Supply and demand planning for crude oil procurement in refineries

Abstract

The upstream petroleum supply chain is inefficient and uneconomical because of the independence of the four complex and fragmented functions which comprise it. Crude oil exploration, trading, transportation, and refining are functions which may be integrated through unified decision-making facilitated by timely information exchange. This exchange has been problematic because the four business units with their disparate activities have not been able to capture and appropriately structure the required information. How can business executives in the oil industry assemble all of the required information to achieve system-wide optimization? To remove the silos which impede system-wide optimization, there is need to analyze people, systems and issues in the upstream section of the petroleum supply chain; as a background to understanding the current challenges faced in achieving integration. Hence, the use of secondary and primary data sources was used for this research. The secondary includes the review of relevant literature while the primary data were from two sources. The first came from an on-site interview with the heads of business units of a case study, a company which is a major player in the industry.

(cont.) The second is from telephone interviews with industry experts which include software providers, consultants and other major players in the industry. The findings are that on-time information exchange will maximize shareholders' value and improve process efficiency in the supply chain. This process efficiency makes the upstream supply chain more responsive to possible changes in the environment that affects its operation. This will allow supply chain managers to achieve both a reduction in the variability in price of end product will be obtained while achieving stable profit margins. This research concludes by advocating that the use of information systems that accurately support data exchange among the functions in the supply chain in a timely, coordinated fashion with minimal distortion is required to ensure consistency in optimal decision making. To achieve this, change management is necessary because it requires a shift to a holistic approach in making decisions. Finally, areas recommended for future research are stated.