Supply Chain Structure:

For its successful role in the economic development of the country, there needs to be a
properly defined structure for its supply chain. The figure below shows the supply chain of
petroleum industry:

The complexity of supply chain for the petroleum industry is much more as compare to others.
Its major segments are: upstream, midstream and downstream supply chain.
In the Upstream supply chain, the purchase/acquisition of Crude oil is done. The processes
involved in the upstream:
1. Exploration & Production
It is the early stage of energy production which includes searching and exploring for the
extraction of oil and natural gas. After identifying potentially viable fields, drilling is done
(usually like a well) in order to collect samples and run tests on the findings. If the
quality and quantity are good enough to produce and sell commercially, then
production of oil wells commences.

2. Logistics management of delivering crude oil to refineries:

After extraction from these wells, the crude oil is stored temporarily and is later shipped
from remotely located oil wells to refineries.
 The Midstream supply chain involves transportation, storage and wholesale marketing of
crude or refined petroleum products. Pipelines, rail, barge, oil tanker or truck are used to move
crude oil from production sites to refineries and deliver the array of refined products to
downstream distributors.

Petroleum Pipeline System an overview of an oil pipeline system from the wellhead to
downstream consumers
Downstream supply chain starts at the refinery, where the crude oil is manufactured into the
consumable products that are the specialty of refineries and petro-chemical companies.
Processes involved in downstream:
1. Forecasting and Production
Any kind of plant that processes raw materials may qualify as operating within the
downstream stage of production. The refining of petroleum crude oil and the processing
and purifying of raw natural gas takes place in this process.

2. Logistics management of delivering crude oil derivatives to customers

The downstream process includes elements such as marketing, distribution, wholesaling
and retailing which ensures timely delivery to customers around the globe.
 Unique Features of Supply Chain:

1. Raw Material Supplies:

 Process industry has limited choice of suppliers for raw material
 Supplies in petroleum industry are dominated by cartels
 It is a sellers’ market with respect to supply of raw material

2. Raw Material Prices:

 Raw material prices are highly unstable and fluctuating on weekly or even daily
basis
 Fluctuating prices directly affect the supply chain costs and prices of final
product

3. Reverse Production Flow:

 The production flow is reversed in petroleum industry
 In downstream petroleum companies, inventory starts from one product, i.e.,
crude and creates many products like petrol, diesel, naphtha, bitumen, etc

4. High Transportation Costs:

 Transportation costs about 20% of the production cost

5. Length of Supply Chain:

 Very Complex and lengthy supply chain

6. Integration of Supply Chain Partners

 Integration of suppliers as well as customers and distributors is difficult
 Cost pressures are the driving force in the supply chain
7. Flexibility
 Supply chains are highly inflexible both in terms of volumes handled and in terms
of product variation/customization