Gabriel Nery da Silva
Instituto Federal de São Paulo – IFSP, Brazil
E-mail: nery.gal.nery@gmail.com
Laiane Aparecida Soares Sena Nery
Instituto Federal de São Paulo – IFSP, Brazil
E-mail: laiane.sena1@gmail.com
Luiz Teruo Kawamoto Júnior
Instituto Federal de São Paulo – IFSP, Brazil
Bolsista de Produtividade em Pesquisa CNPQ – Engenharia de
Produção e Transportes
E-mail:
teruo@ifsp.edu.br
Submission: 03/01/2017
Accept: 13/01/2017
ABSTRACT
The
objective of this work is to do an economic-financial analysis on the
alternative of a transportation company to finance the costs with ARLA 32
consumption. In the current situation the company refuels, its vehicles with
ARLA 32 acquired at wholesale and stored in the company's head office located
in large São Paulo and, when necessary, at retail at unscheduled gas stations
but which are located on the route. The alternative is to add a second tank for
ARLA 32 at the vehicles to cancel these unscheduled external refueling. Based
on the interview with the company’s manager responsible for the project, costs’
spreadsheets and company’s documents, it was done the analysis comparing
between those two modes which of them offers lower cost, through the capital
estimate techniques and financial analysis NPV, IRR, payback and Profit Margin.
The results demonstrated that the current mode is economic, because according
to analysis criteria the project is not feasible.
1. INTRODUCTION
Logistics, among others aspects that define it, is the
integrated management of all activities necessaries to transport and/or store
products within supply chain. This is a complex process and worsened by a
characteristic that requires much strategy: to meet customer requirements.
Logistics management by itself is of a particular complexity, added “customer
requirement” factor as quality, charge characteristics, vehicles’ suitable and
others, implies a complex strategic planning, because all of it should suit at
these requirements. Nevertheless, currently there is still an extremely
important factor for the globalized world: sustainability.
Sustainability does not focus only on environment
impact, but also on economic dimension and social well-being dimension.
Environmental dimension refers to impacts caused by a product or service along
all its life cycle; economic dimension concerns to all costs related to
production and product or service’s life cycle under commercial perspectives
and customer, respectively; well-being dimension approaches impacts of an
organization, product or process in society, it can be estimated by the
analysis of the effects at local, national or global levels (FINKBEINER et al.,
2010).
The concept of sustainable development was first time
described in 1987 by the World Commission on Environment and Development under
the leadership of the former Norwegian Prime Minister Brundtland
(1987), exposing a development that is capable to cover today’s needs for an intact environment, social justice and
economic prosperity, without limiting the ability of future generations to meet
their needs.
Logistics and sustainability integration can be
understood as Green Logistics. According to site Green Logistics (2010), Green
Logistics or Sustainable Logistics means to do logistics services taking into
account the external costs especially associate to clime changing, air
pollution, noise, vibration and accidents, looking for ways to reduce these
externalities and reach a balance more sustainable between economy, environment
and social aims.
Public polices taken by government in all the world
incentive investment on technologies that cause less environment impacts, one
of these incentives, for example, is the replacement of one fuel by another of
less environment impact. This took to many studies turned to analyze the air
quality in a system “before and after” the fuel changing, for examples the
studies done in Deli-India (GOYAL; SIDHARTHA, 2003; KATHURIA, 2004; RAVINDRA et
al., 2006; CHELANI; DEVOTTA, 2007), due to its importance.
A project created in Brazil by the Conselho Nacional do Meio Ambiente (CONAMA) (IBAMA, 2012) turned to air pollution reduction enforced the vehicles manufacturers to develop a Liquid Reducing Agent of Automotive nitrogen oxide (NOx), in Brazilian Portuguese: ARLA 32; which acts in a determined type of system which is going to be presented later.
Currently the company in study refuels its fleet with ARLA 32 acquired at wholesale purchase and stored in the company’s head office located in large São Paulo, named here as internal spending, and it also refuels at retail when ARLA 32 is consumed before the return of the vehicle to head office, in this case named as external spending.
To cancel these external spending, the company decided to analyze the feasibility of to add a second tank for ARLA 32 at the trucks, thereby the trucks would have quantity of product enough to run the entire path (round trip).
The objective of this work is to analyze between these two modes, which of them is more feasible for the company, considering the measures provided by law, what enforces the use of this component, the yearly spending with internal and external refueling and the result of the economic-financial analysis on the eventual addition of a second tank.
This work is
classified as action-research and it aims to contribute with the scientific
production of applied theory.
2. LITERATURE REVIEW
2.1.
Arla 32
The large quantity of automotive vehicles that run in
the urban centers is the cause of great emission of polluting gases that damage
the air quality. Among the emitted gases are carbon dioxide (CO2)
and nitrogen oxide (NOx), causers of the greenhouse effect. Facts
like these motivated the creation of various public polices turned to
decreasing of the impact caused by pollution. CONAMA created the Programa de Controle da Poluição do Ar por Veículos Automotores
(PROCONVE), classified as automotive vehicles the automobiles, trucks, buses,
and road and agricultural machines; aiming to reduce the levels of pollutants
emissions by vehicles moved by diesel, inuring in January 2012.
This program required from manufactures the
modification on the motors of the weighted vehicles, creating a system named
Selective Catalytic Reduction (SCR) of treatment of the emitted gases (Auto
Converter Recyclers, [201-]). The ARLA 32 does this treatment. According to
Petrobras (2011) ARLA 32 is:
(…)
Brazilian Portuguese abbreviation of Liquid Reducing Agent of Automotive
nitrogen oxide (NOx) needed to SCR technology present in the
automotive vehicles moved by diesel and classified as weighted and
semi-weighted commercial (over 16t) made from January 2012. Number 32 refers to
concentration level of urea solution (32.5%) in demineralized water. It acts on
the exhaust systems as a reducing agent of nitrogen oxide (NOx)
emission. ARLA 32 is a solution not inflammable, not toxic, not dangerous and
not explosive, and, therefore, very safe. It is not harmful to environment and
is classified in the category of low risk transportable fluids.
Yet according to Petrobras (2011), ARLA 32 is not a
fuel or an additive for fuel; it is injected into the catalyst, after diesel
combustion, to reduce chemically the nitrogen oxide (NOx) emission
of vehicles moved by diesel. It is a urea solution that is according to
Patterns ISO 22241. This pattern ensures the correct SCR equipment operation.
The use of ARLA 32 provides the reduction of the NOx in up to 98%,
converting it in nitrogen and water vapor. Nitrogen oxide (NOx)
reacts with hydrolyzed ARLA 32, which provides ammonia (NH3),
producing nitrogen gas (N2) and hydronium (H3O2).
The expected average consumption is of the order of 5%
of the oil diesel consumption, may fluctuate depending of the use conditions of
the vehicles and traffic (PETROBRAS, 2011). That is, for each one liter of
diesel it consumes 50 ml of ARLA 32.
2.2.
Investment
and economic-financial analysis
For companies, thus as any investor, the moment to
invest and how and where to invest is always treated with much attention for
the fact that it be directly and completely connected to the capital. To invest
in whatever be requires serious analysis and that they consider as variables as
possible, especially because to invest is to use an existent and guaranteed
capital in something that may bring return, that is, it is uncertain.
There are many studies in literature that aim to
analyze investments, propose methods more efficacies, consider variables each
time more precise and others many focus that can minimize the loss chances in
investments or to maximize the profits. Sarkar (2000) proposed an
investment-uncertainty analysis in real option models affirming that this
relation is not always correct. He concluded that sometimes the increase of the
uncertainty could increase the probability of investment with positives impacts
on the investment.
Because of this, Lund (2003) discussed these
investment-uncertainty analysis’ results based on mathematics models, seeking
to identify those positives aspects and gains opportunities even in
uncertainty, and he concluded that is needed caution in that affirmation.
It is reasonable to remember, in the case of this
work, the investment-motivating factor is the legal obligatoriness
regarding use of vehicles, fuels, additives and/or reducing agents that cause
less impact on environment. As already said, to combine logistic management
with sustainability goes beyond a need; it is a responsibility of all.
Governments in general take attitudes and promote public polices to decrease
environment impacts.
A study done by Yeh (2007),
for example, analyzed the scenario of eight countries that encouraged
considerably the adoption of alternative fuel vehicles, indicating positives
and negatives points regarding incentives.
To think in to invest leads to the need for an
economic-financial analysis on the investment, which is possible with the
capital estimate techniques, which evaluate if determined project or investment
is or not feasible. Being the study an analysis of a possible company
investment with acquisitions of new tanks for ARLA 32, it is needed to
calculate the feasibility of this investment. There are four methods needed for
evaluation: Net Present Value (NPV), Payback, Internal Rate of Return (IRR) and
Profit Margin; and the criteria for acceptance are the analyzed project or
investment be feasible in the four methods.
2.3.
NPV
NPV considers the value of money over time and
consists in the minimum return that a project needs to provide to keep
unaltered the company market value (GITMAN, 2010, P. 369). It is given by the
formula:
|
(1) |
Being:
CF = net cash flow generated by project at time t
CF0 = initial cash outlay on project
t = the nth period in time in which the money will be invested in the
project
n = period
r = cost of capital
The criterion based on NPV for acceptance-rejection
decision-making is:
·
If NPV bigger than zero, accept the project;
·
If NPV smaller than zero, reject the project.
2.4.
Payback
The method known as Payback Period has like objective
the risk analysis. Assaf Neto and Lima (2011) say
that this method, in essence, consists in the calculus of the time required to
the amount of capital spent on the investment be recovered through its cash flow.
Payback highlights itself by its simplicity and large utilization by the
decisional units. Gitman (2010) describes it as the
time required to recover the initial cash outlay on a project, calculated from
net cash flow.
Conceptually, the criteria for decision are payback
period smaller than the maximum period acceptable and payback period bigger
than the maximum period acceptable, at the first case, accept the project, and
at the second case, reject it. The fragile point of this method is in the subjective
of the maximum period acceptable, because it is defined without grounded
criteria, commonly being defined by company administration visions or even by
feeling.
To analyze investments turned to fleet also requires
that the payback period be feasible in relation to the renovation fleet time,
because according to literature (VALENTE et al. 2014), is suggested the
replacement fleet in average after eight or nine years due to depreciation and
maintenance costs.
2.5.
IRR
It is the yearly rate of return composed that is gotten
if to invest in the project and receive preview cash flows. Mathematically, it
is the interest rate r that takes NPV be equal to zero. It is given by the
formula:
|
(2) |
The criterion based on IRR for acceptance-rejection
decision-making is:
·
If IRR were bigger than the capital cost, accept the
project;
·
If IRR were smaller than the capital cost, reject the
project.
2.6.
Profit
margin
It refers to profitability ratios. According to Gitman (2010) it measures the percentage of each sales’
Real (currency) that remains after deduce the investment costs. It permits to
evaluate the company’s profits in relation to a given level of actives or
investment. Assaf Neto and Lima (2011) say that it is
the relation between the cash inflows (profit) and the output value (cost). In
other words, it indicates how many the company gets as return from each $1
applied in determined investment, all results expressed in values actualized by
the minimum acceptable rate. How bigger the profit margin, better. It is given
by:
|
(3) |
For approval its result must be bigger than zero.
Because it has direct connection with the minimum
acceptable rate, profit margin needs to be analyzed by the company technic
area.
2.7.
Performance
indicator
Because it is a quantitative work, some numbers are
important for analysis; among them is the average consumption per kilometer
run. It is appropriate to analyze this average with some performance indicator.
A performance indicator per kilometer run (VALENTE et al., 2014) is the cost
per tonne transported (Ctt),
it is given by:
|
(4) |
Being:
Ctt = cost per tonne transported
Ckm = cost per
kilometer run
km = mileage to be run in the month
Cc = charge capacity of the equipment
3. METHOD
The company in
study acts in the Brazilian Market there are 76 years with road transportation
services. As any company, this dedicates itself to perform a work with
excellence, efficiency and efficacy, meeting customers’ requirements. The
object of study or situation-object is the ARLA 32 consumption in the
transportation trips.
The motivation
of this study came from the existence of a project in the company known through
the purchase manager. The project treats of the alternative of the company to
defray the spending with ARLA 32 consumption. At the actual situation the
company refuels, its vehicles with ARLA 32 acquired at wholesale and stored in
the company's head office located in large São Paulo and, when necessary, at
retail at unscheduled gas stations but which are located on route.
The alternative
is to add a second tank for ARLA 32 at the vehicles to cancel these unscheduled
external refueling. For achievement of this study, it was done an interview
with the manager that, duly authorized, explained the project intentions and
gave spreadsheets and documents containing costs with ARLA 32 consumption in
the year of 2015, data related to average consumption per kilometer run and
technical data related to the trucks, and quotations of installations of new
tanks.
These data were
divided and analyzed with the help of the capital estimate techniques and
financial analysis NPV, IRR, payback and Profit Margin, to verify the project
feasibility. The results are discussed in the section 4.
4. RESULTS AND DISCUSSIONS
First off, all
these data were divided in two points:
·
Internal costs: are the purchase costs with ARLA 32 at
wholesale price, that stays stored in the company and is used at the scheduled
refueling; and
·
External costs: are the costs related to refueling out
of the company, at retail price, and they happen due to ARLA 32 be consumed
before the end of the trips of the trucks.
This division
permitted the vision of the amount spent in external refueling that comes from
the retail purchase and appears like a cost that the company needs to avoid,
because the price of the liter of ARLA 32 at retail reaches up to 248% of the
value of the wholesale price.
Currently the
companies’ vehicles that fit into SCR system have a tank for ARLA 32 with
capacity of 60 l. The vehicles are refueled with ARLA 32 at company’s head
office at average cost of R$ 1.13/l due to wholesale purchase. The price of
ARLA 32 in the path is R$ 2.81/l in average. This cost impacts in two ways: the
product already bought that stays stopped without use at the company’s head
office, and the cost higher in the unscheduled refueling. The company then
searched to analyze the feasibility of to add another tank for ARLA 32 at the
truck, doubling the current capacity. However, the cost of addition is very
high and it took the company to verify which mode offers lower cost: to keep
the current mode or to add another tank.
This took to the
second step, what was to research in literature, tools of investment analysis
that could be applied in the situation. Because the company has a particular
interest regarding the time needed for the return of this possible investment,
the payback period has bigger importance for the decision.
The quantitative
data needed for analysis comprehend: capacity of the tank for ARLA 32, average
monthly consumption, cost of purchase and installation of the second tanks.
According to technical data from Mercedes Benz (2015) and company’s registers,
the capacity of the trucks’ fuel tank is 500 l. it is appropriate then to
analyze the fleet fuel consumption average with a performance indicator (Ctt). Data collected from the company showed Ctt average equal to 1.90, therefore, a full tank permits
to travel in average 950 km. Considering the average consumption defined by
Petrobras, a full tank for ARLA 32 permits to travel 1,200 km, therefore, any
routes where the round trip exceeds 1,200 km is going to need refueling. In
fact, there are many routes that exceed 2,000 km only in the one-way trip,
since the company operation is of nationwide.
Quotations
performed by the company considered 32 trucks. They are what fit into the
categories already cited about SCR system and routes bigger than 1,200 km of
round trip. The lowest cost quoted with installation of the equipment was R$
1,460.00 per unit, totalizing R$ 46,720.00.
In 2015, the
company spent with ARLA 32 consumption the amount of R$ 110 thousand,
approximately 98 thousand liters, with internal purchase. Besides that, it
spent R$ 11.4 thousand, approximately 4 thousand liters, with external
refueling. This results at internal average monthly cost R$ 9.1 thousand and
external R$ 950.00. Therefore, around 10% of the monthly spending comes from
external refueling.
New tank
addition at the trucks would imply in make account the 4 thousand external
liters in the internal count, that is, 4 thousand liters would be acquired at
an average cost of R$ 1.13/l, which totalizes R$ 4.5 thousand to be accounted
in the yearly internal costs. This represents 40% of the value of the external
spending. The 60% of economy amounts to R$ 575.00 monthly.
The values above
permit to calculate the NPV, IRR, to scale out the payback period and get the
profit margin of the extra new tank acquisition, based on the maximum fleet
duration 9 years, because after this period the fleet is replaced. Considering
the acquisition value R$ 46,720.00 as investment initial capital and the
average monthly economy projected in R$ 575.00, payback period would be 6.8
years, NPV would be -R$ 8,764.13, IRR would be 0.55% per month and profit
margin would be 33%. Table 1 shows the calculus results.
Table 1: economic-financial analysis result.
NPV |
-R$ 8.764,13 |
IRR |
0,55% |
PAYBACK |
in 82 periods
(months), equivalent to 6,8 years |
PROFIT MARGIN |
33% |
The study shows that the current mode is the best
option in this situation. The monthly and annual impact of the suggested
changing is small and its payback period is unfeasible mainly in relation to
fleet replacement period. The profit margin percentage value seems feasible,
but the time does not. Although it predicts a profit of 1/3 over the investment
value, the time necessary for such is very big, which leads to opt for others
investments with faster liquidity. Considering that the criterion for
acceptation is the feasibility in the four analyses, this project should be
rejected. Choosing to keep the current mode, the company mays apply the value
in others kind of investments more profitable.
5. FINAL CONSIDERATIONS
To perform analyses before to effect any investment is
very important, because it permits to scale out and visualize possible results
of an action, this fits including in the personal life. In the actual business
scenario where costs and profits, as well as planning and actions are
differentials for the success and the company position in the market, it is
imperative that each step be calculated.
Many times, companies’ contract specialized
consultancies to perform projects and investment analyses, but in this work, it
was possible to show that with some data, researches, and bibliographic survey,
considering the relatively simple character of the investment, it is also
possible to perform projects and analyses, where the biggest intent is to
collaborate with actions and decision-makings more assertive.
To bring the result of a study as being negative, that
is, unfeasible for application, does not have to be treated as failure, on the
contrary, the study shows that without a previous analysis the company could do
an investment to improve its fleet which would not bring the hoped results,
giving the opportunity to use the same investment capital in other ways more
profitable and satisfactory.
As last considerations it is worth pointing out that
the result pointed out for unfeasibility, that is, it is not advisable to
follow away with the project, opens space for new discussions and new ways to
treat the need of seeking cost reductions and profit increasing, in this way we
can suggest for continuation of the study: analysis of installations of bigger
tanks inside the company in order to buy and store bigger quantities, in order
to decrease costs with purchase; analysis of changing on the vehicle routing,
aiming external purchase at potential gas stations; negotiation techniques for
the value paid at ARLA 32 wholesale purchase, among others.
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