Oilene Problems

1.0 Introduction

Oilene Refineries (Oilene) is a major customer of Palm Haul Sdn Bhd (PHSB). Recently, Oilene had made a complaint about the quality of the CPO been delivered by PHSB to them and its later impact on Oilene’s failure to fulfill their customer orders on timely manner. 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.

2.0 Problems

Currently Oilene is in big trouble due to ineffective management of PHSB to control the oil piracy happened to their company and the failure of the company to ensure the quality of CPO that should be received by Oilene. There are many problems faced by Oilene on regard of the company’s inventory.

2.1 Oil Contaminated and plant shut down

The problem faced by Oilene is oil that they received from PHSB is contaminated and cause their plant to shut down. According to Oilene the CPO supplied by PHSB is contaminated with water or sludge. As the result, Oilene have to shut down their processing plant to clean on the sludge almost on a weekly basis. When this happened, the expenses will increase as they have to bear with repairing cost and maintenance cost of the machine. Not only that, even though Oilene plant is shutting down, but then they still have to pay the employee’s salary. Their expenses are increase but the quantity of products they produced might be lower than they forecast because of the poor quality of CPO which Oilene received from PHSB. This problem will affect their profit. As the result, Return on Investment (ROI)^[1] will decrease due to plant shut down. Besides that, they also will have less stock because the production has to be stopped for a while.

2.2 Shortage of CPO delivered

The other problem faced by Oilene is the CPO delivered to them did not tally with amount listed on the delivery orders. As the result, this will decrease the inventory of Oilene but cost of goods sold remains increase. Consequence of this problem is gross profit of Oilene will be decrease and after deducting all the operation expenses their net profit will also decrease.

2.3 Failure to Fulfill Their Customer Orders on Timely Manner

The other problem faced by Oilene is the company fails to fulfill their customers’ orders on time. This is because they cannot continue production due to plant shut down. When Oilene fail to deliver their products to customers on time, it will affect the Oilene reputation and at the same time it reducing their profit. Due to late of delivery, Oilene might have to offer discount to avoid their clients from shifting to other refineries company which this act then lead to increase on Oilene expenses. Besides that, Oilene has to compromise with their client regarding their credit terms which then may affect the Oilene cash conversion cycles^[2].