Company overview

British petroleum (BP) is one of the largest energy companies dealing in fuel for transportation, energy for heat and light, retail services and petroleum products. The company’s international headquarters is in London. The company has operations in more than 100 countries and employs over 96,000 people. The company has products under the BP, Castrol, Arco, am/pm, and Wild Bean Cafe brand (BPplc, About Bp, 2009). The company operates under two major business segments; exploration and production, refining and marketing and BP alternative energy.The company basically finds, extract, move oil and gas. The company also makes fuels and products, sells fuels and products as well as generating low carbon energy in a responsible way. The company operates in six continents; South America, North America, Europe, Australasia, Asia and Africa (Vault. com, 2009). BP is also well known for its innovative technology which aims at providing energy to meet the customers demand through efficien t products. Investing in low carbon energy is also another option that the company is exploring (BPplc, About Bp, 2009). Strategic auditThe strategic audit of a corporation is an eight step process that generally encompasses a holistic analysis of the company. The basic aim in strategic audit is to establish the current position which will help the company chart the way forward. A strategic audit helps the company to formulate strategies and select the best strategic alternative(s) for implementation. The first step is the analysis of the current situation. This involves the audit of the current performance and strategic posture. Current performance is evaluated in terms of profitability, market share, and return on investment.Strategic posture looks at the mission, objectives, strategies and policies (BPplc, 2009 Strategy presentation, 2009). The second step is a look at the corporate governance. This means analysis of the board of directors and top management in terms of their str ucture, names and contribution to the company Scanning the external environment for opportunities and threats is the next step of a strategic audit. Under this stage, the company looks at the societal environment, task environment and finally listing all the above factors.The next step is the analysis of the internal environment i. e. strengths and weaknesses. Here, the corporate structure, culture, resources (marketing, finance, research and development, operations and logistics, human resource management and information systems) is looked into. A summary of these factors is then prepared (BPplc, 2009 Strategy presentation, 2009). After looking at the external and internal environments, the company then analyses its strengths, weaknesses, opportunities and threats (SWOT).These are then linked to the company’s mission and objectives to establish any relevance. The next step of the strategic audit is the analysis of the strategic alternatives in order to select the best strate gy (ies) to be recommended. The recommendation should be justified by looking at the potential, changes and impacts of the strategy. After making the recommendations, the next step is the implementation of the proposed strategy (ies). The implementation will include assigning duties on who is to develop these strategies. The financial aspect and operating procedures should be analyzed.The last step of the strategic audit is the evaluation and control. Evaluation and control involves a look at the current information system i. e. whether it can provide sufficient feedback and whether there are enough controls (BPplc, 2009 Strategy presentation, 2009). Strategic Alternatives In formulating the best strategic alternatives, the company has to consider the economic, socio-cultural, political-legal, technological and financial strengths and challenges facing the company. Economic environment This involves looking at the economic environment.The company operates in an industry that has oth er large companies e. g. Shell, Chevron, Exxon Mobil, Total and other smaller companies. All these companies have the resources and technical ability to compete at the same level as BP Plc. This is why the company has focused on cost reduction through measures like staff reduction and efficient production. The company has also focused on alternative energy e. g. solar and wind. This is as a result of the challenging operating environment where there has been a growing shift to green energy that has minimal pollution.In an industry faced with rising production costs, the company has been on track by focusing on means and ways of reducing their costs. The focus has been on reducing the number of staff and reducing the number of senior positions in the company by 20%. This strategy has borne fruit with the flattening of the cost curve of the company while those of the competitors keep on rising. The company’s focus on new technologies has resulted into improved production capaci ty. In fact the overall production trend for all the major companies has been declining. BP Plc.has defied this trend by increasing its production in the year 2007-2008. The technology used by the company includes Advanced Gas Injection and Water flood technologies that have enabled the company to push the limits of the reservoirs. The drop in oil prices means declining revenues. In order to increase revenues, the company has focused on reducing the performance gap by restoring revenues in areas like Toledo, improving supply optimization in petrochemical and marketing. The company area of focus for petrochemicals is Asia where there is rising demand. The company has also established value chains for its fuel production.Value chains are those activities that create value from the supply to the final delivery to the consumer. This has been achieved through integrated supply and trading which has lead to more revenues. In a bid to increase its oil reserves, the company has also partner ed with TNK of Russia. The partnership has resulted in 30% increase in production. Socio-cultural The company has tried to endear itself to the community in which it operates. BP achieves this through training and employing local staff at all levels. The aim here is to be a local company by creating partnerships with the local community.BP strategic aim is to reduce the levels of resistance to its operations by avoiding cultural conflicts as well as social effects. The company has entered into partnerships with the local community in terms of education, encouraging enterprise, fostering good governance, partnership in public health, access to energy, giving and volunteering, safeguarding human rights, as well as development through community case studies. All these activities are targeted at enhancing and fostering the relationship between the company and all the community in which it operates thus reducing conflicts between the community and the company.Political-legal Some of the challenges that the company could face are the political/ legal. This is because the company has operations in many countries that may be subject to political instability. To mitigate this, the company has formed partnerships with local companies and thus reduces resistance towards the company consequently the company is able to increase its operations and revenues. Rigid legal regimes concerning the operations of foreign companies may negatively impact the operations of the company. The company has reduced this by engaging in partnerships with local companies.Taxation and licensing may vary from country to country. This may have negative impacts on the company’s operations. Exploration and production rights may not be granted to the company. BP has overcome this challenge by partnering with the governments of respective countries through agreements. Technological In a bid to improve its operations and increase productivity, the company has adopted innovative technologies. So me of these technologies include the Bright water which uses new inter-well polymer treatment which ultimately improves water flood Recovery.The Company has focused on technology to come up with innovative approaches that can increase production as well as solve energy challenges Financial information BP plc has been able to grow its net income by 39% to $26. 2 billion which is the highest growth rate registered by major energy companies. Cash flow from operations also grew 54% to $ 38. 1 billion on a year on year percentage basis. The company was also the only super major to register growth in reported volumes in new reserves. The company registered a growth of 1% on year on year percentage basis. Apart from operations, the company utilizes debt to finance its activities.The debt is at the rate of 20-30%. All these financial data indicates that the company is focused on growth by efficiently using its cash resources to generate more sales and improve on the shareholders wealth by e ngaging in share buy backs. Recommended strategy Based on the analysis of all the above factors, some of the available strategies are; – Cost reduction strategies – Alternative energy by diversification – Focus on growing markets growth – Creating value on existing products – Partnership to grow – Technology leadership – Continuous improvement These strategies can be broadly classified into two directional i.e. growth and retrenchment strategies. The company can utilize the growth strategies in its upstream segment (exploration and production) and retrenchment strategies on its down stream business (refining, convenience, refining) (Wheelen, 2006) Implementation of the strategy Strategy implementation involves all the activities and choices that are required for the execution of a strategy. The implementation process basically deciding who is to carry out the plan what must be done and how are the selected people selected to carry out the strategic plan going to do it (Wheelen, 2006).These strategies are normally executed by various heads of business segments subordinated by other employees within the business segments. This has been done through budget allocations, programs that indicate the time frame in which the various strategies need to be implemented and the use of procedures e. g. the Operating Management System that covers employee capabilities to risk assessment. Some of the programs used by the company are those of closing the performance gap which runs from 2008 to 2011, and the reduction of the number of employees in refining and marketing from mid 2007 to the end of 2009 by 3,500.After deciding on who and what must be done, the company must decide on how the strategy is going to be implemented. How a strategy is to be implemented might involve developing new organizational structure. For BP plc, to implement some of its strategies, the company has decided to eliminate certain senior and junior posi tions. Evaluation and control This is the process by which a company can monitor its corporate activities and performance results in order to compare the actual performance with the desired performance. Evaluation and control provides a feedback mechanism where corrective measures can be taken where necessary (Wheelen, 2006)Evaluation and control can be summarized into the following 5 steps – Determine what to measure – Establish standards of performance – Measure actual performance – Compare actual performance with the standards – Take corrective action The company has set out plans to reduce costs and improve on efficiency on its operations. The company wants to grow its upstream business (exploration and production) while at the same time turning around its downstream business. Upstream business growth is measured by growth in reserves, increased replacement percentage, and getting more out of reservoirs.Downstream business is to be improved thr ough cost reduction by restructuring the company’s operations e. g. by downsizing and recapitalizations Improved bottom-line, high reserve replacement percentages, efficient operations, growth in reserves are some of the standards of performance that the company uses to gauge performance. Actual performance is measured at specified times e. g. for BP plc, restoring revenues from refining performance, improved supply optimization and margin capture in petrochemical and marketing has a time frame of 2008-2011The comparison of actual performance against standard performance has to be done in order to establish the current position for example in 2008; the production grew 1. 5% while the replacement reserve was 136% which was more than the minimum 100% replacement. If the actual performance does not match the expected results, then corrective action needs to be taken. An example is the restoration of capacities in Texas City so as to boost refining and consequently revenues. Refe rences BPplc. (2009, March 3rd). 2009 Strategy presentation. Retrieved April 15th, 2009, from Bp. com: http://www. bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/downloads/I/IC_bp_strategy_presentation_march_2009_script. pdf BPplc. (2009, March 3rd). About Bp. Retrieved April 15th, 2009, from Bp. com: http://www. bp. com/marketingsection. do? categoryId=2&contentId=7013628 Vault. com. (2009, April 14th). Indusrty Overview. Oil and Gas. Retrieved April 15th, 2009, from Vault. com: http://www. vault. com/nr/main_article_detail. jsp? article_id=22843159&cat_id=0&ht_type=7. Wheelen, J. D. (2006). Essentials of Strategic Mnagement. New Jersey: Prentice Hall. (BPplc, 2009 Strategy presentation, 2009)

Inventory Control Essay

INVENTORY CONTROL Inventory is any stock of economic resources that is stored for future us e it is commonly used to store materials, in process packing materials, spares etc, stocked in order to meet respected demand or distribution in the future. Although inventory of any materials is an idle resources the sense, it is not meant for immediate use. It is necessary to maintain some inventories lot the smooth functioning f the organization. Inventories are essential: The following is the list of the major reasons for maintaining Inventory a) Protect against irregular demand: Inventories are kept to meet fluctuating demand. b) Protect against irregular supply: a strike by the suppliers employees is one reason why deliveries may not teach on time. Lacks of materials at supplier’s level, strikes in transportation network are other possible reasons for delays in supply. Inventory is used as buffer that can be used until late deliveries arrive. c) Protection against inflation: Inventories are often kept as a hedge against inflation. In this case inventories are building up in anticipation of price increase. This speculative practice is common in commodity markets. d)Benefits of large quantities purchasing quantities of an item often entities the buyers to a discount. Similarly in case of manufacturing large production lots, the utilization of make efficient automotive equipment can be equipment can be justified by reducing the per unit manufact uring cost. e)Saving the order cost: ordering in large quantities reduces the number of time the order must be placed and processed. Since the fixed cost of ordering will be. f) Other reasons: Inventories are kept for several other reasons; an Inventory may improve the bargaining power of firm with a supplier (or with its own employees) by making the company less dependent on them. Inventories are also kept so that machine can be shut down for overhear. THE STRUCTURE OF THE INVENTORY SYSTEM The Inventory system involves a cycle process, which is assumed to run over several periods, whose major characteristics are: a) Inventory level: an item is stocked in a warehouse, store or any other storage area. This stock continues an Inventory. The size of the Inventory is called the Inventory level (or Inventory on Hand). b) Depletion: the Inventory is depleted as demand occurs. Assume that one starts with an  Inventory of 100 units. As time passes the Inventory is reduced. The rate of demand can be constant (e.g three units every day). A constant demand reduces the Inventory leveling equal steps. c) Recording: to rebuild an inventory, the item is replenished periodically. When the inventory level is reduced to a certain level called the record point, a replacement order is placed. The time between reordering and receiving is called lead-time. d) Replacement, shortages and surpluses: in most basic inventory models, it is assumed that the reorder is scheduled so that the replacement will arrive exactly when the inventory level reaches zero. Such an assumption holds if the demand is constant. However if the demand fluctuates and the lead- time varies, the shipment may arrive either before or after stock is completely depleted, that is the depletion and replacement and replacement does not coincide. In such a case a surplus or shortage will occur. If the shipment arrives after depletion, then the demand cannot be met and shortage will occur. When the shipment arrive prior depletion, an inventory level larger than zero or surplus exists. e) Safety stock: shortage can be eliminated or reduced by deliberately building up a safety stock. It is extra inventory held against the possibility of stock out. f) The average inventory: the balance of inventory on hand in case of constant demand, it is about half the maximum inventory. g) Basic inventory decisions: the major decisions the management makes in the inventory area are: âž ¢ How much to order at one time (what order quantity should be) âž ¢ When to order this quantity (what the reorder point should be) âž ¢ Should safety stock be build up? How large should it be? INVENTORY CARRYING COSTS Inventory carrying costs refers to the cost of handling stocks. The following elements constitute the Inventory carrying costs a) Capital cost is an important item in determining the pest of carrying inventory. Capital cost is either the cost of borrowing capital or the cost of diverting companies finds to invest in inventories. The former means the interest rate the later implies the foregone opportunity cost. There are thus two methods of determining capital cost. The first method is to use the bank lending rate, if the money were to be borrowed. The other method is to  consider the opportunity cost of the money (the return that the money will yield if invested elsewhere). b) Storage cost; includes cost of storage (i.e. annual rent or depreciation), cost of preservation i.e. rust preventive oils and ‘eases), cost of record keeping, and cost of periodic/annual stock verification etc. c) Deterioration and. obsolescence: deterioration is the loss, from reduction in the inventory value due to one or more of the following reasons: The part/item/material may have limited shelf life and hence may deteriorate if stored for a long time, e.g. rubber parts may crack after approximate six months life, and for example, ammonia sheets may spoil if stocked beyond three months. The items also deteriorate when the storage conditions are inadequate, unsatisfactory or both. Some of the parts may also get damp, dried up, or spoiled Deterioration can also result from poor handling of the stores. Some of the fragile items may collide with other and break. This process of deterioration, thus, reduces the value of the stocks and they may not be now worth the value recorded in the accounts book. Obsolescence is the loss from reduction in inventory value of the items/ components rendered unusable by the company due to changes in design or due to development in the field. The risk of Obsolescence varies from industry to industry and is obviously greater than those industries where modifications are frequent and new, developments are regular. The problem is still severe in industries producing fashion goods. That is why many progressive business firms tend to get rid of theft surplus stocks which otherwise would become obsolete by some sort of periodic action such as clearance sales etc. d) Insurance cost: inventories, like other assets, are covered by insurance cost is thus the premium paid or payable to cover the company against loss due to unforeseen across such as fire, theft etc. PROCUREMENT COST: Procurement cost is also called ordering cost, replenishment cost or recumbent cost is the cost incurred to replenish the stock of an item. It is in fact, the cost incurred at different stages of the procurement function &  is obtained by dividing the cost of activities like requisitioning order writing, orders follow up, receiving and inspection, records keeping and bill payment per period by the number of orders processed during the period. Procurement cost, therefore , represents average cost to be expended to place an order and execute the delivery once. . Basic elements of procurement cost are as under: (a) Paper work cost: The procurement function is built around paper work since all orders, small or big, need paper work. Purchasing function sets out with paper work (materials requisitions) pushes through paper work (enquiry forms, purchase order forms goods receipt notes, inspection notes stores’ receipt notes) and ends up with paper work (cheques to pay suppliers invoices). The requirements of this paper v vary directly with the order frequency and its cost is considered as one of the elements of procurement cost. ‘ (b) Postage cost: Postage cost is the cost expended to mail documents necessary to the business transaction. Purchase orders are sent to authorize vendors to supply the goods, delivery schedules are mailed communicate immediate as well as future requirements, amendments to purchase orders are issued to alter modify quantity, price or other terms, goods inspection notes: are posted to acknowledge receipts of materials & inform inspection results, discrepancy notes are sent to highlight shortage in the quantities received, cheques are dispatched to settle suppliers bill etc. Postage cost is also incurred for the exchange of statement of accounts; debit notes credit notes & other documents required in the transaction. , (c) Follow up cost; Follow up cost is the function of seeing that the suppliers affect deliveries on time. The Follow up function nowadays has become the foremost function of the buyers. Vendors be it small manufacturers, traders or a supplier at a distance takes little initiative in delivering the goods on time. Major portion time of the buyers, therefore, is spent in purchase follow up; pre delivery follow up & shortage chasing. Telephones, trunk calls, telegrams & telex are the aids commonly used by the buyers for the pre-delivery follow up as well as for shortage chasing. The costs on such communication Medias is yet another major element of procurement cost. (d) Costs of visits to the vendors plants: Follow up with the vendors at times requires visits by purchase personnel & therefore costs of such visits are considered towards procurement cost. (e) Expediting cost: Follow up with the vendors enables buyers to secure advance information of expected delays. Pre-delivery follow up enables buyer: > To make alternates arrangements (i.e. request other suppliers for early delivery), > To decide expedited routing of goods from suppliers. For the single-source items, the buyers in the event of delaying may have no choice but to dire expedited routing of goods. The difference between the expedited routing costs and order routing costs, if borne by the buyer too forms a part of procurement cost. (f) Operating cost of vehicles; Vehicles are employed for collection & delivery of materials from/and to the vendors, collection materials from transporters I railways godown etc. The operating cost of such vehicles should be considered (if the vehicle is exclusively used by the materials department for buying materials for local market, to chase vendors and / or to bring goods to the plant). As yet another element procurement cost. (g) Inspection &.testing: Inspection & testing costs include costs of destructive test. Too frequent purchases increase inspection costs. (h) Administrative costs; Purchase is a major function & it requires performance of number of activities. Indents are to inform the purchase department of the impending need, inquiries are floated, .quotations received, rates are compared, terms of payment are looked into and then an order is placed suppliers whose terms are attractive, progress on the order is reviewed and follow up with supplier done wherever necessary materials on arrival are checked for quantity & inspected for quality suppliers invoices are received, verified and paid for. All these activities add — up into big expenses, the salaries  being the main expense. Other related expenses of these activities are indirect wages, gratuity, bonus ESIC provident fund, depreciation on office equipment etc. SELECTIVE CONTROL: Selective control means variations in method of control from item to item based on selection basis. The criterion used for the purpose may be cost of item, critically, lead to consumption, procurement difficulties, or something else. Various classifications are employed render selective treatment to different types of materials, each classification emphasizes in of particular aspect. For example, ABC analysis emphasizes usage value (Le. consumption of items in terms of money), VED analysis considers critically, HML employs prize criterion and 8DB analysis is based on procurement difficulties. Selective control can be divided into 8 types as per table: |Classification |Criterion Employed | |1.ABC analysis |Usage value (i.e consumption per period x prize per unit) | |2. HML analysis High-Medium-Low |Unit price (i.e it doesn’t take consumption into account) | |3.VED analysis Vital-Essential- Desirable) |Critically of the item (i.e loss of production) | |4.SDE analysis (Scarce- Difficult-Easy) |Procurement difficulties. | |5.GOLF analysis (Government-Ordinary- local-Foreign) |Source of procurement | |6. SOS analysis (Seasonal-OFF-Seasonal) |Seasonal | |7. FSN analysis (Fast-Slow-Non Moving) |Issue from stores | |8. XYZ analysis |Inventory investment | ABC ANALYSIS ABC analysis underlines a yen important principle ‘vital few trivial many’. Statistics reveal that just a handful of items account for bulk of annual expenditure on materials. These items are called ‘A’ items, therefore hold the key to business. Are numerous in numbers but their contribution is less significant. ABC analysis thus tends segregate all items into three categories: A, B and C on the basis of their annual usage .The categorizations made enables us top ay the right amount of attention as merited by the items. A-items: It is usually found that hardly 5 to 10 % of the total items account for 70 to 75% to total money spent on the materials. This items required detailed and rigid control and need to be stock in smaller quantities. These items should be procured frequently, the quantity occasion being small. A healthy approach ,however, would be to enter into contract with the manufacturer of this items and have their supply in stagger lots according to pre determine programme of the buyer. This however will be possible when the demand is steady. Alternatively, the inventory can be at minimum by frequent ordering. B-items: This item are generally 10 to 15 % of the total items and represent 10 to 15% of the total expenditure on the materials. These are intermediate items. The control on this item need not be as detail and as rigid as apply to A items C-items: These are numerous (as many as 70 to 80% of the total items), inexpensive (represent hardly 5 to 10% of total annual expenditure on materials), and hence insignificant (do not required loose control) items. The procurement policy of these items is exactly the reverse of A items. Items should be procured infrequently and in sufficient quantities. This enables the buyer to avail price discount and reduce workload of the concern department. Conducting ABC Analysis To conduct ABC analysis following 6 steps are necessary: 1) Prepare the list of the items and estimate their annual consumption (units) 2) Determine unit price (or cost0 of each item. 3) Multiply each annual consumption by its unit price (or cost) to obtain its annual consumption in rupees (annual usage) 4) Arrange items in ascending order of their annual usage starting with the highest annual usage starting with the highest annual usage down to the smallest usage. 5) Calculate cumulative annual usage and express the same as cumulative usage % so express the number of item into cumulative item percentage. 6) Plot cumulative usage percentage against cumulative item percentage and segregate the item to A, B, C categories. ABC Analysis can be applied almost to all aspects of material management such as: a) Purchasing b) Receiving c) Inspecting d) Store keeping and e) Issue of store f) Verification of bills g) Inventory control and h) Value analysis etc. Purpose of A-B-C Analysis: i. To separate the pre dominant few from vast majority of items whose annual consumption is very low. ii. To avoid to cost iii. To give selective control iv. For better purchase policy to give maximum attention to A items v. For better pre-design and pre purchase analysis vi. Effective value analysis vii. Realistic market research viii. Reliable source development and ix. Better follow up |A |B |C | |Very tight control on inventory |Moderate Control |Loose Control | |Only exact requirement to be procured |More or less exact requirement |On estimated usage | |Posting of individual issues in stores card |Individual postage |Collective posting | |Continuous check on production schedule and |Broad check |Hardly any check | |revision of delivery deals | | | |Very low safety stock if possible not at all |Low safety stock Bi-Monthly ordering or quarterly|Fairly large safety stock by Ordering | |Regular expediting and follow up & reduction in |Some follow up |No follow up necessary | |lead time | | | |Very Strict consumption control |Past consumption is the base |Desirable consumption comes with less attention | |Accurate material planning needed with respect to|Past consumption is the base |Rough estimate | |forecasts. Data base should be accurate & up to | | | |date | | | |Concerted effort of cost reduction |Moderate attempts are enough |Annual Review suffices | HML ANALYSIS H-M-L Analysis is similar to ABC analysis, except for the difference that instead of usage price criterion is used, The items under this analysis are classified into three groups) which are called high, medium and low. To classify, the items are listed he descending order of Unit price the management for deciding the three categories then fixes the cut of lines. For example, the management may decide that all items of unit. Price above RS.1000 will be category, and those having unit price between Rs 100 to R. 1000 will be of ‘M’ category, and having unit price below RS. 1 00 will be of ‘L’ category. HML analysis helps to # Assess storage and security requirements e.g. high priced items like bearings, worm wheels etc. (required to be kept in cupboards). # To keep control over consumption at the departmental head level e.g. indents of high medium priced items are authorized by the departmental head after careful scrutiny of the consumption figures. # Determine the frequency of stock verification, eg. high priced items are checked more frequently than low priced items. # To evolve buying policies to cntro1 purchases. e.g. excess supply than the order quantity may be accepted for ‘H’ and ‘M’ groups While it may be accepted for ‘L’ group. # to delegate authorities to different buyers to make petty cash purchases, e.g ‘H’ and ‘M’ may be purchased by senior buyers and L’ items by junior buyers. VED Analysis VED analysis represent classification of items based on criticality. The analysis classifies the item into three groups called Vital, Essential and Desirable. Via1 category encompasses those items for want of which production would come to a halt. Essential group includes items whose stock out cost is very high and desirable group comprises of items, which d not cost any immediate loss of production. The stock these items entail nominal expenditure and cause major disruptions for a short duration. VED analysis is best suited for spare inventory. Inflict it is advantageous to use more than 1 method. E.g. ABC & VED analysis together would be helpful would be helpful for inventory control of spares. SDE – ANALYSIS SD E analysis is based on problems of procurement namely: # Non-availability # scarcity # longer lead time #Geographical location of suppliers and # Reliability of suppliers etc, S-DE analysis classifies the items into three groups called ‘Scares’, ‘Difficult’ and ‘Easy. The information so developed is then used to decide purchasing strategies. ‘Scarce’ classification comprises of items which are in short supply, imported chanalised through government agencies. Such items are best to procure once a year in lieu of effort and expenditure involved in the procedure for import. ‘Difficult’ classification includes those items, which are available indigenously but are not easy to procure. Also items which come from far off distance and for which reliable source do not exist fall into this category. Even the items, which are difficu1t to, manufacture arid only one or two manufacturers are available belong to this group. Supplies of such items require several months of advance notice. ‘Easy’ classification covers those items which are redily available. Items produced to commercial standards, items where supply exceeds demand and others which are locally available fall into this group. The SDE analysis is employed by the purchase department: (i) To decide on the method of buying. E1g. Forward buying method may be followed for some of the items in the ‘Scare’ group) scheduled buying and contract buying for Easy group. (ii) To fix responsibility of buyers. E.g.  senior buyers may be given the responsibility of ‘S and ‘D’ groups while items in ‘E’ group may be handled by junior buyers or even directly by storekeeper. G-NG-LF ANALYSIS /GOLF ANALYSIS The G-NG-LF analysis (or GOLF analysis) like SDF analysis is based on the nature of the suppliers, which deteiir1ine quality, lead-time, and terms of payment, continuity or otherwise of supply and administrative work involved. The analysis classifies the items into four groups namely G, NG, L and F. ‘G’ group covers items procured from ‘Government’ suppliers such as the STC, the MMTC and the public sector undertakings. Transactions with this category of suppliers involve long lead-time and payments in advance or against delivery. ‘NG’ (0 in GOLF analysis) group comprises of items procured from Non-Government (or Ordinal Suppliers. Transactions with this category of suppliers involve moderate delivery time, end availability of credit, usually n the range of 30 to 45 day. ‘L’ group contains items bought from ‘Local supplier the items bought from local suppliers are those which are cash purchase or purchased on blank orders.. ‘F’ group contain those items, which are purchased from ‘Foreign suppliers’. The transactions will such suppliers, # Involve a lot of Administrative and procedural work. # Require initial clearance from government agencies such as DGTD. # Necessitate search-of foreign suppliers. # Require opening of letter of credit. # Require making of arrangement for shipping and port clearance. S-OS ANALYSIS S-OS analysis is based on seasonality or otherwise of the items. The analysis classifies the item into two groups: SOS (I.e. seasonal) and OS (off scasona1). The analysis identifies items, which are: (i) Seasonal items are available only for a limited period. For example agriculture products like  raw mangoes raw material for cigarette and paper industries, etc are available for a limited time and therefore such items are procured to last the full year. (ii) Seasonal but are available throughout the year. Their prices however are lower during the harvest time. The quantity of such items requires to be fixed after comparing the cost saving due to lower prices against higher cost of carrying Inventories. (iii) Non-Seasonal items whose quantity is decided On different considerations. F-S-N Analysis F-S-N analysis is based on the consumption figures of the items. The items under this analysis are classified into three groups: F (Fast moving), S (Slow moving) and N (Non moving). To conduct the analysis, the last date of receipt or the last date of issue whichever is later taken into account. and the period usually in terms of number of months that has elapsed since the last movement is recorded. Such an analysis helps to identify: (i) Active items which require to be reviewed regularly. (ii) Surplus items whose stocks are higher than their rate of consumption and (iii) Non moving items which are not being consumed. The last two categories arc reviewed farther t decide on disposal action to deplete t stocks and their stocks and thereby release companies productive capital. Further detailed analysis is made of the third category in regard to their year-wise stocks and the items can be sub-classified. As non-moving for 2 years, 3 years, 5 years and so on. XYZ ANALYSIS X-Y-Z Analysis is based. on value of the stocks on hand (i.e. inventory investment); Item whose inventory values are high are called X items while those whose inventory values are low are called Z items, Y items are those, which have moderate inventory stocks. Usually X-Y-Z analysis is used in conjunction with either ABC analysis or HML analysis.; ‘.X-Y-Z analysis when combined with- ABC analysis is used as under. |Class of Item |A |B |C | |X |Efforts to be made to reduce stock to Z|Effort to be made convert them to Y |Steps to be taken dispose of surplus | | |category. |category |stocks | |Y |Efforts to be made to convert to Z | |Control may be further tightened | | |category | | | |Z | |Stocks levels may be reviewed | | Basic (Wilson) EOQ model with infinite replenishment rate. Assumptions underlying the EOQ model: 1. The demand of the item occurs uniformly over the period at the known rate. 2. The replenishment of the stock is instantaneous. 3. The time that elapses between the placing a replenishment order & receiving the item into stock, called lead-time is zero. 4. The price per unit is fixed & is independent of the order size. 5. The cost of placing an order & process the delivery is fixed & does not vary with the size. 6. The inventory carrying charges vary directly & linearly with the size of the inventory as is expressed as a percentage of average inventory investment. 7. The item can be produced in quantities desired there being no restriction of any kind. 8. The item is fairly long shelf life, there being no fear of deterioration of spoilage. Nowadays an EOQ technique is not much in sue because an open order with delivery schedule can be placed on a supplier for all future periods. This keeps down the purchasing cost. With the availability of computer links (networking techniques/email etc.) between the buyer & the supplier there is no need to physically raise a purchase order, avoiding major purchasing cost. At the same time computer helps in ensuring Just-In-Time inventory. Limitations of EOQ The assumption listed above may not come true in real life situations, thus limiting the use of model. Price of material may not remain same throughout the year. Availability of materials is another constraint material will have to be purchased at the same time at which is available. There can be delay in real situation in placing orders since many times the calculated EOQ is an inconvenient number and some time is wasted in taking decision for rounding off this number. In real situations suppliers receive in irregular. Availability of materials is another constraint material will have to be purchased at the time at which is available. There can be delays in real situation in placing orders since many times the calculated EOQ is inconvenient number and some time is wasted in taking decision for rounding off this number. In real situations suppliers  receive an irregular stream of orders since the use of EOQ usually leads to orders at random points. If suppliers are allowing discounts and if quantities are purchased above a particular level, the discount will also have to be taken into consideration for fixing the ordering quantity. Also purchasing costs are nowadays reduced to a great extent because of computer links between buyer and seller. So in practice purchasing cost and inventory carrying cost are not exactly opposite to each other. Often the inventory carrying cost and purchasing cost cannot be identified accurately and sometimes cannot be even identified properly. Replenishment Systems: One of the jobs of the materials department is to ensure uninterrupted supply of materials to the production department. To accomplish this task, the materials department has to monitor the stock levels and place order regularly. Two questions that arise are- 1. When to place an order? & 2. What quantities to order? Two main systems are followed for the same. 1. Fixed order quantity system 2. Fixed order interval system Each system has certain conditions, which govern the circumstances of its use. Fixed order quantity system (Q-system of Inventory): Here the quantity to be ordered is worked out as the economic order quantity (EOQ), and the minimum stock level is also worked out. When the stock in hand reaches this level, an order is placed for a quantity equals to the EOQ. Features of fixes-order-quantity system: a) Reorder quantity is always the same, which is equal to the EOQ. b) The time interval between the orders varies. c) Reordering is done when the stock in hand is equal to safety stock plus the lead time consumption (this is known as the reorder level). d) Average inventory is equal to safety stock + Q/2. e) Maximum inventory will be equal to the safety stock + Q. f) Minimum inventory equals the safety stock. g) This system is normally used for items of lower value where orders are placed infrequently and the lead time average consumption etc. is fairly constant. To operate this system it is necessary to post the receipts and issues on the material card and a book stock worked out regularly. The reorder level is normally shown on the top right hand corner of the card; so that the book stock comes down to this level an order can be initiated. To simplify this system many firm use a two-bin system one is the main-bin & the other is reserve-bin. The stock in reserve bin equals the reorder level. When the main bin is empty it indicates an order has to be placed for the said item. Important formulae: 1. Fixed order quantity system: Reorder level = safety stock + lead time consumption Reorder quantity = Q Maximum inventory = Q + safety stock Minimum inventory = safety stock Average inventory = Q/2 + safety stock Total cost of ordering = no. of orders x cost per order = Annual consumption x cost per order Cost carrying inventory = average inventory x cost per unit x inventory carrying cost Total cost of managing the inventory = cost of ordering + cost of carrying. Fixed order interval system (P-system of Inventory): Under this system the stock in hand is reviewed at periodic intervals and an order is placed for which vary with the stock in hand, the review period is decided by the management and the consumption during this review period, and lead time consumption is worked out. The quantity ordered is decided depending on the stock in hand, so that the order quantity and the stock in hand will take care of the requirements till the next review period plus the lead time consumption plus the safety stock. Features of fixed-order-interval system: a) The interval between two orders is fixed. b) The maximum level (basic parameters of the system) is equal to review period consumption. Lead time consumption + safety stock. c) Reorder quantity equals the maximum level (as worked out above) minus the stock in hand plus stock on order. d) Average inventory equals safety stock + lead time consumption/2. e) Maximum inventory equals safety stock + lead time consumption. f) This system is used for high consumption value items (A category) needing a strict control. Reestablishment where large numbers of items are produced and a continuous sale is made as to follow such a system. Important Formulae: Maximum level (basic parameters) = Review period consumption + lead time consumption + safety stock. Reorder quantity = Max level – (stock in hand +stock on order). Maximum inventory = safety stock + lead time consumption. Average inventory = safety stock + lead time consumption/2 Total cost of managing the inventory = cost of ordering + cost of carrying. Problem based on fixed order interval system: The monthly consumption of a unit costing Rs. 400 the order cost is Rs. 36, and the inventory carrying cost is 1.5% p/m. if the review period = lead time = one month and the safety stock maintained is half the review period. 1. Fix the necessary parameters to operate a fixed order interval system. 2. What will be reorder quantity if the stock during the first reviews of 650 units. 3. What will be the reorder quantity if the stock during the second review is 200 units and also it is given that the order placed earlier has not yet been received. Given: Review period = lead time = 1 month. Review period consumption = lead time consumption =400 units. Safety stock =  ½ month’s consumption = 200 Necessary parameters (maximum level) = review period consumption + lead time consumption +safety stock = 400 + 400 + 200 = 1000 units. During the first review, The reorder quantity = maximum level – stock in hand =100 – 650 =350 units. During the second review, The above ordered quantity is still not received, hence Reorder quantity = maximum level – (stock in hand + stock on order) = 100 – (200 + 350 ) = 1000 – 550 = 450 units. Factors that influence the level of safety stock: a) Category of item: In case of ‘A’ category items where a better control is exercised it may not be required to keep a high level of safety stock. In addition to this a high level of safety stock and high value of consumption item will also increase the inventory carrying costs. b) Lead-time: Normally longer the lead time more is the chances of fluctuation and hence more is the requirement of safety stock. c) Number of suppliers: In case there are a number of suppliers available for an item, it is not necessary to keep high level of safety stock as any stock out situation can be handled easily from alternate sources of supplies. d) Criticality of an item: Safety stock for critical items needs to be high e.g. in case of packing materials the safety stock need to be high as stock cut in packing material will affect the delivery of finished goods to the customers, but in case of lubricants where lubrication can be delayed safely by a few days a lower safety stock can be maintained. e) Availability of substitutes: Lesser safety stock can be kept for items where substitutes are available easily. f) Possibility makes the item in-house: If it is possible to make an item in-house at a short notice on case of emergency. A lower safety stock will suffice. g) Risk of obsolescence or deterioration: It is better to have lower safety stock for items where the cost of deterioration is higher than the cost of no stock situation. h) Space restrictions: Restrictions in the storage space is another factor influencing the safety stock levels. i) Stock out cost/management policy: The cost of stock out and the management’s decision to allow stoppage of production due to no stock situation (depending upon the market and company’s financial conditions) also influence the decision on the safety stock levels. Service level The amount of safety stock needed to determine by the service level desired by their company. The service level id probably that amount of inventory had during the lead time is sufficient to meet expected demand – i.e. the probability that a stock out will not occur, a service level of 90% means their id’s 90 probabilities that demand will be met during lead time. Service level (SL) is the ratio of the no. The units delivered without the delay to the no. of units demanded. Thus, SL = No. of units delivered without delay / No. of units demanded. SL = No. of units demanded – No. of units short / No. of units demanded. SL Range: 0 < SL < 1 I.e. SL = 0 means complete delivery failure. SL = 1 means 100% service (No shortages) SL is expressed as a%. i. Percentage of stock outs = SL = No. of order periods when stocks were zero / Total No. of order periods x 100 This is indicative of the probability of being out of stock while awaiting a supplier’s delivery and is, therefore independent of the order size. ii. Percentage of stock outs = SL = No. of working days in which stocks were zero / Total no. of working days x 100 This ratio is a measure of the probability of being out of stock during the year. iii. Percentage of stock outs = SL = No. of units / No. of units demanded x 100 This ratio would show the average potential sale lost. Service Level is a target specified by management defined in terms of, a. Order Cycle Time b. Cash Fill Rate c. Line Fill Rate d. Order Fill Rate e. Any Combination of These. a) Order Cycle Time (Performance Cycle of Lead Time): The performance cycle is the elapsed time between the release of a purchase order by a customer and the receipt of the corresponding shipment. b) Case Fill Rate: It defines percentage of cases or units ordered that can be shipped or requested e.g. a 95% case fill rate indicates that, on average, 95% cases out of 100 could be filled from available stock. The remaining 5 cases would be back – ordered or deleted. c) Line Fill Rate: It is the percentage of order lines that could be filled completely. Each line on an order is a request for an individual product. So at order may have multiple lines e.g. when a customer order is received requesting 80 units of product A and 20 units of product B, the order contains 100 cases and two lines. If there are only 75 units of product A available and all 20 of product A, the case fill would be 955 (75 +20) / (80 + 20) and the line fill would be 50%. d) Order Fill Rate: It is the percentage of customer orders that could be filled  completely. In the example above, the order could not be completely filled, so the resulting order fill would be zero. The inventory function is a major element of the logistics process that must be integrated to meet service objectives. While a traditional approach is achieving a higher service level is to increase inventory, other approaches include use of faster transportation modes, better information management to reduce uncertainty, alternative sources of supply. While it is the task of overall logistics management to meet the prescribed service objectives inventory management plays a particular key role. Inventory Policy: Inventory policy consists of guidelines concerning †¢ What to purchase or manufacture †¢ When to take action †¢ In what quantity It also includes decisions regarding inventory positioning and placement at plants and at distribution centers. E.g. †¢ Some firms may decide to postpone inventory positioning by maintaining stock at the plant. †¢ Other firms may choose to place more products in local distribution centers i.e. nearer to market. Another inventory policy element concerns inventory management strategy. One approach is to manage inventory centrally. This requires more coordination and communication. Average inventory: Average inventory consists of the materials, components, work in progress and finished products typically stocked in logistical facilities. From a policy viewpoint, the appropriate level of average inventories include:- a) Cycle inventory or base stock or lot size stock: It is the portion of average inventory that results from replenishment process. At the beginning of a performance cycle, stock is at a minimum level. Daily customer demands â€Å"draw off† (consumes) inventory until the stock level reaches zero. Prior to this, a replenishment order is initiated so that stock will arrive before a stock-out occurs. The replenishment order must be initiated when available inventory is greater than or equal to the customer demand during the performance cycle time. The amount ordered for replenishment is called the order quantity. The average inventory held as a result of the order process is referred to as Base Stock considering only the order quantity: Cycle inventory or base stock or lot size stock = Order Quantity / 2 b) Safety Stock Inventory: The second part of the average inventory is the stock held to protect transit the impact of uncertainty on each facility. This portion of inventory is called safety stock. It is used only at the end of replenishment cycles when uncertainty has caused higher than expected demand or longer than expected performance cycle times. Average Inventory = Order Quantity + Safety Stock / 2 c) Transit Inventory or Pipeline Inventory: It is the stock that is either moving or awaiting movement in transportation vehicles. Transit Inventory is necessary to achieve order replenishment. From a logistics management perspective, transit inventory introduces two sources of complexity into the supply chain. i. It represents real assets and must be paid for even though it is not accessible or usable. ii. There has typically been a high degree of uncertainty associated with the transit inventory because shippers were unable to determine where a transport vehicle was located or when it was likely to arrive. Increase focus on small order amounts, more frequent order cycles. JIT strategies have resulted in transit inventory becoming a larger percentage of total inventory assets. Ownership of Transit Inventory †¢ If transferred at destination: It is not owned by consignee. †¢ If transferred at origin: It is owned by consignee. Just In Time (JIT) JIT is a Japanese management philosophy, which has been applied in practice since the early 1970’s in many Japanese manufacturing organizations. It was first developed and perfected within the Toyota manufacturing plants by Taiichi Ohno as means of meeting consumer demands with minimum delays. Taiichi Ohno is frequently referred to as the father of JIT Toyota was able to meet the increasing challenges for survival through an approach that focused on people, plants and systems. Toyota realized that JIT would only be successful if every individual within the organization was involved and committed to it, if the plant and processes were arranged for maximum output and efficiency, and if quality  and production programs were scheduled to meet demands exactly. JIT manufacturing has the capacity, when properly adapted to the organization to strengthen the organization’s competitiveness in the market place substantially by reducing wastes and improving product quality and efficiency of production. There are strong cultural aspects associated with the emergence of JIT in Japan. The Japanese work ethic involves the following concepts. †¢ Workers are highly motivated to seek constant improvement upon that which already exists. Although high standards are currently being met, there exist even higher standards to achieve. †¢ Companies should focus on group effort, which involves the combining of talents & sharing knowledge, problem-solving skills, ideas & the achievement of a common goal. †¢ Work itself takes precedence over leisure. It is not unusual for a Japanese employee to work 14 – hour a day. †¢ Employees tend to remain with one company throughout the course of their career span. This allows the opportunity for them to hone their skills & abilities at a constant rate while numerous benefits to the company. †¢ These benefits manifest themselves in employee loyalty, low turnover costs & fulfillment of company goals. From above it is very clear what it needs to implement JIT successfully. In fact it also suggests the critical reasoning behind the fact that why in India JIT is not 100 percent followed. One more significant thing to be considered here is the correct interpretation of JIT. JIT is more of a manufacturing & waste elimination philosophy than commodity purchasing technique. It originally referred to the production of goods to meet  customer demand exactly, in time, quality & quantity, whether the customer is the final purchaser of the product or another process further along the production line. It has now come to mean producing with minimum waste. Waste is taken in its most general sense & includes time & resources as well as materials. There are seven types of waste namely: †¢ Waste from overproduction †¢ Waste of waiting time †¢ Transportation waste †¢ Processing waste †¢ Inventory waste †¢ Waste of motion †¢ Waste from product defects Elements of JIT System Successful JIT system is the logical outgrowth of the combination of the following practices: †¢ Continuous improvement †¢ Attacking fundamental problems – anything that does not add value to the product †¢ Devising systems to identify problems †¢ Striving for simplicity – simpler systems may be easier to understand, easier to manage & less likely to go wrong †¢ A product – oriented layout produces less time spent in moving of materials & parts †¢ Quality control at source – each worker is responsible for the quality of their own output †¢ Poka-yoke – full proof tools, methods, jigs etc. to prevent mistakes †¢ Total productive maintenance – ensuring machinery & equipment functions perfectly when it is required, & continually improving it †¢ Good housekeeping – workplace cleanliness & organization †¢ Set up time reduction – increases flexibility & allows smaller batches †¢ Ideal batch size is 1 item per batch, i.e. single piece flow †¢ Multi-process handling – a multi-skilled workforce has greater productivity, flexibility & job satisfaction †¢ Leveled/mixed production – to smooth the flow of products through the factory †¢ Kanbans-simple tools to ‘pull’ products & components through the process †¢ Jidoka (Autonomation) – providing machines with the autonomous capability to use judgment, so workers can do more useful things than standing watching them work †¢ Andon (trouble lights) – to signal problems to initiate corrective action Benefits of JIT Systems JIT system has a number of benefits, few major are mentioned below: †¢ Reduced levels of in-process inventories, purchased goods, & finished goods. †¢ Reduced space requirements †¢ Increased product quality & reduced scrap & rework †¢ Reduced manufacturing lead times †¢ Greater flexibility in changing the production mix †¢ Smoother production flow with fewer disruptions †¢ Worker participation in problem solving †¢ Pressure to build good relationships with vendors †¢ Increased productivity levels & utilization of equipment’s It can be said in summary that JIT is the management philosophy, which emphasizes on the waste elimination as well as vendor integration to create certainty in the material planning process, which ultimately results into no inventory, & hence inventory control means to follow JIT. VENDOR MANAGED INVENTORY (VMI) VMI can be defined as: It is a streamlined approach to inventory & order fulfillment. With it, the supplier & not the retailer, is responsible for managing & replenishing inventory using an integral part of VMI, i.e. EDI, by electronic transfer of data over a network. It can also be seen as a mechanism where the supplier  creates the purchase orders based on the demand information exchanged by the retailer/customer. Vendor Managed Inventory (VMI) is basically evolved to facilitate the operations at retail stores. It involves a continuous replenishment program that uses the exchange of information between the retailer & the supplier to allow the supplier to manage & replenish merchandise stock at the store or warehouse level. In this program, the retailer supplies the vendor with the information necessary to maintain just enough merchandise stock to meet customer demand. These enable the supplier to better project & anticipate the amount of product it needs to produce or supply. The manufacturer has access to the supplies inventory data & is responsible for generating purchase orders. VMI was first applied to the grocery industry, between companies like Procter & Gamble (supplier) & Wal-Mart (distributor). But if applied properly, VMI can provide the benefits of smoother demand, increased sales, lower inventories & still reduced costs of lost sales to the other industries. JUST IN TIME (JIT) – II VMI results into outsourcing of the inventory planning activity to the suppliers whereas JIT-II goes a step ahead where supplier manages the complete production plans. LANCE DIXON ther father of JIT 2 describes it as-: â€Å"This is the ultimate partnership program for the compatible customers and suppliers, because it is the next logical step in the application of the management cycle to the value cahin through management of time within the supply chain. It represents the use of alignment and mobilisation of strategies with suppliers using in-plant vendor representatives to achieve breakthrough changes†. JIT systrem was based upon the synchronised planning between the buyers needs and suppliers porduction capabilities.JIT 2 can be reagrded as a major catalyst for the productive change across organistions and qualifies a key component of the macro logistics management model.In other words, we can say that JIT system assures the uninterrupted incoming material supply as per demand , whereas the JIT 2 ensures the uninterrupted production from manufacturing lihnes. Infact JIT-2 eliminates the need for the sales planning activities for sipplier organisation and the puirchasing and planning actrivities from the buyer organisation,which were carried out independently. Bioth activitiea are carried out simultaneously in JIT-2 environment this results into more integrated and realistic plans to enable achieving targets It is based upon a mutual trust realtionship where the supplier represenataive is empowered to use the company’s purchase oreders to place orders, which in theory replaces the purchaser and the supplier’s sales person .In practice the supplier representative is brought into the plant on a full time basis. This person is allowed to attend any product design meetings for his product and has full accesss to all relevant facilities, personnel, and data. Purchasing staff is freed up from all the paper work and administartive tasks, allowing them toi cultivate other skills such as negotitiating and sourcing. PO placements and communication is improved;time is saved; material cost reduction is realized. JIT-2 provides a natural foundation for the EDI, effective paper work and administrative savings. Material costa re reduced on an ongoing basis. Supplier personnnel work onsite and perform various planning and buying aswell. Because supplier personnel interface daily, increased insight leads to fewer schedule change surpirises. This results in reduced inventory as the supplier plans directly from the customers MRP system on real time basis. JIT-2 brings considerable technical knowledge and support onsite involves purchasing to design and engineering. Supplier inplant reperesntatives aer empowered with the combined authority of the materials planner, buyer and supplier, resulting in a uniquely effective and empowered support role. Another advantage of JIT-2 to the supplier is that they usually get â€Å"EVERGREEN CONTRACT† which means n o end dates and rebidding.Coupled with EDI links and information technology exchanges, which arfe a p[art of the overall logistics packages, the JIT-2 concept can offera supplier a very serious strategy advantage. BENEFITS OF EDI: †¢ Increased internal productivity through faster information transmission as reduced information entry redundancy. †¢ Better accuracy by reducing the number of times and individuals involved entry. †¢ Improved channel relationships. †¢ Increased external producvtivity. †¢ Increased ability to compete internationally. †¢ Decreased operating cost through: a)Reduced labour and material costs associated with printing,mailing, and paper based transactions. b)Reduced telephone,fax, and telex communications. c)Reduced clerical cost. PERSONAL COMPUTERS: Pcs are influencing logistics management in three ways: 1. Low cost and high portability wih a capability of bringing accurate information to the decision maker whether in offfice at he warehouse. âÅ"“ Which markets to serve âÅ"“ Which product to pick next in thw warehosue âÅ"“ Driver reporting and delivery information. âÅ"“ Reporting vehicle location âÅ"“ Identifying lowest-cost fuel stop. 2)Repsonsiveness and flexibility offered by decentralised PCs enable more for service capabilities. The use of local area networks (LANs) wide arear network (WAN) and client/server architecture offers benefits of decnetralized responsiveness, flexibility, and redundacy while providing data integrated throughout the enterprise. LAN is a network of PCs that use phone lines or cable to commuinicate and resources such as storage and printers. LAN is resticted to relativiely geographical locations such as an office and warehouse, WAN operates across a wide geography; while the architecture uses the decnetralized processiing  power of PCs to provide LIS operation flexibility. Server is a large computer that allowes commom data ot be shared by a numvber of users. Client implies network of PCs that access the data and manipulate them in different ways to provide extensive flexiblity. The client/server network can globally track inventory in motion, provide shipment informatio to the customers when desired and also facilitate decisions regarding facility location, invenrotry analysis, routing and scheduling. ARTIFICAIL INTELIGENCE (AI): AI descrivbes technologies aimed at making computers imitate human reasoning and are concerned with symbolic reasonings rather than numeric processing. The applications of AI are : ââ€" ª Carrier selection. ââ€" ª International marketing and logistics ââ€" ª Inventory Management ââ€" ª Information system design COMMUNICATIONS: Historically logistics activities had a distinc disadvantage since they involved movements in either a transport ot material handling vehicle or were very decntralized. But nowadays information technology has significantly enhaced logistics perofrmance through faster and widespread communication. Applicatgion of Radio frequency (RF), satellite communcaitions, and image processing technologies has overcome the problems caused by porduct movement and geographical decentralization. RADIO FREQUENCY TECHNOLOGY: RF technology is used within relatively small areas, such as ditribution , to facilitate two-way information exhange. The applications are in: âž ¢ Real time communications with material hanlders such as forklift drivers and order selectors. âž ¢ Updating instructions and priorities to forklift drivers on real time basis. âž ¢ Two-way commuincations of warehouse selection instruction, warehouse cycle count verifaiction and label prinintg for guiding package movement. Satellite Commuincations: Satellite communication is used for providing a fast and high – volume channel for information movement around the globe. THE applications are as follows: âÅ"“ Communications dishes on the top vehicles allow commuinations between drivers and departures. âÅ"“ Provides uptodate infoormation regarding location and delivery and allows departures to redirect trucks in repsonse to need or traffic congestion. âÅ"“ Used by retail chains to transmit quickly daily sales bac to the headquarters that help in activating store replenishment and also to provide input to marketing regarding local sales pattern. POOR INVENTORY MANAGEMENT: It Exhibits the following characteristics: 1.An increase in the number of back-orders,indicating too many stockouts. 2.A constant number of back orders,but rising inventory investment. 3.A higher than normal customer turnover. 4.A increasing number of cancelled oreders from customers or intermediairies. 5.Insufficeicnt storage space for too much inventory. 6.An increase in the number and RUPEE value of obsolete products. All these symptoms have a large finanical impact on the firm | | |INVENTORY PLANNING METHODS | |FAIR SHARE ALLOCATION | |DISTRIBUTION REQUIREMENT PLANNING (DRP) | Fig7 .2 Inventory planning methods FAIR SHARE ALLOCATION: It is a simplified inventory management method that provides each ditribution facility with an equitable or fair share of available inventory from a common source such as a plant warehouse. Fig 7.3: Fair Share Allocation The figure under reference indicates current inventory level, and daily requirements for three distribution centres served by a common plant warehouse. Using fair share allocation rules, the inventory manager determines the amount of inventory that can be allocated to each distribution centre from the available inventory at the plant warehouse. Assume that from a total inventory units of 600, (see Fig.7.2) it is desirable to retain 100 units at the plant warehouse; therefore 500 units are available for the allocation. The calculation to determine the number of day’s supply is done as shown below. DS= A + I/O where DS= No. of days supply for distribution centre inventories. A= Inventory units to be allocated from the warehouse. I= Inventory in units for distribution centre J. D= Daily demand for distribution centre J. In the above example, DS = 500 + (50 + 100 + 75 )/ (10 + 50 + 15) = (500 + 225 )/ 75 = 9.67 days Thus, the fair share allocation means that each distribution centre should be brought unis to 9.67 days stock. The amount to be allocated to each distribution centre is determined by the expression: A = (DS – I/D) x D Where A= Amount allocated to distribution centre J DS = Day’s supply that each distribution centre is brought up to. I= Inventory in units for distribution centre J. D = Daily demand for distribution centre J. Thus the amount allocated to distribution centre 1 in the above example will be: A = (9.67 – 50/ 10 ) x 0 = (9.67 – 5) x 10 = 4.67 x 10 = 46.7 (rounded 247 units) The allocation for distribution centers 2 and 3 can be determined similarly as 38 and 70 units respectively. The key feature of  the fair share allocation method is that it coordinates inventory level across multiple sites. It’s limitation lies in the fact that it does not consider site specific factors such as difference in performance cycle, time , economic order, quantity or safety stock requirement. Hence, the major limitation is the inability to manage multi stage inventories. DISTRIBUTION REQUIREMENT PLANNING: DRP is the logical extension of manufacturing requirements planning ,MRP determined by production schedule that can be controlled by the enterpreise and generally operates in a dependent demand situation. DRP is guided by customer demand which are not controllable by the ebetrprise and operates in an independent environment where uncertain customer demand determines inventory requirements. Manufacturing requirements planning coordinates to scheduling an integration of materials into finished products. DRP takes over the responsibility of coordination once the finished goods are received in the plant warehouse. Constraints to the effectiveness OF INVENTORY PLANNING: 1. 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Process Analysis The ABCS of CPR - Essay Example The three main components of CPR that can save a life include the ABC's, Airway, Breathing, and Circulation. 7 Airway, the A in ABC, begins with checking the airway. Perform the Head tilt chin lift by placing the palm of one hand on the forehead. Put the fingers of the other hand on the bony part of the chin. Push the forehead back to lift the chin. Pull the jaw forward. Then, open the mouth. Look for the chest to rise and fall. Listen close near the victim's mouth for sounds of breathing. Feel the cheek for any breathing movement. Check airway for no more than 5-10 seconds. Do not consider gasps of breath as breathing. These gasps may occur for a few minutes after the heart stops beating. 7 The absences of breathing, is the B in ABC. Pinch the nose of the victim closed. Take in a normal breath. Hold it. Making a good seal, over the victim's mouth, give two breaths for 1 second each. Watch the chest rise and fall during each breath. If no breaths go in, reposition the victim's head. Attempt two more breaths. If breaths still do not go in check for a foreign object in the mouth. Begin CPR to remove the object. If breaths go in and pulse is present, continue with breaths until help arrives or when the victim begins breathing on his own. 9 Circulation represents the C in ABC. Check for circulation by placing two fingers at the carotid pulse below the jaw line at the neck.

Contemporary Art vs. Crafts Movement Essay Example | Topics and Well Written Essays - 2500 words

Contemporary Art vs. Crafts Movement - Essay Example The essay "Contemporary Art vs. Crafts Movement" discovers the different definitions of the art, analyzes its function and compare Contemporary Art with Crafts Movement. While the end result may not always be considered art, the possibility of creating an original drawing that transcends it’s parameters and materials is always possible, and that, to me, is the definition of art†. Others define the difference based upon distinctions of whether something is intended merely to suggest thought and ideas or is instead intended to serve a particular function as well as remain aesthetically pleasing. â€Å"People still debate the relative value of art made to be used, and art made to be contemplated (painting, drawing and sculpture). It’s the utilitarian versus the high art tradition†. As these definitions might suggest, there is no easy, one-size-fits-all solution to distinguishing between arts and crafts, yet it remains equally clear that there is a difference. Understanding the current debate between arts and crafts can provide several points of assistance to a high school level arts instructor in helping students recognize true talent from mere accident. Charles Lewton-Brain provides a helpful run-down of the various ways in which art and craft have been distinguished from each other. Somewhat jokingly, he indicates that one difference between art and craft is about $3,000, but more seriously suggests that the difference can be found in the intent. The Canadian Professional Relations tribunal.

Correlation between Self-Esteem and Memory Research Proposal

Correlation between Self-Esteem and Memory - Research Proposal Example The study employed standardized measures constituting a Rosenberg Self-Esteem questionnaire given to participants to be completed in class; followed by a series of fifteen words read aloud to them and to be written down on a sheet of paper shortly afterward to test their memory. This experiment used a within-subject design where the researcher tested the participants independently and analyzed their results in SPSS, running a Pearson Correlation Test to find any correlation. Several specific studies have highlighted many cases that demonstrate how memories affect self-esteem both positively and negatively. Psychologists have long been studying "Self-esteem" as an independent concept in cognitive-behavioral therapy, mistaking it as something characteristic of maladjustment in one's social environment. It was until only recently that Social Scientists like Rubenstein (1999) defined self-esteem as the "belief" that one is capable of making competent and appropriate decisions about his life. (p. 76) This belief, Rubenstein explains, is based on how we evaluate our actions where such evaluation is, in turn, driven by concepts such as memory and self-concept. Healthy self-esteem is achieved when people are able to validate their actions positively. (p. 76) Constituting one of the four components of self-concept, Carpenito-Moyet (2007) state that self-esteem has many types and kinds depending on several factors that are driven by experiences and memory (p. 563). Psychologists have discovered that self-esteem fluctuates as life events range from positive to negative incidents, where negative life events predict lower self-esteem (e.g., Lakey, Tardiff, & Drew, 1994). Sternberg and Mio, discussing autobiographical memory; which is the memory of an individual's history, state that experiences in the life of an individual are constructive, wherein one does not recall exactly what happened but one's own construction or reconstruction of what happened. (p. 237) Which brings us to the concept of what one "believes" to be true about himself. These investigations about autobiographical memory show that memories affect self-esteem especially when the individual has a distorted recall. There are several studies highlighting many cases that demonstrate how memories affect self-esteem both positively and negatively. One such study is that of Uttl, Ohta and Siegenthaler's (2006) introduction and study of the so-called "self-defining memories". Their study showed that, in the case of mother-daughter bonding, daughters that were narrated more positive birth narratives showed higher self-esteem and those, with more frequently told and descriptive stories were closer to their mothers than those who weren't told any positive birth narratives. Uttl, Ohta and Siegenthaler found support from a similar research on SDMs conducted by Cohen and Conway. Their studies led them to the finding that these memories have links to personality styles. For instance, there was the case that reported the way students at the end of their third year of college have described and evaluated a significant life experience from the preceding 3 years and how these correlated with their personality,

Risk management Essay Example | Topics and Well Written Essays - 1500 words

Risk management - Essay Example The risk in investing in real assets is different from investing in financial securities because the rates of revenue generation associated with the two are different. Generally, real assets investment requires a lot of factors that determine profit. Some of these factors, which include staffing could be expensive and if not done well affect the revenue fortunes of the company. The risk with real assets is therefore higher. Question 2 In terms of acquiring the Latvian logistics business, the company faces business risk, which is posed against the market performance of the acquiring company. With reference to this particular risk, it is advised that â€Å"good fundamental analysis and careful selection of equities are the best ways to minimize this risk† (Noble Trading, 2009). Valuation is another risk that is associated with the Latvian acquisition. The company must be in a position to undertake comprehensive valuation that factors in the unseen cost of risks so that the final quote of the project will be one that assures value for money. With reference to the Kazakhstan subsidiary investment, some of the risks associated are inflation and interest rate risks, and market risk. This is because this investment is going into an existing business that is founded by the company in question. The single reason why it is important to have an integrated risk mitigation strategy is that the company is undertaking two different forms of investments which need an integrated strategy that caters for all the different investments. Question 3 Knowing that the risk-return trade off principle generally deals with the corresponding rises in return when there is an increase in risk, it would be right to argue that the management of working capital is the ultimate risk-return trade off for financial managers because the working capital is the single most reliable source of funding that financial managers can boast of. All other funds such as credits only come in as liabilit ies that need to be defended. Therefore, the harder financial managers try to take risk with their capitals and try to overcome the risks, the more they will count their returns. It is advised that the working capital of the company should be managed in such as way that it would have a correspondence with market dictates. This means that the company should pump in much fund into real asset investment if that sector shows signs of market boom. The switch should go to financial securities if that sector also shows signs of good performance. In simple terms, the working capital of the company should chance gloomy market. Question 4 The CAPM model distinguishes between specific risk and systematic risks because of the parameters under which each of these risks occur. Generally, specific risks are more attributed to managerial and other human control risks such as mismanagement which causes variation in the aggregate of productivity whiles systematic risks are associated with â€Å"vari ation in an asset's value caused by unpredictable economic movements† (cooper, 2012). To the investors, there is an implication which is, there are moments that their own actions can create risks and so as much as possible, they should always look for ways of minimising such specific risks.

Principle of Accounting Essay Example | Topics and Well Written Essays - 500 words

Principle of Accounting - Essay Example The responsibility of developing marketing strategies for GM with the objective of increasing the product sales lies with the sales and marketing division of the company. This department of the company has been performing well recently. However it has failed to implement required modern marketing strategies to be able to successfully tap many of the unoccupied markets worldwide. The services related to testing of products of the company are carried on by its quality assurance department. This department has not been successful in developing good relationship with rest of the departments of the company in relation to the reduction of mishaps caused due to inferior vehicle quality. However, it has always been promised to the customer regarding high quality of the products. This problem can be reduced through proper coordination of the quality department with the other departments of GM. The accounts department of the company is held accountable for all the finance related activities carried on by the firm. Recently, few financial problems have crept up in the company which has contributed towards it being bankrupt. The major weakness was the top post of the department being two in number. However this issue has been resolved considerably through reshuffling of those positions in the company (Canis, & Yacobucci, 2010, p.27). Similarly, the company can take the help of other financial consultancy firms so as to boost the accountability of the department. GM was reported to have some issues related to its bankruptcy recently in the year 2009 and it came up in news as well (Economist, 2009). It is mainly attributed towards the alteration of the financial results of the company which paved the way for the department of accounting of GM to represent false picture of its financial position. This misrepresentation of the financial figures in the financial statements of the firm along with other errors in accounting that were present in the company records

Communicate with Clients Case Study Example | Topics and Well Written Essays - 2250 words

Communicate with Clients - Case Study Example By contrast, a poor communicator will speak non-stop, denying the other party an opportunity to take an active part in the dialogue. Examples of non-verbal dues are facial expressions and eye contact(Daisley-Snow, et al., 2014). Facial expressions reveal the emotions of a person in a powerful way that words cannot. For instance, a person who is surprised may raise their eye-brow. Similarly, when people are sad, they frown and when they are happy they smile. Eye contact is one of the most powerful visual clues (Daisley-Snow, et al., 2014). When one talks to a person and the recipient maintains their gaze into the eyes of the speaker, this is usually taken as a sign of interest. Also, when a person is thinking, they tend to stare far into the distance. These are the tools I would use to build a therapeutic relationship with my client Adonia. In order to get the most of my consultation with Adonia, I would use several listening skills. These would include paraphrasing, summarizing, questioning and the use of encouragers (Bolton, 2009). I would use paraphrasing whenever Adonia would seem uncertain of what they were telling me. In that case, I would paraphrase what they had just said and ask if that was what they meant. I would resort to summarizing if I felt that the client was giving too much information that was not relevant and, therefore, not adding value to the consultation. I would look for appropriate moments then intervene. Such moments would include her pauses. I would intervene by redirecting her to the purpose of the consultation. I would question my client whenever they appeared not sure of whatever they were saying or at moments when they appeared doubtful of me. In the first instance, I would restate what they had just said and ask them if they were sure of it. In the second instance, whenever I sensed doubt through the way she expressed herself facially, I would encourage her to ask me questions so I could clarify points. Encouragers would come

A Membrane-Enclosed Nucleus Essay Example for Free

A Membrane-Enclosed Nucleus Essay They are very smallindividually not more than one single cellhowever there are normally millions of them together, for they can multiply really fast. A number of bacteria cause disease, these are called pathogenic bacteria. Fortunately our immune system knows how to deal with them. However not all bacteria are bad guys. We need bacteria to stay alive. Bacteria are prokaryotes (single cells that do not contain a nucleus). Microbiology is the study of prokaryotes, eukaryotes and viruses. Did you know that bacteria can get sick too. Bacteriophages are able to attach themselves to certain types of bacteria and inject their genetic material in the bacterial cell. Then, using the bacterial machinery, the DNA multiplies itself. Eventually from this multiplied genetic information so many new bacteriophages are formed that the cell bursts. The offspring of the bacteriophage has destroyed its bacterial host, and in so doing millions of new bacteriophages are released. These can attach themselves to new bacteria to complete their life cycle. With our immune system we defend ourselves against a bacterial infection. Antibiotics can help us win the battle. When you report a bacterial infection to your physician, you are probably prescribed antibiotics. The term antibiotics (literally against living things) is mainly used for substances that kill or prevent the growth of bacteria, as opposed to antiviral or antifungal substances. Antibiotics are not active against viral infections. Antibiotics are extremely important in medicine, but unfortunately bacteria can become resistant to them. Antibiotics have probably been around nearly as long as microorganisms have, and nature has provided bacteria with means to overcome their action. Resistance to antibiotics can become problematic, for it makes these powerful medicines completely ineffective. Some bacteria have learned to deal with practically all types of antibiotics we have available, and this can cause real problems in health institutions. Strict quarantine measures are needed to prevent the spread of such superbugs for we have little weapons left against them.

Analysis of Vietnams Energy Supply and Production

Analysis of Vietnams Energy Supply and Production Vietnams economy has expanded rapidly in recent years, with its real gross domestic product (GDP) growing 7.7% in 2004 and 8.4% in 2005. Growth is forecast at 8.0% in 2006. Vietnam has had Normal Trade Relations status with the United States since late 2001, with 2002 marking the first time Vietnam shipped more goods to the United States than to Japan. Despite rising exports, Vietnam currently runs a slight trade deficit, but is projected to begin having trade surpluses by 2007. Much of Vietnams large rural population relies heavily on non-commercial biomass energy sources such as wood, dung, and rice husks. As a result, Vietnams per capita commercial energy consumption ranks among the lowest in Asia. The countrys commercial energy consumption is predicted to rise in coming years, primarily due to increases in the use of natural gas. Vietnam claims ownership of a portion of the potentially hydrocarbon-rich Spratly Islands, as do the Philippines, Brunei, Malaysia, China, and Taiwan. Vietnam, China, and the Philippines agreed in March 2005 to conduct a joint seismic survey for potential oil and natural gas reserves in a portion of the disputed area. Vietnam also claims the Paracel Islands, which China first occupied in 1974. Oil: Vietnams Oil Production and Consumption, 1980-2005. (Source: EIA, International Energy Annual 2003, internal EIA estimates.). Enlarge: Vietnams Oil Production and Consumption, 1980-2005. (Source: EIA, International Energy Annual 2003, internal EIA estimates.) Vietnam has 600 million barrels of proven oil reserves, according to data from Oil and Gas Journal, but that total is likely to increase as exploration continues. Crude oil production averaged 370,000 barrels per day (bbl/d) in 2005, down somewhat from the 403,000 bbl/d level achieved in 2004. Bach Ho (White Tiger), Rang Dong (Dawn), Hang Ngoc, Dai Hung (Big Bear), and Su Tu Den (Ruby) are the largest oil producing fields in the country. Although it is a significant oil producer, Vietnam remains reliant on imports of petroleum products due to a lack of refining capacity. Overall, Vietnam had net exports of 111,000 bbl/d of oil in 2005. Most of Vietnams crude oil is exported to refiners in Japan, Singapore, and South Korea. Vietnams largest oil producer is Vietsovpetro (VSP), a joint venture (JV) between PetroVietnam and Zarubezhneft of Russia. VSP operates Vietnams largest oil field, Bach Ho. Other foreign partners include ConocoPhillips, BP, Petronas, and Talisman Energy. Following the October 2003 commencement of drilling operations in the Su Tu Den (Black Lion) crude field, PetroVietnam reported increasing production volumes. PetroVietnams April 2003 discovery of an oil deposit in Dai Hung, estimated to have a capacity of 6,300 bbl/d, was expected to further increase Vietnamese production. The decline in production overall from 2004 to 2005 was primarily the result of declining production at the Bach Ho field. The planned development of several new oil fields in coming years is expected to increase Vietnamese production. A new well at Block 15-1s Su Tu Trang (White Lion) field flowed 8,682 bbl/d in early 2004 and is scheduled to be developed by 2008. In October 2004, Japanese oil companies Nippon Oil Exploration (35 percent interest), Idemitsu Kosan (35 percent), and Teikoku Oil (30 percent) announced plans to fund the development of Blocks 05.1b and 05.1c in the Nam Con Son Basin. Two months later, the Korean National Oil Corporation (KNOC), along with several Korean partners, finalized terms for the $300 million development of Block 11-2, which includes the Flying Orchid Field. PetroVietnam has a 25 percent interest in the joint venture. Exploration in Vietnam continues to yield new discoveries. In 2002, large oil and gas deposits were discovered in the Ca Ngu Vang (Golden Tuna) and Voi Trang (White Elephant) fields. SOCO Vietnam estimates that its Ca Ngu Vang well may contain up to 250 million barrels of oil. In July 2004, VSP discovered new stocks of oil in its Dragon field. Three months later, a joint venture comprised of American Technologies, Petronas, Singapore Petroleum, and PetroVietnam announced a 100-million-barrel oil discovery off Vietnams northeast coast. In September 2004, the Vietnamese government offered nine exploration blocks in the Phu Khanh basin off its southern coast. In November 2004, Japanese oil companies Nippon Oil Exploration, Idemitsu Kosan, and Teikoku Oil signed an agreement to explore in two offshore blocks southeast of Ho Chi Minh City. They plan to drill a test well in 2006 and complete exploration by 2007. In December 2004, Talisman Energy was awarded the right to conduct exploration in the Cuu Long Basin, and received additional acreage in an adjacent area in April 2005. ONGC of India was awarded drilling rights in the deepwater Block 127 in the Phu Khanh Basinoff Vietnams central coast in October 2005. ChevronTexaco also received acreage in the Phu Khanh Basin in the most recent round of awards, with an award for Block 122 in October 2005. PetroVietnams storage and transportation division, Petrolimex, recently completed a new oil storage facility in the central Khanh Hoa province. The depot is largest in the country, with a total storage capacity of 3.68 million barrels. Refining: Vietnam is in the process of building its first refinery. The $1.5 billion Dung Quat Refinery, located in Quang Ngai province, will have a crude distillation capacity of approximately 140,000 bbl/d. After several years of delays in financing the project, construction finally began in November 2005. Commercial operation of the refinery is expected to begin in early 2009. Vietnams distribution infrastructure is discontinuous, with the north and south of the country functioning largely as separate markets. Completion of the Dung Quat Refinery, located in the center of the country, should lead to greater interaction between the regions. A second refinery project is under consideration at Nghi Son, north of Hanoi in the Thanh Hoa province. The Vietnamese government has estimated the 150,000 bbl/d plant will cost $3 billion. In August 2004, Mitsubishi Corporation agreed to participate in building Nghi Son for completion in 2010. In December 2004, Vietnam contracted the International Business Company (IBC) of the British Virgin Islands to conduct a feasibility study for a third oil refinery, to be located at Vung Ro in the southern Phu Yen province. The Vietnamese government hopes to complete the refinery within 12 years. Natural Gas: Vietnams Oil Production and Consumption, 1980-2005. (Source: EIA, International Energy Annual 2003.). Enlarge: Vietnams Oil Production and Consumption, 1980-2005. (Source: EIA, International Energy Annual 2003.). Vietnam has proven gas reserves of 6.8 trillion cubic feet (Tcf), according to Oil and Gas Journal. Vietnams natural gas production and consumption have been rising rapidly since the late 1990s, with further increases expected as additional fields come onstream. Natural gas is currently produced entirely for domestic consumption. The Cuu Long basin offshore from the Mekong Delta in southern Vietnam, a source of associated gas from oil production, is the largest Vietnamese natural gas production area. Only two fields in Vietnam have been developed specifically for their natural gas potential: Tien Hai, with a potential output of 1.76 million cubic feet per day (Mmcf/d); and Lan Tay/Lan Do of Nam Con Son, which began producing over 5 Mmcf/d in 2002. In the Nam Con Son Basin, a $565 million, 230-mile pipeline was completed in June 2002 connecting the Lan Tay and Lan Do fields to the mainland at Vung Tau. The Nam Con Son project consists of five subsea wells linked to a production platform and a pipeline leading to an onshore treatment plant. Gas is piped to three generating plants at the Phu My industrial complex, where electricity is provided primarily to areas surrounding Ho Chi Minh City. In December 2004, the Vietnamese government announced that output from Nam Con Son was expected to reach 88 billion cubic feet (Bcf), exceeding planned production by 90%. The project currently supplies the Phu My 1, Phu My 3, Phu My 2.1 power plants and the extended Phu My 2.1 plant. Phu My 2.2 will begin using output from the field soon thereafter. In December 2002, a consortium headed by Korea National Oil Corporation (KNOC) signed an agreement to install facilities to pump and supply 130 Mmcf/d of natural gas to Vietnam. The natural gas, located in the Rong Doi and Rong Doi Tay fields on Block 11-2 of the Nam Con Son Basin, is sold to PetroVietnam under a 23-year contract. PetroVietnam resells most this volume to Electricity of Vietnam (EVN). Production at the fields began in mid-2005. In December 2004, KNOC and PetroVietnam signed agreements to further exploit natural gas in both Blocks 11 and 12. Construction of an additional pipeline to bring ashore natural gas from block 11 began in October 2005, and is scheduled for completion in October 2006. The Su Tu Den and Rang Dong oil fields, both of which have considerable Vietnamese reserves of associated natural gas, are located near the 62-mile pipeline from the Bach Ho field. An estimated 60 Mmcf/d of gas from the fields is earmarked for consumption in power plants in southern Vietnam. Both TotalFinaElf and ChevronTexaco (originally Unocal) have found natural gas in exploratory drilling of the Malay basin. Additionally, Talisman Energy has found natural gas at the Cai Nuoc field in block 46. The discovery is close to block PM-3-CAA, which straddles the maritime border with Malaysia, and is expected to contain up to 100 Bcf of recoverable gas reserves. A contract was awarded to McDermott International in March 2006 for construction of a 200-mile pipeline, which will transport natural gas from the PM3-CAA block to Ca Mau province in southern Vietnam. It is scheduled for completion in 2007. In December 2004, PetroVietnam announced that it was reconsidering the $70 million Phu My gas pipeline project from Phu My to Nhon Trach due to increased expenses associated with land costs in compensation areas. The pipeline was initially planned to transport associated gas from the Bach Ho and Rong fields for power generation. Coal: Vietnam contains coal reserves estimated at 165 million short tons (Mmst), the majority of which is anthracite. Production has increased dramatically over the last decade, with Vietnam producing over 18 Mmst in 2003. As a result, Vietnam exported a record 7 Mmst of coal, primarily to Japan and China, in 2003. Although Vietnam has historically relied on hydropower for electricity, it has recently promoted the construction of coal-fired power plants. Vinocoal plans to build eight coal-fueled thermal power plants with a total capacity of 2,900 megawatts (MW) by 2010. Six are currently in various stages of planning and construction. In December 2004, the Vietnamese government approved Vinacoals proposal to invest in a 200-MW, coal-fired thermal power plant in the Son Dong district. The plant is scheduled to begin operation in 2007. Coal-fired power plants are expected to eventually account for 25% of Vietnams total electricity production. The Vietnamese government estimates that 10.2 Mms t of coal is needed per year to meet increasing domestic demand, projected at 20,000 MW by 2010. Vietnam continues to exploit new coal reserves within its borders. In March 2003, a significant coal bed was discovered in the Red River Delta region of northern Vietnam. Vinacoal plans to use the reserve for thermal power plants. In October 2004, Vinacoal entered talks with Chinas Fujian Province Coal Industry Corporation to jointly exploit the Bac Coc Sau mine in the Quang Ninh province. Electricity: Vietnams Electricity Generation, 1980-2003. (Source: EIA, International Energy Annual 2003.). Enlarge: Vietnams Electricity Generation, 1980-2003. (Source: EIA, International Energy Annual 2003.). Although Vietnams per capita electricity consumption is among the lowest in Asia, demand has risen in recent years, straining the countrys limited generating capacity. Rapid commercial sector growth, population migration to major cities, and elevated living standards have all contributed to a growing demand for electricity. In 2003, Vietnam had a total electric generating capacity of 8.8 gigawatts (GW) and generated 39.7 billion kilowatt-hours (kWh) of electricity, of which 52 percent was hydropower. Electricity demand in Vietnam is forecast to grow 15 percent per year until 2010. Vietnam currently buys power from China to prevent shortages in the north, and plans to begin purchasing from Laos in 2008. The majority of thermal electricity generation in Vietnam depends on coal-fired plants, though natural gas use is expanding. EVNs Pha Lai is the largest coal-fired power project in Vietnam, with the second of two 300-MW units coming into service in 2003. In order to meet increased demand, construction or expansion is planned for 32 power stations (7,547 MW) before 2010. The state power company, Elà ©ctricità © of Vietnam (EVN), plans to commission 16 hydropower plants by 2010 and increased capacity at the Uong Bi coal-fired plant to 400 MW in 2005. Vinacoal also has plans to construct eight additional coal-fired power plants. Vietnam currently has five hydroelectric expansions underway. The countrys Son La project, which began construction in late 2005, is anticipated to have a generating capacity of 2,400 megawatts (MW) by 2012, will be the largest hydroelectric project in Vietnam when completed. In September 2004, construction began on the Ban Ve hydroelectric power plant, expected to begin operations in 2008. EVN began work on four additional hydroelectric projects in late 2004. The Dong Nai 3 and Dong Nai 4, both located in the Central Highlands region, are expected to be completed within four years and to provide approximately 520 MW of generating capacity. In December 2004, EVN began construction of the Se San 4 hydropower plant in the central highlands provinces of Gia Lai and Kon Tum. The plant is anticipated to have a capacity of 330 MW and to generate 1,390 million kWh per year. Vietnam also plans to build three additional plants in the region before 2010. In March 2004, EVN announced plans to spend $1.3 billion to build and refurbish power plants with a combined capacity of 1,510 MW. The projects include the combined cycle power plant Phu My 2.1, the hydroelectric facility Can Don, the Phu My 3 and Phu My 4 thermal plants, and Na Duong. Additional projects include the Song Ba Ha, Bac Binh, Se San 4, Dong Nai 3 and Dong Nai 4 hydrostations, the Quang Ninh, Ninh Binh extension, and the O Mon 600-MW thermal plant. The development of natural gas-fired plants in the Phu My complex of the Ba Ria-Vung Tau province has helped to offset Vietnams heavy reliance on hydropower, which can be vulnerable to disruption when monsoon rainfall is unusually low. In March 2003, the 720-MW Phu My 3 power plant commenced operations. The $450 million plant, owned by a consortium led by UKs BP, was Vietnams first foreign-invested, build-operate-transfer (BOT) project. EVN has contracted to purchase the output under a 20-year power purchase agreement. Mitsubishi received an award in February 2006 for the construction of a 330-MW natural gas-fired power plant in the southern Mekong delta. The plant will come online in early 2009, running initially on fuel oil, and switching to natural gas when pipeline infrastructure is completed. More foreign companies are beginning to enter the growing Vietnamese power market in the form of Build-Operate-Transfer (BOT) projects. EVN and a consortium including Tokyo Electric Power (TEPCO), Sumitomo, and Elà ©ctricità © de France (EdF) began BOT construction of the Mekong Deltas 715-MW Phu My 2-2 in January 2003. The plant is fueled by gas from Nam Con Son Basin. EVN plans to develop a national electricity grid by 2020 by patching together several regional grids. The countrys distribution infrastructure is poorly maintained, but has benefited from recent improvements. A North-South power cable transmits electricity from Vietnams largest generator, the Hoa Binh hydropower plant in the North, to large population centers in the South, linking the country into one electricity grid and helping alleviate electricity shortages in Ho Chi Minh City. The $56 million project was funded by the World Bank. Vietnam is considering the construction of a 500-KV, 188-mile power line from Pleiku to Danang city at a cost of $130 million. The Vietnamese government has estimated that an additional 9,300 miles of high-voltage transmission lines and 173,600 miles of medium- and low-voltage transmission lines will be necessary to accommodate new capacity by 2010. In September 2004, EVN announced plans to invest $330 million over five years to upgrade transmission lin es surrounding Hanoi. Vietnam plans to complete its first nuclear power plant by 2020 as an alternate means on meeting demand. In December 2004, the Vietnamese Ministry of Science and Technology submitted a pre-feasibility study for the 2,000-megawatt (MW) nuclear plant to the National Assembly. Fossil Fuels Coal, Oil and Natural Gas: Where Fossil Fuels Come From: There are three major forms of fossil fuels: coal, oil and natural gas. All three were formed many hundreds of millions of years ago before the time of the dinosaurs hence the name fossil fuels. The age they were formed is called the Carboniferous Period. It was part of the Paleozoic Era. Carboniferous gets its name from carbon, the basic element in coal and other fossil fuels. The Carboniferous Period occurred from about 360 to 286 million years ago. At the time, the land was covered with swamps filled with huge trees, ferns and other large leafy plants, similar to the picture above. The water and seas were filled with algae the green stuff that forms on a stagnant pool of water. Algae is actually millions of very small plants. Some deposits of coal can be found during the time of the dinosaurs. For example, thin carbon layers can be found during the late Cretaceous Period (65 million years ago) the time of Tyrannosaurus Rex. But the main deposits of fossil fuels are from the Carboniferous Period. For more about the various geologic eras, go to www.ucmp.berkeley.edu/help/timeform.html. As the trees and plants died, they sank to the bottom of the swamps of oceans. They formed layers of a spongy material called peat. Over many hundreds of years, the peat was covered by sand and clay and other minerals, which turned into a type of rock called sedimentary. More and more rock piled on top of more rock, and it weighed more and more. It began to press down on the peat. The peat was squeezed and squeezed until the water came out of it and it eventually, over millions of years, it turned into coal, oil or petroleum, and natural gas. Coal: Coal is a hard, black colored rock-like substance. It is made up of carbon, hydrogen, oxygen, nitrogen and varying amounts of sulphur. There are three main types of coal anthracite, bituminous and lignite. Anthracite coal is the hardest and has more carbon, which gives it a higher energy content. Lignite is the softest and is low in carbon but high in hydrogen and oxygen content. Bituminous is in between. Today, the precursor to coal peat is still found in many countries and is also used as an energy source. The earliest known use of coal was in China. Coal from the Fu-shun mine in northeastern China may have been used to smelt copper as early as 3,000 years ago. The Chinese thought coal was a stone that could burn. Coal is found in many of the lower 48 states of U.S. and throughout the rest of the world. Coal is mined out of the ground using various methods. Some coal mines are dug by sinking vertical or horizontal shafts deep under ground, and coal miners travel by elevators or trains deep under ground to dig the coal. Other coal is mined in strip mines where huge steam shovels strip away the top layers above the coal. The layers are then restored after the coal is taken away. The coal is then shipped by train and boats and even in pipelines. In pipelines, the coal is ground up and mixed with water to make whats called a slurry. This is then pumped many miles through pipelines. At the other end, the coal is used to fuel power plants and other factories. Oil or Petroleum: Oil is another fossil fuel. It was also formed more than 300 million years ago. Some scientists say that tiny diatoms are the source of oil. Diatoms are sea creatures the Picture of oil formationsize of a pin head. They do one thing just like plants; they can convert sunlight directly into stored energy. Oil has been used for more than 5,000-6,000 years. The ancient Sumerians, Assyrians and Babylonians used crude oil and asphalt (pitch) collected from large seeps at Tuttul (modern-day Hit) on the Euphrates River. A seep is a place on the ground where the oil leaks up from below ground. The ancient Egyptians, used liquid oil as a medicine for wounds, and oil has been used in lamps to provide light. The Dead Sea, near the modern Country of Israel, used to be called Lake Asphaltites. The word asphalt was derived is from that term because of the lumps of gooey petroleum that were washed up on the lake shores from underwater seeps. In North America, Native Americans used blankets to skim oil off the surface of streams and lakes. They used oil as medicine and to make canoes water-proof. During the Revolutionary War, Native Americans taught George Washingtons troops how to treat frostbite with oil. As our country grew, the demand for oil continued to increase as a fuel for lamps. Petroleum oil began to replace whale oil in lamps because the price for whale oil was very high. During this time, most petroleum oil came from distilling coal into a liquid or by skimming it off of lakes just as the Native Americans did. Then on August 27, 1859, Edwin L. Drake (the man standing on the right in the black and white picture to the right), struck liquid oil at his well near Titusville, Pennsylvania. He found oil under ground and a way that could pump it to the surface. The well pumped the oil into barrels made out of wood. This method of drilling for oil is still being used today all over the world in areas where oil can be found below the surface. Oil and natural gas are found under ground between folds of rock and in areas of rock that are porous and contain the oils within the rock itself. The folds of rock were formed as the earth shifts and moves. Its similar to how a small, throw carpet will bunch up in places on the floor. To find oil and natural gas, companies drill through the earth to the deposits deep below the surface. The oil and natural gas are then pumped from below the ground by oil rigs (like in the picture). They then usually travel through pipelines or by ship. Oil is found in 18 of the 58 counties in California. Kern County, the County where Bakersfield is found, is one of the largest oil production places in the country. But we only get one-half of our oil from California wells. The rest comes from Alaska, and an increasing amount comes from other countries. In the entire U.S., more than 50 percent of all the oil we use comes from outside the countrymost of it from the Middle East. Oil is brought to California by large tanker ships. The petroleum or crude oil must be changed or refined into other products before it can be used. Refineries: Oil is stored in large tanks until it is sent to various places to be used. At oil refineries, crude oil is split into various types of products by heating the thick black oil. Oil is made into many different products fertilizers for farms, the clothes you wear, the toothbrush you use, the plastic bottle that holds your milk, the plastic pen that you write with. They all came from oil. There are thousands of other products that come from oil. Almost all plastic comes originally from oil. Can you think of some other things made from oil? The products include gasoline, diesel fuel, aviation or jet fuel, home heating oil, oil for ships and oil to burn in power plants to make electricity. Heres what a barrel of crude oil can make. In California, 74 percent of our oil is used for transportation cars, planes, trucks, buses and motorcycles. Well learn more about transportation energy in Chapter 18. Natural Gas: Sometime between 6,000 to 2,000 years BCE (Before the Common Era), the first discoveries of natural gas seeps were made in Iran. Many early writers described the natural petroleum seeps in the Middle East, especially in the Baku region of what is now Azerbaijan. The gas seeps, probably first ignited by lightning, provided the fuel for the eternal fires of the fire-worshiping religion of the ancient Persians. Natural gas is lighter than air. Natural gas is mostly made up of a gas called methane. Methane is a simple chemical compound that is made up of carbon and hydrogen atoms. Its chemical formula is CH4 one atom of carbon along with four atoms hydrogen. This gas is highly flammable. Natural gas is usually found near petroleum underground. It is pumped from below ground and travels in pipelines to storage areas. The next chapter looks at that pipeline system. Natural gas usually has no odor and you cant see it. Before it is sent to the pipelines and storage tanks, it is mixed with a chemical that gives a strong odor. The odor smells almost like rotten eggs. The odor makes it easy to smell if there is a leak. Energy Safety Note! If you smell that rotten egg smell in your house, tell your folks and get out of the house quickly. Dont turn on any lights or other electrical devices. A spark from a light switch can ignite the gas very easily. Go to a neighbors house and call 9-1-1 for emergency help. Saving Fossil Fuels: Fossil fuels take millions of years to make. We are using up the fuels that were made more than 300 million years ago before the time of the dinosaurs. Once they are gone they are gone. So, its best to not waste fossil fuels. They are not renewable; they cant really be made again. We can save fossil fuels by conserving energy. Natural Gas Distribution System: We learned in Chapter 8 that natural gas is a fossil fuel. It is a gaseous molecule thats made up of two atoms one carbon atom combined with four hydrogen atom. Its chemical formula is CH4. The picture on the right is a model of what the molecule could look like. Dont confuse natural gas with gasoline, which we call gas for short. Like oil, natural gas is found under ground and under the ocean floor. Wells are drilled to tap into natural gas reservoirs just like drilling for oil. Once a drill has hit an area that contains natural gas, it can be brought to the surface through pipes. The natural gas has to get from the wells to us. To do that, there is a huge network of pipelines that brings natural gas from the gas fields to us. Some of these pipes are two feet wide. Natural gas is sent in larger pipelines to power plants to make electricity or to factories because they use lots of gas. Bakeries use natural gas to heat ovens to bake bread, pies, pastries and cookies. Other businesses use natural gas for heating their buildings or heating water. From larger pipelines, the gas goes through smaller and smaller pipes to your neighborhood. In businesses and in your home, the natural gas must first pass through a meter, which measures the amount of fuel going into the building. A gas company worker reads the meter and the company will charge you for the amount of natural gas you used. In some homes, natural gas is used for cooking, heating water and heating the house in a furnace. In rural areas, where there are no natural gas pipelines, propane (another form of gas thats often made when oil is refined) or bottled gas is used instead of natural gas. Propane is also called LPG, or liquefied petroleum gas, is made up of methane and a mixture with other gases like butane. Propane turns to a liquid when it is placed under slight pressure. For regular natural gas to turn into a liquid, it has to be made very, very cold. Cars and trucks can also use natural gas as a transportation fuel, but they must carry special cylinder-like tanks to hold the fuel. When natural gas is burned to make heat or burned in a cars engine, it burns very cleanly. When you combine natural gas with oxygen (the process of combustion), you produce carbon dioxide and water vapor; plus the energy thats released in heat and light. Some impurities are contained in all natural gas. These include sulphur and butane and other chemicals. When burned, those impurities can create air pollution. The amount of pollution from natural gas is less than burning a more complex fuel like gasoline. Natural gas-powered cars are more than 90 percent cleaner than a gasoline-powered car. Thats why many people feel natural gas would be a good fuel for cars because it burns cleanly. Biomass Energy: Biomass is matter usually thought of as garbage. Some of it is just stuff lying around dead trees, tree branches, yard clippings, left-over crops, wood chips (like in the picture to the right), and bark and sawdust from lumber mills. It can even include used tires and livestock manure. Your trash, paper products that cant be recycled into other paper products, and other household waste are normally sent to the dump. Your trash contains some types of biomass that can be reused. Recycling biomass for fuel and other uses cuts down on the need for landfills to hold garbage. This stuff nobody seems to want can be used to produce electricity, heat, compost material or fuels. Composting material is decayed plant or food products mixed together in a compost pile and spread to help plants grow. California produces more than 60 million bone dry tons of biomass each year. Of this total, five million bone dry tons is now burned to make electricity. This is biomass from lumber mill wastes, urban wood waste, forest and agricultural residues and other feed stocks. If all of it was used, the 60 million tons of biomass in California could make close to 2,000 megawatts of electricity for Californias growing population and economy. Thats enough energy to make electricity for about two million homes! How biomass works is very simple. The waste wood, tree branches and other scraps are gathered together in big trucks. The trucks bring the waste from factories and from farms to a biomass power plant. Here the biomass is dumped into huge hoppers. This is then fed into a furnace where it is burned. The heat is used to boil water in the boiler, and the energy in the steam is used to turn turbines and generators . Biomass can also be tapped right at the landfill with burning waster products. When garbage decomposes, it gives off methane gas. Youll remember in chapters 8 and 9 that natural gas is made up of methane. Pipelines are put into the landfills and the methane gas can be collected. It is then used in power plants to make electricity. This type of biomass is called landfill gas. A similar thing can be done at animal feed lots. In places where lots of animals are raised, the animals like cattle, cows and even chickens produce manure. When manure decomposes, it also gives off methane gas similar to garbage. This gas can be burned right at the farm to make energy to run the farm. Using biomass can help reduce global warming compared to a fossil fuel-powered plant. Plants use and store carbon dioxide (CO2) when they grow. CO2 stored in the plant is released when th Analysis of Vietnams Energy Supply and Production Analysis of Vietnams Energy Supply and Production Vietnams economy has expanded rapidly in recent years, with its real gross domestic product (GDP) growing 7.7% in 2004 and 8.4% in 2005. Growth is forecast at 8.0% in 2006. Vietnam has had Normal Trade Relations status with the United States since late 2001, with 2002 marking the first time Vietnam shipped more goods to the United States than to Japan. Despite rising exports, Vietnam currently runs a slight trade deficit, but is projected to begin having trade surpluses by 2007. Much of Vietnams large rural population relies heavily on non-commercial biomass energy sources such as wood, dung, and rice husks. As a result, Vietnams per capita commercial energy consumption ranks among the lowest in Asia. The countrys commercial energy consumption is predicted to rise in coming years, primarily due to increases in the use of natural gas. Vietnam claims ownership of a portion of the potentially hydrocarbon-rich Spratly Islands, as do the Philippines, Brunei, Malaysia, China, and Taiwan. Vietnam, China, and the Philippines agreed in March 2005 to conduct a joint seismic survey for potential oil and natural gas reserves in a portion of the disputed area. Vietnam also claims the Paracel Islands, which China first occupied in 1974. Oil: Vietnams Oil Production and Consumption, 1980-2005. (Source: EIA, International Energy Annual 2003, internal EIA estimates.). Enlarge: Vietnams Oil Production and Consumption, 1980-2005. (Source: EIA, International Energy Annual 2003, internal EIA estimates.) Vietnam has 600 million barrels of proven oil reserves, according to data from Oil and Gas Journal, but that total is likely to increase as exploration continues. Crude oil production averaged 370,000 barrels per day (bbl/d) in 2005, down somewhat from the 403,000 bbl/d level achieved in 2004. Bach Ho (White Tiger), Rang Dong (Dawn), Hang Ngoc, Dai Hung (Big Bear), and Su Tu Den (Ruby) are the largest oil producing fields in the country. Although it is a significant oil producer, Vietnam remains reliant on imports of petroleum products due to a lack of refining capacity. Overall, Vietnam had net exports of 111,000 bbl/d of oil in 2005. Most of Vietnams crude oil is exported to refiners in Japan, Singapore, and South Korea. Vietnams largest oil producer is Vietsovpetro (VSP), a joint venture (JV) between PetroVietnam and Zarubezhneft of Russia. VSP operates Vietnams largest oil field, Bach Ho. Other foreign partners include ConocoPhillips, BP, Petronas, and Talisman Energy. Following the October 2003 commencement of drilling operations in the Su Tu Den (Black Lion) crude field, PetroVietnam reported increasing production volumes. PetroVietnams April 2003 discovery of an oil deposit in Dai Hung, estimated to have a capacity of 6,300 bbl/d, was expected to further increase Vietnamese production. The decline in production overall from 2004 to 2005 was primarily the result of declining production at the Bach Ho field. The planned development of several new oil fields in coming years is expected to increase Vietnamese production. A new well at Block 15-1s Su Tu Trang (White Lion) field flowed 8,682 bbl/d in early 2004 and is scheduled to be developed by 2008. In October 2004, Japanese oil companies Nippon Oil Exploration (35 percent interest), Idemitsu Kosan (35 percent), and Teikoku Oil (30 percent) announced plans to fund the development of Blocks 05.1b and 05.1c in the Nam Con Son Basin. Two months later, the Korean National Oil Corporation (KNOC), along with several Korean partners, finalized terms for the $300 million development of Block 11-2, which includes the Flying Orchid Field. PetroVietnam has a 25 percent interest in the joint venture. Exploration in Vietnam continues to yield new discoveries. In 2002, large oil and gas deposits were discovered in the Ca Ngu Vang (Golden Tuna) and Voi Trang (White Elephant) fields. SOCO Vietnam estimates that its Ca Ngu Vang well may contain up to 250 million barrels of oil. In July 2004, VSP discovered new stocks of oil in its Dragon field. Three months later, a joint venture comprised of American Technologies, Petronas, Singapore Petroleum, and PetroVietnam announced a 100-million-barrel oil discovery off Vietnams northeast coast. In September 2004, the Vietnamese government offered nine exploration blocks in the Phu Khanh basin off its southern coast. In November 2004, Japanese oil companies Nippon Oil Exploration, Idemitsu Kosan, and Teikoku Oil signed an agreement to explore in two offshore blocks southeast of Ho Chi Minh City. They plan to drill a test well in 2006 and complete exploration by 2007. In December 2004, Talisman Energy was awarded the right to conduct exploration in the Cuu Long Basin, and received additional acreage in an adjacent area in April 2005. ONGC of India was awarded drilling rights in the deepwater Block 127 in the Phu Khanh Basinoff Vietnams central coast in October 2005. ChevronTexaco also received acreage in the Phu Khanh Basin in the most recent round of awards, with an award for Block 122 in October 2005. PetroVietnams storage and transportation division, Petrolimex, recently completed a new oil storage facility in the central Khanh Hoa province. The depot is largest in the country, with a total storage capacity of 3.68 million barrels. Refining: Vietnam is in the process of building its first refinery. The $1.5 billion Dung Quat Refinery, located in Quang Ngai province, will have a crude distillation capacity of approximately 140,000 bbl/d. After several years of delays in financing the project, construction finally began in November 2005. Commercial operation of the refinery is expected to begin in early 2009. Vietnams distribution infrastructure is discontinuous, with the north and south of the country functioning largely as separate markets. Completion of the Dung Quat Refinery, located in the center of the country, should lead to greater interaction between the regions. A second refinery project is under consideration at Nghi Son, north of Hanoi in the Thanh Hoa province. The Vietnamese government has estimated the 150,000 bbl/d plant will cost $3 billion. In August 2004, Mitsubishi Corporation agreed to participate in building Nghi Son for completion in 2010. In December 2004, Vietnam contracted the International Business Company (IBC) of the British Virgin Islands to conduct a feasibility study for a third oil refinery, to be located at Vung Ro in the southern Phu Yen province. The Vietnamese government hopes to complete the refinery within 12 years. Natural Gas: Vietnams Oil Production and Consumption, 1980-2005. (Source: EIA, International Energy Annual 2003.). Enlarge: Vietnams Oil Production and Consumption, 1980-2005. (Source: EIA, International Energy Annual 2003.). Vietnam has proven gas reserves of 6.8 trillion cubic feet (Tcf), according to Oil and Gas Journal. Vietnams natural gas production and consumption have been rising rapidly since the late 1990s, with further increases expected as additional fields come onstream. Natural gas is currently produced entirely for domestic consumption. The Cuu Long basin offshore from the Mekong Delta in southern Vietnam, a source of associated gas from oil production, is the largest Vietnamese natural gas production area. Only two fields in Vietnam have been developed specifically for their natural gas potential: Tien Hai, with a potential output of 1.76 million cubic feet per day (Mmcf/d); and Lan Tay/Lan Do of Nam Con Son, which began producing over 5 Mmcf/d in 2002. In the Nam Con Son Basin, a $565 million, 230-mile pipeline was completed in June 2002 connecting the Lan Tay and Lan Do fields to the mainland at Vung Tau. The Nam Con Son project consists of five subsea wells linked to a production platform and a pipeline leading to an onshore treatment plant. Gas is piped to three generating plants at the Phu My industrial complex, where electricity is provided primarily to areas surrounding Ho Chi Minh City. In December 2004, the Vietnamese government announced that output from Nam Con Son was expected to reach 88 billion cubic feet (Bcf), exceeding planned production by 90%. The project currently supplies the Phu My 1, Phu My 3, Phu My 2.1 power plants and the extended Phu My 2.1 plant. Phu My 2.2 will begin using output from the field soon thereafter. In December 2002, a consortium headed by Korea National Oil Corporation (KNOC) signed an agreement to install facilities to pump and supply 130 Mmcf/d of natural gas to Vietnam. The natural gas, located in the Rong Doi and Rong Doi Tay fields on Block 11-2 of the Nam Con Son Basin, is sold to PetroVietnam under a 23-year contract. PetroVietnam resells most this volume to Electricity of Vietnam (EVN). Production at the fields began in mid-2005. In December 2004, KNOC and PetroVietnam signed agreements to further exploit natural gas in both Blocks 11 and 12. Construction of an additional pipeline to bring ashore natural gas from block 11 began in October 2005, and is scheduled for completion in October 2006. The Su Tu Den and Rang Dong oil fields, both of which have considerable Vietnamese reserves of associated natural gas, are located near the 62-mile pipeline from the Bach Ho field. An estimated 60 Mmcf/d of gas from the fields is earmarked for consumption in power plants in southern Vietnam. Both TotalFinaElf and ChevronTexaco (originally Unocal) have found natural gas in exploratory drilling of the Malay basin. Additionally, Talisman Energy has found natural gas at the Cai Nuoc field in block 46. The discovery is close to block PM-3-CAA, which straddles the maritime border with Malaysia, and is expected to contain up to 100 Bcf of recoverable gas reserves. A contract was awarded to McDermott International in March 2006 for construction of a 200-mile pipeline, which will transport natural gas from the PM3-CAA block to Ca Mau province in southern Vietnam. It is scheduled for completion in 2007. In December 2004, PetroVietnam announced that it was reconsidering the $70 million Phu My gas pipeline project from Phu My to Nhon Trach due to increased expenses associated with land costs in compensation areas. The pipeline was initially planned to transport associated gas from the Bach Ho and Rong fields for power generation. Coal: Vietnam contains coal reserves estimated at 165 million short tons (Mmst), the majority of which is anthracite. Production has increased dramatically over the last decade, with Vietnam producing over 18 Mmst in 2003. As a result, Vietnam exported a record 7 Mmst of coal, primarily to Japan and China, in 2003. Although Vietnam has historically relied on hydropower for electricity, it has recently promoted the construction of coal-fired power plants. Vinocoal plans to build eight coal-fueled thermal power plants with a total capacity of 2,900 megawatts (MW) by 2010. Six are currently in various stages of planning and construction. In December 2004, the Vietnamese government approved Vinacoals proposal to invest in a 200-MW, coal-fired thermal power plant in the Son Dong district. The plant is scheduled to begin operation in 2007. Coal-fired power plants are expected to eventually account for 25% of Vietnams total electricity production. The Vietnamese government estimates that 10.2 Mms t of coal is needed per year to meet increasing domestic demand, projected at 20,000 MW by 2010. Vietnam continues to exploit new coal reserves within its borders. In March 2003, a significant coal bed was discovered in the Red River Delta region of northern Vietnam. Vinacoal plans to use the reserve for thermal power plants. In October 2004, Vinacoal entered talks with Chinas Fujian Province Coal Industry Corporation to jointly exploit the Bac Coc Sau mine in the Quang Ninh province. Electricity: Vietnams Electricity Generation, 1980-2003. (Source: EIA, International Energy Annual 2003.). Enlarge: Vietnams Electricity Generation, 1980-2003. (Source: EIA, International Energy Annual 2003.). Although Vietnams per capita electricity consumption is among the lowest in Asia, demand has risen in recent years, straining the countrys limited generating capacity. Rapid commercial sector growth, population migration to major cities, and elevated living standards have all contributed to a growing demand for electricity. In 2003, Vietnam had a total electric generating capacity of 8.8 gigawatts (GW) and generated 39.7 billion kilowatt-hours (kWh) of electricity, of which 52 percent was hydropower. Electricity demand in Vietnam is forecast to grow 15 percent per year until 2010. Vietnam currently buys power from China to prevent shortages in the north, and plans to begin purchasing from Laos in 2008. The majority of thermal electricity generation in Vietnam depends on coal-fired plants, though natural gas use is expanding. EVNs Pha Lai is the largest coal-fired power project in Vietnam, with the second of two 300-MW units coming into service in 2003. In order to meet increased demand, construction or expansion is planned for 32 power stations (7,547 MW) before 2010. The state power company, Elà ©ctricità © of Vietnam (EVN), plans to commission 16 hydropower plants by 2010 and increased capacity at the Uong Bi coal-fired plant to 400 MW in 2005. Vinacoal also has plans to construct eight additional coal-fired power plants. Vietnam currently has five hydroelectric expansions underway. The countrys Son La project, which began construction in late 2005, is anticipated to have a generating capacity of 2,400 megawatts (MW) by 2012, will be the largest hydroelectric project in Vietnam when completed. In September 2004, construction began on the Ban Ve hydroelectric power plant, expected to begin operations in 2008. EVN began work on four additional hydroelectric projects in late 2004. The Dong Nai 3 and Dong Nai 4, both located in the Central Highlands region, are expected to be completed within four years and to provide approximately 520 MW of generating capacity. In December 2004, EVN began construction of the Se San 4 hydropower plant in the central highlands provinces of Gia Lai and Kon Tum. The plant is anticipated to have a capacity of 330 MW and to generate 1,390 million kWh per year. Vietnam also plans to build three additional plants in the region before 2010. In March 2004, EVN announced plans to spend $1.3 billion to build and refurbish power plants with a combined capacity of 1,510 MW. The projects include the combined cycle power plant Phu My 2.1, the hydroelectric facility Can Don, the Phu My 3 and Phu My 4 thermal plants, and Na Duong. Additional projects include the Song Ba Ha, Bac Binh, Se San 4, Dong Nai 3 and Dong Nai 4 hydrostations, the Quang Ninh, Ninh Binh extension, and the O Mon 600-MW thermal plant. The development of natural gas-fired plants in the Phu My complex of the Ba Ria-Vung Tau province has helped to offset Vietnams heavy reliance on hydropower, which can be vulnerable to disruption when monsoon rainfall is unusually low. In March 2003, the 720-MW Phu My 3 power plant commenced operations. The $450 million plant, owned by a consortium led by UKs BP, was Vietnams first foreign-invested, build-operate-transfer (BOT) project. EVN has contracted to purchase the output under a 20-year power purchase agreement. Mitsubishi received an award in February 2006 for the construction of a 330-MW natural gas-fired power plant in the southern Mekong delta. The plant will come online in early 2009, running initially on fuel oil, and switching to natural gas when pipeline infrastructure is completed. More foreign companies are beginning to enter the growing Vietnamese power market in the form of Build-Operate-Transfer (BOT) projects. EVN and a consortium including Tokyo Electric Power (TEPCO), Sumitomo, and Elà ©ctricità © de France (EdF) began BOT construction of the Mekong Deltas 715-MW Phu My 2-2 in January 2003. The plant is fueled by gas from Nam Con Son Basin. EVN plans to develop a national electricity grid by 2020 by patching together several regional grids. The countrys distribution infrastructure is poorly maintained, but has benefited from recent improvements. A North-South power cable transmits electricity from Vietnams largest generator, the Hoa Binh hydropower plant in the North, to large population centers in the South, linking the country into one electricity grid and helping alleviate electricity shortages in Ho Chi Minh City. The $56 million project was funded by the World Bank. Vietnam is considering the construction of a 500-KV, 188-mile power line from Pleiku to Danang city at a cost of $130 million. The Vietnamese government has estimated that an additional 9,300 miles of high-voltage transmission lines and 173,600 miles of medium- and low-voltage transmission lines will be necessary to accommodate new capacity by 2010. In September 2004, EVN announced plans to invest $330 million over five years to upgrade transmission lin es surrounding Hanoi. Vietnam plans to complete its first nuclear power plant by 2020 as an alternate means on meeting demand. In December 2004, the Vietnamese Ministry of Science and Technology submitted a pre-feasibility study for the 2,000-megawatt (MW) nuclear plant to the National Assembly. Fossil Fuels Coal, Oil and Natural Gas: Where Fossil Fuels Come From: There are three major forms of fossil fuels: coal, oil and natural gas. All three were formed many hundreds of millions of years ago before the time of the dinosaurs hence the name fossil fuels. The age they were formed is called the Carboniferous Period. It was part of the Paleozoic Era. Carboniferous gets its name from carbon, the basic element in coal and other fossil fuels. The Carboniferous Period occurred from about 360 to 286 million years ago. At the time, the land was covered with swamps filled with huge trees, ferns and other large leafy plants, similar to the picture above. The water and seas were filled with algae the green stuff that forms on a stagnant pool of water. Algae is actually millions of very small plants. Some deposits of coal can be found during the time of the dinosaurs. For example, thin carbon layers can be found during the late Cretaceous Period (65 million years ago) the time of Tyrannosaurus Rex. But the main deposits of fossil fuels are from the Carboniferous Period. For more about the various geologic eras, go to www.ucmp.berkeley.edu/help/timeform.html. As the trees and plants died, they sank to the bottom of the swamps of oceans. They formed layers of a spongy material called peat. Over many hundreds of years, the peat was covered by sand and clay and other minerals, which turned into a type of rock called sedimentary. More and more rock piled on top of more rock, and it weighed more and more. It began to press down on the peat. The peat was squeezed and squeezed until the water came out of it and it eventually, over millions of years, it turned into coal, oil or petroleum, and natural gas. Coal: Coal is a hard, black colored rock-like substance. It is made up of carbon, hydrogen, oxygen, nitrogen and varying amounts of sulphur. There are three main types of coal anthracite, bituminous and lignite. Anthracite coal is the hardest and has more carbon, which gives it a higher energy content. Lignite is the softest and is low in carbon but high in hydrogen and oxygen content. Bituminous is in between. Today, the precursor to coal peat is still found in many countries and is also used as an energy source. The earliest known use of coal was in China. Coal from the Fu-shun mine in northeastern China may have been used to smelt copper as early as 3,000 years ago. The Chinese thought coal was a stone that could burn. Coal is found in many of the lower 48 states of U.S. and throughout the rest of the world. Coal is mined out of the ground using various methods. Some coal mines are dug by sinking vertical or horizontal shafts deep under ground, and coal miners travel by elevators or trains deep under ground to dig the coal. Other coal is mined in strip mines where huge steam shovels strip away the top layers above the coal. The layers are then restored after the coal is taken away. The coal is then shipped by train and boats and even in pipelines. In pipelines, the coal is ground up and mixed with water to make whats called a slurry. This is then pumped many miles through pipelines. At the other end, the coal is used to fuel power plants and other factories. Oil or Petroleum: Oil is another fossil fuel. It was also formed more than 300 million years ago. Some scientists say that tiny diatoms are the source of oil. Diatoms are sea creatures the Picture of oil formationsize of a pin head. They do one thing just like plants; they can convert sunlight directly into stored energy. Oil has been used for more than 5,000-6,000 years. The ancient Sumerians, Assyrians and Babylonians used crude oil and asphalt (pitch) collected from large seeps at Tuttul (modern-day Hit) on the Euphrates River. A seep is a place on the ground where the oil leaks up from below ground. The ancient Egyptians, used liquid oil as a medicine for wounds, and oil has been used in lamps to provide light. The Dead Sea, near the modern Country of Israel, used to be called Lake Asphaltites. The word asphalt was derived is from that term because of the lumps of gooey petroleum that were washed up on the lake shores from underwater seeps. In North America, Native Americans used blankets to skim oil off the surface of streams and lakes. They used oil as medicine and to make canoes water-proof. During the Revolutionary War, Native Americans taught George Washingtons troops how to treat frostbite with oil. As our country grew, the demand for oil continued to increase as a fuel for lamps. Petroleum oil began to replace whale oil in lamps because the price for whale oil was very high. During this time, most petroleum oil came from distilling coal into a liquid or by skimming it off of lakes just as the Native Americans did. Then on August 27, 1859, Edwin L. Drake (the man standing on the right in the black and white picture to the right), struck liquid oil at his well near Titusville, Pennsylvania. He found oil under ground and a way that could pump it to the surface. The well pumped the oil into barrels made out of wood. This method of drilling for oil is still being used today all over the world in areas where oil can be found below the surface. Oil and natural gas are found under ground between folds of rock and in areas of rock that are porous and contain the oils within the rock itself. The folds of rock were formed as the earth shifts and moves. Its similar to how a small, throw carpet will bunch up in places on the floor. To find oil and natural gas, companies drill through the earth to the deposits deep below the surface. The oil and natural gas are then pumped from below the ground by oil rigs (like in the picture). They then usually travel through pipelines or by ship. Oil is found in 18 of the 58 counties in California. Kern County, the County where Bakersfield is found, is one of the largest oil production places in the country. But we only get one-half of our oil from California wells. The rest comes from Alaska, and an increasing amount comes from other countries. In the entire U.S., more than 50 percent of all the oil we use comes from outside the countrymost of it from the Middle East. Oil is brought to California by large tanker ships. The petroleum or crude oil must be changed or refined into other products before it can be used. Refineries: Oil is stored in large tanks until it is sent to various places to be used. At oil refineries, crude oil is split into various types of products by heating the thick black oil. Oil is made into many different products fertilizers for farms, the clothes you wear, the toothbrush you use, the plastic bottle that holds your milk, the plastic pen that you write with. They all came from oil. There are thousands of other products that come from oil. Almost all plastic comes originally from oil. Can you think of some other things made from oil? The products include gasoline, diesel fuel, aviation or jet fuel, home heating oil, oil for ships and oil to burn in power plants to make electricity. Heres what a barrel of crude oil can make. In California, 74 percent of our oil is used for transportation cars, planes, trucks, buses and motorcycles. Well learn more about transportation energy in Chapter 18. Natural Gas: Sometime between 6,000 to 2,000 years BCE (Before the Common Era), the first discoveries of natural gas seeps were made in Iran. Many early writers described the natural petroleum seeps in the Middle East, especially in the Baku region of what is now Azerbaijan. The gas seeps, probably first ignited by lightning, provided the fuel for the eternal fires of the fire-worshiping religion of the ancient Persians. Natural gas is lighter than air. Natural gas is mostly made up of a gas called methane. Methane is a simple chemical compound that is made up of carbon and hydrogen atoms. Its chemical formula is CH4 one atom of carbon along with four atoms hydrogen. This gas is highly flammable. Natural gas is usually found near petroleum underground. It is pumped from below ground and travels in pipelines to storage areas. The next chapter looks at that pipeline system. Natural gas usually has no odor and you cant see it. Before it is sent to the pipelines and storage tanks, it is mixed with a chemical that gives a strong odor. The odor smells almost like rotten eggs. The odor makes it easy to smell if there is a leak. Energy Safety Note! If you smell that rotten egg smell in your house, tell your folks and get out of the house quickly. Dont turn on any lights or other electrical devices. A spark from a light switch can ignite the gas very easily. Go to a neighbors house and call 9-1-1 for emergency help. Saving Fossil Fuels: Fossil fuels take millions of years to make. We are using up the fuels that were made more than 300 million years ago before the time of the dinosaurs. Once they are gone they are gone. So, its best to not waste fossil fuels. They are not renewable; they cant really be made again. We can save fossil fuels by conserving energy. Natural Gas Distribution System: We learned in Chapter 8 that natural gas is a fossil fuel. It is a gaseous molecule thats made up of two atoms one carbon atom combined with four hydrogen atom. Its chemical formula is CH4. The picture on the right is a model of what the molecule could look like. Dont confuse natural gas with gasoline, which we call gas for short. Like oil, natural gas is found under ground and under the ocean floor. Wells are drilled to tap into natural gas reservoirs just like drilling for oil. Once a drill has hit an area that contains natural gas, it can be brought to the surface through pipes. The natural gas has to get from the wells to us. To do that, there is a huge network of pipelines that brings natural gas from the gas fields to us. Some of these pipes are two feet wide. Natural gas is sent in larger pipelines to power plants to make electricity or to factories because they use lots of gas. Bakeries use natural gas to heat ovens to bake bread, pies, pastries and cookies. Other businesses use natural gas for heating their buildings or heating water. From larger pipelines, the gas goes through smaller and smaller pipes to your neighborhood. In businesses and in your home, the natural gas must first pass through a meter, which measures the amount of fuel going into the building. A gas company worker reads the meter and the company will charge you for the amount of natural gas you used. In some homes, natural gas is used for cooking, heating water and heating the house in a furnace. In rural areas, where there are no natural gas pipelines, propane (another form of gas thats often made when oil is refined) or bottled gas is used instead of natural gas. Propane is also called LPG, or liquefied petroleum gas, is made up of methane and a mixture with other gases like butane. Propane turns to a liquid when it is placed under slight pressure. For regular natural gas to turn into a liquid, it has to be made very, very cold. Cars and trucks can also use natural gas as a transportation fuel, but they must carry special cylinder-like tanks to hold the fuel. When natural gas is burned to make heat or burned in a cars engine, it burns very cleanly. When you combine natural gas with oxygen (the process of combustion), you produce carbon dioxide and water vapor; plus the energy thats released in heat and light. Some impurities are contained in all natural gas. These include sulphur and butane and other chemicals. When burned, those impurities can create air pollution. The amount of pollution from natural gas is less than burning a more complex fuel like gasoline. Natural gas-powered cars are more than 90 percent cleaner than a gasoline-powered car. Thats why many people feel natural gas would be a good fuel for cars because it burns cleanly. Biomass Energy: Biomass is matter usually thought of as garbage. Some of it is just stuff lying around dead trees, tree branches, yard clippings, left-over crops, wood chips (like in the picture to the right), and bark and sawdust from lumber mills. It can even include used tires and livestock manure. Your trash, paper products that cant be recycled into other paper products, and other household waste are normally sent to the dump. Your trash contains some types of biomass that can be reused. Recycling biomass for fuel and other uses cuts down on the need for landfills to hold garbage. This stuff nobody seems to want can be used to produce electricity, heat, compost material or fuels. Composting material is decayed plant or food products mixed together in a compost pile and spread to help plants grow. California produces more than 60 million bone dry tons of biomass each year. Of this total, five million bone dry tons is now burned to make electricity. This is biomass from lumber mill wastes, urban wood waste, forest and agricultural residues and other feed stocks. If all of it was used, the 60 million tons of biomass in California could make close to 2,000 megawatts of electricity for Californias growing population and economy. Thats enough energy to make electricity for about two million homes! How biomass works is very simple. The waste wood, tree branches and other scraps are gathered together in big trucks. The trucks bring the waste from factories and from farms to a biomass power plant. Here the biomass is dumped into huge hoppers. This is then fed into a furnace where it is burned. The heat is used to boil water in the boiler, and the energy in the steam is used to turn turbines and generators . Biomass can also be tapped right at the landfill with burning waster products. When garbage decomposes, it gives off methane gas. Youll remember in chapters 8 and 9 that natural gas is made up of methane. Pipelines are put into the landfills and the methane gas can be collected. It is then used in power plants to make electricity. This type of biomass is called landfill gas. A similar thing can be done at animal feed lots. In places where lots of animals are raised, the animals like cattle, cows and even chickens produce manure. When manure decomposes, it also gives off methane gas similar to garbage. This gas can be burned right at the farm to make energy to run the farm. Using biomass can help reduce global warming compared to a fossil fuel-powered plant. Plants use and store carbon dioxide (CO2) when they grow. CO2 stored in the plant is released when th