meters
C' = cost of carrying one unit per year = $1.35
D = yearly demand = 155000 meters
S' = annual cost of each order = $50
Economic order quantity (EOQ) = SQRT(2xDxS')/C = 3388.43
Hence, the total annual stocking cost by considering EOQ = (EOQ/2) x C'+ (D/EOQ) x S' = $4574.39
Therefore, the approximate saving in the stocking cost = $9318.75 - $4574.39 = $4744.36
2. Can the current system be improved?
Answer: Yes, the current ordering system can be improved. According to the calculation made in the evolved ordering system, the ordering system has been recognized with a saving of $4574.39. Using an effective strategy, the company will be able to save $4744.36 in its stocks (Oktaei, Cloutier, & Lehoux, 2017). Moreover, the given company also holds the capacity for ordering more units. Hence it is recommended for Sapphire energy to increase the number of cables to 4500 meters. It is evident that the present ordering system at the sapphire energy is not at all feasible decision. With the implementation of the economic order quantity model to be used in the ordering process, the total quantity of cable becomes 3388.43 meters. However, the ordering quantity is seen to be less than 4500 meters, hence the strategy of incorporating economic order quantity is not if feasible recommendation. Hence, to achieve the desired result of increasing the number of orders, there is a requirement of interpretation for assessment with the present supplier.
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Tasks: To help address some of the procurement and supply chain issues facing AusCotton, you have recently been hired as the new Senior Vice President of Supply Chain. You have taken time so far to visit the company's global facilities and to become aware of the situation, problems, and concerns that are faced by the company. You are asked to address the following questions:
1. Based on your knowledge of the global business environment and the positioning of AusCotton with regard to its markets and supply sources, what do you think are some of the major global issues that will be relevant to the area of strategic sourcing?
Answer: With globalization, the international winter and summer sports apparel brand Auscotton has been facing issues in the markets of Australia, New Zealand, Europe, North America, China, Taiwan, Vietnam, and India. In the present time, there are numerous local competitors emerging which provides the latest fashionable clothing at a reasonable price. There are some other international brands as well who are providing similar summer and winter outdoor sportswear along with attractive profit margins. These manufacturers create tough competition for the company in its well-established market when some customers prefer cost over quality. Second, Auscotton being a global brand faces problems in identifying the exact demand forecast on the basis of different geographical requirements. This situation has often led to the situation of stock-outs of the required item at the retail store (Liang,Gan, Yu,Li, Leng, Li, & Xu, 2017). The company is also lacking an effective strategic sourcing process that can provide guidance in relation to the supply side of its business. The issue faced by the company is mainly due to the change in globalization and related technological facets. Recently social media is also considered as one of the pressures from the customer side, which is able to aware of the current changing trend. This changes the customer preferences and they lose interest in the company. Similarly, the shorter of life cycle for the rapidly changing demand in the existing market is also another critical challenge for the clothing industry. Apart from this, the company has also got evidence of illegal manufacturing and counterfeit merchandise by the employed contract manufacturers through gray market channels. These illegal manufacturers sell products to the local customers under the brand name of AusCotton and keeping the entire profit margin with themselves. Thus, the primary focus of the company should be to respond do the changing customer demand and it should design it strategy accordingly to minimize the impact of stock out.
2. What are the impacts of less-than-perfect demand forecasts for AusCotton products, and of volatility in the length and cost of transport services used to move its products from contract manufacturers to distribution centres? What should be done to mitigate these problem areas?
Answer: Being a global supplier of summer and winter clothing, it often becomes difficult for Auscotton accurately forecast demand. Less than perfect amount forecast four different geographies to be served results in unexpected variation in transportation cost and consistency. The transportation cost of finished goods from its contract manufacturers to different distribution centers is very high. This subsequently resulted in frequent stock out of the products required particular customers in the retail stores. Hence, in order to avoid or mitigate this global issue, the company can collaborate with the local manufacturers and produce the product locally. Using this strategy, it can import raw materials and produce the final product locally as per the geographic requirement of summer or winter clothing (Pimenta, & Ball, 2015). This strategy can reduce the transportation cost which ultimately mitigates the problem of stock out due to global restraints on transportation. Further, they can utilize the contract manufacturers, by effectiveness switching the products from one season to the other. Otherwise, the brand can make a contract with different manufacturers for providing summer clothing and winter clothing throughout the year, which will be supplied to different nations according to their seasonal requirements. Thus, it is conclusive that for timely and accurate demand forecast there should be an alliance between the suppliers and customers as well as a faster response towards the market demand (Fahimnia, Sarkis, & Davarzani, 2015).
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3. What elements of the strategic sourcing process do you feel are the top candidates for improvement at AusCotton, and why?
Answer: The strategic sourcing process of AusCotton is not efficient to guide towards the appropriate approach to be taken in context to the supply side of the business. Hence, it is required to improve in some elements of the company's strategic sourcing process, 1) supply market analysis, 2) development of effective strategy, 3) benchmarking and tracing of the result (Fahimnia, Sarkis, & Davarzani, 2015). First, for effective supply market analysis, the company should evaluate the perspective of emerging local and international suppliers as well as analyze the cost constituents product and services. Examining all these factors will help the company to review the risks and opportunities in the targeted market. Second, for developing an effective strategy the top management of AusCotton can conduct monthly meetings for analyzing and discussing the commonly faced issues. Further, they can find solutions and alternatives to minimize the risk and cut cost additional expenses. Furthermore, the development of these strategies will also be focused on improving the competitiveness of the company. Finally, standardizing the output and tracking the result is considered as the prime element of the brand's strategic sourcing process. In this process, it will require to monitor and examine on a regular basis buy a business specialist. For this purpose, the cost of raw materials, as well as the selling price of competitive companies is to be analyzed (Chin, Tat, & Sulaiman, 2015).
4. How would you respond to the assertion that some of your contract manufacturers are involved in producing illegal merchandise that ends up competing with the branded merchandise of AusCotton?
Answer: It has been identified by the company that some of its contract manufacturers are involved in an illegal activity related to manufacturing and counterfeit merchandise through gray market channels. This unlawful act not only butyrate the brand image of AusCotton, but also affects its financial condition. Hence there is an urgent requirement to handle the production of illegal merchandise by its contract manufacturers. In this process, the company showed to hire or appoint a new supervisor of its supply chain. This new supervisor should be strong enough to monitor each level of the supply chain from importing raw materials to exporting the final products. This strategy will help to evaluate the strategic sourcing process that can help to mitigate this issue. Furthermore, the newly appointed supervisor of the supply chain also is given the responsibility of site visit, especially the global facilities of the company (Chin, Tat, & Sulaiman, 2015). This step will help the company to increase awareness of the condition and problem faced by the brand in the local market. Examining the issue practically, the company can further follow the legal proceedings against these illegal merchandise activities. In conjunction with this, the contract manufacturers also need to obtain the original documentation and approval orders given by the company. Thus, it is required for the company to become more cautious in this context by following a manual procedure instead of automated documentation.
Conclusion: In summary, the economic perspectives of business are highly linked to market variables such as customer preference, demand forecast, and strategic sourcing process. Importantly, in order to retain competitive positioning, the business must follow the legislative process. These points with concluded on the basis of case analysis of two companies, viz. Sapphire energy supplies and Auscott. Furthermore, in order to prepare an effective strategy framework, the business decisions must be based on benchmarking previous results, analyzing supply and demand, and routine review of market orientation. In other words, the decision-making has a direct impact on the supply chain network, which determines the efficiency of the strategic framework.
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