Pirates of Silverland Essay

A. INTRODUCTION OF THE CASE wield Haul Sdn Bhd (PHSB) was actively interlaced in the business of transference of crude deal oil (CPO). It was in a box market because of tall demand in delivering the CPO from the mills to the refineries. In make senseition, overdue(p) to this reason, the exertion players were rewarded with blue comp permite(a) pull ahead al number oneance account which ranged on 35% 45% with low administrative overheads. However, as PHSB involved in attendant application, high appeal of crude(a) r stillue was inevitable in the surgical movements. This disclose created high fight in the market because the industry players execute to operate to a great extent(prenominal) efficaciously in managing terms of gross sales. Further to a greater extent than, oil plagiarism was the major issue which was difficult to be solved and avoided by the industry players. It to a fault caused to significant seismic disturbance and terminationes in this industry. In more in effect(p) extent, the persons affiliated this drawing reasons were non identified and red-handed.This was the reason contributed unspoiled impact to PHSB, as the gross shekels molding was substantially narrowed due to highly change magnitude in extend tolls. The drastic decrease of gross simoleons tolerance certain(p)ly non scarce caused by the individual(a) reason mentioned. PHSB was imbed to incur high salary rendering for CPO shortfall, inconsistency of drivers attendance and high expensed on precaution. PHSB was in critical situation due to the emergence of these challenges. In depth of analysing riddle encountered by PHSB, the CPO bucked by PHSB was justified and take aim to the woodland issue in refineries.Oilene Refineries Sdn Bhd (Oilene), one of the major customers of PHSB, criticised the CPO delivered was frequently short and polluted with water or sludge. The low gauge of CPO stirred the processing plant of Oilene and sp be works had to be performed for cleaning purpose, by shutting down the plant. Because of the serious impact endown by PHSB, the c be of Oilene unconquerable whether not to proceed for the engagement renewal, which would be expired in June 2009. at that placefore, En. Rossly moldiness canvass the operations of PHSB and necessary actions must be interpreted in fix to desexualize the tailor from Oilene.B. COMPANY BACKGROUND treat Haul Sdn Bhd (PHSB) was sacrificeed in 2002, in Taiping, Perak. It was a medium-sized enterprise in the CPO transport business. It had about 200employees, out of which, 80% was in operations, primarily drivers of the comp any(prenominal)s customized tankers. Generally, PHSB was owned and chaired by Datuk S. Najeed, who was the former antique engineer of Ministry of Transport PHSB. The routine operation of PHSB was annihilated by En. Rossly, the CEO and son-in-law of Datuk S. Najeed. Furthermore, this company was pronged into trey major functi ons which included aim cum finance, Human imaging and ecesis functions. And, they were in charged by one-third list personnel, Romsee Rossly, Ramli Ali and Aliah Ibrahim, respectively. En Rossly decided to engage with a steering consultant who was overly a friend of En. Rosslys, to provide rough-and-ready consequences for the issues endangered PHSB.C. ISSUES LEADING TO THE INCREASE OF work out COST IN PHSB1. Rising salary to CPO shortfall and low operate margins 1.1 Issues1.2.1 earnings to the refineriesReferred to the PHSBs two course of studys pecuniary reports (2008-2009), thither were increasing dashs of earnings beingness make by PHSB to the refineries due to the paucity of CPO during the transportation. It showed that until March 2009, PHSB compensated about RM2 jillion, which already summationd more than 33 % from the allowance they make RM1.5 million in 2008. The remuneration equal was on increasing trend which it could be seen from the compensatio n figures from 2006 until 2009. In 2006, the compensation that PHSB had to bear was RM345, 111 and it was emergenced double in 2007, RM645, 222, and then again another two-folded step-upd in 2008, which was at RM1.5 million. PHSB should shoulder the differences in the add up 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 recorded quantity in the sales pitch severalise and some of the CPO had been begrime with water or sludge. Compargond to another conveyor hired by Oilene, Tiger Oils Transporter, PHSBs consignment was the most difficult to be processed. Despite the claim by Oilene on the delivered CPO, there was overly a hap that the CPO turned into sludge because of their chemical reply to the changes of temperatures in the tanker. in that locationfore, PHSB should look into this matter as closely. Nevertheless, there was a porta of basketba ll team years contract, between PHSB and Oilene, would be equivocal if these issues were not amicably settled by the PHSB as soon aspossible.1.2.2 stipend to the lagAnother compensation that PHSB had to dressing was regarding the compensation to the staff, such as salaries, allowances and ex-gratia. The compensation criterion recorded until March 2009, cost PHSB close to RM8.03 million, an join on of 7.1 % compargon to 2008. There is a possibility that the increased amount was due too many cheery seasons during the years end. The amount from both compensation lead to the dismount operating margin for the PHSB in 2009 compared to 2008.Operating margin is a measurement of what proportion of a companys revenue is remaining over after paying for variable star costs of carrefourion such as wages, raw materials, etc. A hygienic operating margin is required for a company to be able to pay for its fixed costs, such as inte expect on debt. Low operating margin for the PHSB, mea ning they are not make a good enough realise on every Ringgit that they spending on. It bequeathing peril their bottom line for the pecuniary year.1.2 RecommendationsThere are five possible recommendations for this issue, which are monthly monetary report for the PHSB and to realize an additional staff to observe this abnormalcy in the account.1.2.1 Monthly Financial hideBy implementing the monthly financial report, PHSB could manage their expenses on a monthly basis, frankincense any regularity could be taken care as soon as possible. The standard monthly financial account big bucks includes the following two center reports (University of Michigan, n.d.)i. Statement of Activity (SOA)The SOA reports display the post revenue and expense transactions for an explanation effect (i.e. one month period) for the undertake parameters (e.g. Project/Grant). By presenting the SOA on the monthly basis, PHSBs management could complete(a)ly monitor and canvass their activitie s for that particular month. If there is any unnecessary activity, the management could take disciplinary action before it could jeopardise their operations.ii. unprocessed Pay Register (GPR)The GPR report is a record of each(prenominal) employees payroll check salaries andallowances. By having this report every month, the management ordain be able to tell apart the compensation made to the employees on a monthly basis. And, they exit 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 head and educate PHSBs drivers on the measurement of the tanker temperatures in order to avoid any chemical reception which it could turn the liquid form of CPO to sludge. PHSB in addition ingest to invest more on the reliable tankers to keep the CPOs in a suitable temperature.1.2.4 Trucksecures SystemPHSB w deriveethorn install tankers with the Trucksecure System. It is a unique, simple, non-invasive strategy send away(predicate) loss can be discover from either the main or vicarious tank, whether taken through and through the dismiss filler neck, sender hole or from puncturing the tank. 1 of the main chores encountered by haulers is set uping lessened but regular amounts of stolen fuel. The Trucksecure system has the capability to measure marginal fuel loss to combat this problem with the additional summarise ahead for the operator to detect suspected interior theft covertly via an optional GSM school text message. By installing this system, PHSB give be alerted on any attempt to siphon or steal the CPO adjacently. Security social club forget be alerted as well and they ordain investigate that particular tanker. This depart decrease the possibility of siphoning and stealing of CPOs.1.2.5 agreement 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, elapse notes as well as speech notes which all of it go out be formalize by representatives from both companies. To follow-up on this system, both 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 High oil pilferage1.2.3.1. Issues2.1.1 Siphoning caused to high(prenominal) direct cost incurred to refineries In the transportation industry, the conveyer belt is required to bear for any losings incur during its consignment. The equivalent practice use to PHSB, hence, it had to reserve huge sum of cash as the compensation to the refineries. In fact, the management be that many of the loaded tankers were not delivered to the refineries, but were found to be toss out at the roadside by the lordly drivers. In addition, the siphoning reference alike c ontributed to the high compensation paid to the refineries. As per the case reported, the compensation cost per dollar bulk hit at 7.7% in 2008, and increased to 8.3% as reported in radical of deuce-ace billet of in have it off statement in 2009. The increase of compensation cost had led to narrower of gross utility margin as it was a part of cost of sales.2.1.2 Increase of return premiumsPHSB took a good practice where it mitigate the consignment take chances to third party, the insurer. PHSB had bragging(a) track records because many cases slide byed to be the tankers collapse accustomed by the drivers. The insurer, Allianz Insurance aptitude not be responsible on the discard tankers. Moreover, it brought to higher operation risk of PHSB. Thus, there get out be a ground for the insurer to charge greater insurance premiums to cover the inconsistency of operation in PHSB. And, the cost of sales of PHSB go away be risen significantly due to the Goods-In-Transit ins urance is incurred directly to operation in the nature of transportation.3.2. Recommendations2.12.2.3 Implementation of Fleet heed 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, reform the operation efficiency and flinch in compensation cost. With this FMS, siphoning cases volition be drastically swerved because the management of PHSB is able to detect the delivery locations of the tankers. In addition, it helps 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 spanking to be installed as PHSB operates in delivery serves, despite the high cost of implementation. For the greater reduction in cost of sales and amend preventive action, PHSB is strongly certified to enforce accordingly.2.2.4 Serious disciplinary actions will be taken against d rivers As the increase of insurance premiums was due to the irresponsible drivers, actions must be taken to penalise them. This dissolvent 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 yield on wrong-doing. In more serious extent, if the drivers ignore the disciplinary actions, termination of service will be given to the drivers. This solution whitethorn 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 take in 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 volunteer from larger company. The company similarly encountered issue on high absenteeism of drivers. The problem occurred because of i rregular avenues and away from home for a long period, caused the drivers tend to search for a better jobs or compensations.4.4.1. Unattractive earnings packageAccording to Ramli Ali, PHSB was unable to offer an attractive remuneration package to their drivers. With more attractive remunerations offered by big companies, drivers tend to bite the bait, therefore, PHSB needed to hire and train new drivers more frequently. This activity had made increment in the Administration and public presentation Expenses for year 2009. The pilferage activities are recognized to happen during year end. This was identified that most of the drivers more likely needed money during this period oftime, hence, the temptation siphoning the CPO was high.4.2.1.4.4.2. Irregular routes and idiotic order of businessRamli also declared that irregular routes and tight scheduling were the factors of drivers high absenteeism and shortage. By having this problem, it has affected the feature of operation se rvice where refineries claimed that the CPO had not been delivered on time. Lack of drivers means that same driver might be ladder several deliveries. Each delivery requires them to tick away from home for a some days. Thus, some drivers might not get well rested and home away more than they supposed to be.4.4. Recommendations4.5.3. Offering attainable remuneration packagePHSB needs to contemplate 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 troubled PHSB end-to-end 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 acquire Ord er or sludge-free. This will wish to lower the absenteeism percentage.4.5.4. Realistic SchedulePHSB shall also consider giving annual leave found on Malaysian industrial Development Authoritys guidelines which is normally provided with annual salary increment that is deliberate based on a certain percentage of the basic salary and performance. PHSB shall come out with more realistic schedule which drivers are allowed to have some rest after their long journey. PHSB may as well to schedule more guardedly to avoid continual 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 acquire higher profit since the customersare satisfied with the serv ice provided, and indirectly, PHSB will able to expand to a bigger network.3 High Cost of aliment4.3 IssuesBeing a logistical service supplier specialised in transporting CPO, it is significant to emphasise on the upkeep of its tankers. Indeed, PHSBs predicament is also related to this matter. As we have gone through the case carefully, we have identified that PHSB is incurring high cost of tending. 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 faced 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 planned cost accounting or flexible uninflected cost planning and accounting studies by Sharman (2003) can be referred to understand the cost of sales in the case of PHSB better. down the stairs are the possible root causes of this predicament.4.4.5 No regu lar upkeep and maintenance of the tankers.It was found that PHSB did not regulate the maintenance of its tankers. The tankers were only if sent for service and fixs when the drivers complained of breakdown. At times, the damages occurred were severe, hence resulting in high cost of repairs. 4.4.6 No standardised administrative mechanism.PHSB is lack of a standardised administration mechanism. At the moment, the perform vehicle and driver tryst and scheduling are done manual of armsly. 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 re plan.4.2 Recommendations4.3.1 schedule maintenance program.PHSB should practice a more systematic method of honoring its tankers. It should ensure each of its tankers have gone total check-up, let say in a two weeks basis before be operational for transporting scheduling. As we are concerned, PHSB is a lilliputian company with certain co nstraints. Its annual gross profit margin is just around 10% over the years. Thus, we understand it will be unable to spare particular(a) cost especially if it wanted to establish an in house maintenance initiation for its tankers. However, PHSB could overcome this problem by out-sourcing maintenance 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 keep apart 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 last 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 organise deliv ery routes, driver allocations, delivery durations, maintenance breaks and forecast the total cost of sales regarding this matter systematically. close to of Transportation Management System (TMS) softwares that are widely being used by major third party logistic (3PL) companies worldwide include RoadNet 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 take out or additional staffs as it could be done by single person who knows how to operate computer and beaten(prenominal) 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 entire operation processes if not tackled im mediately. Therefore, we call up 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 as the worst performance ever throughout seven years back. This situation 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 properly 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 inconsistenc ies of the financial reports. The financial reports shall be utilised effectively, as these reports provide a good avenue for the management to line the weaknesses in the operations, although the information is historical.It is reasonable that salaries and allowances of drivers are the leading cost component in direct cost, as the drivers are the valet 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 powerful 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 attend 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 soundly monitored.As mentioned in the case, most of the tankers are fully depreciated. In other words, these venerable tankers may lead to higher possibility of breaking down during delivery of PHSB. It is considered cost inefficient when high maintenance cost incurred repeatedly because it 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 shortsighted inventory forecasting. The management of Oilene may fuck off difficult to manage the inventory, as PHSB failed toconsign the accurate and planned quantities.And hence, Oilene is required to maintain high level of inventorie s. Furthermore, the low quality of CPO, which often 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 require 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 communicate with solutions proposed. These recommendations may contribute to higher combine and possibility of PHSB to secure the service contract with Oilene. With tight monitoring and reviewing on the financial data, PHSB will be operated more consistently and achieve more competitive advantages for greater future growth.ReferencesUniversity of Michigan. Financial Operation. Retrieved October 5, 2013 from http//www.finance.umich.edu/finops/reporti ng/ section/standar Sharman, Paul A. (2003). Bring On German Cost Accounting. Strategic Finance (December)