KENYA PIPELINE COMPANY LIMITED
Introduction
In most economies, petroleum products are typically in high demand. For instance, South Sudan, Congo, Rwanda, and Uganda rely on Kenya for petroleum products (Gicharu & Mang’usho, 2017). Kenya is a net importer of petroleum products. It has a refinery owned and managed by the Kenya Petroleum Refineries Limited (KPRL). This is an eight hundred kilometer cross country oil pipeline from Mombasa to Nairobi and Western Kenya with terminals in Nairobi, Nakuru, Eldoret, and Kisumu. These are run by the Kenya Pipeline Company (“International Business Publications, 2013).
The Kenya Pipeline Company was established in 1978 and is fully owned by the Kenyan Government (Kipkirui et al., 2019). The main goal was to provide efficient petroleum from Mombasa to the hinterland. It also builds and maintains an oil pipeline for the conveyance of petroleum products and processes and distributes petroleum products. The products carried by the pipeline include kerosene, light diesel oil, jet fuel, industrial diesel, regular and premium blends of petrol (Ochieng’ and Maxon, 1992). Crude oil and products being transported by high-pressure pipelines have become a cost-effective method that saves energy over long distances. This is because before the pipeline went into commercial operation, millions of tonnes of white products were carried by rail from Mombasa to Nairobi and the other half by tankers (Admir Celovic, 2018).
Looking into this company, we would have to get into knowing its inventory management, the risks that are most prevalent in the company, and the technology that has worked into its operations management.
INVENTORY MANAGEMENT
An inventory is the array of finished goods or goods used in the production held by a company (Kenton, 2020). Inventory management on the other hand is the process of ordering, storing, and using a company’s inventory. This usually includes the management of raw materials, components, and finished products as well as storing and processing the items (Hayes, 2019). An inventory account has the raw materials, work in progress, and finished goods. In this case, the crude petroleum would be the raw materials, the work in progress would be the services the company offers and the finished goods would be the petroleum products it supplies.
The Kenya Pipeline Company offers several services. First, it receives from stakeholders and stores, transports, and distributes refined products such as diesel, kerosene, unleaded motor gasoline, and aviation turbine fuel. It tests for quality certification of refined petroleum products and receives and backloads refined petroleum products from and to ships. It also transfers refined petroleum products to oil marketers’ depots and facilitates the feeling of aircraft. Lastly, it distributes refined petroleum products for local and export markets (Kenya Pipeline Company, 2017). The company is also all about giving back to the community.
Inventory management is therefore put in place to balance the risk of shortages or surplus. Some management methods include just-in-time (JIT) manufacturing, materials requirement planning (MRP), economic order quantity (EOQ), and days sales of inventory (DSI) (Hayes, 2019). Due to the nature of the company, the EOQ model is the most employed. The company calculates the number of units it should add to its inventory with each batch order to reduce the total cost of its inventory while assuming constant consumer demand (Hayes, 2019). This ensures that the company orders the right amount of inventory per batch so it does not make orders too frequently.
THE RISKS
The risks faced by the company are grouped into five which are strategic risks, operational risks, environmental, health and safety risks, financial risks, legal and regulatory risks (Kenya Pipeline Company, 2017). Strategic risks are those that affect the strategies and objectives of the company. These include things like a decline in market share, project delivery constrains, reputation, and capital unavailability. Operational risks are the risks experienced every day in the company. They are process failures, system failures, and people risks, product loss through leakage from the pipeline, or clogging of the pipes.
Financial risks affect the company finances and they are fraud, litigation, and liquidity. This is normally affected by external factors like availability of credit, foreign exchange rates, interest rate movement, and market exposure. Environmental factors relate to issues of health, safety, and environmental hazards. They are accidental fires in the company and attacks by terrorists in the country. Legal and regulatory risks related to the legal responsibilities of the company such as non-compliance to ERC, NEMA, KRA, and other bodies (Kenya Pipeline Company, 2017). For the company to function properly, the risks would need to be managed.
OPERATIONS MANAGEMENT
The Kenya Pipeline Company majorly transports, stores, and distributes oil products. The pipeline network runs from Mombasa to Nairobi, Nakuru, Eldoret, and Kisumu. Since it was commissioned in 1978, the pipeline of 450 kilometers and 14-inch diameter, eight pump stations, and a flow rate of over 830,000 liters per hour (Kenya Pipeline Company, 2017). The infrastructure consists of 1792 kilometers of multiproduct pipeline and associated facilities. The oil products are transmitted in a single line at intervals. The task of ensuring the products are not contaminated is done by the quality.
The storage capacity within the system is around six hundred million distributed across depots (Kenya Pipeline Company, 2017). These tanks store the oil till it needs to be packaged on tankers for distribution. The ICT at Kenya Pipeline enables the people to know the flow rates of the oil being pumped. It is also able to detect leakages and faults in the pipes (Kipkirui et al., 2019). From there the petroleum products can then be distributed to various sellers and private companies. At this time, they are being transported by tankers. Without a proper system layout that the employees follow, the company would not be able to operate properly.
CONCLUSION
The transportation and distribution of oil-based products by Kenya Pipeline are important in the social-economic development of Kenya. For the transportation and distribution of petroleum products to be efficient, it ensures that the right volumes of the products delivered at the right price in a sustainable manner (Kipkirui et al., 2019). Using the inventory management, the company can be able to know and to control what amount of oil they receive at s given time depending on the demand of the market. The risks also need to be classified and paid attention to because ignoring them makes the company have vivid weaknesses that could lead to its collapse. Nonetheless, Kenya Pipeline is still among the most important companies in Kenya because of the purpose it serves the country.
REFERENCE
Ochieng’, W. R. and Maxon, R. M. 1992. An Economic History of Kenya. East African Educational Publishers Ltd.
International Business Publications. 2013. Kenya. Energy Policy, Laws, and Regulation Handbook. Volume 1. ISBN 1-4330-7187-8. Page 46.
Otieno, H.O. and Awange, L.J. 2006. Energy Resources in East Africa. Springer Berlin Heidler New York.
Kenya Pipeline Company. 2018. Annual Report and Financial Statements.
Kenya Pipeline Company. 2017. Annual Report and Financial Statements.
Kipkirui, S. K. et al. 2019. Strategic Factors Influencing Transport and Distribution of Petroleum Products in Kenya: A Case Study of Kenya Pipeline Company. World Journal of Innovative Research. Volume 7. ISSN: 2454-8236. 1-9.
Gicharu, P. N., and Mang’usho, Y. S. 2017 October 29. Factors Influencing Supply of Petroleum Products in Kenya Pipeline Products in Kenya; A Case of Kenya Pipeline Company, Eldoret Depot, Kenya. American Scientific Research Journal for Engineering, Technology, and Sciences. Vol 37 No 1 (2017).
Clovis, A. 2018 August 13. Nairobi Mombasa Refined Products Pipeline Completed. Pipeline Technology Journal.
Kenton, W. 2020 July 5. Corporate Finance and Accounting Statement. Investopedia. https:// www.investopedia.com/terms/i/inventory.asp
Hayes, A. 2019 May 18. Corporate Finance and Accounting. Investopedia. https:// www.investopedia.com/terms/i/inventory-management.asp.
“Kenya Pipeline Company”. 2017. Kenya Pipeline Company. https://www.kpc.co.ke