QUESTION 2 (20 Marks) 2.1 Critically examine the cost overruns experienced by Transwerk due to its aging fleet of locomotives and passenger coaches. What strategic initiatives could the company adopt to efficiently manage these costs without compromising on the quality and reliability of its rolling stock? Provide a detailed cost-benefit analysis to support your recommendations, with a specific focus on root causes, strategic initiatives, and cost benefit analysis. Assumptions can be made to support your recommendations. (15 Marks)

2.2 What are the cost-benefit implications of fleet modernization, preventive maintenance, and localized sourcing for Transwerk, assuming the following: Fleet modernization: $10 million upfront but expected to reduce maintenance costs by 30% annually. Preventive maintenance: $2 million upfront and an annual running cost of $500,000 but expected to reduce breakdown incidents by 40%. Localized sourcing: Increases material cost by 10% but reduces downtime by 20%. (5 Marks)

Carefully read the scenario below and answer the questions that follow. Strategic Cost Management and Procurement Optimization at Transwerk Background Information Transwerk is a leading manufacturer of railway rolling stock, operating in the complex and competitive market of South Africa. Over the past year, the company has been grappling with significant cost overruns directly attributed to its aging fleet of locomotives and passenger coaches. Frequent breakdowns and the subsequent urgent repair needs have led to a surge in the maintenance budget. The situation is further exacerbated by the unavailability of critical materials, making the maintenance programs not only expensive but also inefficient. In addition to cost management challenges, Transwerk faces substantive issues within its procurement operations. A lack of strategic sourcing and poor vendor management have culminated in supply chain inefficiencies, inflating the overall operational costs. These challenges have had a ripple effect on the reliability and availability of the company's rolling stock. Consequently, this impacts the broader South African business landscape and commuting public by compromising the quality and reliability of rail transportation. The management of Transwerk is committed to undertaking a comprehensive review and subsequent overhaul of its cost management and procurement frameworks. The primary aim is to restore profitability while also modernizing and streamlining operational workflows. Source: (Masiba; 2023)