Improving Profitability by an Integrated, Collaborative Approach to Supply Chain Optimisation and Management

Improving Profitability by an Integrated, Collaborative Approach to Supply Chain Optimisation and Management

David J. Adams, Mgr. Centre of Excellence, Advanced Planning and Scheduling

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Profit Issues facing CEE Refiners

• Regional margins not that good for most companies

• Most refiners in the region have very restricted crude purchase

opportunities, hence crude selection has limited capabilities as a profit improvement tool

• Most refineries have already invested significant sums in their configurations and operating cost reduction

• Where else is there room for improving profit ?

• Supply chains are often a neglected area, often with outdated tools, and offer serious opportunities for profit improvement

Refining Supply Chain Challenges

Pipeline Rail Car Pipeline Pipeline Pipeline

Source Make Distribute Consume

• Make or buy decisions to meet market demands

• “Silo-developed” forecasts from crude selection/acquisition to rack demand for various trade channels

• Many planning and scheduling tools and non-integrated systems

• Multiple owners and partners throughout the Supply Chain

• Large inventories from crude to motor fuel

• Must balance pushing crude through the system with responding to demand

Demand Supply

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Supply Chain Constraints in the Region

• For clear geographical reasons there are very limited opportunities for companies in Central and Eastern Europe to take advantage of new modes of transportation.

• Some possibilities do exist for companies in the Danube basin and on the Baltic coast but these are limited.

• For this reason companies need to find ways to get the most out of their existing physical supply chains.

• This requires implementing best-in-class solutions to minimise supply chain costs and maximise customer satisfaction within all existing physical transportation constraints

Typical Supply Chain Problems

• Limited interconnection between business objectives and production targets and vise versa

• Partial production optimization, limited supply chain optimization – little or no integrated optimisation

• Often organisational silos prevent collaboration by having their own individual objectives which reduces overall performance

• Limited tools to support everyday decision making, and limited ability to tie these decisions to planning objectives

• Not integrated business process monitoring

– Separate paper-based monitoring of business units

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Typical As-Is Oil Supply Chain - Planning Framework

Supply Planning Crude Purchase Plan Refinery 1 Campaign Plan NRW Demand Plan Retail

Demand Plan _Commercial Demand Plan RW Demand Plan Refinery 1 Production Plan Refinery 2 Production Plan Shipping Plan

Road & Rail Plan Pipeline Nomination Plan

Plans

Crude P/L Plan Refining Wholesalers Sourcing Plan

Decentralized Primary Distribution – Typical Problems

High Growth-North Region Low Growth-East Region Premium Distribution Cost Stagnant Inventory North terminal West terminal

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Bottom Line Effects

Generate daily Schedule for 2-3 days

View Scheduling Result Get Monthly distribution Plan

Daily Opening stock of product grades at each location (excel/ERP)

Send Schedule to Terminal coordinators Start Is there a stock-out condition at any Depot?

Monitoring & Reporting No Is it 25th _of Month? OR Has Planning Changed? Yes Re-Scheduling No End Domain Expertise Any Crisis or Operational problems ? Yes No Stock-In-Transit, Refinery Outlook, Coastal Outlook,

Pipeline Outlook

Prioritize & Re-scheduling Yes Re-Scheduling Inventory Decisions Poor Communication- No centralized control Distribution Visibility- Scattered Information

Objectives when Improving Supply Chain Performance

• Visibility to identify internal and external opportunities

• Efficiency and safety to execute new process targets while minimizing latency between business decisions and execution

• Agility to translate these into profitable business and operating decisions

• Continuous improvement to improve competitiveness

• Combined approach to planning (SC optimisation) and scheduling (SC Management)

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Planning - SAND Planning Optimizer

• Economically optimize integrated supply/demand network

– Uses LP technology

– Supplemented with integer programming

• Supports strategic planning, annual budgeting, S&OP

• Optimizes for raw material selection,

sourcing, exchanges, production levels, plant allocations, distribution levels, transport

mode selection, and routings

• Models all physical or economic constraints in the operation or distribution systems

TIME

INVENT

OR

Y

SAFETY STOCK LEVEL

HIGH TARGET LEVEL

STOCK OUT

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TIME

IN

VENT

OR

Y

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• Real-time view of entire supply chain: • Inventory • Orders • Forecast • Purchasing • Production • Distribution

• Flexible, role-based views • Exception-based alerting

• Calculates available-to-ship dates for customer orders and stock transfers

• Finished products • Intermediates

• Feedstocks, Crude

Changes to any grid or schedule are instantly visible throughout the entire supply chain.

Distribution

Scheduler

SCEM

(The Grid)

SAND

Primary Distribution – a day in the life of….

1.) Every night we synchronize all data needed by supply chain users with ERP and plant systems, i.e. all ERP master and transactional data, including changes to materials, locations, orders, downtimes, etc

2.) Every morning users are presented with the latest supply/demand balance in the grids, including changes to demand and supply

3.) Micro issues requiring minor (daily) adjustments to individual quantities, rates, etc., are handled by

Distribution Schedulers , guided by the active plan 4.) Macro issues requiring

major rebalancing or weekly/monthly re-planning are optimized in

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Retail and its part in supply chain optimisation

• One of the major elements of a best-in-class supply chain solution is the effective integration of the primary and secondary distribution

functions.

• Fully automatic point-of-sale systems that are effectively integrated with the primary distribution can lead to noticeable improvements. • Integration focus is at the terminal management level

Secondary Distribution Solution

Consists of two major components :

• Automatic Order Generation

• Operational system for Scheduling & Routing

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Order generation

Automatic generation of replenishment orders that are tailored to the distribution fleet

• Allows “peaks and troughs” in demand to be smoothed

• Promotes full loads

• Promotes simultaneous re-order points

• Reduces risk of run-outs

Scheduling and Routing features

• Multi-drop • Cost optimisation • Mixed fleet • Product availability • Priority levels • Compartment planning • Time windows

21 ATG Retail Automation Sales / Stock Data Orders by Phone Load Confirmation Delivery Confirmation Automatic Scheduling Generation of Schedule Assign order to vehicles SCHEDULING SCHEDULING SCHEDULING Sales / Stock Recording Calculations Generated / Customer Orders PLANNING PLANNING

Gas Station Refinery Marketing HQ Area Office Product Product Pr od u ct •Pricing •Promotions •Price •Loyalty Campaign •Monitoring ProductCost •Replenishment Plan

•Transportation Schedules •Loyalty Campaign •Product Sales, Inventory

•Existing Prices

•Sales, Receipts, Inventory •Customer Info

•Own & Comp. Prices

Dispatch Details ProductDemand

•Sales, Receipts, Inventory •Consumption Info

• Fuel Delivery Mgmnt.

System

• Fleet Tracking System • Gas Station Automation

System

• Fleet Management

System

•Sec. Dist. Planning &

Scheduling

•Head Office Mgmnt. System • Network Planning

• Dynamic Pricing • Demand Forecasting

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Benefits from improving Primary Distribution

• Improved demand forecasting • Lower inventories

• Reduced distribution costs • Increased customer service • Improves Distribution Planning

• Raises Competitive Capacity of the Company on the Market • Supply Chain Monitoring provides Decision making support

• Key operating decisions directly impacting bottom line costs and revenues can be made.

• All major supply chain stakeholders within a company, (executives, managers, planners, sales representatives, production schedulers, customer service representatives and purchasing agents can benefit from the powerful analytics and workflow enablers provided.

Primary Distribution Financial Benefits

Benefit Areas Potential Paybacks

Reduction in Inventories 25-60% Improvement

Lower Supply Chain Costs 25-50% Improvement

Forecast Accuracy 25-80% Improvement

Improved Customer Satisfaction 16-28% Improvement

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Benefits from improving Secondary Distribution

• Remote Monitoring

• Remote Inventory Management • Replenishment Forecasting

• Order Management

• Transportation Cost Reduction • Optimum vehicle utilization

• Reduction in Operational overheads • Increase in service levels