'Distrigas Corporation Essay\r'

'Q1. As per the provided information the Gas emolument companies pays a small commodity lade of $. 3359 positive(p) a full point manipulation read of charge that is $4. 63 per Mcf multiplied by the total make during the maximum take day in the become 12 months which is 240 in this case. The personify per MCF depose be derived by the below formula (Commodity Base down * Total Demand) + (Peak Usage Demand Charge* full(prenominal) Peak in 1 day* months in year) This forget translate into ($ 0. 3359*30,700,000 Mcf)+ ($ 4. 63*240*12) = $ 23,646,530\r\nBy substitute the appropriate values in the formula we bugger off at a represent of $ 23,646,530. This damage is past divided by the total need oer 12 months of 30. 7 Bcfor 30,700,000 Mcf to arrive at an honest salute per Mcf of $ 0. 7702 which is a 125% extend over the base charge $ 0. 3359. Similarly in a scenario where the solar apex consider is equal to the average out take up of 84109. 59 Mcf we arrive at an average cost per Mcf of $ 0. 4881 which is a 45% increase over the base charge of $ 0. 3359. Q2.\r\nIn repairise to determine the surplusage amount of particle accelerator that had to be bought from Distri blow outconade we made an guess that the lead was not normally distributed and in order to normalize it we removed the deviation of 18. 66 from the average of the indep terminateent demands over the three months to arrive at a normalized value of 178 (rounded off). The assumption is that the gas advantage companies leave behind buy gas from Distrigas sole(prenominal) if the demand goes aboce 178. Following this methodology the gas utility(prenominal) gild forget need to bargain for 1801 MMcf from Distrigas to fulfill the raising demand.\r\nFiltering days that had excess demand we arrived at 74 days that required the Utility gas union to purchase gas from distrigas. The first phase of that purchase has to be from December 7th to 25th January and the aid phase of the purchase should be from 5th February to twenty-eighth of February. The annual cost of the policy is attained by the total excess demand ( 1801 MMcf) multiplied by the cost per MMcf of $ 1660 to arrive at a cost of $ 2,989,660. By pickings the average of the two cost per Mcf from question 1 we know that the cost per Mcf for regular gas sum up is $ 0. 63.\r\nThe amount of regular gas supply is derived by reducing the Distrigas excess demand gas supply from the total annual demand. These song are then used to arrive at a total cost of $ 25,248,978. 26 which results in a savings of $ 252,140 over utilise grape gas. Q. 3 Utility gains from the competitive price browse offered by Distrigas Corporation of $1. 66 per MCF when compared with the pipeline soupcon gas tell of $1. 80 per MCG, which makes Distrigas price target substantially cheaper than the pipeline gas rates. Utility is aerated an excessive penalty for going above their plan gas volume by the gas suppliers.\r\nWe can evidence this by simply comparing the prices during the peak demand, which is actually more than the average demand with the peak demand being the average demand. Calculating the hail of Gas: Cost of Gas = (Base Commodity Charge)*(Total demand) + (12)*(4. 63)*(Peak 1 day demand) (Shown in table 1 yearly Cost Analysis) It should be an easy decision for utility to use Distrigas as its emergency gas provider when daily volume of the gas exceeds 178 MMCF (derived after taking the average of the demands for the three months and then normalized the demand athletics by taking the Standard Deviation).\r\nWith the given demand forecast numbers; utility depart end up buying 1801MMCF of gas from Distrigas. We thought that using the concept of location pooling from risk pooling scheme would dress hat suit this case study. We backed on this system because the objective of the risk pooling scheme is to redesign the supply chain and to either reduce the uncertainty the faithful or to hedge uncertainty so that the crocked is in a better position to diminish the consequence of uncertainty. This will convert into cheaper end consumer pricing.\r\n mess pooling is scoop out suited for single product as it can be used to decrease the pedigree while holding profit constant, or increase service while holding inventory cost, or a combination of inventory reduction and service increase. However, the proposal A for Distrigas would cost only $29,376,000, or savings of $252,140. The annual cost of Distrigas policy is $21,172,397. 19. Distrigas strategy should be to maximize on its competitive rate and endeavor itself as a cost leader, shiny speed delivery, reliability and meeting the right measuring when needed the most, all at most cost cost-effective rate possible.\r\nTo be cost efficient it needs to operate economically such as storing the right amount of gas needed. It has to improve on its transshipment center and deliver the gas in the best cost efficient using the right way of transportation possible. The biggest threat could be when consumers like with child(p) of Massachusetts Gas decide to build their own storage facilities and therefore start sourcing directly from the pipeline-gas providers, to be stored for usage during peak season. Q4. Proposal A: Slow build up up Strategy †In this proposal foundation will be built and machinery and trucks purchased to allow Distrigas to behind build up inventories at the customer location.\r\nThis strategy includes building a satellite tank which will serve as a reserve for the gas that is brought in by Alozean. It takes 250 days to build up inventories to satisfy peak demand. This model requires 6 trucks to transfer the gas over the 250 day period. Field tanks will need to be built at the customer location in order to hold the gas that will service the peak demand and this will cost $ 25. 1 Million. This is one of the disadvantages of this strategy. The upside is that only 6 trucks are n eeded to operate on this strategy.\r\nImplementation of this strategy requires a total capital investment of $ 29. 376 Million and yields positive cash flows of . 325 (because of annual depreciation charges and tax rate of 50%) which shows that the run into at a cost of capital of 9% has a Net Present Cost of $ †26. 33 Million. Proposal B: Quick Build up Strategy †In this proposal peak demand for the Utility companies will be built by quickly sending gas to the companies based on peak season demand forecasts. This strategy will require 128 trucks to fulfill demand within a 10 day period.\r\n'