Answer to Question #202413 in Management for @bridget

Question

Why should electricity generation plants (Eskom) keep more stock rather than less stock? 

(10)

2. On contrary, why should retailers such as fruit and veg not keep too much inventory? (10)

3. What will be the economic importance of holding inventory for Eskom? (10)

4. Wet coals have also been identified as one of the issues causing load shedding in the 

country. Eskom have not been happy with the current supplier for some time. Discuss how 

should Eskom go about a negotiation process with a prospective new supplier. (30

Answer 1

1) Electricity is one of the most pressing issues in order to control the load shedding keeping extra stock approx (+ 30%) is mandatory. Eskom should always keep more stock so that customer service targets can always be met without compromising cash flow or running out of stock. Running out of stock can lead to loss of revenues and customers start lacking confidence in Eskom. It is cost-saving also for electricity generating plants to hold more power than when holding less power. Lastly, the large stock is very useful in a nation to keep running production instead of experiencing power outages.

2) Retailers of fruit and veg should not hold too much stock because those are perishable goods and can spoil quickly which would lead to many losses as customers will be willing to buy.

3) The economic importance of holding stock is cost saving. secondly, more power in the economy means no power outages and thus production keeps going which leads to economic growth.

4) Eskom should prepare the information that they need to discuss with wet coal suppliers and have ways in which they want to be solved in the mind. Upon meeting with the supplier, the Eskom team should present their information and identify loopholes in their requirements from suppliers for example in their problem of load shedding. Thirdly, they will bargain their minimum ethical standards required from their standards and have the supplier's point of view. After the bargaining process, Eskom and the supplier should then move to execute their decisions.