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INTRODUCTION

The petroleum industry plays an important role in the economic development of the country

Performance of its supply chain has become very important

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 40,000 people directly and around 4 lakh indirectly

OBJECTIVES

Understanding the importance of supply chain management in

the petroleum industry.

Identifying distinguishing features of the petroleum industry supply chain vis-à-vis discrete manufacturing supply chains.

Discussing the petroleum supply chain in India.

Identifying non-value added activities in the petroleum supply chain.

Discussing the role of information technology in revamping the petroleum industry supply chain.

SUPPLY CHAIN IN PETROLEUM INDUSTRY

SUPPLY CHAIN IN PETROLEUM INDUSTRY Crude Purchase Supply Planning Crude Storage Crude Transptn. (Tanker/PL) Refining

Crude

Purchase

Supply Planning

CHAIN IN PETROLEUM INDUSTRY Crude Purchase Supply Planning Crude Storage Crude Transptn. (Tanker/PL) Refining
CHAIN IN PETROLEUM INDUSTRY Crude Purchase Supply Planning Crude Storage Crude Transptn. (Tanker/PL) Refining

Crude

Storage

Crude
Crude

Transptn.

(Tanker/PL)

Supply Planning Crude Storage Crude Transptn. (Tanker/PL) Refining Distribution Planning Retailing / Consumer (Demand

Refining

Distribution Planning

Crude Transptn. (Tanker/PL) Refining Distribution Planning Retailing / Consumer (Demand Centre) Mktg Product Storage
Crude Transptn. (Tanker/PL) Refining Distribution Planning Retailing / Consumer (Demand Centre) Mktg Product Storage
Crude Transptn. (Tanker/PL) Refining Distribution Planning Retailing / Consumer (Demand Centre) Mktg Product Storage
Crude Transptn. (Tanker/PL) Refining Distribution Planning Retailing / Consumer (Demand Centre) Mktg Product Storage
Crude Transptn. (Tanker/PL) Refining Distribution Planning Retailing / Consumer (Demand Centre) Mktg Product Storage

Retailing / Consumer (Demand Centre)

Mktg Product Storage (Terminal/ Depot/ Port)

Consumer (Demand Centre) Mktg Product Storage (Terminal/ Depot/ Port) Product Transptn/Distribution (Tanker/PL/Rail/Road)
Consumer (Demand Centre) Mktg Product Storage (Terminal/ Depot/ Port) Product Transptn/Distribution (Tanker/PL/Rail/Road)

Product

Transptn/Distribution

(Tanker/PL/Rail/Road)

DIFFERENT STAGES IN PETROLEUM SUPPLY CHAIN

Exploration → Production → Refining → Marketing →

Consumer

Exploration: Seismic, geophysical and geological operations

Production: Drilling, reservoir, production and facilities

engineering.

Refining : complex operation and its output is the input to marketing.

Marketing : The retail sale of gasoline, engine oil and

other refined products.

IMPORTANCE OF SUPPLY CHAIN IN PETROLEUM INDUSTRY • Petroleum industry is highly asset intensive •

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

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

Upstream

Exploration & Production

Upstream Exploration & Production

ONGC

OVL

Oil India

Limited

Pvt E&P

Cos.

Downstream

Downstream

Refining & Marketing

Refining & Marketing

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

IndianOil

CPCL, BRPL

Reliance

Industries

Ltd.

Bharat

Petroleum

NRL

Hindustan

Petroleum

MRPL

UPSTREAM SUPPLY CHAIN

Acquisition of crude oil.

Operations Exploration ,Forecasting ,

Production .

Logistics management - Delivering crude oil

from remotely located oil wells to refineries

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.

PETROLEUM FINISHED PRODUCTS IN INDIA

PETROLEUM FINISHED PRODUCTS IN INDIA

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 maximize the throughput and its margin

Procurement would purchase the feedstock with not

the best yields at lowest cost

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

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

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

Distribution Planning: Generating operational plans for distribution

Production Planning: Generating operational plans for production.

These modules are supported by various enablers that facilitate planning activity that include:

(1) Supply Chain Database (SCD)

(2) Geographical Information System (GIS)

(3)Data Interfaces

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

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

GIS can be used to obtain the distances between locations, which are used as a basis for freight calculation

UNIQUE FEATURES OF THE PETROLEUM INDUSTRY SUPPLY CHAIN

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 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

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.

Length of Supply Chain:

Very Complex and lengthy supply chain

UNIQUE FEATURES OF THE PETROLEUM INDUSTRY SUPPLY CHAIN

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.

Flexibility :

Supply chains are highly inflexible both in terms of

volumes handled and in terms of product

variation/customization.

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.

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

Additional Quality Checks:

Adulteration usually happens in case of petroleum products like petrol and diesel

Adulteration is also possible in transit from storage installation to the

retail outlet

Use of common pipeline for transporting different products leads to a small portion of product being "degraded“.

Testing of the product is required at various times.

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 material and finished product

Over Production:

continuous process plants

continuous supply of feed stock, resulting in the production of several

downstream products

inflexibility in capacity, as these plants have to run continuously all the time

This increases inventories of finished product and results in inefficient use of capital.

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

It is a method that unites the modelling, designing and monitoring of engineering assets with scheduling, supply

chain, trading a fulfilment via multiple flows of information between stages in life cycle of products, bringing huge

efficiencies

Customer-segmentation strategies and effective demand management, will lead to increased top line revenues and reduced cost of sales.

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:

Use of Pipeline transportation

Length of Supply Chain:

Facilities at the ports should be improved and their capacity to be increased so that more tankers could berth at the harbour

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 information technology to integrate suppliers and customers. Effective use of ERP can help in this regard.