Literature Review: Supply Chain Management In The Oil Industry

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LITERATURE REVIEW
Supply Chain Management is defined as a network of facilities that produce raw materials, process them into final products, and deliver those products to customers. This process includes procurement, manufacturing and distribution. The basic objective of supply chain management is to “optimize performance of the chain to add as much value as possible for the least cost possible” (Lee & Billington 1995). In simplified terms, it links all supply chain activities as a means to “maximize productivity in the supply chain and deliver the most benefits to all related parties” (Finch 2006).
In recent times, good logistics and supply chain management has increased the capability of businesses to achieve a competitive edge over its …show more content…

Jenkins and Wright (1998) derive this inelasticity from three features of the oil industry. First is the purchase of the product, which has to be determined much earlier than the actual sale. Second, the product is then distributed through fixed pipeline capacity or through fixed coastal shipping. Finally, since the depots’ capacity for the secondary distribution is limited, it has to be booked on a take-or-pay basis (Jenkins & Wright, 1998).
Vertical Integration - Supply chain in the oil sector is a vertically integrated chain combined with a push system (Stabell, 2001; Hall, 2002; Gainsborough, 2006). To enhance the customer satisfaction a reliable transportation network should be established so that the inventory is closer to the final users as the lead time is decreased and product availability increases (Hall, 2002).
Optimizing the supply chain creates a great opportunity for companies to minimize costs and improve their performance (Ratliff, 2007). The specified quantity, regular supply of raw materials (crude oil), a low lead time, lower expenses are one of the main goals of the oil supply chain (Hussain et al., 2006).

Approaches to Oil Supply Chain …show more content…

Integration - Through vertical integration MOL and its supply chain management has a significant control over the whole chain including procurement, refinery, whole sale and retailing. Integrated process also creates value by reacting quickly for changes in the market, planning costly refinery shutdowns, having quicker information flow, making better marketing and logistics solution (Sz. Szabó, personal communication, 2012-04-02).
Information Technology - MOL’s IT solution is an essential tool which integrates the inputs of each division in a single model. This includes the optimal configuration and harmonized operation of refineries, petrochemical production, optimal procurement, and transfer between the refineries, refinery inventory holding, distribution as well as marketing cost and prices. This tool is also able to handle changes by modifying variables and considering possible or expected changes. For instance it can examine how any price change affect the optimum of business activity or which price change of products or raw materials forces a necessary change in the whole optimization

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