Inventory management in the electricity industry in South Africa: a case study.

Abstract

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