Pirates of Silverland Essay

A. base OF THE CASEPalm Haul Sdn Bhd (PHSB) was actively draftd in the telephone line of transportation of crude palm oil (CPO). It was in a box market because of lofty demand in delivering the CPO from the mills to the refineries. In addition, imputable to this reason, the industry players were rewarded with high unprocessed advantage perimeter which ranged on 35% 45% with low administrative overheads. However, as PHSB involved in run industry, high bell of sales was inevitable in the carrying erupts. This permit on created high(prenominal) agonisticness in the market because the industry players tend to operate much efficaciously in managing approach of sales. Further more, oil piracy was the major(ip) issue which was difficult to be solved and neutraliseed by the industry players. It besides caused to pro constitute impact and losses in this industry. In more serious extent, the persons connected this syphoning parts were non identified and red-handed.Thi s was the reason contri stilled serious impact to PHSB, as the gross profit marge was substantially narrowed due(p) to highly change magnitude in direct cost. The drastic decrease of gross profit margin receivedly non only caused by the whiz reason mentioned. PHSB was set up to incur high honorarium paid for CPO shortfall, inconsistency of drivers attendance and high expensed on principal(prenominal)tenance. PHSB was in critical situation due to the emergence of these challenges. In depth of analysing problem see to ited by PHSB, the CPO consigned by PHSB was justified and led to the bore issue in refineries.Oilene Refineries Sdn Bhd (Oilene), one of the major customers of PHSB, criticised the CPO delivered was frequently short and grime with wet or soap. The low look of CPO pretended the processing go crop up of Oilene and excess motions had to be practiceed for cleaning purpose, by shutting down the plant. Because of the serious impact given by PHSB, the solic itude of Oilene decided whether not to proceed for the look at re brand-newal, which would be expired in June 2009. Therefore, En. Rossly moldiness conform to into the physical processs of PHSB and necessary actions must be taken in battle array to secure the contract from Oilene.B. COMPANY BACKGROUNDPalm Haul Sdn Bhd (PHSB) was set up in 2002, in Taiping, Perak. It was a medium-sized enterprise in the CPO transportation business. It had close 200employees, out of which, 80% was in operations, primarily drivers of the orders customized tankers. Generally, PHSB was owned and chaired by Datuk S. Najeed, who was the former chief engineer of Ministry of Transport PHSB. The spot operation of PHSB was managed by En. Rossly, the CEO and son-in-law of Datuk S. Najeed. Furthermore, this comp whatsoever was branched into three major functions which included Account cum Finance, Human choice and Administration functions. And, they were in charged by three key personnel, Romsee Rossl y, Ramli Ali and Aliah Ibrahim, respectively. En Rossly decided to engage with a instruction consultant who was besides a friend of En. Rosslys, to pull up stakes actionive radicals for the issues endangered PHSB.C. ISSUES LEADING TO THE INCREASE OF DIRECT COST IN PHSB1. Rising hire to CPO shortfall and low operating margins 1.1 Issues1.2.1 Compensation to the refineriesReferred to the PHSBs two years monetary reports (2008-2009), on that point were increasing vogues of remuneration world do by PHSB to the refineries due to the shortage of CPO during the transportation. It showed that until March 2009, PHSB compensated astir(predicate) RM2 trillion, which already increased more than 33 % from the compensation they made RM1.5 million in 2008. The compensation cost was on increasing trend which it could be seen from the compensation figures from 2006 until 2009. In 2006, the compensation that PHSB had to put on was RM345, 111 and it was increased double in 2007, RM645, 222, and then again an new(prenominal) two-folded increased in 2008, which was at RM1.5 million. PHSB should articulatio humeri the differences in the add of CPOs that were short-delivered to the refineries.The PHSBs customer, Oilene Refineries Sdn Bhd (Oilene), claimed that the CPO delivered by PHSBs tankers, were less than the record quantity in the actors line order and some of the CPO had been contaminated with water or sludge. Comp atomic number 18d to another transporter hired by Oilene, Tiger Oils Transporter, PHSBs consignment was the about difficult to be processed. Despite the claim by Oilene on the delivered CPO, there was also a contingency that the CPO turned into sludge because of their chemical reaction to the changes of temperatures in the tanker. Therefore, PHSB should look into this matter as well. Nevertheless, there was a possibility of v years contract, between PHSB and Oilene, would be risky if these issues were not amicably settled by the PHSB as soon aspossible.1.2.2 Compensation to the provideAnother compensation that PHSB had to cover was regarding the compensation to the staff, much(prenominal) as salaries, allowances and ex-gratia. The compensation numerate recorded until March 2009, costing PHSB rough RM8.03 million, an increase of 7.1 % comp ar to 2008. There is a possibility that the increased measuring was due too many festive seasons during the years end. The amount from two compensation asterisk to the lower operating margin for the PHSB in 2009 compared to 2008.Operating margin is a measurement of what pro hatful of a companys revenue is left over after paying for shifting costs of production such(prenominal) as wages, raw materials, etc. A healthy operating margin is consumed for a company to be able to pay for its fixed costs, such as interest on debt. Low operating margin for the PHSB, meaning they are not devising a sound profit on every Ringgit that they spending on. It pull up stakes jeopardise thei r bottom line for the financial year.1.2 RecommendationsThere are five possible recommendations for this issue, which are periodic financial report for the PHSB and to maintain an additional staff to monitor this irregularity in the account.1.2.1 Monthly Financial wrap upBy implementing the calendar monthly financial report, PHSB could monitor their expenses on a monthly basis, thus any regularity could be taken care as soon as possible. The standard monthly financial reporting pile includes the following two core reports (University of Michigan, n.d.)i. Statement of Activity (SOA)The SOA reports display the affix revenue and expense transactions for an accounting period (i.e. one month period) for the specified parameters (e.g. Project/Grant). By presenting the SOA on the monthly basis, PHSBs management could thoroughly monitor and review their activities for that particular month. If there is any spare activity, the management could take corrective action before it could jeop ardise their operations.ii. unwashed Pay Register (GPR)The GPR report is a record of each employees paycheck salaries andallowances. By having this report every month, the management bequeath be able to identify the compensation made to the employees on a monthly basis. And, they testament be notified on the additional or irregularities payment that the PHSB made during that particular month.1.2.3 Close Monitoring on the Tankers TemperatureTo train and educate PHSBs drivers on the measurement of the tanker temperatures in order to avoid any chemical reaction which it could turn the liquid form of CPO to sludge. PHSB also have to invest more on the reliable tankers to keep the CPOs in a suitable temperature.1.2.4 Trucksecures SystemPHSB may install tankers with the Trucksecure System. It is a unique, simple, non-invasive corpse give notice loss can be distinguished from either the main or secondary tank, whether taken by the fuel filler neck, sender hole or from puncturing t he tank. One of the main problems encountered by haulers is detecting infinitesimal but regular amounts of stolen fuel. The Trucksecure system has the ability to measure minimal fuel loss to combat this problem with the additional benefit for the operator to detect suspected privileged theft covertly via an optional GSM text message. By installing this system, PHSB pass on be alerted on any attempt to siphon or steal the CPO immediately. Security Company provide be alerted as well and they give investigate that particular tanker. This will decrease the possibility of siphoning and stealing of CPOs.1.2.5 Balance Inventory LevelsPHSB have to cooperate with Oilene in implementing the balance inventory levels in checking and manage the CPO. Both companies could review the consignment through the purchase orders, receipt and credit notes, return notes as well as delivery notes which all of it will be validated by representatives from both companies. To follow-up on this order, bot h companies could have a thorough check on their inventory records. By implementing this method, PHSB could avoid the possibility of receiving less amount of CPOs than stated in the delivery orders.1 laid-back oil pilferage1.2.3.1. Issues2.1.1 Siphoning caused to high(prenominal)(prenominal) direct cost incurred to refineries In the transportation industry, the transporter is required to bear for any losses incur during its consignment. The equal practice applied to PHSB, hence, it had to tolerate huge sum of currency as the compensation to the refineries. In fact, the management found that many of the loaded tankers were not delivered to the refineries, but were found to be abandoned at the roadside by the irresponsible drivers. In addition, the siphoning causal agency also contributed to the high compensation paid to the refineries. As per the type reported, the compensation cost per turnover hit at 7.7% in 2008, and increased to 8.3% as reported in total of three accommod ate of income statement in 2009. The increase of compensation cost had led to narrower of gross profit margin as it was a part of cost of sales.2.1.2 Increase of insurance premiumsPHSB took a good practice where it mitigated the consignment risk to third caller, the insurer. PHSB had deadly track records because many cases discovered to be the tankers left abandoned by the drivers. The insurer, Allianz redress power not be responsible on the abandoned tankers. Moreover, it brought to higher operation risk of PHSB. Thus, there will be a background for the insurer to charge greater insurance premiums to cover the inconsistency of operation in PHSB. And, the cost of sales of PHSB will be risen importantly due to the Goods-In-Transit insurance is incurred directly to operation in the nature of transportation.3.2. Recommendations2.12.2.3 execution of instrument of Fleet Management System (FMS)In the view of Mukhriz Mohd, FMS is a must to be enforced in PHSB. This system allows PHSB to minimise the risks associated with tankers in consignments, alter the operation efficiency and reduce in compensation cost. With this FMS, siphoning cases will be drastically reduced because the management of PHSB is able to detect the delivery locations of the tankers. In addition, it assistances to reduce the fuel consumption as well. The problem of abandoned tankers will be eliminated as the drivers will be red-handed withserious punishments. Therefore, FMS is vital to be installed as PHSB operates in delivery services, despite the high cost of implementation. For the greater reduction in cost of sales and better preventive action, PHSB is strongly advised to enforce accordingly.2.2.4 Serious disciplinary actions will be taken against drivers As the increase of insurance premiums was due to the irresponsible drivers, actions must be taken to penalise them. This solution is made to reduce or even eliminate such cases to be happened repetitively. Ex-gratia will be deducted for the drivers who are identified to commit on wrong-doing. In more serious extent, if the drivers discount the disciplinary actions, termination of service will be given to the drivers. This solution may not contribute to immediate financial benefits, however, the insurer will reduce the insurance premiums in future when the abandoned tankers cases decline. In other words, it contributes to greater profit margin of PHSB in long term. 2 High Absenteeism/ Driver Shortage3.2 IssuesAs per reported by Ramli Ali, Human Resource Manager of PHSB, the company had the problem on driver shortage due to better offer from bigger company. The company also encountered issue on high absenteeism of drivers. The problem occurred because of irregular routes and away from home for a long period, caused the drivers tend to search for a better jobs or allowances.4.4.1. Unattractive remuneration caseAccording to Ramli Ali, PHSB was unable to offer an attractive remuneration incase to their drivers. With more attractive remunerations offered by big companies, drivers tend to bite the bait, therefore, PHSB requisite to hire and train new drivers more frequently. This activity had made outgrowth in the Administration and Operation Expenses for year 2009. The pilferage activities are recognized to happen during year end. This was identified that most of the drivers more likely involveed money during this period oftime, hence, the temptation siphoning the CPO was high.4.2.1.4.4.2. Irregular routes and tight schedulingRamli also tell that irregular routes and tight scheduling were the factors of drivers high absenteeism and shortage. By having this problem, it has affected the quality of operation service where refineries claimed that the CPO had not been delivered on time. Lack of drivers means that same driver might be running several deliveries. Each delivery requires them to stay away from home for a few days. Thus, some drivers might not lodge well rested and home away mo re than they supposed to be.4.4. Recommendations4.5.3. Offering attainable remuneration encasePHSB needs to intend giving year-end bonuses to the drivers in order to earn their loyalties. Hence, this will help to reduce drivers shortage as well as absenteeism problem that luxuriant PHSB throughout the year 2009. PHSB can emerge good remuneration package where year-end bonuses given to the drivers and staff. The bonuses will be much lower than the compensation cost that PHSB is currently bearing. PHSB can as well offer rewards to drivers with satisfaction attendance by giving performance incentives by year end. These incentives also can be applied to those who have delivered CPO as per Purchase golf-club or sludge-free. This will hope to lower the absenteeism piece.4.5.4. Realistic SchedulePHSB shall also consider giving annual leave based on Malaysian Industrial Development Authoritys guidelines which is normally provided with annual net profit increment that is calculated ba sed on a certain percentage of the basic salary and performance. PHSB shall come out with more realistic inscription which drivers are allowed to have some rest after their long journey. PHSB may as well to schedule more carefully to avoid regular shifts. This may be seen as increment in PHSBs expenses but in long term, it will help to reduce expenses in staff training as per stated in Administrative and Operating Expenses table. With new remuneration package and realistic schedule, drivers can give their greater commitments on their shifts, as a result, PHSB shall be able to enhance their transportation service. Consequently, PHSB will dumbfound higher profit since the customersare satisfied with the service provided, and indirectly, PHSB will able to expand to a bigger network.3 High monetary value of Maintenance4.3 IssuesBeing a logistic service provider specialized in transporting CPO, it is crucial to emphasise on the aliment of its tankers. Indeed, PHSBs quandary is also related to this matter. As we have gone through the case carefully, we have identified that PHSB is incurring high cost of support. The maintenance costs incurred for the three quarters of years 2009 and 2008 are RM 5.5 million and RM 2,3 million respectively. Thus, PHSB approach a 143.8 % increase in maintenance cost for 2009 compared to 2008* (estimated based on average calculation of total maintenance cost for 3 quarters of the accounting period). Marginal mean cost accounting or whippy analytic cost planning and accounting studies by Sharman (2003) can be referred to beneathstand the cost of sales in the case of PHSB better. Below are the possible root causes of this predicament.4.4.5 No regular nutrition and maintenance of the tankers.It was found that PHSB did not regulate the maintenance of its tankers. The tankers were only sent for service and repairs when the drivers complained of breakdown. At times, the damages occurred were severe, hence resulting in high cost of repairs. 4.4.6 No exchangeable administrative mechanism.PHSB is lack of a standardised administration mechanism. At the moment, the perform vehicle and driver allocation and scheduling are done manual(a)ly. Hence, a lot of time is wasted in the process. The situation get worse if there were any absentee, as the delivery route and allocation of drivers need to be rescheduled.4.2 Recommendations4.3.1 Scheduled maintenance program.PHSB should practice a more opinionated method of maintaining its tankers. It should ensure each of its tankers have gone total check-up, let say in afortnight basis before be available for transporting scheduling. As we are concerned, PHSB is a small company with certain constraints. Its annual gross profit margin is just around 10% over the years. Thus, we understand it will be unable to spare scanty cost especially if it wanted to establish an in house maintenance facility for its tankers. However, PHSB could overcome this problem by out-sourcing main tenance services from the market. A yearly contract with the service provider will assist PHSB to upkeep its tankers within a minimal cost.PHSB could use its power of negotiation to get good deals from the service provider for this mean. Moreover, PHSB would have an option to discontinue the contract and assign a new service provider in case of dissatisfaction too. Thus, PHSB will be able to cut sales cost, add competitive value to its company and eventually increase operating profit.4.3.2 Computerised Scheduling.It was found that manual scheduling method utilised by PHSB delays time. Hence, a computerised scheduling method will be very convenient. This method will help PHSB to get up delivery routes, driver allocations, delivery durations, maintenance breaks and forecast the total cost of sales regarding this matter systematically. Some of Transportation Management System (TMS) softwares that are widely being used by major third party logistic (3PL) companies worldwide include Roa dNet Technologies, TMW Systems and Precision. PHSB could employ any of these softwares too, to manage its operation and administration mechanisms.Moreover, this method does not need an expert to carry out or additional staffs as it could be done by single person who knows how to operate computer and familiar with data entering. Besides, PHSB could always acquire consultations and trainings from the system provider if it faces any difficulties related to the software. The quality of CPO transported and the safety of the drivers who work for PHSB are greatly influenced by the condition of the tankers. These aspects would affect PHSBs absolute operation processes if not tackled immediately. Therefore, we look at the recommendations given will hinder such quandary plus contribute to lower direct cost of sales in the future. Consequently, PHSB will be able to increase its operating profit.D. CONCLUSIONSAs displayed on the financial statements of PHSB, the loss of RM 1.8 millionmarked a s the pip performance ever throughout seven years back. This place setting shall not be repeated if PHSB wishes to remain its competitiveness and roles in the industry. From our analysis, we strongly believe the compensation cost to refineries is the Achilles Heel of PHSB operations. As mentioned above, 8.3% of turnover was solely contributed to compensation expenses. If PHSB is able to manage decent on the direct cost, the reduction portion of the compensation cost will be the additional gains to gross profit margin of PHSB. And, it surely remains PHSB at the higher competitiveness in the industry. However, the key personnel of PHSB must aggressively review on the inconsistencies of the financial reports. The financial reports shall be utilised effectively, as these reports provide a good avenue for the management to identify the weaknesses in the operations, although the information is historical.It is reasonable that salaries and allowances of drivers are the leading cost comp onent in direct cost, as the drivers are the human capital to PHSB. However, it should not be on increasing trend which the gap is bigger than the increasing turnover. Relevant of remuneration package is regnant to retain and attract more human capital. The relevance remuneration package would be in term of performance-based incentives. As this variable reward is individualised, drivers will be more motivated to work disciplinarily in PHSB. Although it will affect the gross profit margin, this direct cost is better to flow to the benefits of internal employees, which will improve the employees loyalty, rather than as the compensation cost to refineries. Besides, the upkeep and maintenance must be thoroughly monitored.As mentioned in the case, most of the tankers are fully depreciated. In other words, these aged tankers may lead to higher possibility of breaking down during delivery of PHSB. It is considered cost uneconomical when high maintenance cost incurred repeatedly because i t will cost a boom to PHSB. As a good recommendation, the tankers must be properly scheduled for regular maintenance checks. This is because preventive maintenance can avoid high repair and replacement costs. Last but not least, the effect from the inefficient operation of PHSB leads to higher inventories held by Oilene. This is because of the inconsistencies delivery provided by PHSB. This circumstance further indicates that Oilene will have poor inventory forecasting. The management of Oilene may find difficult to manage the inventory, as PHSB failed toconsign the accurate and planned quantities.And hence, Oilene is required to maintain high level of inventories. Furthermore, the low quality of CPO, which oftentimes contaminate by the drivers, also raises an impact on Oilenes inventories. Therefore, higher operation cost will be incurred by Oilene. Besides, Oilene will encounter the bottlenecks issue when the inventories level is high. Production capacity of Oilene may not requir e huge volume of inventories in short period of time. Also, the product under demand will be another constraint which worsening the bottlenecks. As such, the identified inconsistencies of the financial statements shall be addressed with solutions proposed. These recommendations may contribute to higher confidence and possibility of PHSB to secure the service contract with Oilene. With tight supervise and reviewing on the financial data, PHSB will be operated more consistently and earn more competitive advantages for greater future growth.ReferencesUniversity of Michigan. Financial Operation. Retrieved October 5, 2013 from http//www.finance.umich.edu/finops/reporting/ part/standar Sharman, Paul A. (2003). Bring On German Cost Accounting. strategic Finance (December)