Supply Chain Management
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.
Challenges:
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?
Provides an insightful and accurate evaluation of the current system, based on rigorous and in-depth research. Includes correct and accurate calculations. Makes concise and appropriate recommendations for improvements.
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.
