Pirates of the Silverland (Palm Oil Piracy)

CASE STUDY : PIRATES OF THE SILVERLAND (PALM OIL PIRACY)

Companys Introduction
Palm Haul Sdn. Bhd. (PHSB) was a family-owned small and medium
sized enterprise in the crude palm oil (CPO) transportation business
located in Taiping, Perak. Established in 2002, it had about 200
employees which most of them were tanker drivers. On the average,
PHSB transported 3000 tonnes of CPO from palm oil mills to the
respective refineries that purchased the oil from oil palm plantation
companies and cooperative mills. The company actually facing alarming
problem with the quality of consignments to the refineries where the
CPO either delivered short or contaminated with water or sludge.
Statement of the problems
Oilene refineries as one of PHSBs major customer seriously affected by
the bad consignments as they had to shut down the plant to CLEAN out
the sludge almost on a weekly basis and this was affecting their delivery
timelines as well as the quality of the oil they produced. On top of that,
there had been many occasions where the consignment delivered did
not tally with amounts listed on the delivery orders.
Oilene management had to decide whether to renew contract with PHSB
which is due in June or to hire other CPO TRANSPORTATION COMPANY
such as Tiger Oils Transporter which reported a more reliable
transporter.
Recommendations for Oilene
1. Contaminated CPO
To overcome the problem caused by contaminated consignments that
shutdown the eventually shutdown the whole production, the company
can invest in Palm Oil MONITORING SYSTEM . Upon unloading the
tanker at the refinery station bay, the custody transfer process take
place. The system was able to monitor the volume and water content of
the delivery to ensure that it meets the specifications. This can be done
manually or automatically using online quality monitors attached to the
outlet pipes of the truck during delivery. The results might have an
impact on the price per load since higher quality CPO is more useful to
buyers, however it is still cheaper compared to the risk of production
shutdown that lead to the delay in orders delivery.
2. Short in delivery
Even though PHSB take full responsibility of the matters by compensate
the lost due to missing amount of CPO that should be delivered, Oilene
need to consider the impact of insufficient raw materials to produce their
product to the customer which surely increase delivery lead time.
According to Oil Palm Industry Economic Journal Vol. 12(1) 2012,
the INVENTORY MANAGEMENT for palm oil product is back-to-back
approach or processing based on order is mainly applied by majority
processor in the industry. However, in order to have smooth supply
chain for raw materials, it is suggested that the refinery keep stock level
of raw materials kept at mill for daily processing which based on average
used.
INVENTORY COSTING Method
In order for Oilene to calculate the costing for the CPO inventory, the
inventory accounts type that involve are Materials Inventory, when the
CPO hasnt gone through manufacturing process; Work in Process
Inventory, during the manufacturing process; and Finished Goods
Inventory, when the goods have been manufactured but have not yet
been shipped to customers. The average cost method will be used
where the units of cost of goods sold and ending inventory are costed at
the average cost.
Conclusion
The recommendations above are preventive measures that can be
implemented by Oilene to overcome the lost caused by consignment
delivered. It helps Oilene to have control over their raw materials in
terms of quality and quantity required and the most important thing is to
make sure they can deliver their customers orders on time.
For the PHSB contract renewal, the Oilene management can decide to
renew the contract with extra term basis since PHSB quite serious in
improving the quality of their delivery services. Example, probably there
is exit clause where the contract can be terminated if the contamination
happens more than 3 times in a month since they have Palm
Oil MONITORING SYSTEM to prove it.
References
Ahmad Borhan and A Nordin, (n.d.), A Study on INVENTORY
MANAGEMENT of Malaysian Palm Oil Products. Retreived from
http://palmoilis.mpob.gov.my/publications/OPIEJ/opiejv12n1-Borhan.pdf
Oil Palm Process. Retrieved from http://www.malaysianpalmoil.com/oil-
palm-process.html