CASE STUDY : PIRATES OF THE SILVERLAND (PALM OIL PIRACY)
Company’s 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 PHSB’s 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 hasn’t 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 customer’s 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
