Ateneo Graduate School of Business

Rockwell Drive, Makati City

HUMAN RESOURCE MANAGEMENT

LLENARESAS, MONICA KRISTINE M.

Prof. Boni Ang

August 3, 2017
I. Business Case: Situation
Petron is the largest oil refining and marketing company in the Philippines, supplying
nearly 40% of the country’s oil requirements through the operation of 180,000 bpd oil refinery in
Bataan. This refinery produces world-class fuels and LPG which Petron moves via barges and
marine vessels to its 32 ISO-certified depots and terminals strategically located nationwide.
Apart from refined petroleum, Petron also serves lubricating oils which it manufactures in its
state of the art Lube Oil Blending Plant (LOBP) in Pandacan, Manila. Lubricating oils (or lube
oils) are shipped from Pandacan thru container vans to all the Company’s local channelled thru
its nationwide terminals and international distributing facilities.
With the enforcement of the Supreme Court ruling mandating complete removal of the
fuel facilities in Pandacan, Terminal last 2015 and the eventual complete closure of Petron
Pandacan Fuel Terminal in 2016, Petron’s fuel supply chain has significantly suffered.
Neighbouring terminals in Cavite and Batangas and the newly built but was still on trial
operations Manila North Harbor Terminal were activated to indefinitely absorb and cater all ex-
Pandacan customers. As a result, run-outs and delays in deliveries in Metro based fuel
customers sharply increased last 2016. Meanwhile, Petron’s sole lube manufacturing plant was
left operating in Pandacan, still exposed to constant threats of closure.

II. Business Case: Problem – Ensuring continuity of Petron’s lube oil supply chain
Petron’s problem is how to ensure the continuity of its lube oil supply chain given the
threats of closure of its sole lube oil manufacturing plant in Pandacan, Manila. With the
complete closure of Shell and Chevron’s fuel terminal and lube manufacturing plant in
Pandacan, it is extremely possible that Petron’s sole lube manufacturing plant, the only facility
left in the 33-hectare Pandacan oil complex, will be forced to close as well as it is with the strict
enforcement of the SC ruling. It is therefore necessary for Petron’s advantage to lay out
business continuity plans and/or facility relocation plans to avoid repetition of disarray that
happened last 2016.

III. Business Case: Analysis

A. SWOT analysis
With a strong Philippine economy having a projected 6%-7% increase in GDP in the next
five years and a continued increase in government expenditure, national oil demand is expected
to increase. Likewise, total registered vehicle has constantly increased in the last five years at
average of 5.1% per annum while vehicle sales is projected to grow by 23.6% per annum until
2022. Commercial and consumer automotive market comprise 73% of Petron’s lube sales.
Further, 1Q2017 industry growth is at 6.1% with Manufacturing sector contributing 5.4% points.
Manufacturing and the power sector which both exhibited increased growth rates at 7.5% and
10.1%, respectively, are the two main industrial lube markets of Petron, comprising 27% of its
volume sales.
It is therefore only logical for Petron, with its strong financial capability and its existing
state of the art lube oil blending facility, to take advantage of this opportunity in forecasted
demand. Capturing this market demand can be made possible by its extensive local distribution
network and the Company’s excellent research and development team evidenced by the Petron
boasting the most efficient fuel in the country, Blaze IV.
Meanwhile, to counter threats, Petron shall relocate and construct new state of the art
lube manufacturing plant in either Manila North Harbor or Batangas, capable of receiving
importation vessels which carry raw material baseoils. It may also consider engaging in tolling
contracts to its existing packaging container suppliers and/or plant operations service providers
to produce all its market requirements. Petron shall also streamline its product lines to lower its
slow and non-moving products. Existing non-movers shall be downgraded for incorporation to
new blends to free up warehouse space.
To address the increasing attrition rate of regular Petron employees, Petron shall
improve its compensation and benefits and develop personnel programs designed for young
professionals in order to improve employee recognition and retain its talents. To address the low
accountability of contracted third party service provider, Petron shall recruit and hire regular
Petron employees in core plant functions such plant technicians and maintenance personnel
and production planning and warehousing personnel. Appropriate plant operation and safety
trainings shall be provided such that employees understand how their jobs contribute to the
Company’s bottom line. Reward system shall be put in place and related to the Company’s
performance.

B. Porter’s 5 Force
The level of competition in lube oil manufacturing industry is high. The threat of new
entrants with a full-blown lube manufacturing and distribution network is low considering that it is
highly capital intensive and it requires a highly skilled and technical personnel. Meanwhile, the
threat of substitutes is low considering that there is currently no substitute for automotive,
industrial, marine, or gear lubricating oils. Bargaining power of both buyer and suppliers have
always been high given low switching cost and oil deregulation and the high volatility of crude oil
prices, respectively.

IV. Business Case: Decision

To ensure continuity of lube supply, Petron shall relocate and construct new state of the
art lube manufacturing plant with site capable of future expansion. The plant shall have a pier
receiving facility that is capable of receiving importation vessels to avoid vessel to vessel loop
loading and demurrage. Petron shall also streamline its product lines to lower its slow and non-
moving products. Existing non-movers shall be downgraded for incorporation to new blends to
free up warehouse space.
To gear towards self-sufficiency and ensure assured availability of packaging materials,
Petron may also consider putting up its own packaging material manufacturing plant focusing on
bottle and gallon production. This packaging production plant may be put beside the Lube
Manufacturing Plant, syncing its production planning with lube production. The Company may
also partner with San Miguel Yamamura, the plastic packaging production arm of the San
Miguel Group, for its material requirements.
As for manpower, the new plant shall employ regular employee for its core plant function
such technicians, maintenance, planners, and warehousing. Support activities such as utility
services may be outsourced. Compensation and benefits of the regular personnel shall be
competitive to attract applicants and reward systems tied to plant performance shall be
implemented.

V. Business Case: Strategy

A. Business Strategy:
Petron will negotiate to acquire the lot near the Manila North Harbor Terminal which is
ideal for facility construction and importation vessel receiving. After the necessary governmental
and regulatory permits are in place, the Petron will construct a state of the art, fully automated,
Lube Oil Manufacturing Plant. Blending and storage tanks will be sized enough to meet 5 years
projection in sales. To save on cost, existing tanks shall be scrapped for reconstruction of new
and larger storage tanks. Pier receiving facility will be designed and constructed such that it will
be able to receive VLCC. Further, considering the positive industrial growth, tank truck and
flexibag container loading facilities areas will be constructed to capture future increase in
industrial lube sales served primarily thru bulk loading.
 To ensure continuity of market visibility, existing plant will start inventory build-up of
finished products especially the fast movers. Temporary storage such as isotanks and isotainers
will be acquired for bulk storage. Since storage tanks will be transferred to the new facility and
decommissioning and construction of tank takes about 1 year, finished product inventory to be
stored will be 6 months to 1 year, depending on product movement. Existing facility will be
mothballed only after 1 year of full and smooth operation of the newly constructed plant.
As for raw material supply, supply contracts with baseoil manufacturers will be drawn to
protect the company from the volatility of baseoil prices and ensure continuous supply. The
Company will also partner with San Miguel Yamamura for its plastic packaging material
requirements but will also have spot contracts with other suppliers to avoid supply disruption.
Petron will also streamline its existing product lines to lower its slow and non-moving
products. Existing non-movers will be downgraded for incorporation to new blends to free up
warehouse space.

B. HR Strategy:
The regular manpower (engineers, supervisors, and manager) of the existing LOBP will
be transferred to the newly constructed plant. Considering that it will be an upgrade version of
the existing plant, plant and operations trainings will be provided during plant turnover. As for
the rank and file positions, HR will start the recruitment and hiring of line and maintenance
technicians, warehouse personnel, and planners. High performing and experienced personnel
from the third party service providers currently working in the existing plant will be encouraged
to apply for the open positions. Employing them will allow shorter preparation and training hours
given their experience and familiarity with lube manufacturing.
Necessary trainings shall be supplied to the new hires to ensure that they are fully
equipped in handling lube manufacturing and vessel receiving operations. Further, to improve
employee efficiency and performance and reduce increasing attrition rate, HR will ensure that
newly hired employees are those predisposed to being satisfied and are inclined to do technical
and plant staff. Clear roles and responsibilities will be relayed to employees and employee
programs will be developed to sustain employee interest and challenge. HR programs will also
be developed to reinforce the Company values and encourage social functions. Lastly,
compensation and benefits will be competitive and benchmarked with other oil companies and
pay structures and policies will be set transparently.
 Porter’s Five Forces

Threats of New Entrants

LOW
 Intensive capital requirement
 Requires specific personnel
technical skills and expertise

Competitive Rivalry Bargaining Power of Buyer

Bargaining Power of Supplier
HIGH HIGH
HIGH  Numerous competitors in
 Very high supplier  Very low switching cost
the industry between competitors
concentration (importation)

Substitute Product or Service

LOW
 No current substitute for
lubricating oils
 SWOT Matrix
STRENGTHS (S)
 Strong financial capability
 Strong distribution network
 Competitive R&D program
 State of the art lube
manufacturing technology
OPPORTUNITIES (O)  Develop partnership with
 Stronger lube oil demand autodealers and
due to increase in vehicle autorepair shops to
sales, sustained improve commercial
manufacturing and energy market
industry sector growth  Continuously develop
lower cost products with
the same efficiency
THREATS (T)  Construct new LOBP plant
 Possibility of immediate in Manila or Batangas
manufacturing plant  Engage in product tolling
closure with packaging container
 suppliers capable of filling
operations
 CCTVs in new
WEAKNESSES (W)
 High annual demurrage
from VLCC due to tide
restrictions in Pasig River
 Susceptibility to product
pilferage
 Increasing attrition rate
 Limited expansion site in
current location
 Poor ownership and sense
of responsibility among
plant employees
 High financial losses due
to increasing operating
product losses and
finished product rejects
 High slow and non-moving
product inventory
 Develop tolling contracts
with suppliers and/or
service providers for other
product line to serve
market requirement
 Construct new LOBP plant
that can readily accept
import vessels, with
expansion capacity
 Strengthen product
security by putting up
manufacturing plant and
GPS tracking systems in
trucks
 Hire regular employees for
plant operation instead of
contracting it to third party
service provider