Summary of the case: Palm Haul Sdn Bhd (PHSB) established in 2002 at Taiping Perak. It was a small and medium sized enterprise in crude palm oil (CPO) transportation business. PHSB was managed by En.H.Rossly and son in law of its founder, Datu S. Najeed. PHSB was facing the same problems likes others transportation companies which is drivers embroiling in oil piracy. The transportation companies will bear the responsibilities of compensation of the refineries if there any hijacking or piracy happened. The involved culprits most probably are the tankers’ driver, deport operators and the transporters. One of the major customer of PHSB, Oilene Refineries Sdn Bhd (Oilene) was complaining to Datuk Najeed on the poor quality of CPO delivered by PHSB and it has caused them in big losses in their business as failed to fulfill the requirement of their customers.
Oilene will not renew the contract if PHSB does not improve the situation in one month. Besides that, Datuk S. Najeed has reviewed the first quarter result of 2009 and noticed that the profits has dropped significantly compared to the same period of last year. If Oilene could not placated and, as a consequence, decide to leave their custom, PHSB would run into the trouble to return profits for the coming financial year. Datuk Najeed was very happy and insisted Rn.Rossly to investigate on these matters and report to him within one week with possible solutions. En.Rossly invited his university’s friend, Mukhiz Mohd who was from a management consultancy firm to assist on this.
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Problem 1:
There are some problems happened in Palm Haul Sdn Bhd (PHSB) as below: 1) The clients of PHSB might not renew the contract with PHSB because of shortage of delivered of CPO and contamination of CPO with water of sludge. In facts, the tankers are loaded with the amounts stated in the delivery orders but, the shortages of delivered CPO continue to happen over the year when it has received by customers. The drivers of the palm oil tankers might sell them to syndicates to earn the extra money.
Thus, as a transportation company, PHSB will need to compensate to the shortage of delivered CPO or poor quality of the CPO to their customers, and also, bearing the losses of the missing of the tankers. PHSB also faced the problem that the tankers found abandoned by the roadside and empty with the missing driver. The discontinuing of the contract with PHSB’s client and compensation to their clients will bring the impact on the income statement of the company i.e. decrease on the revenue and increase on the expenses.From the income statement (appendix A), the turnover (revenue) of PHSB has increased by RM 4.4 m i.e. 2.17%. But, the expense on compensation has increased drastically up to 31.69% which is RM 496,779.
Recommendation:
1) Implement Fleet Management System In order to solve the problem of hijacking or missing tankers, FHSB can implement the Fleet Management System (FMS), which introduced by Sidhu Brother Group to track on tankers. The FMS is a modified system from Malasyia Company which located at Petaling Jaya Selangor. FMS device installed in the cab of a CPO tanker which allow the company to track rogue drivers. The system marks the date and time the tankers enter a hot spot and how long they stop at rest areas and eating shops.
The system also allowed the company to locate more than 70 hot spots in peninsular where CPO siphoning was rampant. With this, PHSB might allocate any hot spots of their drivers by using FMS. One of the advantage of the PMS is enables the drive to alert headquarter if the tankers are hijacked or experiencing of any difficulties. By using FMS device, PHSB can save thousands of ringgit because they can track all of their tankers, avoid from missing of tanker and terminate any rogue drivers that involve in theft activity.
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Problem 2:
2) The quality of delivered CPO is not accordance to required pumping temperature which will affect the quality of the CPO. The temperature has to be precisely to maintain during loading, travel and pumping. The can compromise on the quality of the CPO if there any changes in consistency of temperature. If the oil solidifies in the tankers, it cannot be liquefied again, even by forced heating. If forced heating is attempted, the oil can end up melted, scorched, discoloured and rancid. With this problem, PHSB will lost the clients due to the poor quality of the CPO and the revenue (income statement) will be reducing as well. Meanwhile, PHSB might need to compensate to their clients on the claimed of poor quality of CPO. Thus, the expense of the company will be increasing.
Recommendation:
Train the driver on how to monitor on the temperature of CPO. There are 4 stages of CPO which is loading, travel, solidification and pumping. Each stage has different temperature requirement. The changes of the temperature will compromise the quality of CPO. Thus, to overcome on this, the driver must need to monitor on the temperature while traveling to mills or sending to customers in order to minimize the oxidation processes. Below is the temperature ranges: Designation Temperature Range Loading temperature 40°C Favorable travel temperature 30 – 35°C, not < 25 °C Approx 35 °C Solidification temperature 41 – 31°C Approx 35 °C Pumping temperature 49 – 50°C, not > 55°C Approx 50 °C
Problem 3:
3) PHSB also faced the problem of shortage of the driver and high absenteeism of the driver. There are other transportation companies might offer different remuneration with higher pay to the driver, thus, the drives might accept their offer and work as part time job to earn the extra money while working at PHSB. Recommendation:
Improve on remuneration packages The compensation cost of 2009 has increased 31.69% compared with 2008. The reason of high pilferage might due to attractive of pay by syndicates which the drives can earn the extra money. Besides that, other transportation companies offer lucrative packages to the drivers, thus, it has caused shortage of drives in PHSB. To solve the problem, PHSB need to relook into the offer remuneration packages to drivers. PHSB might review on the remuneration package of the drivers. PHSB offer the salary to the drivers based on the salary guide from Malaysian Industrial Development Authority’s (MIDA).
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Based on the income statement of 2009, the expenses of salary is RM 8,033,421. If PHSB offer the maximum salary of RM 1,770 (refer to salary guide of MIDA), PHSB can save the salary cost by RM 5,484,621. RM 1,770 * 160 drivers * 9 months = RM 2,548,800 RM 8,033,421 RM 2,548,800 = RM 5,484,621 Besides, PHSB also include others benefits included medical, social security, annual bonus, accident protection, pension scheme and Employer Contribution Fund (EPF).
The annual increment is based on percentage of the basic salary and performance.
Problem 4:
4) PHSB did not send the tankers for services and repairs regularly. PHSB only sent the tankers to repair after the driver feedback or broke down which has incurred the higher vehicles maintenance cost.The expenses (income statement) will increase due to higher maintenance cost. The maintenance cost has been increasing 82.87% which is around RM 2.5 M.
Reccomendation:
Improve on the maintenance service of the tankers. As Aliah has tight up with their workload, PHSB can improve the system, to computerize and monitor on the tanker maintenance service via the system with the proper schedule. Besides that, Aliah also can plan the driver’s schedule and allocation via the system. With this, it will be more systematic and prevent from miss-sending the tankers for service.
Conclusion With the recommended solutions to En Rosly, we believe that the faced problems by PHSB will be solved in the near future and the Yearly Financial Statement will continue to show the positive result.
