Strategic Sourcing Evaluation Methodology †MyAssignmenthelp.com

Question: Discuss about the Strategic Sourcing Evaluation Methodology. Answer: Introduction: Sapphire Energy is a popular brand of Laburnum Group. However, Laburnum Group is a well-known organization of Australia, which has both energy and clothing business. This organization has got the position among the largest organizations in Australia. The major objective of Laburnum Group is to provide a satisfactory return to their customers. Supply chain management issue becomes a big issue among the energy manufacturing industries at present time (Christopher, 2016). In the recent years, this business group has been facing supply chain management issues regarding their clothing and energy area. Thus, it is necessary for this organization to identify the areas of problem where necessary improvement can be implemented. Sapphire Energy provides reliable electric service to their consumers across Bendigo, Sunbury, Wodogona, Geelong, Melton, Miduara and many other places. The major material used in this service is 1/0 AWG aluminum triplex cable. This cable is responsible to distribute t he energy from distribution pole to the meter loop. Electricity distribution is the major business activity of this organization. However, Eastern Power storeroom is the main stakeholder of Sapphire Energy and has made a contract with them. In the given scenario, it has been observed that Sapphire Energy focuses on high-quality service to satisfy their stakeholders. In the recent years, Eastern Power needs 155,000 meters of this cable service from Sapphire Energy. This cable is required to carry out the routine service work. Hence, an agreement is made between Eastern Power and Sapphire Energy. According to this order agreement, Eastern Power should use one-twelfth of its total annual demand. As per this new ordering system, the cable service needs to install within five normal working days. The main aim of this ordering system is to reduce the lead time besides ensuring their customers to get a regular spot in the production schedule of the concerned suppliers. The carrying cost of the materials of current ordering system is $1.35 pe r meter, which is quite high. Current ordering system of Sapphire focuses on the reduction of lead time, however; this aim is fulfilled otherwise the lead time could be 12 weeks instead of 5 days. As argued by Mamani Moinzadeh, (2014), lead time reduction is necessary for the suppliers to enhance their supply chain management otherwise they may face an issue. Sapphire Energy needs at least 4500 meters for a single order and the capacity of Eastern Power Storeroom is 90,000 meters. This will be effective for this ordering system as Sapphire Energy will get more order from this shareholder. Based on the EOQ or Economic Order Quantity the total cost of this current ordering system can be defined. Economic Order Quantity system refers to the number of units that an organization adds to its inventory in order to minimize the total cost of inventory management (Chen et al., 2014). Inventory cost includes shortage cost, holding cost and order cost. Application of EOQ is useful to review the inventory system. In the context of Eastern Power, they require 155,000 meters of service cable and the carrying cost is $1.35 per unit. As per the EOQ calculation. From the above calculation, it has been received that value of EOQ is low and the carrying cost is high. Due to low carrying cost, the demand becomes decreased. Hence, it can be said that the carrying cost is high, which may affect the business of Sapphire. From the given scenario and the above calculation, it has been identified that due to high carrying cost it will be difficult for Eastern Power to take cable service from Sapphire Energy. On the other hand, based on the contract system Eastern Power has to take at least one-twelfth of its annual need from Sapphire Energy. Hence, due to the high carrying cost Eastern Power faced difficulties to take service form its supplier. High carrying cost often hampers the demand of customers (Stadtler, 2015). As per this scenario, it has been received that the current ordering system based on the contract between Sapphire Energy and Eastern Power is effective to minimize the lead time. On the other hand, this ordering process is not cost eff ective as it enhances the carrying cost, which is the main issue of supply chain management in the context of Sapphire Energy. For the effective management of a supply chain, lead time should be reduced (Nguyen Wright, 2015). Hence, Sapphire Energy is able to reduce the time between the initiation and the completion of their cable service project. This is a major benefit of their current ordering process. Despite this effectiveness, Sapphire Energy did not offer any quantity discount, which is a major drawback of their supply chain management. Based on the above analysis it has been found that high carrying cost, low demand and lack of discount are the major drawbacks of the supply chain process of Sapphire Energy. Ways to improve the Current System of Sapphire Energy From the above analysis, it has been received that current ordering system of Sapphire Energy is good to decrease the lead time however, the carrying cost is high. Eastern Power has a high demand for cable service from Sapphire Energy. Due to the high carrying cost may affect this demand. High cost of suppliers often decreases the customer numbers (Tyagi et al., 2015). In the context of Sapphire Energy, they need to reduce their carrying cost per unit to enhance the demand of customers. However, it will be helpful for Sapphire Energy to provide service with low carrying cost and reduced lead time. This process will be effective to enhance the demand for Sapphire Energy. Customers always prefer high-quality service with low cost (Cooper, 2017). Sapphire Energy needs to change their pricing strategy for carrying the cost. By using low carrying cost this organization will be able to increase the demand. On the other hand, offering quantity discount will be an effective strategy for Sapp hire Energy to enhance the demand. Discount pricing and high-quality service with reduced lead time will be beneficial to improve the current ordering system in the context of Sapphire. Therefore, this process will help this organization to cover a large number of stakeholders across Australia. Auscotton is a global manufacturer of clothing products and it offers both winter and summer sports apparel. In the recent years, Auscotton has started contract manufacturing with Taiwan, India, China, and Vietnam. At present Auscotton has been facing issues due to a high level of competition in a global market. Many competitors provide similar products such as winter and summer products to customers, which affects the unique business feature of Auscotton. Some new competitors offer similar products as like as Auscotton with an attractive profit margin. Therefore, Auscotton has an inaccuracy in demand forecast. This hampers their business as well as strategic sourcing in the global market. Poor competitive strategy and forecasting affect the growth of an organization in the global market (Kim Chai, 2017). Due to these major issues, Auscotton faced a high cost of transportation, inconsistency and unexpected variation in their supply chain management. From the given scenario, it has b een found that the strategic sourcing of Auscotton or contract manufacturing process with foreign countries was not effective as a result they have faced a huge competition in the global market. Threat of substitutes occurs in the context of Auscotton, which hampered their business. According to the given scenario, it has been found that the demand forecast is not strong in the context of Auscotton. However, inaccuracy of demand forecast in Auscotton leads them to face threat of alternative product, high cost of transportation and reduced lead times. Less-than product demand forecast leaves a negative effect on Auscotton business. Proper forecasting is required for a business to understand the current market position based on which an organization is able to measure their future profit margin (Kotabe Murray, 2018). In the context of Auscotton their demand forecast was failed to measure the current demand of global market as well as the entire operating cost. As a result, they failed to identify the severity of the competitors in the global clothing industry. Hence, many competitors enter in market easily and hamper the unique product feature of Auscotton by offering a similar product. On the other hand, due to poor forecast Auscotton failed to select the lead t ime as selection of lead time is based on the type and materials of the product. Proper forecasting helps an organization understand the urgency of the shipment based on the demand. Hence, inappropriate demand forecast Auscotton failed to measure the urgency of shipment and failed to deliver the product within promised date. As a result, they need to pay more to transport the product during the emergency. Less-than-perfect demand forecast also brings unnecessary variations in the existing supply chain management. In order to reduce the poor forecast Auscotton needs to carry out a proper demand forecast within the scheduled time. Therefore, they need to carry out a proper market analysis to understand the strength of the competitors. On the other hand, to reduce the high transportation cost this organization needs to complete the shipment within the promised time (Kim Chai, 2017). Therefore, this organization should employ supply-demand forecasting model as it will help them to reduce delay in supply chain operation. Application of granular model will help this organization to identify the purchasing behavior of customers and optimum pricing in global market. Vital Elements of strategic sourcing methodology to bring improvement in the supply chain of Auscotton Supply and market analysis, negotiation, development of product and pricing strategy and identification of proper sourcing process will be the effective elements of sourcing methodology for Auscotton to improve their clothing business. Market analysis and pricing are the major components to bring improvement in a supply chain process (Presley, Meade Sarkis, 2016). However, Auscotton needs to select loyal partners for their sourcing process. Therefore, they can make a contract with their partners, which will help them to reduce legal obligation. Low pricing strategy and discount pricing will be beneficial for this organization to gain competitive advantages. Therefore, negotiation should be implemented to enhance the demand in this organization. Some of the contract manufacturers of Auscotton are involved in illegal merchandise and they sell their product through gray market channels. These contract manufacturers produce similar products, which competes with the branded merchandise of Auscotton. In order to deal with this situation, Auscotton needs to follow the Intellectual Property Laws Amendment Act 2015 (Legislation.gov.au 2018). By following this Act Auscotton will be able to protect their intellectual property from the competitors. Therefore, by following Competition and Consumer Act 2010 Auscotton will be able to take necessary action against the suppliers those are misleading the consumers by using the brand name of Auscotton. References Chen, S. C., Crdenas-Barrn, L. E., Teng, J. T. (2014). Retailers economic order quantity when the supplier offers conditionally permissible delay in payments link to order quantity. International Journal of Production Economics, 155, 284-291. Christopher, M. (2016). Logistics supply chain management. Pearson UK. Cooper, R. (2017). Supply chain development for the lean enterprise: interorganizational cost management. Routledge. Kim, M., Chai, S. (2017). The impact of supplier innovativeness, information sharing and strategic sourcing on improving supply chain agility: Global supply chain perspective. International Journal of Production Economics, 187, 42-52. Kotabe, M., Murray, J. Y. (2018). Global Sourcing Strategy: An Evolution in Global Production and Sourcing Rationalization. In Advances in Global Marketing (pp. 365-384). Springer, Cham. Legislation.gov.au. (2018).Intellectual Property Laws Amendment Act 2015. Retrieved 30 March 2018, from https://www.legislation.gov.au/Details/C2015A00008 Mamani, H., Moinzadeh, K. (2014). Lead time management through expediting in a continuous review inventory system. Production and Operations Management, 23(1), 95-109. Nguyen, T. H., Wright, M. (2015). Capacity and lead-time management when demand for service is seasonal and lead-time sensitive. European Journal of Operational Research, 247(2), 588-595. Presley, A., Meade, L., Sarkis, J. (2016, July). A strategic sourcing evaluation methodology for reshoring decisions. In Supply Chain Forum: An International Journal (Vol. 17, No. 3, pp. 156-169). Taylor Francis. Stadtler, H. (2015). Supply chain management: An overview. In Supply chain management and advanced planning (pp. 3-28). 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