In accordance to the case, pilferage was one of the major issues associated to the palm oil
industry. The drivers of palm oil tankers were unscrupulously involved in siphoning the
CPO and selling them to syndicates. The amount siphoned off is replaced with liquid such
as water, used oil or sludge to camouflage the theft. These additives resulted in
contamination of the CPO which was to go through the process at refineries. Consequently,
it might affect the quality of the end product. On top of that, there had been many
occasions where the consignment delivered did not tally with amounts listed in the delivery
orders. Indeed, these occasions are considerably an ultimate threat towards Oilene
performance.
2. Negligence
CPO has high tendency to solidify and once its solidifies in the tankers, it cannot be
liquefied again, even by force heating. Thus, there must be a required pumping
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2.1.2 Solutions
1. Long Term - Fleet Management System
According to The Sidhu Brothers Group, which has been in the business of transporting
CPO for more than 30 years, seems to have come up with a formula to deal with the
siphoning of CPO which takes place between the time the commodity is transported from
the mill to the refinery. The company, which has been using the Fleet Management System
(FMS) since February last year to track the route of its drivers, has managed to resolve the
CPO theft problem. The FMS is a modified system from British company Minorplanet plc
and is supplied locally by CSE Multimedia Technologies Sdn Bhd.The system marks the
date and time the tankers enter a hot spot and how long they stop at rest areas and eating
shops.There is a panic button installed near the drivers seat in every oil tanker which
enables the driver to alert headquarters if the tankers are hijacked or experiencing any
difficulty. When our oil tankers go off the original route and head to one of the hot spots,
the FMS system will detect it, so the drivers know the risks they are taking if they work
with syndicates to steal CPO. Oilene might suggest to PHSB to adopt the system and
allowing them to have an access on the system.
i.
Increase performance visibility. When companies do not know the facts about how
their suppliers are performing, supplier management tends to be based on guesses.
Moreover, the simple act of measuring performance can help improve performance.
This improvement can be even more dramatic when companies award additional
business on the basis of suppliers meeting performance goals.
ii.
Uncover and remove hidden waste and cost drivers in the supply chain. The
supply chain is full of inefficiencies. Some of these inefficiencies can be improved
by better communications between customers and suppliers. Others are a result of
poor business practices at the supplier that can result in increased inventory, quality
problems, higher costs, and slow deliveries. Companies can reduce wasteful costs
and activities, typically caused by supplier glitches, such as: additional inspections,
extra freight charges, overtime (to catch up), safety stocks, obsolete inventory,
buying from multiple sources (which reduce price leveraging), etc.Time is money,
and by measuring and improving supplier performance and by reducing supplier
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quality problems, for example, a company eliminates wasteful steps in its own
processes. By better understanding supplier performance and supplier business
practices and processes, customers can help suppliers drive waste and inefficiency
out of the business, resulting in higher-quality suppliers and lower costs.
iii.
iv.
Align customer and supplier business practices. Ideally, suppliers should run their
business in alignment with their customers: share the same business ethics, expect
similar standards of excellence, show commitment to continuous improvement, etc.
Consider how the lean enterprise or any high performance system that drives shorter
delivery times, higher quality, and lower prices could actually have an adverse
impact on a supplier who is not aligned with these practices. A supplier who is
unaccustomed to pursuing continuous improvement may be unable to keep up with
its customers increasing requirements for better, cheaper, faster goods and services.
v.
Mitigate risk. Insight into supplier performance and business practices helps reduce
business risk, particularly given companies increasing dependence on its key
suppliers. Risks can be financial and operational and increase with geographic
distance. Or, a risk area of increasing concern is the performance of sub-tier suppliers
whom the prime supplier has no contact with or knowledge of.
vi.
drivers. Oilene may advise PHSB on this matter to contend with the issues of
contamination or shortage of delivery as such solution could be effective in the long
run.
The second consideration would be that whether the newly contracted transporter has
the established tools or mechanisms in minimizing or curbing the issues of palm oil
piracy, be it due to the misconduct of the drivers end or the negligence of handling
the crude palm oil. As conferred in the case, transporter in palm oil industry is highly
competitive and is readily available. Thus, should PHSB remain ignorant of the
issues emerged despite Oilenes effort to remedy the situation, termination the
contract should be meticulously evaluated and looked into.
Amount
Cr. Cash
Amount
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Such undesired occurrence also greatly hampered the operational activities and schedules
of Oilene. The impacts include (1) an increased in operational costs due to the additional
measures required for the removal of the contamination and (2) prolonging or increasing
the cycle time along the processing line required to refine the palm oil and to ultimately,
deliver the palm oil to its respective customers. Failure to meet the lead time may result in
low customer satisfaction and may tarnish its business reputation.
2.2.2 Solutions
1. Short Term - Adoption of Project Crashing to Reduce Cost
On the study postulated by Nazrul et al. (2012), project crashing is a method intended to
shorten the overall project duration by the reduction of the time required for one or more
critical activities. In essence, it serves the objective of reducing the initial required duration
whilst minimizing the cost of crashing. To reduce project duration while minimizing the
cost of crashing, the project team should estimate require time, require the cost, crash time,
crash cost for each activities. And then the team can estimate total crash time, total crash
cost, the crash cost per week to reduce project duration at minimum cost.
manually or automatically using online quality monitors attached to the pipes of the truck
during delivery. The result 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.
There are a variety of inventory management strategies all answering same questions, i.e.
When to order? How much to order? To answer them, different approaches can be applied,
namely inventory models, simulation, and optimisation. (Soshko, 2010) Traditional
inventory strategies expressed by means of analytic formulas are the most popular.
However, a complexity of analytic inventory models increases if stochastic data appears. If
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demand and lead time are stochastic (as they use to be in practice), computation of the
optimal order quantity will be more complex. Application of analytical formulas is only
then useful, if there is no necessity for complex adoption inventory models for any certain
case which requires from a manager good mathematical skills and creativity. In order to
check and evaluate results of system operation under defined inventory models settings
(found either by using inventory models or empirically) before implementing them to the
company a simulation model can be used. However, to create a good simulation model,
input data should be defined accurately and a model should capture logic of the modelled
system. For example, if Min-Max strategy is modelled, then a model should operate based
on Min-Max conditions. Once created, a simulation model can be multiply used then for
performing so called what-if analysis. Illustratively, a manager can use the simulation
model to evaluate how the system will operate in case of increasing/decreasing demand.
Besides analytical models for inventory management, optimization model allow finding
parameters of inventory models as well. Application of scenario approach of stochastic
programming in inventory management is then rational if there is some lack of data
required for traditional analytic algorithms, as for example mean and dispersion of demand
or lead time cannot be precisely expressed. However, better benefit optimisation models
give in case of planning inventory in multi echelon supply chain, because they allow
describing interconnections of echelon in managing inventory toward the end customer.
Therefore, to remain competitive in the current market, the inventory management system
must be in place. It is recommended that Oilene could implement or improve their existing
inventory management as it may helps Oilene :
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i.
to maintain an optimum size of inventory for efficient and smooth production and
sales operations.
ii.
iii.
Effort should be made to place an order at the right time with the right source to
acquire the right quantity at the right price and right quality.
management system. In the spectrum of operational activities, Oilene should look into
project crashing for the short run whilst palm oil management system in the long run.
Perhaps, by implementing the afore-proposed solutions, Oilene could strengthen new
strategies particularly related to operational activities and as well budgetary matters in
order to optimize profit and to minimize costs. Throughout the period of new contract,
Oilene must evaluate PHSB performance in order to make a decision for future business
undertaking. Should PHSB failed to live up to the mutually consented standards,
termination of contract should be considered to prevent the incurrence of unnecessary
operational cost across the time horizon.
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