Allen Park Power Supply Chain - Case Study Example

Topic: Allen Park Power Supply Chain Table of Contents Table of Contents 1 References 11 Shah, J. (2009). Supply chain management: text and cases. Upper Saddle River, N.J: Pearson Education. 11 Executive Summary This study aims at assessing the supply chain of Allen Park Power Limited. The study has found out that the company has few challenges in the supply chain. The company has run out of transformers supply and the current supplier is not in a position to sustain the supply. Other challenges include supply bottlenecks, suppliers failing to meet their obligation, raising operational costs, strict regulation and changing business environment. The study recommends that the company should outsource computerized supply chain management system. The system will integrate all the supply chain details with the accounting system. The study also recommends the company to use two suppliers for each item in order to prevent failures accruing from one-supplier shortages. The study concludes that the success of Allen Park Power Limited is hinged on the efficiency of its supply chain. 1.0 Introduction Supply chain is the focal point around which all the operations within the organization revolve. The basis of an efficient supply chain management is having committed person in charge. The essence of supply chain within the organization is to ensure that the upstream products are delivered to the organization without delay or failure and the downstream products are distributed to the customers as efficiently as possible. Given that Allen Park Power Limited deals with both generation and supply of electricity to the Allen Park City and the surrounding rural counties, it has one of the most complex supply chains. The company deals with two core components of the supply chain. Upstream supply chain which ensures that electricity is generated and delivered to the provincial wholesale market and downstream supply chain system ensures that electricity is delivered to the customers at a competitive price and without failure. Allen Park Power Limited has functioned in the electricity industry as a monopoly for a long time. However, over the recent years the provincial government has introduced regulations that are intended to enhance competition in the industry which will be healthy in ensuring that citizens have the best services. Currently, Allen Park Power Limited is having major challenges in its supply chain. Given that the public owns the company, it is prone to heavy scrutiny from both the public and the government. The company has to formulate new strategies that will ensure that the challenges are overcome and that mitigation measures are taken to prevent such challenges from occurring in the future. While designing the strategies, Allen Park Power Limited must live the true meaning of its mission that is to provide secure and safe power, use the resource responsibly, care for the environment and meet the interest of the shareholders. 2.0 Allen Park Power Limited Supply Chain a) Overview Allen Park Power Limited deals with generation, transmission, distribution and retailing of the electricity. The company has a fully-fledged supply chain department that is headed by a director of Supply Chain Management. The unit is accountable for managing all the materials and services which the company in all the on-going operations requires. The business unit also has a role of ensuring that all the construction activities for transmission and distribution are done as per the specification and needs of the company. The department oversees the supplies management and transportation of goods both to the company and outside the company (Shah, 2009). b) Current Supply chain System at Allen Park Power Limited In ensuring efficiency in Allen Park Power Limited supply chain, the company uses both in-sourced and outsourced services. The company outsources all the services of power plant construction from Engineering, Procurement and Construction Firms (EPC). The outsourced firms conduct inventory management and the control of the entire chain and sourcing of the materials used in constructing new power plants. This helps the company to concentrate on its main goals of producing electricity rather than building electricity plants. Currently, the company is considering outsourcing many complimentary services, for example, the company is planning to outsource business related information system. The system will help the company in having an efficient electronic record for its accounting, stock taking and supply chain management. The company is currently using the manure recorded taking system in projections and data taking. The computerized system will help the company to effectively control and manage the whole supply chain from need recognition to service delivery to the end user. In the year 2006, company made alliances with other companies for the supply of transformers, miscellaneous electric hardware, cable and wire and utility electric hardware. The company used to tender the supply of these materials on a yearly basis. However, due the costs and resources consumption of the tendering procedures, the company decided to enter into alliances with suppliers of the material for a five years supply period. In evaluating the bidders, the company considers the pricing and the delivery credibility of the company (Shah, 2009). Transformers supply is the most crucial segment to the company and the tender to supply all the transformer (Single and three phase’s transformers) was awarded to Carlyle Transformers Inc. The company was given the tender to supply 34 different types of transformers for a period of five years stated 2006 through 2010. The company also supplies Allen Park Power Limited with miscellaneous electric hardware and utility electric items through Carlyle Electric Company which associated with Carlyle Transformers Inc. The company was selected against other nine bidders. The closest bidder, Shaunasey Ltd, is one of the largest supplies of the transformers in the world and its products met all the requirement of the bid. The supply of all the other items was awarded to a single supplier. The supply contract allows for the valuation in price of the items depending on the market prices. 3.0 Supply Chain Challenges Carlyle Transformers Inc. supplies Allen Park Power Limited with transformers. Carlyle Transformers Inc. was awarded the contract to supply the transformers for five years starting from January 1, 2006 through December 31, 2010. Carlyle Transformers Inc. has supplied the transformers as per the contract. In the year 2006, the company supplied 600 transformers, 585 in the year 2007 and 745 in the year 2008. This helped to meet the demand where 525, 656 and 736 transformers were used in the years 2006, 2007 and 2008 respectively. Allen Park Power Limited has projected to use 802 transformers in the year 2009 and Carlyle Transformers Inc. has already supplied 497 transformers that have been installed. The price of the transformers increased over the years where the company paid $21,200, $22,500 and $23,200 per each unit of the transformer in the years 2006, 2007 and 2008 respectively. Despite a good relation between Allen Park Power Limited and Carlyle Transformers Inc., a recent strike of the Carlyle Transformers Inc. employees has halted its ability to sustain the supply of the transformers to the Allen Park Power Limited. The employees demanded fair remuneration from their company. This affected the operations of Carlyle Transformers Inc. and its ability to deliver the transformers to Allen Park Power Limited as per the contract. On October 2009, sales representative notified Allen Park Power Limited that they would not guarantee the supply of transformers. The effect of the strike affected the installation of transformers. Currently, Allen Park Power Limited has 26 three-phase transformers (in stock, on the way and those that need the repair). The expected demand for remaining part of the year for the three phase transformers is 60 (covering October through December). This leaves the company with a deficit of 34 transformers. In a single phase (both pad and pole amount) the company has 74 transformers while the total needed is 245 transformers as per the expected demand. This leaves the company with the shortage of 205 transformers. Stoppage of the installation has predisposed the company to a contention with the customers and politicians. They also face the legal litigation threat from disgruntled developers. The company’s situation is also having its way in the local media which will destroy the reputation of the company. In order to calm the situation, the head of supply chain department contacted the second placed supplier (Shaunasey Company) who raised the price by 40%. 4.0 Environment and Root Cause Analysis One of the missions of Allen Park Power Limited is to be the responsible steward of the environment. The company seeks to have green supply chain. The company has to decide between maintaining liaison with local companies that will reduce the transportation distance (thus reducing greenhouse emission) and making alliance with internal companies that produce green products. Allen Park Power Limited has included environmental factors as one of its bid evaluation criteria. The economic environment has not been very favourable. The prices of steel and cooper, which are used for cables, have increased rapidly over the years. The steel price has increased from $ 120 to about $ 220 per unit from the year 1997 to the year 2008. This represents a 7.6% annual increase in the price. The copper has increased from about $ 2000 in the year 2007 to about $9000 in the year 2008. This represents a 31% annual increase in the price. The rise in the price is spurred by the growth in the economy where the utilities GDP grew from $ 28,993 million in the year 2004 to $ 32,548 million. The demand for electricity has also grown in tandem with the growth in the economy. The expansion of the economy and increase in price has squeezed the financial muscles of Allen Park Power Limited. The company has to face the lengthy price review when it wants to raise electricity rate. The rates are highly regulated by boards, commission and government agencies. The building of the power plant is also heavily regulated and it must be assessed on demand forecast environmental effect and public impact. The distribution and transmission are highly regulated by the government. On the side of the consumers, they expect to have afford and reliable electricity all the daylong. The recent regulations allow the consumers to have the choice of their electricity supply. The economic, regulation and environmental factors have affected deeply on the supply chain of Allen Park Power Limited. The company has major issues in its supply chain. The issues include translating demand into future forecast and bottleneck in its purchasing function. On top of this, the company has to find a way of maintaining its credibility to the public, obtain the remaining transformers at a competitive rate, ensure that it differentiates itself from other competitors, and position itself properly in the market. 5.0 Alternatives and Options In dealing with a shortage in transformers, the company has the option of considering Shaunasey proposal of supplying the transformers at 40% premium. The option will help the company to overcome the shortage for the three months before it finds the best supplier. The company can also ask for the bidders who can supply the transformers. The bid should be requested for a period of less than one month. The company can use the stock at hand until near the end of the September when the successful bidder starts the new supply. However, making a short term bidding will attract criticism from media and public and will be contravening procurement regulations. A company can also make a personal approach to other former bidders. Earlier the company had selected six best bidders. The company can approach them, get their price quotation, and then compare the prices. The lower priced bidder who can supply the transformers without failure should be chosen (Shah, 2009). The company has also to make a choice between choosing one supplier to supply single and three phase transformers or to choose one supplier who can supply all of them. When making the choice the company has also to maintain its concern for the environment. The company that charges the high price will predispose the company to a financial crisis. This is because before, it can increase the rates it will take a long time. Raising the price to meet the high cost will also cause more dissatisfaction in the market. On the computerized system, the company has the option of taking a whole system that will monitor the whole supply chain system and integrate the data with an accounting system or take two separate systems (Shah, 2009). 6.0 Recommendations It is recommendable for Allen Park Power Limited to approach all the former bidding companies and request whether they could supply the remaining transformers. The company should compare their prices and terms and take the best. In order to prevent a shortfall in the supply of the transformers in the future, Allen Park Power Limited should contract two companies to supply the transformers. The companies should be given half the required materials. The company should also have a warehouse where it keeps the stock that can last for one month. Lasting for one month will ensure that the company has taken the necessary reactions before the stock runs out (Shah, 2009). The company should also enter into contacts with the companies who will undertake all contracts during the high and low seasons. This will ensure that the company does not have the shortage of supplies as supplier in small constructions. It is recommendable for the company to take a computerized system that will integrate all the information in the supply chain and accounting. The system should be able to help the company to monitor its stock and send a message to the supplier when it reaches the reorder level. The company should also segment its operations. The system will also help the company in making accurate projections. The system will use the historical data and be able to integrate all the factors to make the future trend. This will increase the accuracy of the company’s projection which will facilitate planning (Shah, 2009). All the departments should operate a separate business unit with its own supply chain system. Will decongest the main supply chain, increase the supplies and reduce reliance on few suppliers. The company should set performance standards for each department. This will make the leaders of each department have total accountability and control over all the operations of the department. In dealing with the public reputation, the company should send a message to the media informing the public that the company can meet its obligation. The company should have more control over the whole supply chain. 7.0 Monitor and Control The company should ensure it has a stock that can cater for at least one month. This will help the company to prevent running out of stock. It will also help the company to curb the current situation. The supplier cannot to meet the obligation; the period will help them to figure out how to acquire a new supply. The company should also have more than one supply of each material. This help to ensure that the company does not only get quality products, but it also get them at the right time. Two suppliers will ensure that when one supplier is not able to meet the demand, the other can continue supplying, this will ensure that no operation come to halt. The computerized system will help the company to overcome the bottleneck in the supply chain. The company should formulate its own procurement policies that will ensure that the supply chain considers environment. 8.0 Conclusion Allen Park Power Limited has found itself in a challenging situation due to the weakness of its supply chain. The supply chain has several bottlenecks. Computerizing the supply chain will help the company to manage it well. Supply chain efficiency is very important to the success of any company. In order for the Allen Park Power Limited to remaining competitive in the electricity supply and production, it must remove the weaknesses in its supply chain. Formulation of a proper supply chain strategy will; ensure that Allen Park Power Limited is reliable, dependable and supplier's low cost electricity. References Shah, J. (2009). Supply chain management: text and cases. Upper Saddle River, N.J: Pearson Education. Read More