Assessment 2 Instructions
Last modified: Friday, 17 February 2017, 10:01 AM
Assessment 2: Case study analysis
You are the expert hired by Laburnum Group to investigate two different aspects of their business
portfolio. You have been asked to provide both quantitative and qualitative analyses of
ineKciencies and/or challenges identified in the following case study, and to address the specific
questions raised by the top management across both the energy and clothing business portfolios
of Laburnum Group.
Carefully read the Laburnum Group case study and the associated questions. Develop a report that
addresses the questions asked by the top management in relation to both energy and clothing
businesses of Laburnum Group. You will need to draw on theories covered in this subject as well as
other academic resources (e.g. journal articles, book chapters). Make sure you carefully read the
marking criteria before you start work on your assignment.
Submit your 5nal report as a Word document, 1500-1800 words, including your analyses and
recommendations about both businesses. Remember to use the Academy of Management
referencing style. (Note that your calculations and your reference list are not included in your total
flickr photo shared by sunsurfr under a Creative Commons ( BY-NC-SA ) license
From its origins in 1920 as a Victorian farmers’ cooperative, Laburnum Group has grown into one of Australia’s largest listed companies with headquarters in Victoria, Australia. Laburnum Group’s diverse business areas cover home improvement, office supplies, chemicals, energy, industrial and safety products, and clothing. A key objective of Laburnum Group is to provide a satisfactory return to its shareholders while addressing various requirements of their wider stakeholders (in terms of social, ethical and environmental responsibility).
Given the scale and scope of their operations, Laburnum Group constantly monitors performance across its diverse portfolio of businesses which is essential to their corporate strategy decisions. In particular, the energy and the clothing portfolios are of strategic interest to Laburnum Group as together they constitute the biggest share of their overall business. These portfolios are currently facing inefficiencies and challenges which have motivated their top management to re-examine the current systems, processes and strategies across different product categories.
An internal report that contains information about the recent assessment of energy and clothing businesses of Laburnum Group shows that the majority of the inefficiencies and challenges across these sectors can be attributed to procurement and supply chain management decisions. As a result, a number of procurement and supply chain-related issues across the energy and the clothing areas were further analysed by a cross-functional team (where you are working as a procurement and supply chain consultant) to identify areas where improvements might be attainable.
The following sections detail specific inefficiency/challenge areas within the aforementioned business portfolios of Laburnum Group (energy: Sapphire Energy; clothing: AusCotton). As a procurement and supply chain consultant, you are required to use your learning obtained from this subject as well as academic resources to provide a quantitative and qualitative analysis of these inefficiencies/challenges and address the specific questions raised by the top management in form of a professional report.
Read the issues facing these two businesses on the next two pages, and address the inefficiencies/challenges outlined at the bottom of each page.
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Sapphire Energy is responsible for providing reliable electric service to customers in and around the areas of Ballarat, Bendigo, Geelong, Mildura, Melton, Sunbury, Shepparton, Traralgon, Wangaratta and Wodonga. One material used extensively to provide this service is the 1/0 AWG aluminium triplex cable (see image below), which delivers the electricity from the distribution pole to the meter loop on the house.
The Eastern Power storeroom procures the cable as part of its contract with Sapphire Energy. For the coming year, Eastern Power will need 155,000 metres of this service cable. Since this cable is only used on routine service work, practically all of it is installed during the five normal work days. The current carrying cost (H) of this cable is $1.35 per metre. Under the present arrangement with its own supplier, the Eastern Power storeroom must take one-twelfth of its annual need every month. This agreement was reached in order to reduce lead time by assuring their customer (i.e. Sapphire Energy) a regular spot in the supplier’s production schedule. Without this agreement, the lead time would be about twelve weeks. No quantity discounts are offered on this cable; however, the Eastern Power supplier requires that a minimum of 4500 metres be on an order.
Associated with each cable shipment are ordering costs (S) of $50, which include all the costs from making the purchase requisition to issuing a check for payment. In addition, inventory carrying costs (including taxes) on all items in stores are considered to be 10% of the purchase price per unit per year (in other words, the purchase price is $13.5).
Being a government-regulated, investor-owned utility, both the Victoria’s Essential Services Commission and the Laburnum Group shareholders watch closely how effectively the business, including inventory, is managed.
As a procurement and supply chain consultant, you are asked to investigate and analyse the following challenges faced by Sapphire Energy:
Quantitatively (and qualitatively) evaluate the effectiveness of the current ordering system.
Discuss if (and how) the current inventory system be improved?
Your investigation of the above challenges will help you towards developing your report for Assessment 2.
lothing Portfolio: AusCotton
flickr photo shared by Mini D under a Creative Commons ( BY-SA ) license
AusCotton is a global manufacturer of winter and summer outdoor sports apparel. Its winter line predominantly includes outerwear such as ski jackets, fleece, windbreakers, and footwear. Its summer line is somewhat different and includes running attire (shorts and shirts), windbreakers, backpacks, hydration systems, and footwear. The company is headquartered in Geelong but does business principally through retailers in Australia, New Zealand, Europe and North America. In addition, AusCotton has established itself as a well-known Internet retailer of its full product line. Overall, AusCotton is viewed as a trendsetter and is one of the most profitable firms in the Australian clothing industry.
At the present time, AusCotton uses contract manufacturers in China, Taiwan, Vietnam and India to make most of the items in its product line. Typical manufacturing lead times are anywhere from 4 to 12 months, depending on the type of product being manufactured and the complexity and range of materials needed to manufacture individual items. Both air and ocean are used for shipments to the destination countries, with the transport mode selection being largely a function of the urgency of the shipment. AusCotton maintains eight company-owned distribution centres located across the globe to ensure they are able deliver to, and within, different countries every day.
As a practical matter, the alternating seasonal product lines manufactured by AusCotton help to ensure year-round utilisation of its contract manufacturing capacity and its company-owned distribution centres. Over the past few years, AusCotton has experienced a number of areas of concern, including the following:
Intensifying competition from other manufacturers of similar winter and summer outdoor sportswear. Given the attractive profit margins on many of its products, a number of new competitors have emerged in recent years.
Inaccuracy of demand forecasts across both the winter and summer lines of products and the geographies served. Coupled with unexpected variations in the length, consistency, and cost of transportation services, this has resulted from time to time in stockouts of needed items at retail stores.
The need for a meaningful, strategic sourcing process that can help to better guide the approaches taken by AusCotton with regard to the supply side of its business.
Evidence that the contract manufacturers employed by AusCotton are also manufacturing illegal, counterfeit merchandise that is being sold through gray market channels.
As a procurement and supply chain consultant, 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 investigate and analyse the following challenges:
Considering the global business environment and the positioning of AusCotton with regard to its markets and supply sources, investigate major global issues that will be relevant to the area of strategic sourcing at AusCotton? Justify.
Investigate 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 can be done by AusCotton to mitigate these problem areas? Assess and justify.
What elements of the strategic sourcing methodology are the top candidates for improvement at AusCotton? Assess and justify.
How AusCotton should respond to the assertion that some of their contract manufacturers are involved in producing illegal merchandise that ends up competing with the branded merchandise of AusCotton? Justify.
Your investigation of the above challenges will help you towards developing your report for Assessment 2