Business Process Modeling (Disc 230)

Section 2

Group 7
Group Members:
Muhammad Usman Khan (21110029)
Muhammad Moiz (21110344)
Maham Valeed Baloch (21110115)
Subhan Sohail (21110091)
Mahnoor Malik (21110137)
Table of Contents
Introduction ....................................................................................................................................3
Executive Summary .......................................................................................................................3
Operations Strategy .......................................................................................................................4

Problems and Solutions ................................................................................................................5

Transportation Problem ........................................................................................................5
Transportation Solution .........................................................................................................7
Warehouse Location Problem ...............................................................................................8
Warehouse Location Solution ...............................................................................................9

Feasibility .....................................................................................................................................10
Appendix .......................................................................................................................................11
References .....................................................................................................................................12
Introduction:

The Fatima Fertilizer Company Limited was incorporated on December 24, 2003, as a joint
venture between two major business groups in Pakistan namely, Fatima Group and Arif Habib
Group. The firm produces two intermediate products Ammonia and Nitric Acid and four final
products Urea, Calcium Ammonium Nitrate (CAN), Nitro Phosphate (NP) and Nitrogen
Phosphorous Potassium (NPK) this can be seen in their production process (Appendix A). The
firm sells its products under the umbrella brand name of Sarsabz fertilizers. Agriculture plays a
vital role for the economy of Pakistan and its development, it has a huge contribution towards the
GDP, therefore, how the industry operates and its efficiency has an overall impact on the
country. The type of company Fatima Fertilizers is their day to day operations in particular have
a significant impact on the overall performance of the company.

Executive Summary:

The fertilizer industry is highly impacted by the seasonal variations due to which efficient
management of inventory and transportation issues have a significant role in minimizing the cost
of the company. Fatima Fertilizers provides materials in all parts of the country because of which
effective management of resources is important for the overall efficiency and profitability of the
firm. Their warehouses are based mainly in Punjab, KPK and Sindh and hence, transportation
issues are an integral part in how effectively they manage their cost and reach deadlines with
potential clients. 2 major problems in the distribution and warehousing were identified. Firstly,
due to seasonal demand the availability of contractors is a major issue that Fatima fertilizers are
facing. This problem can worsen due to the progression of CPEC and strict regulations by HEC.
To solve this problem we believe that Fatima fertilizers should modify the contracts with the
contractors. We suggest that they should focus on a contract which is based on the volume of
fertilizer being carried. This would solve the problem of inefficient truckloads and higher costs.
The transporters would be required to optimize the truckloads while the organization would only
be responsible for supplying the product volume agreed upon. Moreover, we suggest that
relationships should be developed with a few transporters and they should be assigned a larger
quota to motivate them and prevent shortages of trucks in times of need. For long term, we
believe that Fatima Fertilizer needs to invest in developing their own fleet of transportation
trucks.
Moving on, the second problem we identified was regarding the optimization of warehouse
networks. The current warehouses were having location and capacity problems due to inefficient
analysis of demand and supply which was resulting in high costs. We provided a linear
programming model that minimized the transportation cost while bringing into account the
demand of certain cities. We were able to optimize the number of trucks required by each
warehouse. Lastly, in this report we have incorporated a feasibility report sent to us by the
Distribution manager of Fatima Fertilizers who has shared his opinion and explained the likely
problems that can arise in implementing our solutions.

Operation Strategy:

Fatima Fertilizers believe in providing its customers high quality products. It believes in
continual improvement with attitude that no matter how good quality is, it can always be
improved thus quality is incorporated throughout the supply chain. The Procurement department
makes sure that the procurement is conducted in an ethical manner, ensuring that what is
procured is required and is of the best quality at competitive prices. Similarly, in the production
process Fatima fertilizers have well trained workers in order to assure that the process of
producing the fertilizers are done without error. This is important because the raw material for
most of the fertilizers is natural gas that is in limited quantity thus it is important to have well
trained workers during the process so that quality is maintained otherwise it will result in a lot of
wastage.

Moreover, Fatima Fertilizer’s distribution, handling and warehousing department also ensures
that quality is not compromised during the distribution chain (Appendix B). For example during
the loading of the bags it is assured that the moisture level of the trucks are accurate and that the
bags, especially of Urea, are not placed on each other as it can be damaged due to a lot of
pressure. This department like others uses internal processes, information flows and IT systems
in order to achieve efficiency. It has established a Quality Assurance arm to ensure that the IT
solutions and services attain the highest standards of quality.

Furthermore, Fatima fertilizers complies with the HSE ‘vehicle at work’ legislation so trucks and
other vehicles used are well maintained and inspection is done on time and mileage basis. This is
done so that the trucks are safe to use by the drivers for transporting the goods.
Furthermore, in order to make sure that all of their projects are providing good quality products
and services they have recently established The Project Management to centrally manage,
monitor and track all projects. Project charters and project plans are prepared and published prior
to the start of the project and a Project Close out (Post Mortem) session is conducted every year
to review key lessons learned from projects for improvement in future projects.

Moving on, Fatima fertilizers uses Oracle Transportation Management (OTM) tool for
transportation and warehouse management. It helps Fatima Fertilizers in transportation planning,
execution and optimization of the distribution of their products. This is important as unlike its
competitors, who produce only Urea, Fatima fertilizers has diversified product portfolio that
includes Urea, Calcium Ammonium Nitrate (CAN) and Nitro Phosphate (NP). This helps them
in reducing their delivery time and there is less mismanagement otherwise it can be very costly.

Lastly, As Fatima fertilizers aim at creating value for their stakeholders through continuous
excellence in our operational efficiencies, strategic planning and robust implementation for
driving our market position. This is achieved by focusing on their ‘sustainable competitive
advantage’. Their main focus is on environmental-friendly and energy efficient operations.

Problems and Solutions

Transportation Problem
Having production plants in only a few parts of the countries and demand all over, it becomes a
necessity for Fatima Fertilizer to ensure the transport of the finished goods to meet this demand.
Moreover, the fact that the production plants do not have any storage capacities, the product
needs to be moved within 24 hours of its production.
To ensure this Fatima Fertilizer has various transporters bounded under contracts which help the
organization ensure the rising demand for fertilizers across the country. However, the process of
selecting these contractors and ensuring that sufficient trucks are available in times of need is a
challenge in itself. There is a lot of seasonal variation in the demand of fertilizer and hence the
stocks that are maintained accordingly. This variation coincides with demand for other products
like coal and cement which also require transportation trucks. Thus sometimes appropriate trucks
may not be available at required times. For example, at a time 3000 metric tonnes is supposed to
be transported but the all the 3000 metric tonnes capacity trucks are occupied. Hence, to meet the
demand a 6000 metric tonnes capacity truck may have to be used. This would mean that only
half a truck load is being carried which would result in higher costs as compared to the scenario
when a 3000 metric tonnes capacity truck would be used. This problem may exist due to various
other reasons such as the existence of strict guidelines for the selection of transporters. For
instance, to work for Fatima Fertilizer, the transporting company should follow all HEC
Guidelines; have optimally working trucks which satisfy environmental regulations as well.
These strict guidelines although ensures safety and quality, it also results in fewer transporters
being available. Moreover, the situation is not expected to improve with the progression of
Pakistan into CPEC. This initiative, although means more development for Pakistan, in this
regard it means more workload on the already few capable transporters available in the country.
Furthermore, to make matters worse Fatima Fertilizer has even faced the issues of pilferage at
the hands of a few of the transporters. With a few incidents that were referred to where the
transporters were taking the product to the black market and selling them there rather than the
final customer, Fatima Fertilizer is facing the problem of theft at the hands of its contractors.
Hence, these issues related to the transportation are preventing Fatima Fertilizer to reach its full
potential in efficiency in distribution and organization of its supply chain channels.

Transportation Solution
Short-Term:
Fatima Fertilizer needs to make active efforts in order to solve the problems they are facing in
both the short and the long term. They need to ensure accurate forecasting of their customers
seasonal demand alongside other industries which require this product. This holistic forecasting
would firstly ensure their awareness regarding their need for transporters, especially in high
demand seasons and would ensure that there is no shortage of transporters in times of need.
Moreover, it is essential to revise their contract conditions. Currently, their contracts with the
transporters are based on the distances and fuel consumption. However, we suggest that they
should focus on a contract which is based on the volume of fertilizer being carried. This would
solve the problem of inefficient truckloads and higher costs. The transporters would be required
to optimize the truckloads while the organization would only be responsible for supplying the
product volume agreed upon.
Currently, a number of transporters are being used to carry the product and quotas are assigned
equally. However, we suggest that relationships should be developed with a few transporters and
they should be assigned a larger quota to motivate them and prevent shortages of trucks in times
of need. This would prevent transporters from working for other businesses and the loyalty
would be rewarded by bulk discounts and efficient transportation. This would require an
Integrated Logistics Managements System which would improve the overall movement of the
finished goods.
Long-Term:
Currently, since there is no storage capacity in the production plant, the product must be moved
right after its production. However, to avoid this, we suggest that a small warehouse be build
right next to the production facility which would give the organization some cushion time to
move the product as it can be held at the production facility without disrupting the continuous
production process.
Given the magnitude of operations of Fatima Fertilizer and the integral place transportation holds
in the whole process, we believe that Fatima Fertilizer needs to invest in developing their own
fleet of transportation trucks. Since we realize the size of the operations and the considerable
investment required, we suggest that 15 percent of the transportation load be shifted to own fleet.
This would solve various problems. Given that the drivers and trucks will be their own, an
assurance of quality can be managed. Furthermore capable drivers will be present during all
seasonal fluctuations without any pilferage as the system will be monitored closely. Lastly, with
CPEC developing, the risk of unavailable transporters or extremely high costs being charged by
transporters will be avoided.
In this way, Fatima Fertilizer can solve existing problems and capitalize upon the potential
development to make their operations efficient, while fulfilling their customers’ needs
effectively.

Warehouse Problem
Warehouse, inventory and supply chain management play an integral role in how the company
effectively and efficiently manages its resources. After meetings with the company representatives
and the research we conducted, we found out about the problems Fatima Fertilizers were facing
related to their warehouses and transportation. The manufacturing plants, warehouses and
transportation are correlated with how well the operations of the company function overall and their
smooth functioning is completely reliant on how well these domains are managed.
The issues with regards to the warehouses and plants are related to their location and capacity. The
manufacturing plants of Fatima Fertilizers have no storage capacity at all which makes the entire
process less efficient as the need to transport the product back to the warehouses increases. The
transportation of the material produced is divided into 2 types of containers (6000 and 3000 metric
ton), due to the fact that the transportation needs to be done on immediate basis, a lot of capacity is
wasted on this a trucks go half loaded. This is due to lack of feasibility and efficiency tests being run
by the company and how lack of optimization models and their implementation means that such
wastage of resources is a common occurrence. Fatima Fertilizers currently do not follow an ILP
(Integer Linear Programming) model which affects their overall efficiency in managing the
inventory and also the transportation of those goods.

Another problem faced by the firm is how all of their warehouses are on rent and lease which means
there’s a significant distance between their warehouses and plants. This does not only lead to higher
transportation costs but also wastage of the products being used, the wastage occurs due to the
product containing a chemical compound called “UREA” which has certain scientific properties
which need to be taken care off. Considering the fact that such a product is slightly tough to
maintain and look after, this has turned out to be a huge problem for the company as their whole
locations strategy will have to be altered to cater to this problem. These problems are concerned
with the company policy of not actually owning the warehouses due to which they are never near
the production plants leading to issues like wastage, pilferage and high transportation costs.

Lastly, Fatima Fertilizers also need to stay within the company policies related to the overall
transportation model which currently is outsourcing the work to other transportation companies
which has proven to be a tough task to effectively manage and control. Considering the importance
of having an efficient transport system for a company whose operations and profits are based on
how quickly the gap is filled in the market by being the most widely available fertilizer company,
not having a fleet of their own has significantly affected their progress. Not only does the out
sourcing bring in a level of uncertainty in the level of service being provided but also always
increases the cost and risks associated with managing and controlling the work done by other
companies. These restrictions make it tough for the company to find the right balance between cost
minimization and increasing effectiveness of their operations. Fatima Fertilizers is thus unable to reach its
full potential due to the aforementioned reasons.

Warehouse Problem Solution:

This is a network modeling simulation of the model that we presented to the management of
Fatima Fertilizer. The primary objective function of this model is to minimize transportation
costs while bringing into account the demand of certain cities. The main distribution facilities of
Lahore, Multan, Faisalabad, Bahawalpur, DG Khan and Sukkur have been brought into
consideration with their respective percentage demand of the total production. The assumption
used here is that the number of tons of fertilizers produced by Fatima Fertilizers equals the
number of tons demanded by specific contractors. The fact that the distances between the
production facility and different distribution centers vary, has been incorporated in transportation
cost for different cities. Also, the cost of transportation per 6000 metric ton truck is 30% more
than that of cost of transportation per 3000 metric ton truck. The availability of a particular
number of 3000 and 6000 metric ton truck at a certain period in time is one of the few constraints
that Fatima Fertilizer faces. Due to fluctuating demand of fertilizer and random variation of
number of trucks available, the average of the whole year has been calculated. Hence the
decision variable of ‘the number of both the 3000 and 6000 metric trucks required per annum’
has been determined. The values will be rounded off to the nearest integer for a clearer
conclusion.

Feasibility:

Operating in a fluctuating economy there are several factors that do indeed create problems in
our transport system and distribution channel. Having to rely on external vendors to transport our
products we are face with a competitive market and fluctuating rates and scarcity of transporters.
Especially at the time of Kharif and Rabi the transporters are tied up transporting crops and we
face a shortage. Renegotiating our contracts would actually help us have them tied to us and
offer us fixed rates as per the contract and on the basis of volume, and we will not be concerned
with LTL and FTL issues as the burden would be on the transporters. However, we have
outstanding contracts which will have to be completed and then negotiated. With respect to
having our own fleet, it needs to be cost-effective for the organization as that would entail a
setting up of a new transportation department, hiring of full-time employees, capital investment
and training & development. If the IRR of this project will be the same or higher than KIBOR
than we cannot implement it and our current system of transportation is more cost effective.

Currently, our warehouses are leased on rent that reduces the ownership of the building and
reduced capital investment. Building storage with our plant would entail capital investment and
also ownership of the structure. However, it would certainly increase supervision and security.
And if it is lean time then having the stock on site would reduce pilferages and also reduce the
transportation costs to the warehouse and instead could be directly supplied to customers.
Appendix

Appendix A

Appendix B
 References:

Fatima fertilizers company limited. 2018 Annual Report (italics). Pakistan:Fatima Group, 2018.
Print.