MANSCIE TERM PROJECT:

TRANSPORTATION MODEL

A Term Paper
Presented to
Mr. Victor Reyes
In Partial Fulfilment
of the Requirements in
MANSCIE, Term 2 AY 2014-2015

By
Bianca Dawis
Alyssa Deyto
Rahabam Santos IV

Company Profile/Background
Company Profile
Petron Corporation (PCOR) is one of the three main oil refiners in the
Philippines. PCOR refines crude oil into various fuel products such as gasoline, jet fuel
and liquefied petroleum gas. The company markets and distributes the products mainly
to the domestic clients. The company's refinery is located in Limay, Bataan, and it
sources bulk of its crude oil from Saudi Aramco in the Middle East. Fuel products are
distributed from the refinery to bulk storage terminals and direct consumer accounts

Nature of Business
Petron Corporation, an oil refining and marketing company, processes crude oil into
a range of petroleum products. Its products include gasoline, diesel, liquefied petroleum
gas (LPG), jet fuel, kerosene, and industrial fuel oil, as well as petrochemical feedstock
benzene, toluene, mixed xylene, and propylene. The company supplies fuel oil, diesel,
and LPG primarily to industrial customers; and supplies jet fuel at airports for
international and domestic carriers. It also operates approximately 2,200 service
stations retailing gasoline, diesel, and kerosene to motorists and public transport
operators. In addition, the company sells LPG under the Gasul and Fiesta brand names
to households and other industrial consumers through a dealership network;
manufactures and sells lubes and greases; and operates repair and maintenance

centers for motorists. The company exports various petroleum and non-fuel products to
the Asia-Pacific countries, such as South Korea, Taiwan, China, Singapore, Cambodia,
Malaysia, Indonesia, Hong Kong, and Thailand. The company was founded in 1933 and
is based in Mandaluyong City, the Philippines. Petron Corporation operates as a
subsidiary of SEA Refinery Corporation.

Industry Profile
The collapse of the Philippines' economy due to an oil crisis in 1971 forced the
Filipino government to recognize the petroleum industry as vital to the country's
economic stability and to begin making plans to take control of the sector. At the same
time, the government sought to replace the foreign dominance of the country's fuel
market with Philippine-owned and controlled operations.
In November 1973, the government, then led by Ferdinand Marcos, created a
new body, the Philippines National Oil Corporation (PNOC) with the intention of
developing a full-range of petroleum-related operations, including refining, marketing,
shipping, transporting, and storage. One month later, PNOC launched its refining and
marketing wing when it acquired Esso Philippines--marking the end of Esso's
involvement in the country--and the refining and marketing operations of Filoil. Esso
Philippines was then renamed as Petrophil Corporation.
PNOC also bought up a controlling stake in Bataan Refining Corporation,
completing that acquisition in 1983. By then, PNOC had already established the Petron

name. The government continued to regroup its petroleum industry operations, merging
Bataan Refining Corporation into Petrophil in 1985. Two years later, Petrophil
adopted the name of Petron Corporation.
By then, Petron had taken a major share of the Philippines' petroleum market,
particularly after both Mobil and Getty exited the country in the early 1980s, leaving only
Shell and Caltex, both of which had been among the pioneers of the country's
petroleum market. The company was particularly strong on the retail market, with 900
service stations and one-third of the total retail market. Petron's refinery operations, with
a total capacity of 155,000 barrels per day at the time, were running at just 33 percent of
that total, however. Nonetheless, the company remained highly profitable.
The fall of the Marcos regime and the creation of a new government under Corazon
Aquino led to calls to privatize many of the industries that had been taken over by the
Marcos government. Petron appeared to be first up to bat, to the point where the
government hired Citicorp to act as a consultant. The initial proposed called for the
government to retain a 35 percent share of the company, selling the remainder in a
public offering, with a limit of 40 percent of shares permitted to be placed with foreign
investors.

Organizational Chart

Define the Problem

SWOT (Strength, Weakness, Opportunity, Threat) Analysis
Strengths
The strengths of Petron would refer to its products and services. Its well-known
for the quality of its products such as Automotive Fuels, Automotive Lubricants,
Liquefied Petroleum Gas, and Industrial Petroleum Products. Services provided include
the Petron Car Care Center, Petron Lube Center, Petron Motocenter, One-Stop Service
Convenience, and Petron Cards.
Weaknesses
Weaknesses may refer to the lack of ability to further minimize the queues of
customers in different stations and service centers.
Opportunities
Petron has recognized the opportunity in increasing market share and profit as
they partner-up with other programs such as the SM Advantage, SM Prestige, and BDO
Rewards in order to reach out to their stakeholders.
Threats

Threats to the company may refer to the sudden changes and fluctuations in oil
prices from different exporters worldwide.

Problem Statement
In order for a companys product to be able to reach more people, they should
make it more available in a larger market and provide a level of convenience to their
consumers. In order for them to do this, they have a delivery service to be able to bring
their product to their consumers. Thus, the problem to solve is to minimize the delivery
costs.

Scope of the Problem

Since the problem presented to the group was how to minimize the cost of
delivering oil from the oil depots and terminals to the gas stations, they decided to
narrow down the problem and given data to make it easier to formulate a model. The
group chose three oil depots which were located in metro manila and three gas stations
located at metro manila as well. The oil depots and terminals they chose were located in
Pandacan, Navotas, and Pasig; while the three gas stations in Muntinlupa, Quezon City
and Pateros.

Develop a Model
The group chose to use a transportation model to present the data they were
able to collect and the minimum cost of delivery from the three oil depots to the three
gas stations. This model is the most appropriate model for the problem that will provide
the optimal solution. Also, it is quite easy to understand because it is presented in a
table form and the method used for solving is also easy to learn.

Objectives of the Model

Aside from the main objective which is to show the minimum cost of the delivery
of gasoline, the group also had other goals in mind when they chose this model. The
first is to be able to present the problem in the most appropriate manner. Using this
model, the readers would easily understand and analyse the problem. Second is to
clearly see to clearly see and incorporate all the data needed.

Scope, Limitations and Delimitations

Because Petron Corporation have 32 oil depots and terminals and almost 2,000
gas stations all over the country, the group only chose to focus on three oil depots and
three gas stations all located in the National Capital Region. The group only based the
model on the data they were able to acquire during the data gathering procedure. They
did not take in consideration anymore other factors aside from the supply of the three oil
depots, the demand of the three stations, and the cost of transportation.

Acquire Input Data

Input Data Requirements

The input data required for this model are the amount of gasoline barrels each oil
depot/ terminal can supply. Since these depots get their supply from the Bataan
Refinery, their supply of gasoline is limited. Second is the amount of gasoline the three
gas station demands. And last is the cost of delivering gasoline from each depot to each
gas station.

Data Gathering Methodology

The data gathering method that the group used is interview. They interviewed a
manager from Petrons IT department who monitors the delivery of gasoline from one
point to another. He also inspects oil depots and the facilities used in delivering gasoline
to make sure the consumers get what they expect out of the company. With the help of
this manager, the group was able to identify a problem they can work on, come up with
a model they can use, and compile the data they need to input to the chosen model.
Aside from the interview the conducted, they also did research on how they can

appropriately present the problem and the model. This research also helped them find
the easiest way to create an initial solution and find the optimal solution.

Summary of Data
The following tables show the data needed that the group was able to gather.
OIL DEPOTS/

FROM - TO
Navotas to

DEMAND

TERMINALS
Navotas
Pandacan
Pasig

SUPPLY
100 barrels
300 barrels
300 barrels

GAS STATIONS
COST/
barrel
Muntinlupa
Quezon City
(Php)
Pateros
5

300 barrels
200 barrels
200 barrels

Table 1: The number of

barrels each oil

Muntinlupa
Navotas to Quezon

.Table 2 The number

of barrels each

City
Navotas to Pateros
Pandacan to

4
3

Muntinlupa
Pandacan to

Quezon City
Pandacan to

Pateros
Pasig to Muntinlupa
Pasig to Quezon

3
9

City
Pasig to Pateros

7
5

depot/ terminal can supply

gas station is demanding
Table 3

The cost to deliver the gasoline from one point to another.

The Transportation Model

Initial Solution/ First Table

TO
FROM

MUNTINLUPA

QUEZON CITY

(A)

(B)
5

NAVOTAS (1)

3
100 barrels

200

100
9

100

200

200 barrels

DEMAND

300 barrels

200 barrels

ROUTE

GALLONS

COST PER

TOTAL

SHIPPED
100
200
100
100
200

GAL. SHIPPED
5
8
4
7
5

COST
500
1600
400
700
1000
4200

MUNTINLUPA
5
100
8
100
9
100
300 barrels

QUEZON CITY
4

FROM

TO

1 A
2 A
2 B
3 B
3 C
TOTAL

SUPPLY

100
8

PANDACAN (2)
PASIG (3)

PATEROS C

300 barrels
300 barrles

200 barrels

Second Table
TO
FROM
NAVOTAS
PANDACAN
PASIG
DEMAND

PATEROS

SUPPLY
3
100 barrels

200

300 barrels
7

200 barrels

5
200
200 barrels

300 barrles
200 barrels

GALLONS

COST PER

SHIPPED
100
100
100
200
200

GAL. SHIPPED
5
8
9
4
5

MUNTINLUPA
5
100
8

QUEZON CITY
4

ROUTE
FROM

TOTAL COST

TO

1 A
2 A
3 A
2 B
3 C
TOTAL

500
800
900
800
1000
4000

Optimal Solution
TO
FROM
NAVOTAS
PANDACAN

PATEROS
3

100 barrels
4
200

3
100

200

DEMAND

300 barrels

200 barrels

ROUTE

GALLONS

COST PER

TOTAL

SHIPPED
100
200
200
100

GAL. SHIPPED
5
9
4
3

COST
500
1800
800
300

TO
1
3
2
2

A
A
B
C

300 barrels
5

PASIG

FROM

SUPPLY

100

300 barrles

200 barrels

700 barrels

3 C
TOTAL

100

500
3900

Methodology
The group used a Transportation Algorithm to present and find a solution to the
problem. A Transportation Algorithm is an iterative procedure in which a solution to a
transportation problem is found and evaluated using a special procedure to determine
whether the solution is optimal.
The group made use of the Northwest corner rule to establish an initial solution.
Once they had an initial solution, they used the stepping-stone method to find the least
cost solution. The stepping-stone method is an iterative technique for moving from an
initial feasible solution to an optimal feasible solution. With the use of this method, they
were able to come up of three transportation tables. The first one was the initial solution
and the last one was the optimal solution.

Results
After using the Northwest Corner Rule and the Stepping-stone
Method, the group was able to come up with their optimal solution giving
them the least delivery cost. They were able to find out that it will be less
expensive if the Navotas oil depot will deliver 100 barrels to Muntinlupa,
Pandacan depot will deliver 200 barrels to Quezon City and 100 barrels to

Pateros, and finally the Pasig oil depot will deliver 200 barrels to
Muntinlupa and 100 barrels to Pasig.

Analyse Results
Sensitivity Analysis

Recommend Course of Action

Solve the Problem
The goal of the company is to minimize the delivery costs of their product from
the depots to the different retail stations. The group is recommending that the company
should follow the transportation model above. The optimal thing to do is for Navotas oil
depot to deliver 100 barrels to Muntinlupa, Pandacan depot to deliver 200 barrels to
Quezon City and 100 barrels to Pateros, and finally the Pasig oil depot to deliver 200
barrels to Muntinlupa and 100 barrels to Pasig. Such method would bring about the
least cost for the company.

Address corporate social responsibility using triple bottom line

framework
The

triple

bottom

line

framework

involves

three

measures

which

is

environmental, societal, and economical. In accordance of the environmental measure,

Petron should take into consideration minimizing its Greenhouse-gas emissions through
lowering their electrical consumption. The company should always comply with the
Clean Air Act. With regards to social, Petron has been advocating about Corporate
Social Responsibility. They should provide quality service with to their stakeholders. The
company should make sure that their employees are satisfied. When it comes to
economical, the prices of oil globally are not in the hands of the company. It is
dependent on the producers from other countries. Though, we are sure that Petron is

trying its best to address the situation while taking into consideration its stakeholders.
They should keep the prices of their products in such a way where it is profitable yet
suitable and affordable to the consumers.

Implementation Plan
If the company is to follow the said course of action stated above in
aid of reducing or minimizing the cost of delivery, the company should also
look into the volatility of the said costs. These costs are subject to changes
and are not permanent. In the event wherein the cost of delivery from the
depot to the different retail stations changes, the model above might not be
the optimal solution anymore.