Sapphire Energy’s Purchasing Challenges and Solutions
Discuss about the Laburnum Group Case Study for Sapphire Energy.
Sapphire Energy, just like any other company providing electric services to the customers faces a number of challenges. In this scenario, the current ordering system that Sapphire Energy uses has resulted in many problems that prove to be costly to the company.When purchasing the cable, no quantity discount is given to the company yet they purchase the electric cables in bulk. The supplier has also set a limit that Sapphire Energy has to meet in order to get the cables. Eastern Power requires the company to demand a minimum of 4500 meters per order regardless of the market demand. This is very challenging as the market demand varies from time to time yet the suppliers do not put this into consideration.
In reducing the lead time, Sapphire Energy has to part with a small percentage of the production costs in order to get the products as fast as possible. This is quite challenging since it is the responsibility of the supplier to ensure timely delivery of the products to the customer. This does a huge blow to the company as it only favors the supplier.
This theory focuses on the trade prices to figure out if the trades were put according to prices that favor all parties. This theory focuses on two different types of prices. First and foremost, it focuses on the real price of the transaction that is made between the customer and the supplier. Secondly, it focuses on the price of any given transaction that is executed at the current price of the market when the financial asset manager made the decision to buy the products. The supplier does not share other production costs such as payments of making the purchase requisition to issue the check for payment. This proves to be very costly since the payments are included in the final price of the cables. It is important for the top management to use transaction cost analysis theory to conclude whether the prices offered are low or high depending on the current market conditions.
With this theory in place, it will be very difficult for the supplier to set the prices for the electric cables without consulting the customer. It will also reduce the costs incurred by Sapphire Energy in purchasing the electric cables as majority of the costs will be shared.
With these challenges, Sapphire Energy is forced to incur a lot of costs which play a very critical role in the final price of the product. By putting proper solutions in place, the company can get a good deal from the supplier or seek to find suppliers who offer better terms of business.
Transaction Cost Analysis Theory and Kraljic Matrix
The Kraljic Matrix is very essential to Sapphire Energy as it is used to come up with a purchasing strategy for the electric cables that the company uses. This strategy puts more emphasis in removing the vulnerability of supply and increase the supplying power of the company. This matrix will also help the company to determine on a per product basis, what type of interaction is best for the supplier.The current ordering system is not effective as it seems to favor the supplier instead of the buyer. A supplier that offers discounts to the products purchased is very helpful as they end up sharing the profits equally. Supply cost is one of the biggest costs that greatly determines how a business is run (Jenny Nedanovski, 2017)
The current inventory system should be improved in order to ensure that the company benefits from all the deals that it undertakes. A new system that allows the company to get the cables at a discount should be introduced. This can be made possible by sourcing for other suppliers or renegotiating the terms with Eastern Supplier. The system should also ensure that no limit is given on the amount of cables to be purchased as these only benefits the supplier. A win-win situation is necessary and the supplier is supposed to look into the demands of the buyer in order to create a good business environment.
The new system should also ensure that the company shares all the costs incurred in purchasing the cables until the moment they receive them in their store (Willard,2012). This will save them some cash which they can use in growing the business or production of quality products.A cloud technology that embraces the business carried out by Sapphire Energy can be included in the new inventory system. This will enable the company to access the data from any particular point in the world and thus reduce the cost of carrying the inventory. This will also save the company a lot of money while also increase the speed of carrying out business.
As a procurement and Supply Chain Consultant of the company, recommending an improved current inventory system will help the company to grow as all the spending will be easily accounted for. With cheaper prices of products, the customer is also able to benefit from what the company has to offer (Kruk,2012).
In order to improve the current inventory, Sapphire Energy must maintain an active relationship with the current or new suppliers of the raw materials. With a good supplier relationship in place, more markets can be easily created. This is because the suppliers might discover any shortage and together it is easier to come up with the correct solutions to meet all demands of customers (Chris Wheatley, 2017)
Improving Inventory System
It is highly recommended for the company to look for suppliers that are offering good terms. This can only achieved through the creation of a new and more efficient Inventory System that will effectively serve the company.
In any company, market challenges prove to be a very big problem to effective running and consumer satisfaction. AusCotton, in its quest to serve the customers faces a number of challenges.AusCotton deals with the production of winter and outdoor summer apparels. In order to ensure quality production, a number of global issues are important in its strategic sourcing. With a number of manufacturers in different countries such as India the company is able to get cheap labor and ensure that the current and future demands are well met. For the company to get a good area of strategic sourcing, important things like duty charges, importing fees, custom fee and the exchange costs of the currency must be put into consideration(Turker,2014).
Communication is another global issue that is important in strategic sourcing of an area. In most instances, confusion and delays may pop up due to translation problems. This is important as AusCotton does not want an area that may take longer than expected to pass information to the staff and shareholders. Using the postal services or courier services to send important documents is also time wasting and may lead to late delivery of what is needed.
Learning the ethical issues of the other country is also important in determining the area of operation. Hiring a broker to undertake this issue is important for the company as it will be easier for them to carry out all their activities. Less than perfect demand forecasts are a very big challenge that is affecting AusCotton and many manufacturers and retailers in the fashion industry. With decline in demand, AusCotton stores end up full due to overstocking. With overstocking, the profits that a company gains from the business is greatly reduced and appropriate measures to dispose off the excess stock should be sourced (Marshal Fisher &Ananth Raman,2012).
According to Frey,(2012) Long distances between the manufacturers and distribution centers have also greatly affected the supply chain of AusCotton. This results in late delivery of the sport apparel to the customers hence failure to meet their demand. Without the products to sale the shops will be under stocked and customer satisfaction will not be met.To solve the issue of Less than perfect demand, AusCotton should look for a well explained sales history. The sales history should be collected according to the time and location so as to have the right details.
AusCotton’s Strategic Sourcing Challenges and Solutions
The company can also discover any behavior or characteristic of apparel which will affect its demand. Factors such as the style of collar, fabric and color should be put into consideration.To ensure timely delivery of the products to distribution centres, the company should make use of the fastest available modes of transport such as airplanes. In areas where airplanes cannot be used, AusCotton can ensure that the goods are released from the manufacturer earlier enough in order for them to reach the required destination at the specified time (Doyle,2012)
AusCotton needs to have a look at the elements of strategic sourcing methodology that will impact positively and lead to the increase of profits. The company needs to improve the number of its manufacturers in order to serve all customers worldwide while also dealing with the competitors in the market. New manufacturing companies across the world will mean more production and faster delivery of the outdoor sports apparel to the customers. With a well setup market and manufacturing strategy, AusCotton seeks to benefit from the large number of customers (Panda,2012).
The threat posed by new entrants in the market should also be looked into as they may end up taking the current market base. With the production of quality products, customers will be satisfied and thus making it difficult to buy the same product from a different supplier. AusCotton should ensure that the customers are fully satisfied and proper advertising strategies are in place to counter the new entrants in the market (Malik,2018).Counterfeit apparels are a great concern to the success of AusCotton as they greatly tarnish the image of the products that it produces. To solve this issue, the company can ensure that any winter or summer sport apparel sold has a unique code. This code can be checked by the customers on the company’s website in order to determine whether it is fake or original. Before buying the good, the customers’ is supposed to check with the seller and if it is counterfeit, appropriate measures should be taken. The top management of AusCotton should be responsible for developing the codes to be used. With this in place, it will be difficult for the manufacturing companies to produce the counterfeit apparels since a specified number of codes will be given to every manufacturer at a given time depending on the demand in the market (Booth,2014).
References
Booth, C. (2014). Strategic Procurement: Organizing suppliers and supply chains for competitive advantage. Kogan Page Publishers.
Doyle, T. (2012). Rethinking Customs’ procurement practices to deliver improved business outcomes’. World Customs Journal, 6(2), 95-9.
Demand Forecasting for Fashion Apparel and Footwear: 5 Ways to Improve Accuracy. (2013). [Blog]. Retrieved from https://www.jestais.com/demand-forecasting-for- fashion-apparel-and-footwear-5-ways-to-improve-accuracy-2/
Frey, R. S. (2012). Successful Proposal Strategies for Small Businesses:: Using Knowledge Management to Win Government, Private-Sector, and International Contracts. Artech House.
Kruk, J. M., Quigney, P. P., &Kasravi, K. (2012). U.S. Patent No. 8,103,534. Washington, DC: U.S. Patent and Trademark Office.
KLEMCHUK, D. (2014). 5 Steps That Businesses Can Take To Avoid Losing Money From Counterfeit Goods [Blog]. Retrieved from https://www.huffingtonpost.com/darin-klemchuk/5-steps-that-businesses- c_b_5638896.html
Malik, A., &Bebenroth, R. (2018). Mind your language!: role of language in strategic partnerships and post-merger integration. Journal Of Global Operations And Strategic Sourcing. doi: 10.1108/jgoss-05-2017-0011
Panda, P., &Sahu, G. (2012). E-Procurement implementation: critical analysis of success factors’ impact on project outcome.
Pätäri, S., &Sinkkonen, K. (2014). Energy Service Companies and Energy Performance Contracting: is there a need to renew the business model? Insights from a Delphi study. Journal of Cleaner Production, 66, 264-271.
Turker, D., &Altuntas, C. (2014). Sustainable supply chain management in the fast fashion industry: An analysis of corporate reports. European Management Journal, 32(5), 837-849.
Witjes, S., & Lozano, R. (2016). Towards a more Circular Economy: Proposing a framework linking sustainable public procurement and sustainable business models. Resources, Conservation and Recycling, 112, 37-44.
Willard, B. (2012). The new sustainability advantage: seven business case benefits of a triple bottom line. New Society Publishers.
Wu, Z., Ellram, L. M., &Schuchard, R. (2014). Understanding the role of government and buyers in supplier energy efficiency initiatives. Journal of Supply Chain Management, 50(2), 84- 105.
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