1

 

 

 

 

 

 

FEEDBACK TUTORIAL LETTER 

 

 

1st  SEMESTER 2018 

 

 

ASSIGNMENT 1 

 

SUPPLY CHAIN MANAGEMENT  

SCM711S 

 

 

 

 

 

Feedback Tutorial 1

Supply Chain Management (SCM711S)

Assignment 1

Dear students

Thank you for the effort and congratulations in completing your first assignment for

this semester.

There are still students that do not follow instructions, all assignments should be

TYPED, some students handed in assignment that are hand written and are really not

legible, and this makes the marking very difficult. I am aware that some of you might

have experience difficulties or challenges; please try be all means to submit typed

assignments. There are also students whom did not include the table of contents;

introduction; title on the cover page; page numbers; conclusion and references. These

students have lost marks allocated to these aspects. A comprehensive assignment

report should cover all these sections.

Remarks on Assignment 1: The biggest problem is that students are not referencing

(in text referencing) their work. Please purchase the APA referencing guide from the

Library, this document can be used as a guide as you are referencing your

assignments. Please note that if you are given a case study assignment, you should

it carefully and analyse phrases that give you a hint on the problem experienced and

the opportunity that an organization can explore to improve its current situation. You

need to use the theory you have learnt in the module and apply it to the case study.

You should also give practical examples relating to the case study. It does not help to

give examples relating to the products or companies not discussed in the case study,

while having the opportunity to use the scenario already presented to you in the case

study.

There is also a student that copied the entire journal article and presented the

information as part of question 1.1. This is academic dishonesty and totally

unacceptable. The Namibia University of Science and Technology therefore does not

condone any form of academic dishonesty, including plagiarism and cheating on tests

and assessments, amongst other such practices. The Namibia University of Science

and Technology requires students to always do their own assignments and to produce

their own academic work, unless given a group assignment.

All forms of academic dishonesty are viewed as misconduct under the Namibia

University of Science and Technology Student Rules and Regulations. Students who

make themselves guilty of academic dishonesty will be brought before a Disciplinary

Committee and may be suspended from studying for a certain time or may be expelled.

All students who are found guilty of academic dishonesty shall have an appropriate

endorsement on their academic record, which will never be erased.

Please also be guided by the marks allocated per question when answering questions.

Best regards,

Marking Tips: Assignment 1 (SCM711S) Distance Mode

Note: 25 marks = at least 1 A4 sheet typed both sides

ASSIGNMENT 1: Case Study

Sasol is an integrated oil and gas company with substantial chemical interests.

Founded in 1950 by the South African government, Sasol has grown into a

multinational, publicly listed corporation. Sasol’s turnover for the financial year ending

June 2008 was R129 billion and its market capitalisation was R311 billion. The

business is structured around the group of companies (joint ventures or wholly owned).

Each of the group of companies consists of a number of divisions and business units

that focus on the value chains of specific petrochemical product clusters.

In pursuit of its vision of world-class supply chains, Sasol’s procurement and supply

management team launched a project called Netgain in the late 1990s in order to

implement best-practice procurement and supply methodologies to extract maximum

shareholder value from its external spend on procured good and services. Sasol

recognised that the extraction of maximum shareholder value requires a focus on Total

Cost of Ownership (TCO), and not only purchase price. Sasol breaks down TCO into

four buckets: direct spend; internal spend; related spend and opportunity spend.

Opportunities for TCO reduction are always pursued, with due regard given to the

impact of purchasing decisions on sustainable matters, such as safety, stakeholder

relations and environmental performance.

One of the many commodities that Sasol purchases is low-voltage (LV) motors.

Electrical motors have a large impact on plant reliability and life-cycle costs. Sasol’s

direct spend on LV electric motors amounts to approximately R11million per annum,

including all operational and capital direct spend. Approximately 80 percent of Sasol’s

total electricity consumption consists of electricity consumed by electrical motors.

As early as 1990, Sasol identified the sourcing of LV motors for existing plants and

capital projects as an opportunity to optimise its procurement and supply practices. At

that stage, sourcing LV motors was uncoordinated across the business, with an

individual cost-centre mentality. Independent divisions did their own procurement and

no business-wide purchases were considered.

Sasol was faced with a number of challenges to optimise the procurement of LV

motors. Some of the key questions it faced were:

How should approach the procurement of this commodity across the group of

companies?

Could the business leverage off the volumes purchased?

Would it benefit from standardisation?

How many different suppliers should it use?

What type of relationship should it establish with suppliers and how should it

manage the supplier’s performance?

(Case Study Source: Pienaar & Vogt, 2009)

Questions

1.1. Following the TCO-reduction practice introduced, how should it be applied to

benefit the total procurement and supply cost of LV motors? 25 Marks

First of all, Sasol organization needs to coordinate its procurement activities into a

centralized procurement practice. Sasol should cut costs related to pre-transactional

and transactional costs of Low Voltage Motors by avoiding decentralization of

procurement activities. The company can eliminate multiple order processing costs,

reduce transportation costs as it can bundle orders of multiple branches, avoid

duplication of efforts and hiring a lot of procurement staff.

The Purchasing and Procurement Center (Malaysia) defined Total Cost Ownership

(TCO) as an analysis that places a single value on the complete lifecycle of a

capital purchase. This value includes every phase of ownership: acquisition,

operation, and the softer costs of change management that flows down from

acquisition such as documentation and training.

a) Components of Total Cost of Ownership

In order to achieve the benefits of the Total Cost of Ownership, the procurement

department of Sasol should evaluate the factors that influencing the total cost of

owning Low-Voltage Electric Motors. These factors are in three categories, namely

Pre-transactional costs, the transactional costs and post-transactional costs

(Bowersox, Closs, Cooper, & Bowersox, 2013).

Purchase Price

The price of the Low Voltage Electric Motors ranges with the quality, brand, size and

the design of the motors. There are different types of LV Motors that influences their

pricing. The LV Motors discussed below are manufactured by the ABB Company and

they are used throughout the assignment as a practical examples. ABB is a leader in

power and automation technologies that enable utility and industry customers to

improve their performance while lowering environmental impact (www.abb.com). The

types of the LV Motors are:

o Industrial performance aluminum motors which has three phases low

voltage motor sizes 63 to 280, 0.12 to 90kW

Figure 1: Industrial performance aluminum motors (Source ABB LV Motors Company,

http://new.abb.com/)

o Industrial performance steel motors, with three phase low voltage motors

Sizes 280 to 400, 75 to 630 kW.

Figure 2: Industrial performance steel motors (source: ABB LV Motors Company,

http://new.abb.com/)

o Industrial performance cast iron motors which has three phase low

voltage motors Sizes 71 to 250, 0.25 to 55 kW.

Figure 3: Industrial performance cast iron motors (source: ABB LV Motors Company,

http://new.abb.com/)

Quality

This component assess the quality of the Low-Voltage Electric Motors by evaluating

the features and accessories of the products. By so doing the procurement department

will be able to buy the products that offers value for money. The procurement

department also need to match the LV Motors with the specification of the need

provided by the technical department that will use the LV Motors. The LV Motors

offered by ABB Motors are certified with ISO 9001 international quality standard as

well ISO 14000 environmental standard and confirm to all applicable EU Directives.

Tables 1-5 shows the features of different types of LV Motors.

Table 1: features of Industrial performance steel motors (source: ABB LV Motors

Company, http://new.abb.com/)

The following table shows the features and design of Industrial aluminum performance

Motors size 63 - 132.

Table 2: features and design of Industrial Aluminum performance Motors size 63 - 132.

(source: ABB LV Motors Company, http://new.abb.com/)

The table below shows the features and design industrial perfomance aluminium

motors size 160 – 280.

Table 3: features and design industrial performance aluminium motors size 160 – 280.

(source: ABB LV Motors Company, http://new.abb.com/)

Table 4 below shows the features and design of the Industrial performance cast iron

motors.

Table 4: features and design of the Industrial performance cast iron motors 71-132.

(source: ABB LV Motors Company, http://new.abb.com/)

Table 5: features of industrial performance cast iron motors 160-250 (source: ABB LV

Motors Company, http://new.abb.com/)

Maintenance and Service parts

The procurement department should assess the life bearing of the LV motors to

determine when maintenance is required and also workout the maintenance cost of

the LV motors. It is advisable that the Sasol Organization obtain thorough information

regarding the maintenance schedules, services parts and financing options to make

an informed decision.

The life of bearings of the LV Motors depends on various factors such as motor type,

bearing load, motor speed, operating temperature and the purity of the grease.

Operation of Low- Voltage Electric Motors

Sasol should also assess the performance of the Low Voltage Electric Motors in terms

of efficiency and effectiveness. The technical department would be in the right position

to assist the procurement department in assessing the performance in conjunction

with the specifications laid down.

Repairs

The suppliers of the LV Motors should be able to repair any malfunctioning of the

products. The LV Motors should also have warrantee of specific period of time e.g.

five years warrantee on major parts for period of time. The warrantee aims to give an

assurance or type of guarantee that will provide Sasol a form of repayment or

replacement if the LV Motors purchased do not perform as expected or fail to function

properly.

Service plan

It will be also be good if Sasol can assess the service plan of different types of LV

Motors and suppliers. A good LV Motors would be the type of which the supplier can

cover the cost of maintenance and service parts during the period of warrantee.

Training

The suppliers of the LV Motors should be able to offer training and instructions of how

to use the products. The LV Motors should also be accompanied by user manuals and

operational procedures. A good supplier is the one that offers a purchase price

package covering training costs.

Transportation costs

Sasol should also assess the delivery costs of the LV Motors from the suppliers site

to their site. Transportation costs will also be incurred during service and maintenance

period, hence this component should be assessed well.

Consumables

These includes the cost of energy or electricity to the keep the LV Motors operating.

Sasol must assess how much energy is required per load or operation, since this will

determine the cost of operation during normal production, and it can save the company

costs.

b) Compare suppliers of LV motors and choosing the best.

Sasol organization should choose the best suppliers of Low Voltage Motors based on

their procurement policy and award the purchase contracts. In most cases,

organization needs to assess the quotations from a list of pre-approved suppliers and

choose the best supplier that offers the total cost of ownership of the products.

1.2. What approach should Sasol follow to decide on the suppliers to use in

future?

Sasol should follow the following steps:

Step 1: supplier survey

Sasol should conduct a search to find suppliers that are likely to supply the LV Motors

and any products that the organization needs for its operations. Sasol can use trade

journals, trade registers and directories, internet, telephone directories, suppliers’

sales personnel and representatives, suppliers’ catalogues, price lists, mail

promotions and advertisements; and trade shows and exhibition to search for potential

suppliers

Step 2: supplier investigation and assessment

In this step Sasol should investigate and assess the capability of the potential suppliers

in terms of the finance, production capacity and facilities, human resources, quality,

performance, environmental and ethical considerations, and information technology

(Leysons & Gillingham, 2003).

a) Financial visibility of the suppliers

Sasol should assess the financial viability of its suppliers by looking at their financial

reports in order to reduce risk in doing business with a company that is in financial

debts position to avoid production stoppages. Their suppliers should have enough

money to invest in their production process to ensure that quality LV motors are

supplied and the company can continuously maintain and provide service parts of the

LV motors when required.

b) Production capacity

Suppliers’ ability to consistently meet the orders of Sasol should be assessed as well

as the ability to respond to fluctuation in demand. Sasol should also assess the

technical expertise, capacity for technological research and product development;

ability to supply maintenance and technical after sales services.

c) Production facility

Sasol Organization should also assess the suppliers’ capability to the Low Voltage

Motors according to their specific requirements. The assessment includes the

provision of the correctness of Motor type, Motor size, Product code, Code for

mounting arrangement, voltage and frequency code and generation code followed by

variant codes.

d) Human Resources

Sasol should also assess the workforce of its suppliers. Its assessment includes the

capacity and capability of their employees at every level of the organization. These

include skills, attitudes and development of employees as well as work ethics and

practices. Sasol should also assess the labour conditions and welfare of the

employees.

e) Quality

Sasol should also assess the ability of the suppliers to continuously provide the

equipment and machinery with consistency quality standards. Sasol should also

assess the suppliers’ inspection and testing methods, quality controls and industrial

quality standards of the LV Motors. The LV Motors should be user friendly and safer

to operate and accommodating of technical human error to avoid life threatening

accidents.

f) Performance

Sasol should also collect evidence from previous customers that deal with the

suppliers before concluding the supply contracts. Information collected included the

quality of the LV Motors, Maintenance and Service experience, consistent delivery of

Products, durability of the LV motors etc.

g) Environmental and Ethical factors

Sasol should also assess suppliers’ capability of adhering to environmental and ethical

factors. Sasol should ensure that the manufacturing process and operation of the LV

motors will not harmful effects or substances to the environment and its ecosystems.

Sasol should also deal with suppliers that have a recycling process and green

initiatives for their products. This assurance ensures that Sasol is not dealing with

companies that could ruin its image and cause it bad publicity.

h) Information Technology

Sasol should also assess the ability of the suppliers to keep them updated on important

issues such as service schedules, delivery of products, order processing of service

parts and shipment. Information should be visible at all stages of the entire supply

network.

Alternatively, students may also discuss the evaluation criteria for suppliers based on

Replenishment lead time, On-time performance, Supply Flexibility, Delivery frequency/

minimum lot size, supply quality, inbound transportation cost, pricing terms,

information coordination capability, design collaboration capability, Exchange rates,

taxes, and duties, supplier viability (Chopra & Meindl, 2004).

Sasol should conduct a preliminary evaluation on a pool of suppliers to draw up a short

list and this process requires in-depth consideration. Suppliers should complete a

questionnaires based the evaluation criteria discussed in this step. Suppliers whom

do not meet the criteria should be eliminated.

Step 3: Supplier Choice

Sasol should investigate the shortlisted suppliers in detail. A team of five people

including the Production/Engineering manager, Procurement manager, marketing

manager, logistics manager, LV Motors Operating Manager and distribution Manager

should visit the shortlisted suppliers to perform an audit. This team ensures that

potential suppliers are shortlisted based on a collective decision and different

specialists perspectives. An Audit may discuss information not collected in the

preliminary evaluation and also discuss the details of potential suppliers’ capabilities

and ways in which they may contribute to Sasol’s Performance.

Figure 4: Approach for selecting suppliers

25 Marks

Grand Total: 50 Marks

Supplier Assessment criteria

a) Financial visibility of the

suppliers

b) Production capacity c) Production facility d) Human Resources e) Quality f) Performance g) Environmental and ethical

factors h) Information technology

Preliminary Evaluation In-depth consideration of

Shortlisted suppliers through completing a questionnaire

based on the evaluation criteria

Final Evaluation A team of five people including the Production/ Engineering manager, Procurement manager,

marketing manager, logistics manager, LV Motors Operating Manager and distribution

Manager should visit the shortlisted suppliers to perform an audit on suppliers and make

collective decision on capabilities and contribution to Sasol’s performance.

Supplier Survey

Conducting a search to find suppliers

that are likely to supply the LV Motors

and any products that the organization

needs for its operations

Bibliography

Bowersox, D. J., Closs, D. J., Cooper, M. B. Bowersox, J. C. (2013). Supply Chain

Logistics Management (4th ed) . New York: McGraw- Hill

Chopra, S. & Meindl, P. (2004). Supply Chain Management: Strategy, Planning and

Operation. USA: Prentice Hall.

Leysons, K. & Gillingham, M. (2003). Purchasing and supply chain management (6th

ed.). London: FT Prentice Hall.

Pienaar, W. J., & Vogt, J. J. (2009). Business logistics management: A Supply chain

perspective (3rd Ed.). Cape Town: Oxford University Press.

Motor guide: low voltage standard motors (2014), 3RD EDITION. ABB. ISBN 952-91-

0728-5. http://new.abb.com/docs/librariesprovider53/about-downloads/low-voltage-

motor-guide.pdf