The Pirates of the Silverland

EPPA4716 INTEGRATED CASE STUDY SEMESTER 2 SESSION 2015/2016 SET 1

REPORT OF CASE STUDY 4: THE PIRATES OF THE SILVERLAND

PREPARED FOR: DR. ROSIATI BINTI RAMLI

GROUP MEMBERS: WAH JUN YEW

A142341

LAU KAR LING

A139789

KOO YUH JYE

A139477

TAN BEE KUN

A140209

NUR HALIZA AMIRAH BINTI HALEMI

A140099

NUR SHABIRAH BINTI SALIMAN

A136723

TABLE OF CONTENT Content 1.1 2.1 3.1

Introduction Do you agree with the way Rossly has handled the issue so far? Assume the role of Aliah – What reasons that the company cannot do regular maintenance besides the fact that Aliah has got no time,

4.1

eg shortage of vehicles? Is it advisable for the company to continue the practice? Why?

5.1

Propose a solution. If you were in the position of Rossly, what would you recommend

6.1 7.1

to Datuk Najeed? Why? What would you do differently than what has been done by Rossly? Conclusion

Page

1.1

INTRODUCTION

The case study is about a company, Palm Haul Sdn. Bhd. (PHSB), a transporter of crude palm oil (CPO) is facing few problems such as palm oil piracy as well as complaining from its major customer, Oilene Refineries Sdn Bhd where these problems cause the profit of PHSB had dropped significantly compared to the same period last year. Oilene Refineries Sdn Bhd is complaining about the quality and quantity of the CPO delivered by PHSB and its subsequent impact on Oilene Refineries’s inability to fulfill customer orders. Oilene Refineries 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. Thus, 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. Besides, PHSB often faced with thousands of metric tonnes either end up missing, with the tankers not arriving at the refineries, or when the tanker eventually do, and the CPO is transferred, the quality of the oil is compromised. Many of the tankers that do not reach the refineries are, instead, found abandoned by the roadside, and empty, with the drivers also missing. These had caused a significant amount of compensation being paid out where this expense is related to the total payments made by PHSB for the shortage of CPO when the tankers arrived at the respective refineries. As Datuk Najeed, the owner-cum-founder of PHSB insisted that En. Rossly, the CEO of PHSB investigates the matters and report to him within one week with possible solutions, the following questions might help in generating solutions and there are few suggestions recommended by our group in order to solve those problems faced by PHSB.

2.1

DO YOU AGREE WITH THE WAY ROSSLY HAS HANDLED THE ISSUE SO FAR?

Yes. We agree the way Rossly handle the issue so far and his ideas after the meeting to solve the company problems. Fleet Management System 1.

Definition A software that comprises the target- oriented, optimal planning, supervision and control of the fleet operations based on the available resources, considering internal and external influencing factors. A special focus is on the integration of organization processes with modern information systems.

2.

Field of Application  Object tracking (vehicle tracking)  Health and safety tracking  Fuel and speed management  Sales order transmission  Route planning  Driver management  Vehicle diagnostic ( driver who stop at the RnR)

In order to cut direct costs especially petrol cost, by implement this system, the company can control the costs from far since its provide the vehicle routing which show the shortest trip. 2.1

Route Planning Definition  

Server to arrange different transport orders to tours of a vehicle fleet. The most known Route Planning problems are:  The travelling salesman problem (TSP)  The vehicle routing problem (VRP)  The pickup and delivery problem (PDP)

a) The travelling salesman problem (TSP) This system will find the shortest way of a circular tour that is as cost effective as possible that visits a certain amount customers exactly once. b) The vehicle routing problem (VRP) The extension of the TSP which various vehicles are available at a depot. Therefore, combines assignment and circular tour problem. c) The pickup and delivery problem In PDP, consignment are picked up at one place and transported to their destination. Pick up locations and the destinations have to be in the same tour.

2.2

Location Tracking Location tracking will helps company to :  Streamline and control supply chains  Move products to the market faster  Monitor assets  Prevent inventory loss  Track vehicle fleets

3.

Advantage  Improve efficiency and productivity  Reduce operating costs  Speed up logistics activities  Transparency of all the transport event  Automatically data transfer from the order entry system  Optimal order distribution to the tours

Reducing High Cost of Maintenance Rossly become very serious when Aliah, the administration manager of PHSB said that she did not have time to allocate and scheduling the drives and regularly maintenance the tankers. This is still being done manually.

He then urge Aliah to schedule the

maintenance regularly instead of waiting for the drivers to complaint before she send the tankers for service, repair or replace the spare parts. The consequences of this action is the drivers will take an advantage when they wanted to claim the cost of maintenance. In addition, the mechanic will charge the company more than usual price during the maintenance.

The high cost of maintenance also can be reduce by dispose the old tankers that past its useful life instead of repair it over and over again. Although the costs literally high but the company can cover it with the money they sold the old tankers. Hiring New Staff In the meeting, Aliah had said she did not have time to scheduling and allocate the maintenance of the tankers. The action hiring new staff can help Aliah to monitor the drivers and the maintenance of the tankers. The monitoring process will be better organized. t Provide Incentive/ Employee Benefits In the meeting, Ramli Ali, the Human Resource Manager of PHSB suggest Rossly about giving the drivers bonuses in order to reduce their temptation to pilfer from their stock and in the same time, this way can reduce the compensation costs the need to pay to refineries. The idea was welcome by Rossly. Even though their small company cannot match with big companies, but at least they can make it more difficult for the refineries to poach their drivers indiscrimately. Other than give them bonuses, company also give the employees some rewards like anniversary awards, employees of the months and many more. By giving them rewards, it automatically can resolve the problem of driver shortage.

3.1

ASSUME THE ROLE OF ALIAH – WHAT REASONS THAT THE COMPANY CANNOT DO REGULAR MAINTENANCE BESIDES THE FACT THAT ALIAH HAS GOT NO TIME, EG SHORTAGE OF VEHICLES?

High absenteeism/ Driver shortage The greatest challenge facing by transport industry is driver shortage. The irregular routes and days away from home are difficult for many drivers. It will be common for drivers to be on road for days at a time and they will be tired after their allotted period of work. Company should be giving better benefits and year-end bonuses to the drivers. By giving them bonuses, they will be able to help drivers to meet their family year-end expenses. Meanwhile, company able secure their drivers and reduce the temptation to pilfer from company stock. This can also reduce the high compensation is being paid to the refineries. By having a good benefits, company can enforce a more strict action to be taken to drivers who absent during pick up time. Allocation and scheduling perform by manual Aliah has been busy with daily need to perform vehicle and driver allocation and scheduling. Allocating and scheduling of delivery routes being done manually in this company. Aliah has to reschedule the delivery route and allocation of drivers every time a driver does not turn up for work. Company should done allocation and schedule of delivery routes in a system where there is a list of drivers details, delivery routes and driver schedules. A system which has integration functions coordinates logistic activities with an automatic reminder to be sent out to driver moment before their work of pick up CPO. This system should be able to have better communication between drivers and logistics management of PHSB Heavy workload – Administration manager Aliah (Administration manager is busy in handling those driver schedule and unable to perform other administrative duty such as scheduling regular maintenance on tankers. The maintenance costs for upkeep of vehicles is significantly high and has nearly doubled to RM 5.5 million compare to previous year RM 3 million. An assistant can be hired to help Aliah in managing allocation and scheduling. The assistant can also check whether drivers going to turn up for work 30 to 60 minutes before time of pick turn CPO stock. Aliah or the assistant will have a better view and more readily to

allocate substitutes driver to work. With the help of an assistant, Aliah can now have the time to schedule regular maintenance. Using of Old Tankers Most of the tankers have fully depreciated and causes high maintenance cost. These fully depreciated tankers may be facing frequent breakdown and also a high maintenance cost during repairmen of vehicles. Therefore, PHSB can consider acquiring new tankers. Since the new tankers will be bought in hire purchase and subsequent payments in long term such as 9 years loan. New tankers will have 12 to 16 months warranty and regular check up by tanker’s company for first few years. Maintenance cost will be much lower compared to current upkeep of vehicles by having less expensive spare parts to be changed. PHSB can also be considering for leasing of tankers if were not to acquiring new tankers. Some terms of leasing contracts may favors PHSB as maintenance cost bare by leasing company and cost of capital will be lowered. No standardize schedule or specific workshop for maintenance PHSB does not have any standardize schedule or guideline for tankers to do regular checkup. There is also no specific workshop for the tankers to do their regular checkup. PHSB should come up with a standard operating procedure (SOP) for maintenance of tankers. A guideline to be followed where there is frequency to do checkup according to age of vehicles. For older tankers, more prompt regular checkup was to be conduct. PHSB can have contract with few specific workshops to conduct those regular checkup. By doing this, PHSB can prevent drivers to charge high maintenance for checkup or breakdown of tankers.

4.1

IS IT ADVISABLE FOR THE COMPANY TO CONTINUE THE PRACTICE? WHY? PROPOSE A SOLUTION.

It is not advisable for the company to continue their current practice. The current practice has made the company facing some critical issues which need to be solve in advance to make sure the operation of the company can be continue. The company has practiced the current operation practices since they started their business in year 2002. However, the profit margin of the company keep decreasing since year 2002 and they are facing their first loss for the first quarter of year 2009. The current practice has created some issues for the company. Issues from the aspect of financial Increasing of compensation to the refineries due to the shortage of CPO when the tankers arrived at the refineries or the tankers went missing. The compensation is keep increasing since year 2006 and it was increased sharply by 30% for the first quarter of 2009 when compare to year 2008. This is due to the current practice of company where they lack of supervision and controllability over their drivers during the process of delivery. The company also facing the high cost of maintenance. The company owned 80 tankers which were almost fully depreciated. There was no consistently maintenance for the tankers unless a complaint is made by driver. The maintenance fee for the first quarter of year 2009 were increased by 82% as compared to year 2008. The end up of this two issues was the company had low operating margins. Besides, the insurers of the company have requested to increase the insurance premium due to the many cases of tankers being abandoned. This will further increasing the operating cost of the company and lower the profit margin. Issues from the aspect of human resource Due to the nature business of the company, 80% staff of the company are all driver who are in charge of delivery the palm oil. However, the company facing problem of high absenteeism or diver shortage. The irregular routes, days away from home and current remuneration package were the reasons for the issue. Besides, overload of job for Administration Manager due to lack of staff to assist had directly influenced the driver allocation and scheduling and maintenance of the tankers. This practice should not be continues as the Administration Manager was given task that should not belong to her job scope. Issues from the aspect of possibility of losing major client

The current operating practices of the company has made the company facing challenging competition in the industry. The delivery of the CPO which are not tally amount, low quality due to the temperature inside tanker or tankers went missing are the factors of this issues. Oilene, one of the company major client has made complaint about the quality service of the company to their refineries. CPO that been delivered were either not tally amount or contaminated with water or sludge. Oilene are considering of not renewing the contract which were going to end in June 2009. In order to solve the issues being facing by the company, a new operation practice should be implement. Fleet Management System should be applied Based on the Sidhu Brothers Group, Fleet Management System (FMS) has enabled the company to save RM36, 000 a month. FMS help the company to track the route of its drivers. The tracking system can mark the date and time the tankers enter a hot spot and how long the time taken for rest and eat. A panic button also available for the driver to contact company if there are difficulties. The FMS has helped the company traced 108 cases of CPO theft and terminate services of 18 drivers. With the FMS system, PHSB can track the route of its all drivers. It can help to eliminate or reduce the case of tankers being missing or abandoned and control the quality and quantity of the CPO. Temperature control The CPO is transported by tankers, a require temperature is need to be able to pump the oil out of the tanker. Therefore, the temperature of the CPO should be control when loading, travel and pumping. This is to make sure for the good quality of CPO being delivery to refineries. Remuneration package of drivers Recruitment of more divers should be implemented. The salary and the benefits of driver to be offer must be at least match with the industry average for prevention of the driver shortage. Bonuses can be given to the driver for the prevention of the CPO being stole by the drivers to syndicate. Besides, the driver allocation and scheduling have to be well manage to prevent drivers overload with too many delivery routes and have to always days away from home.

Assistance staff for Administration Manager Assistance staff should be allocated to Aliah to assist her in the logistics management of PHSB. Segregation job should be implemented where staff who in charge of driver allocation and scheduling, staff who in charge of maintenance of tankers and staff who in charge of daily management. “Prevention is always better than cure”, consistently maintenance for tankers can reduce the maintenance expenses of the company and increase the quality of the service to client.

5.1

IF YOU WERE IN THE POSITION OF ROSSLY, WHAT WOULD YOU RECOMMEND TO DATUK NAJEED? WHY?

Implementation of Fleet Management System Fleet Management System is a system that can track the route at which the vehicle travels at anytime and anywhere. This enables the company to easily monitor their drivers’ movement and it can reduce the risk of CPO siphoning as well. Besides, it also enables the company to meet the consignor’s demand by temperature management of the CPO. Siphoning activity could affect the quality of CPO delivered as it requires a particular temperature condition to preserve the freshness of CPO. Since siphoning activity could be overcome through this system, thus the quality of CPO can be maintained. Hence, compensation costs could be reduced. On the other hand, fleet management system can be also considered as a vehicle tracking system. The function of this system is GPS based where it helps to update vehicle’s location, direction and speed. The most advantage part by implementing this system is the connection system from the vehicle’s onboard computer where it can gather the vehicle data easily. This system can also detect the information such as mileage and fuel consumption supply from the mechanical diagnostics. Therefore, the company can easily detect and manage the number of vehicles that should be distributed from one place to another place. Therefore, transportation cost and time can be reduced due to the effectiveness of the system. Provide good remuneration package A well remuneration package should be given by the company to the drivers due to the drivers are one of the most important employee who sacrify their plenty of time to deliver the CPO to refineries. In addition, the issue of high oil pilferage might because of the drivers need money. Thus, by giving the drivers a good remuneration package might solve the high absenteeism or driver shortage issues. Examples of good remuneration package that can be provided by the company are year-end bonuses, medical leave, incentives, employee benefits, insurance and SOCSO. Besides, the company should encourage drivers’ morale with recognition and rewards as well as persuade employee with special program employee recognition such as service anniversary awards, achievement awards, employees of month rewards and others. These will enables the company to solve the major issues and the compensation cost can be reduced. Hire new staff and have a proper maintenance schedule The company should hire new staff to help Aliah in administration department. After hiring new staff, Aliah should do segregation of duties so that all works in administration

department are properly managed. Besides, the daily need to perform vehicle and driver allocation and scheduling should be done automatically instead of manually. Hence, these enable Aliah to have more time in scheduling regular maintenance for the tankers. On the other hand, vehicles should be serviced regularly but not to wait until the drivers to complain in order to reduce the maintenance cost and save the time of rescheduling the delivery route and the allocation of drivers. Besides, vehicles that already past its useful life should be disposed and buy new tankers in order to prevent high maintenance cost.

6.1

WHAT WOULD YOU DO DIFFERENTLY THAN WHAT HAS BEEN DONE BY ROSSLY?

Overload work of Aliah & Maintenance of Tankers Implementation of integrated computer system automatically In this high competitive market, I suggest that Rossly can integrate their allocation and scheduling of drivers into computer system automatically. With amount of large financial resources, PHSB can implement this system in order to perform vehicle and driver allocation automatically instead of manually. This computer system will help to generate how many drivers should delivery CPO each day and allocate them to near or far distance destination based on their ability. This computer system can detect which vehicle should under maintenance period when vehicle was used for long period of time. Besides, it can arrange the time for regular maintenance on the tankers to prevent tankers being break down accidentally. With implementing this system, company’s profit margin will increase as maintenance cost decrease due to proper service their tankers regularly. Development of a repair & maintenance department Restructure the organization cart of the company, where a Repair & Maintenances Department will be implemented. Tankers never schedule for maintenance unless there is complaint from drivers about the breakdown of a tanker is the main cause of the upkeep and maintenance cost increased sharply. Overload by job responsibilities have make Aliah overlooked the important of maintenance for every tankers. The result is the company have to bear high cost of upkeep and maintenance for the tankers. The repair and maintenance department will be take over the responsibility of repair and maintenance for the tankers. The department will be under control of a manager who have the qualification, knowledge and experiences about the repair and maintenance of the tankers. The department will be in charge of the maintenance arrangement and scheduling for all tankers. Technicians can be employed where they can be in charge for the minor breakdown, exchange of spare part and do regular checking on the tankers. Based on rule of 1-10-100, prevention cost is always less than the correction cost and failure cost. Consistently checking and maintenance will end up with high productivity of the tankers and cost reducing which is benefit to the company. As a CPO transporter company, tankers are vital asset that use for generation of revenue. A department in charge of the tankers should be implemented.

Conduct a training program By conducting a training program, it can enhance the knowledge of the drivers in preventing any break down of the tankers. This is to reduce the maintenance cost and also to lessen the pressure of the administration manager’s jobs as well as to avoid any irregular services of the tankers. The training should be professionalized where it must consist of the basic fundamentals of the tankers maintenance and also the preventive maintenance. This services can be conducted by the Manager of Repair and Maintenance Department. A preventive maintenance could also be one of the possible solutions as prevention is better than cure. It will be cheaper for the company to carry out preventive maintenance rather than wait for the tankers to break down before repair or replace the spare parts. Thus, maintenance plays an important role in order to reduce maintenance costs. High Oil Pilferage & Driver Shortage Encouragement of self-discipline among drivers Self-discipline is one of the most important and useful skills everyone should possess. This skill is essential in every area of life. Self-discipline means self-control, which is a sign of inner strength and control of ourselves, our actions, and our reactions. Self-discipline among the drivers can be prevention of misconduct in workplace. PHSB should publish driving policy and risk assessment to the drivers. This will be as a guidance to teach the drivers about “what should and what should not” or “the good and bad driving habits” along the journey. PHSB also need to enhance understanding of company policy to the drivers. Drivers must be clear in mind about the company policy and rules. As a staff of the company, drivers have the responsibilities together to protect the right and benefits of the company. Besides, drivers must have self-discipline in take care of their own safety. Drivers should have self-awareness and cooperate with the company in monitoring their health condition and maintenances of vehicles. A good condition of drivers and vehicles are vital for the long journey of delivery of CPO to the refineries. This is important for the prevention of undesired accident along the journey. Recognition and reward like service anniversary reward and employee month reward can be imposed for the encouragement of self-discipline among drivers. Impose strict measures against drivers who misconduct in work ethics As a transportation company, 80% of staff of PHSB are drivers. Behavior of the drivers are highly related and directly influenced to the issues of high oil pilferage and driver

shortage or high absenteeism of driver. Besides the implementation of the Fleet Management System and offering a better remuneration package and bonuses, strict measures against drivers who misconduct in work ethics should be imposed. PHSB can have a contract based employment with the drivers. This can prevent the drivers being resign simply as there are better offers from competitor companies. Legal action and compensation can be imposed to the drivers who break the rules of contract. Bonuses should be given based on the performance of the drivers. Bonuses of a driver who is always have high absenteeism to work with no reason should be reduced or less. Besides, with the tracking function of the Fleet Management System oil pilferage or any illegal actions by the drivers can be traced and should be given serious punishment to the irresponsible drivers. For example, conduct investigation, suspend staff from duty (with or without paid), issued show caused letter for them to explain and termination of service. The offender is likely to be put in prison or to be penalized. It will be a fine to the misconduct driver and also a warning to others drivers or staff. Rising compensation, low operating margin & risk of losing client Controling expenses Expenses of petrol for PHSB in first quarter of year 2009 was increased about 85% as comparing to year 2008 from 2.1 million to 4.0 million. The quantity tankers of the company are remain the same for the both years however it was a huge increasing in the expenses of petrol. Accountant should have a investigation on the petrol claim and identify the main cause of it. Accountant should control the petrol expenses by forecasting the petrol expenses for a delivery journey. Accountant have to know the price for petrol and distance of a delivery journey for the purpose of forecating. Claims from drivers that exceed the forecasted amount have to investigate and call for explaination. Besides, PHSB can implemente the Gross Pay Register( GPR) system. The GPR report is a record that record each employees salaries and allowances. By having this report every month, the management are able to identify the salaries, allowances or claims made to the driers on a monthly basis. Accountant can notify on the additional or irregularities payment that PHSB made during the particular month. Any fraud or extra claim by drivers can be prevent or be identify for further actions. Providing client with quality services Strict quality control to the CPO delivery to the refineries. A well maintenance of the tankers and vehicles are vital to make sure the CPO are delivery on time and in a good

condition to the refineries. The management level must strictly on the implementation of the regular services and maintenance of the tankers. With the implementation of FMS system, the management also need to strictly monitoring the route delivery of the drivers to make sure the right quantity and quality of CPO are sent to the client on time. To ensure for the quality of CPO, the drivers need to be explained about the particular temperature condition. PHSB have to ensure the travel temperature have been complied with as far as possible during transport, to minimize oxidation processes. Besides, PHSB can discuss with the client by lowering the amount of compensation especially for the short distance delivery by promised them with quality services.

*source from German Transport Information Service (http://www.tis-gdv.de/tis_e/ware/oele/palmoel/palmoel.htm#temperatur)

7.1

CONCLUSION

In order for En. Rossly to come out with possible solutions within one week, En. Rossly should consider all the recommended solutions that we suggested to solve those problems faced by PHSB. By overcome the high oil pilferage, high absenteeism, drivers shortage, high cost of maintenance as well as high compensation cost with the possible solutions such as the implementation of fleet management system, improve on remuneration package, hire new staff and have a proper maintenance schedule, we believe that the problems faced by PHSB will be solved in the near future and the Yearly Financial Statement will continue to show the positive result.