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Sample of Solution
Coal had been accessible in power generation due to its reduced costs and increased utility as compared to other fuels like oil, gas, and nuclear energy. Being scaled on three main parameters, the quality of coal has been determined by its total moisture content, ash content, and sulfur content. Moisture and Ash reduced the thermal content of the coal, where sulfur increased indirect costs by causing pollution and corrosion of vital plant equipment.
Production Fuels Department faced two main issues affecting the coal-procurement process, which included Long-term contract requirements and safety stock levels. With the increased uncertainty about coal availability and its prices, companies established long-terms contracts to ensure a consistent supply of coal.
Considering all the different scenarios, it can be realized that although the company benefits most by purchasing at spot market price instead of bounding itself in long-term contracts, but it increases the vulnerability of supply and eventually, the operations of the company.