The sub spec delivery of fuel (wet woodchips) to the factory stockpile resulted in the burning of up to 30% more woodchips than the designed consumption of the factory. The company had a sampling process on delivery, but old-fashioned lab equipment that could not give immediate moisture level results. Once sub spec deliveries were identified, accountants used a complicated penalty calculation to amend order, delivery and invoice values after the fact. This resulted in employment of 2 full time CA’s by the company to do the penalty calculations and correct PO’s and Invoices on the system at a cost of about US$152 000 annum. Due to mistakes on documents not all lab results could be allocated, resulting in suppliers being penalised for only around 55% of sub spec deliveries. Investigation of the delivery process indicated that the two biggest constraints was the delay in getting the lab results and that the after the fact that the financial penalty process did not prevent the contamination of the woodchip stockpile which resulted in a massive fuel inefficiency. Handheld woodchip moisture meters (5% less accurate than the slow laboratory process) were procured at a cost of around US$15 000 and issued to receiving weighbridge staff. Wet woodchips with a handheld moisture reading of more than 40% were not allowed to offload and turned back to the supplier. This resulted in the woodchip stockpile not being contaminated, the accountants not being required to do the complicated penalty calculations and correction of PO and Invoice values in SAP.
Within 2 weeks, 2 of the 4 woodchip suppliers cancelled their supplier agreements because they were never able to deliver on the contractually agreed specification and were purposefully delivering off spec product. An annualised saving of $152 000 in accountant salary costs were achieved, less the cost of the handheld moisture meters. The annualised saving in fuel costs due to decreased consumption of fuel could not be calculated accurately until the end of a full year of production because the contaminated woodchip problem has been unsolved for many years and there was no way to calculate the accurate actual fuel usage for the factory using on spec woodchips.
$ 136 778.12