Inventory management in the electricity industry in South Africa: a case study.
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Date
2017
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Abstract
Electricity remains one of the most important technological innovations in human history,
because of its importance to modern daily life, both domestically and industrially. In South
Africa, Eskom Holdings is the state-owned power company responsible for generating,
transmitting and distributing electricity. Eskom’s material management department deals with
the planning and ordering of materials and their transportation to the regional distribution
centres (warehouses). This department is expected to contribute to the company’s business
goal of providing sustainable electricity for a better future. However, inept decision-making
processes at Eskom have led to a number of problems associated with inventory. These costly
problems diminish the material management department’s efficiency and hence the
company's ability to reach its goals.
This study used qualitative research to investigate the inventory management in Eskom’s
KwaZulu-Natal (KZN) cluster with a view to identifying those decisions and actions
responsible for such inventory anomalies. A conceptual model of inventory management was
used to structure this research. This model emphasises the way in which managers’ decisions
are influenced by the context in which the supply chain operates. The research objectives
were to examine the impact of demand, the supply chain structure, information availability
and Eskom's business goals on how inventory decisions are made, and to understand the
effects of this decision making processes.
The major finding was that the department has a significant problem of unbalanced stock,
with an excess of certain items and shortages of others in all its six regional distribution
centres in KZN. This inventory challenge facing the company was found to be caused by
inadequate forecasting, poor information sharing, poor housekeeping, large quantities of
inventory returns from projects and the disorganised scheduling of deliveries. The study also
found that there is a gap in the system of classification of inventory in Eskom which
adversely affects the management of inventory. Recommendations include replacing the
economic order quantity system with a periodic order quantity system and incorporating
elements of lean into the management of inventory. Furthermore, improving the information
available to material requirement planners so that purchasing is responsive to customer
demands will reduce the burden of inventory that is not required and ensure the availability of
stock as it is needed.
Description
Master of Commerce in Management. University of KwaZulu-Natal, Pietermaritzburg 2017.