Case study about KEPCO

Interviewee Name: Qaiser Iqbal (Assistant Prchasing Manager Cell # 0345-7200277

History
Kot Addu Power Company limited (KAPCO) was incorporated in 1996 with the purpose to contribute economic power to national grid. KAPCO has shown exceptional results in the area of plant maintenance availability, quality standards and financial performance. In April 2005 KAPCO was formally listed on all three stock exchanges of Pakistan. KAPCO is committed to contribute in Pakistans economy by powering the lives of its people by continuously improving its performance through efficient systems, capable workforce and good governance.

Vision Statement
To be a leading power generation company, driven to exceed our shareholders expectations and meet our customer requirement.

Mission Statement
To be a responsible corporate citizen To maximize shareholders return To provide reliable and economic power for our customers To excel in all aspects relating to safety, quality and environment To create a work environment which foster pride, job satisfaction and equal opportunity for career growth for the employer KAPCO is private limited (Pvt Ltd) company. The company is not owned by a single owner rather it has different shareholders; swiss has 36% shares; WAPDA has 48% shares and rests of the shares are owned by public. Autonomous body is board of directors. KAPCO has no competitor because it generates single product and supply according to the demand. There are 570 employees who are working in the KAPCO, of which 100 are officers, 470 are staff employees and 1000 indirect employees like security guard etc. Company project start in 1986 and completed in 1995 and privatized in Benazir Government in 1996. KAPCO fulfill procurement needs through right material on right time evaluation on economic factor, so best possible material/services with best charges. Logistics contain foreign and local types. C&P Contract and procurement handle foreign and local purchasing both. So central logistic system through C&P and distribution system is very easy distributed to WAPDA when it demands. Suppliers in KAPCO are listed. 177 suppliers contain mechanical, chemical, electrical etc. One year listed and every year revise based on their performance, material quality etc. More conscious about quality, so company is more conscious about raw material quality. KAPCO generate electricity so using three different fuels

namely (i) Natural Gas, Low sulfur (ii) furnace oil and (iii) High speed diesel (HSD). So quality based on three things and demands 100% quality in these 3 fuels quality assurance lab checks quality and make standards if not according to the standards and quality not accepted. Power Purchase Agreement ("PPA") The PPA is between WAPDA and KAPCO. Inter alia, the PPA determines the tariff structure and principles of operating the Power Plant. The PPA includes an implicit return built into the tariff provided. KAPCO maintains its available capacity at the contractual level identified in the PPA. KAPCO has robust and effective engineering, financial, procurement and HR strategies in place to ensure that contractual capacity levels are maintained. Over the last two years, dependable capacity levels have been significantly above the contracted levels. Gas Supply Agreement ("GSA") The GSA is between Sui Northern Gas Pipelines Limited ("SNGPL") and KAPCO. Inter alia, the GSA guarantees a certain quantity of gas deliveries during off peak months from SNGPL. Oil Supply Agreement ("OSA") The OSA is between KAPCO and Pakistan State Oil Company Limited ("PSO"). PSO is the largest oil marketing company in Pakistan and is engaged in the nationwide storage, distribution and marketing of various petroleum, oil and lubricant products. Inter alia, the OSA covers the supply to KAPCO of fuel, diesel, oil, greases, lubricants and additives for the requirement of the Power Plant. Communication between upstream and downstream through emails, file based company is more conscious about continuous improvements. So doing many efforts both business and human capital. For business used best practices and for human capital HR department doing good effort. Company also interested in continuous improvement. KAPCO is awarded the title of integrated management system (IMS). Quality Management System KAPCO Quality Management System ensures that processes of the organization are defined in accordance with recognized international standards. This system serves as a tool for providing confidence to management (Internal Quality Assurance) and to customers & shareholders (External Quality Assurance). Environment Management System Environment Management System provides a systematic approach to comply with National Environmental Quality Standards (NEQs). Plans have been established for monitoring and continuous improvement in our environmental performance. Occupational Health and Safety Management System Being a Safety conscious company, KAPCO has implemented an Occupational Health and Safety Management (OH&S) System. This system has enabled the Organization to control OH&S risks and improve health and safety performance. The System has been planned on the basis of OH&S hazards & risk assessment and relevant legal requirements of the Country. For operation of the System, responsibilities, awareness & training, documentation operational control, departmental objectives and emergency preparedness/ response have been implemented at all levels in the company. Performance of the System is monitored, measured and recorded and actions are planned accordingly. Consistent adherence with the System and continual improvement is ensured by periodic management reviews and internal/external audits.

In July KAPCO was awarded ISO 19001-2000 certification quality management system, ISO 14001-1996 Environment management system and OHSAS 18001-1999 occupational health and safety management. Strategy adopts to minimize cost by using research and technology but not using any strategy to offer new product because it produce only single product. Collaborative planning about business continuity and procurement, so planning based on historic data base and in procurement mostly procurement for plant parts. So take help for users (mean take help to those industries who used these parts) KAPCO used/adopt SCM cycle in which company demand raw material, maintenance parts and consumable goods thats important for operation. Supplier Supply to company Company check quality according to the standards accept if meet standards otherwise not. Procurement cycle in KAPCO based on two things: Parts purchase on stores: in which KAPCO has own department where parts available at reorder point. Mostly 80% purchase according to this material purchase on officer recommendation. Direct Purchase: When need than purchase otherwise not. Demand Planning Process In demand planning process PPA (Power purchasing agreement) is used so to fulfill demand and supply needs. When WAPDA demand, KAPCO generate according to the demand and capacity. Risk involved in procurement is that all parts are imported from foreign countries only communication based and invest huge amount so risk is that if these parts not fit to the plant than it becomes a savior problem, so risk is managed through modification or replacement but replacement exist in rare cases because supplier has huge knowledge about plant equipment so risk is minimized. Inventory Valuation method is done through computerized system because inventory contains more than thirty thousand different items. KAPCO uses software named Q4 Power system which is made by a U.K Company named ENGICA. Through this software they evaluate and control the inventory, material, manufacturing, distribution, and cost. KAPCO deal with uncertain demand of material through Siemens Germany LTS (long term supplier agreement). In which import in on urgent basis so through this deal uncertain demand is met. KAPCO negotiate with suppliers on the basis of different things like competitive base, watching companys profit margin and historical prices means compare previous and present transaction/dealing amount and also negotiate on technical base means why some parts are cheaper and why others are more expensive, so purchasing and negotiation is done by procurement department. KAPCO also agreed about cycle time required for supplier. Make agreement with supplier according to the cycle time. Cycle time is different for each item; some are having 7 days cycle, while some have 8-10 weeks cycle. Store

department handle order quantity if order or quantity take more than specified time then check the status in the store and inquire reasons for delay. Most common reason is that given order contain few things, sometimes demand shipment expenses in advance so store department handle all these things. For safety of inventory and warehouse proper standard is set. Proper audit is done twice a year, closing store in June, check stock inventory once a year, safety walk activity done monthly, quarterly basis. Experts visit the warehouse and take actions if threat is found during the observation process. KAPCO used ICT earlier, but they switched to Q4 power made by ENGICA software firm, it increased efficiency by controlling cost, proper control on material, manufacturing, and distribution and also control delays through negotiation, relationship with supplier, making rules and regulation. Store department control delays and follow up KAPCO is web enabled company and through website communicate with supplier and customer (WAPDA). www.kapco.com.pk For employees done good job provide PPE Personal Protective equipment for safety and dangerous provide or give employees development training programs. Also provide incentives housing facility, medical treatment, and education for children, free electricity, and every year give chance of UMRAH or HAJJ. KAPCO owns and maintains housing facilities for its employees and their families. The residential colony is spread over 170 acres and comprises over 900 houses, a ten bed hospital, staff and officers' recreation facilities, two shopping centres, a bachelors hostel, a guest house, secondary schools for boys and girls and three mosques. The employees and their dependants are provided with full medical cover. KAPCO is an equal opportunity employer. KAPCO maintains a strict induction standard and uses a merit base when hiring new employees to ensure the concept of the "Right Person for the Right Job". KAPCO play important role in corporate social responsibility like Health Care Provision of health care equipment, infrastructure facilities to up-grade the standard of local government hospitals, primary and preventative medical care including free consultation, medicines, vaccinations, eye operations, surgeries and complete treatment of diseases like Tuberculosis for deserving patients. Enhance awareness among the local community in preventative health care. Education Provision of infrastructure facilities such as construction of class rooms, toilets, furniture, electric water coolers, scholarships, books, uniforms and bags to deserving students. Gold Medals to the top achievers of Kot Addu in SSC and HSSC examinations. Infrastructure Improvement of infrastructure facilities in surrounding areas such as provision of street lights, construction of public waiting rooms at

bus stands, electric water coolers, fans, benches, and improved sewerage systems. Training and Development Provide technical training opportunities to local students through Apprenticeship Training Schemes and internships. Sponsorships Provision of financial assistance and prizes to local sports events.