SUPPLY CHAIN IN THE PETROLEUM INDUSTRY

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Presented by: ABHISHEK,ACHAL,ANIL,ANKIT,ANKUR & GAGAN MBA-2A 3/7/11

INTRODUCTION


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The petroleum industry plays an important role in the economic development of the country Performance of its supply chain has become very important

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INTRODUCTION (contd.)

The petroleum industry traditionally had prices decided by the Government of India. Effective from August 1, 2004, the Government put in a revised methodology allowing oil companies to revise the prices of motor spirit and High Speed Diesel (HSD). The total investment estimated in the petroleum sector from 1995 till 2010, is expected to be Rs. 4,32,000 cr (US$120 bn), out of which Rs. 2,58,000 cr (US$80 bn), are for the upstream sector alone Petrochemical industry in India employs around

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OBJECTIVES

Understanding the importance of supply chain management in the petroleum industry.

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SUPPLY CHAIN IN PETROLEUM INDUSTRY

Distribution Planning

Retailing / Consumer (Demand Centre) 3/7/11

Mktg Product Storage (Terminal/ Depot/ Port)

Product Transptn/Distributio n (Tanker/PL/Rail/Road )

DIFFERENT STAGES IN PETROLEUM SUPPLY CHAIN

Exploration: Seismic, geophysical and geological operations Production: Drilling, reservoir, production and facilities engineering. Refining : complex operation and its output is

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IMPORTANCE OF SUPPLY CHAIN IN PETROLEUM INDUSTRY

Petroleum industry is highly asset intensive

Like other chemical companies supply chain can account for upto 70% of overall cost .

Highly specialized business processes encourages fragmentation.

Chemical supply chains are typically non-linear in nature

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Supply chain optimization at a strategic and operational level is a value creating opportunity for chemical companies and a potential source of competitive advantage

Petroleum Supply Chain In India

Ministry of Petroleum & Natural Gas Downstream

Industry Bodies

ONGC OVL Oil India Limited Pvt E&P Cos.

IndianOil
CPCL, BRPL Reliance Industries Ltd.

Bharat Petroleum
y y

NRL Hindustan Petroleum MRPL

y y

Petroleum Planning & Analysis Cell Centre for High Technology PCRA PetroFed Oil Industry Safety Directorate Petroleum India International Engineers India Limited Director General of Hydrocarbon

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UPSTREAM SUPPLY CHAIN

Acquisition of crude oil.

Operations Exploration ,Forecasting , Production .

Logistics management - Delivering crude oil from remotely located oil wells to refineries

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DOWN STREAM SUPPLY CHAIN

Refinery- The crude oil is manufactured into the consumable products that are the specialty of refineries and petrochemical companies. Processes - forecasting, production, and the logistics management of delivering the crude oil derivatives to customers around the globe.

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PETROLEUM FINISHED PRODUCTS IN INDIA

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OBJECTIVES OF A SUCCESSFUL SUPPLY CHAIN IN PETROLEUM

Minimization of material procurement Maximization of manufacturing capacity and sales Meet demand numbers Respond quickly to market opportunity by purchasing the production shortfall from other players Objective of each production unit would be to

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SUPPLY CHAIN STRATEGIES

Planning

Which feed stock to buy Where to process How much to buy readymade and how much to make What to make and where How to transport

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SUPPLY CHAIN STRATEGIES CONTD.

Scheduling

When and in what order feedstock should arrive at manufacturing facility When and in what sequence or modes to run the equipments Which orders to meet and what dates to promise

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SUPPLY CHAIN STRATEGIES CONTD.

Demand planning: For demand forecasting and aggregation of the final demand numbers based on requirements of supply chain

Integrated Planning: Planning for the complete supply chain of the customer based on demand numbers 3/7/11

SUPPLY CHAIN PLANNING SOLUTION

The demand numbers are fed to an integrated planning module that contains representation of supply, production and distribution facilities

The production and the Supply and Distribution (S&D) structure forms the basis on which the optimised plan for the entire organisation is generated

This corporate plan is communicated to distribution modules and the production planning modules to generate operational plans

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The optimised plan for the entire corporation is also used as a basis for feedstock selection runs.

UNIQUE FEATURES OF THE PETROLEUM INDUSTRY Raw Material Supplies: SUPPLY CHAIN


Process industry has limited choice of suppliers for raw material Supplies in petroleum industry are dominated by cartels It is a sellers market wrt supply of raw material

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

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UNIQUE FEATURES OF THE PETROLEUM INDUSTRY SUPPLY CHAIN 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

High Transportation Costs :

Transportation costs about 20% of the production cost.

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Length of Supply Chain:

UNIQUE FEATURES OF THE PETROLEUM INDUSTRY SUPPLY CHAINPartners : Integration of Supply Chain


Integration of suppliers as well as customers and distributors is difficult Cost pressures are the driving force in the supply chain.

Flexibility :


Supply chains are highly inflexible both in terms of 3/7/11 volumes handled and in terms of product

FUNCTIONS OF SUPPLY CHAIN DB

SCD provides distribution related inputs to both Integrated Planning and Distribution Planning models and has these following functions:

Temporal integration: Data for yearly and quarterly models available in one place and can be rolled up or down as per requirement. Hierarchical integration: Aggregation for integrated model is done based on detailed data available for operational distribution models Calculations: Final linkage costs are calculated using tax logic, current prices, distances and freight rates.

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NON-VALUE ADDED ACTIVITIES IN THE PETROLEUM SUPPLY CHAIN

Waiting:

Crude oil is often imported. Cargo ships have to often wait at the harbour before they can unload the crude. Waiting leads to increase in inventory holding within the supply chain.

Occur while finished product is sent to storage installations by rail 3/7/11

NON-VALUE ADDED ACTIVITIES IN THE PETROLEUM SUPPLY CHAIN

Holding of Huge Inventories:

Product is made to stock and mammoth inventories are being kept at refineries and at storage installations In Transit inventories

Information on demand and supply is not very clear and there is lack of visibility that adds up to increased safety stock requirements both for raw 3/7/11 material and finished product

ROLE OF INFORMATION TECHNOLOGY IN THE PETROLEUM INDUSTRY

Timely flow of accurate information can affect performance of the supply chain to a large extent. Integration of demand chain information Hence process optimization is the key task for the Information Technologies function of process industries and currently seems to be a huge challenge

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SUGGESTIONS

Raw Material Supplies:

Formulating a long term agreement with some of the oil producing nations and in order to take care of price fluctuations Government should allow the petroleum companies to use hedging for finalizing deals involving purchase of crude oil.

Transportation Costs:
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Use of Pipeline transportation

SUGGESTIONS (Contd.)

Inventory Carrying Costs:

Use of a reliable transportation system and quick information exchange can reduce carrying costs Government should aim at reducing the minimum safety stock, which oil companies are supposed to keep

Integration of Supply Chain Partners:

Oil companies should aggressively use 3/7/11 information technology to integrate suppliers and