Shell Lubricants/Pennzoil - Rationalizing Your Supply Network

Session Code: 712 Presenter: Annette Knudsen, Manager, Shell Lubricants Sham Afzalpurkar, VP Supply Chain, Bristlecone

Agenda

About Shell Lubricants Business Needs for an advanced planning tool APO at Shell Lubricants Network Design

Overview Supply Chain Analysis Scenarios

Q&A

About Shell Lubricants

Shell Royal Dutch Acquired

Pennzoil Quaker State in 2003 Portfolio of 1300 products and 20 leading brands and leading brands

Shell Royal Dutch Acquired

choice for automotive

“The consumer's first
products and services that enhance the car and the driving experience.h

Market share of 40% (?) for Shell/Pennzoil brands of motor oil (2003) $2.3 billion in revenues for year 2001 (??) ? in Fortune 100 Operating in 120 countries year

Vision We Will Be the First Choice for Customers, Talent and Stakeholders

Brands

Business Needs for an Advanced Planning System

Typical Lubes Supply Chain

Suppliers

Packaging

Blending/

& Contract Mfg Field DCs

Regional DC

Distributors/
Customers

Base Oils Bulk & Packaged Additives

Packaged Material

Bulk

Packaged
Contract Mfg

Bulk & Packaged

Key Levers in Lube Industry

Base Oils Base •NeutralsOils Base Oils •Bright stocks

•• Target I/B, O/B and interplant transfers costs by reducing shipments and Target I/B, O/B and interplant transfers costs by reducing shipments and •• Address additives supply cost ––20% of volume comprises 40% of total Address additives supply cost 20% of volume comprises 40% of total •• Rationalize network design to meet customer needs and reduce transport Rationalize network design to meet customer needs and reduce transport costs – build, relocate, close facilities
costs – build, relocate, close facilities

Distribution Network •Grades Packaging Lube Oil •O/B plant DC Network Distribution • ViscosityOil randing •Neutrals • BASF Lube index •BPackaging •O/B plant customer Additives • Saturate •Bulk or •Bright stocks •Dow Additives content packaged •RDC network • Viscosity • Viscosity index •Branding •Grades •Dupont •Wax content Additives improvers content packaged • Channel management • Viscosity •Wax content •Bulk or •Neutrals •Huntsman •Pour point • Saturate improvers •VMI • Viscosity depressants •Bright stocks •Infenium •Pour point •Wax content improvers •O/B plant DC • Detergent depressants •Grades point •Lubrizol •Pour •O/B plant customer inhibitors • Detergent depressants •Monsanto •RDC network inhibitors • Detergent • Sunoco • Channel management inhibitors • Key Leverage Points to Improve Supply Chain Efficiencies VMI • Key Leverage Points to Improve Supply Chain Efficiencies • BASF •O/B plant DC •Dow •O/B plant customer •Dupont •RDC network increasing shipment sizes •Huntsman increasing shipment sizes • Channel management •Infenium •VMI •Lubrizol •Monsanto procurement costs procurement costs • Sunoco

Lube Oil

Packaging

Distribution Network

Shell Lubricants

Where were we?

• No consistent forecasting and planning process – Different planning processes for different product
lines

– No consensus forecast or plan – Limited coordination/communication between
Sales, Marketing, and Supply Chain

• Multiple, independent supply chain networks – Non-optimized supply chain design and operation – Supply chain does not extend to business partners

How did we get there?

Marketing driven, sales focus Pennzoil merged with Quaker State Company in 1998 and Shell acquired Pennzoil Quaker State in 2002

Lubricants Similar product production, distribution models Resulted in excess capacity, duplicate network components Consumer Products Pennzoil supplied automotive chemicals (Gumout) Quaker State owned several independently run business units supplying automotive consumer products

Where are we going?

• Common planning processes for all business
units

• Single, integrated and optimized supply chain
across all product lines

• Supply chain is a strategic weapon

APO Components
Strategic Demand Tactical Planning (DP) Operational Production Planning / Detailed Scheduling (PP/DS) Network Design (ND)

Supply Network Planning (SNP)

Scheduling

Distribution M Planning / Deployment I

V

Transportation Planning / Vehicle Scheduling (TP/VS)

Global ATP (GATP)

Monitor

Supply Chain Cockpit

Current scope Sell Buy/Make Store Move Deliver

SAP APO Network Design Overview

APO Network Design Overview

Flexibility in modeling a supply network

Ability to use an existing SNP model as a starting point

Can include one-time opening and closing costs and various capacity constraints

Detail reporting capabilities & Easy to interpret reporting and user interface

Fast optimization

AP O

Solving Strategic Planning Problems

• Which products should be
produced at what location?

• How are customers assigned
to distribution centers?

• Where shall new locations be
opened?

• Which locations shall be
closed?

• What are capacity
requirements for Plant/distribution centers ?
AP O

• What is the utilization rate,
cost and return on assets?

Network Design Overview

• Planning Methods : Assignment Decisions

Network Design Overview

• Planning Methods : Assignment Decisions

Network Design Overview

• Planning Methods : Assignment Decisions

Network Design Overview

• Planning Methods : Location Decisions – Location Planning: Structural Network Changes • Cost optimal selection of locations • Placement of given number of locations based on geographical
distance

• Placement of optimal number of new locations

Network Design Overview

• Planning Methods : Location Decisions

Network Design Overview

•Planning Parameters : Supply Chain Model – Demand – Existing / potential locations • Suppliers/Plants/Distribution centers/Customers – Existing / potential transportation lanes – Products – Resources / Capacities – Production process models

Network Design Overview

Planning Parameters : Costs
Transportation Production Storage/handling Material Procurement

Fixed maintenance
Location startup / shutdown Penalties for delayed/ unfulfilled demand

Network Design Overview

• Display and analysis of Results – Graphical result display – Result display in table
format

• Link with MS Excel – Support of What-if analyses • Modification of planning
parameters

• Comparison of results of
different planning runs
AP O

– Possibility of transferring
results into SAP-BW

Supply Network Analysis using APO Network Design

Strategic Studies at Shell Lubes

•Plant Rationalization •Determine impact of integrating multiple supply chains •Make vs Buy •Strategic Sourcing •Determine optimal Regional Distribution Center (RDC)
network for consolidated distribution

•Evaluate impact of customer pick-ups

Key Performance Indicators

KPI

Detail
costs at Supplier, Plant, RDC and Customers

Comments Current LTL rates vis-à-vis future
FTL rates resulting from consolidation Customer pick-up allowance vis-àvis cost of shipping by manufacturer

Freight Costs Inbound/Outbound

RDC Costs Handling, Storage and Operating costs

offset by the decrease in freight costs?

Can the increase in these costs be

Inventory Costs

holding and ordering costs

Inventory carrying,

Additional link in the consolidation of
loads shall result in increased inventory. Will this be justified?

One time impact

Opening/closing
RDCs and related capital investment

RDCs required, optimal product flow etc

Determining the optimal number of

Typical Supply Chain

Supply Chain A FTL DC
FTL FTL/LTL

Customer

Suppliers FTL

Plants
FTL

Regional DC

Customer

FTL Customer FTL

Supply Chain B

Plants/DC
Suppliers FTL
LTL

Customer

Customer
LTL

Supply Network Design Approach to a Strategic Study

Approach

Objective of the Study

Data Collection

Modeling & Validation

Analysis

Scenario

Recommendation

Evaluation &

• Define the Objective of the study • Define Business Case • Scope/Assumptions of the study

Objective Make or Buy decision for XXX Products Group Business Case Supply chain optimization based on Procurement costs from multiple far east vendors Multiple options in manufacturing (Shell supplied production equipment, supplierfs own equipment etc) Different inbound freight rates based on port of entry Cost of carrying inventory at various locations Scope Study based on sample set of 2 product groups representing entire supply chain volume across 208

Approach

Objective of the Study

Data Collection

Modeling & Validation

Analysis

Scenario

Recommendation

Evaluation &

• Data Collection – Formulate aggregation logic for Product Groups and
Locations

– Gather Demand at Location / Product Group level – Gather cost related data – Define Business rules

Approach

Objective of the Study

Data Collection

Modeling
& Validation

Analysis

Scenario

Recommendation

Evaluation &

• APO Modeling & Baseline – Validate input data – Model the baseline scenario (the AS-IS case) • APO Scenario Modeling – Model various problem specific scenarios. – Each scenario should be able to address a specific
objective

Approach

Objective of the Study

Data Collection

Modeling
& Validation

Analysis

Scenario

Recommendation

Evaluation &

•Evaluation – Compare different scenario and select best option – Perform Sensitivity Analysis •Recommendation – Develop Recommendations – Review results with management – Seek approval and funding to proceed – Execute!

Network Rationalization

Scenarios

Scenario I

Establish base line cost for existing supply chains Supply Chain A FTL DC
FTL FTL/LTL

Customer

Suppliers FTL

Plants
FTL

Regional DC

Customer

FTL Customer FTL

Supply Chain B

Plants/DC
Suppliers FTL
LTL

Customer

Customer
LTL

Scenario II

Evaluate impact of consolidating DC fs into Regional DC fs.

Supply Chain A FTL Suppliers FTL

Customer

Plants
FTL

Regional DC DC
FTL FTL/LTL

Customer
FTL

Supply Chain B
FTL FTL/LTL

Suppliers FTL

Plants/DC

Customer

Scenario III

Evaluate impact of merging Supply Chains

Supply Chain A FTL Suppliers FTL

Customer

Plants
FTL

Regional DC DC
FTL FTL/LTL

Customer
FTL

Supply Chains B
FTL/LTL

Customer
FTL
FTL

Suppliers FTL

Plants Customer
LTL

Scenario IV

Evaluate impact of new locations

Supply Chain - Primary FTL DC
FTL FTL/LTL

Customer

Suppliers FTL

Plants
FTL

Regional DC

Customer

FTL

Supply Chains – Secondary

FTL
FTL

New Regional DC Suppliers FTL

FTL/LTL

Plants/DC
FTL
FTL/LTL

Customer

Results of the Study

• Identified opportunities to – Improve production efficiency (plant mix) – Consolidate shipments in fewer facilities – Convert LTL to FTL Shipments QUESTIONS? – Build / relocate facilities – Close facilities with low through put