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CASE 7 :
THE PIRATES OF THE SILVERLAND
(PALM OIL PIRACY)

BACKGROUND OF THE COMPANY
Company Name : Palm Haul Sdn Bhd
Principal Activities : Crude Palm Oil (CPO) transportation
Commenced Operation : 2002
Number of Employees : Approximately 200 employees
Head Office : Taiping, Perak
Crude Palm Oil : 3000 tonnes/day
Number of Tankers owned : 80 (mostly fully depreciated)
Initial Capital : RM 2 million
Average Annual turnover : RM 25 million
MAIN PROBLEM : Annual gross profit margin hovered around only 10% over the
last few years (below the industry level which is about 30%)







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CHALLENGES/ISSUES AND SOLUTIONS
PALM HAUL SDN BHD
1) High oil pilferage
Occurs due to employees who seek the wrong route to get cash.

SOLUTION :
The Fleet Management System should be bought to track the trucks. A total
of RM432,000 can be saved in a year by PHB (based on The Sidhu Brothers
Group who has a similar company profile with PHB 80 tanks and 3,000
tonnes/day)

The system can also prevent the problem of delivering compromised CPO
since the thieves often replace the oil with water or other liquid to avoid being
detected.

2) High abseenteism / Driver Shortage
The irregular routes to deliver the CPO and staying away from home for many
days are difficult for many drivers. The remuneration package offered to these
drivers is not attractive which reduces their motivation to come to work

SOLUTION :
A new remuneration package with attractive package salary can be offered to
the drivers. Other remuneration such as perfect attendance should also be
considered to be included.







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3) Unable to cope with the work load Administration Manager
The Administration Manager is busy in handling the drivers scheduling and is
unable to perform other administrative duty such as scheduling regular
maintenance on tankers

SOLUTION :
PHB should hire an assistant to help the Administration Manager. The tasks
can be divided between the 2 people. 1 employee should handle the drivers
scheduling since it requires a lot of time and performed daily.

4) High Administrative and Operating Expenses
There is an increase in Administrative and Operating Expenses by almost 46%
from the year 2008 to 2009 due to the following expenses:
a. Directors fees were increased although the companys gross profit
was declining over the years.
b. Almost 100% increase in Consultancys fees.
c. 300% increase in Ex-Gratia
d. There was almost 225% increase in Gift & Donation in the year 2008
which was from RM12,776 to RM41,222 and in the year 2009, the
expense has increased to RM43,260.
e. Medical expenses have also increased about 91% from 2008 to 2009
probably due to the drivers who often fall sick due to the long travel
duration.

SOLUTION :
a. Director fees should be maintained to RM400,000. Since the
companys performance was depreciating from 23.21% on 2006 to
16.51% in 2008, this should indicate that increasing the directors fees
is a bad move.
b. PHB need to find the real reason to hire a consultant. This cost can
be reduced if an analysis is done to find out whether hiring consultants
increases the companys revenue.

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c. Payment of Ex-Gratia to the employees should be reevaluated and
other possible avenues should be considered to replace the ex-gratia.
d. Gift & Donation can be replaced with Bonus to the employees.
Sharing the companys revenue with the staff based on their
performance also could be done. This effort can motivate the
employees to perform better and reduce the compensation payments
(staff salaries and allowances), which has been doubled in the year
2009. This can also lower the compensation amount that is being paid
to the refineries.
e. PHB should consider engaging with insurance company to support
the employees medical expenses. Paying premium every year can
avoid a sudden increase in the medical expense.

5) Most of the tankers have depreciated and causes the high maintenance.

SOLUTION :
Replace a few of the oldest tankers to new tankers - need further analysis
(cost of the new tankers need to be known). Since the payment for the new
tank will fall under long-term liability, payment can be made for the next 10
years. Maintenance will be much lower compared to the current cost. Not only
that, expense on spare parts can also be lowered













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OILENE
1) Oil contaminated and plant 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 and as the result, Return on Investment (ROI) will
decrease due to plant shut down.

DATE Dr. Expenses Amount
Cr. Cash Amount




2) Shortage of CPO delivered.
CPO delivered did not tally with amount listed on the delivery orders. As the
result this will decrease the inventory of Oilene and cost of goods sold will
increase.

DATE Dr. Inventory Amount
Cr. Cost of Goods Sold Amount

So, gross profit will be decrease and after deducting all the operation
expenses, nett profit will also decrease.








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SOLUTION & CONCLUSION
Oilene should consider alternative option in replacing PHSB to avoid these problems
as soon as possible due to these several reasons:-
i. To maintain the reputation and image of Oilene.
ii. To reduce cost incurred due to plant shut down and to avoid the decrease in
Return on investment (ROI)
ROI= (Return on asset) it describes the rate of return management was able to
earn on the asset that it had available during the year.
iii. To overcome the loss occurred because of late delivery to customers and
clients.
iv. To engage with MPOB (Malaysia Palm Oil Berhad) to restrict and enhance
the rules and regulation process.
v. Oilene should suggest to all related companies in same industry to form an
association to curb this problem efficiently.