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 inefficiencies 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.
CASE STUDY
1 Laburnum Group
Background: Laburnum Group
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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.
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.
A 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 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). 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 report.
Read the challenges facing these two businesses on the following sections ,and answer the questions at the bottom of each page.
Laburnum Case Study
2 Sapphire Energy
Energy Portfolio: Sapphire Energy
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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 that this company will use 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 of this cable is $1.35 per metre. Under the present arrangement with its 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 supplier requires that a minimum of 4500 metres be on an order. The Eastern Power storeroom has the space to store a maximum of 90,000 metres of 1/0 AWG aluminium service cable.
Associated with each cable shipment are ordering costs 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.
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.
Your task:
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.
2. Can the current system be improved?
Your answers to these questions will help you towards developing your report for Assessment.
3 AusCotton
Clothing Portfolio: AusCotton
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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 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.
Your task
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?
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?
3. What elements of the strategic sourcing process do you feel are the top candidates for improvement at AusCotton, and why?
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?
