CHAPTER ONE: INTRODUCTION

1.1 Background of the Study

The institute of Supply Management (2009) defines supply chain management as the
identification, acquisition, access, positioning and management of resources and related
capabilities an organization needs or potentially needs in the attainment of its strategic
objectives.The concept of Supply Chain Management is based on two core ideas. The first is that
practically every product that reaches an end user represents the cumulative effort of multiple
organizations. These organizations are referred to collectively as the supply chain. The second
idea is that while supply chains have existed for a long time, most organizations have only paid
attention to what was happening within their four walls. Few businesses understood, much less
managed, the entire chain of activities that ultimately delivered products to the final customer.
The result was disjointed and often ineffective supply chains. Supply chain management, then, is
the active management of supply chain activities to maximize customer value and achieve a
sustainable competitive advantage. It represents a conscious effort by the supply chain firms to
develop and run supply chains in the most effective & efficient ways possible.
Supply chain activities cover everything from product development, sourcing, production, and
logistics, as well as the information systems needed to coordinate these activities. The
organizations that make up the supply chain are linked together through physical flows and
information flows. Physical flows involve the transformation, movement, and storage of goods
and materials. They are the most visible piece of the supply chain. But just as important are
information flows. Information flows allow the various supply chain partners to coordinate their
long-term plans, and to control the day-to-day flow of goods and material up and down the
supply chain. (Mentzer 2001)
East and Central African countries are net importers of Petroleum Products i.e. refined petroleum
products. Kenya also imports crude oil which is processed at the Kenya Petroleum Refinery.
These products are then distributed by the oil distributors. The regions petroleum products inlets
are: The port of Mombasa, through Shimanzi oil terminal (SOT) and Kipevu oil terminal (KOT).
Through SOT the products are received into private depots in Mombasa which are owned by oil
companies and the product used for local consumption or for export; though transportation of
export petroleum products from Mombasa has been suspended by KRA citing high costs in terms
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of tracking and increased cases of dumping leading to loss of revenue. While through KOT the
products are received into Kenya Pipeline tanks (known as KOSF), which are then transported to
Nairobi and Western Kenya (Eldoret, Nakuru and Kisumu) through the pipeline for either local
use or export into neighboring countries such as: Rwanda, Congo DRC, Uganda etc. The refinery
is also used by oil companies for short term storage of their products as they await distribution
either to SOT or to KPC, though this is not their core business, their core business is to refine
crude oil for oil companies; for a long time they have been operating under toll mode however
recently they have switched to merchant mode where they sell the refined products to the oil
companies rather than refine crude products to them. (Petroleum insight magazine)
Competition today is no longer between firms; it is between the supply chains of those firms.
The companies that configure the best supply chains will be the market winners and gain
competitive advantage (Collin, 2004). Implementing effective supply chain management (SCM)
is not an easy task, it requires coordination between departments within an organization as well
as between partners within the supply chain. Changes in the external environment like changes in
prices and regulations lead to organizations have to adopt more flexible supply chain practices.
Investment on employees training and development is also fundamental factor to be considered
for effective SCM. Therefore a company can gain competitive advantage by being able to adapt
to changes in its environment, therefore strategic supply chain management is used by oil
companies to respond to the changes and gain competitive advantage in the industry in which
they operate.
Many factors are driving an emphasis on supply chain management. The cost and availability of
information resources between entities in the supply chain allow easy linkages that eliminate
time delays in the network; the level of competition in the market and increased government
regulations requires organization to be fast, agile and flexible; customer expectations and
requirements are becoming much more demanding; the ability of an organizations supply chain
to react rapidly to major disruptions in both supply and downstream product or services will
lessen the impact on lost sales. As demands increase, organization and their suppliers must be
responsive or face the prospect of losing market share (Chopra and Meindl, 2004).
The Kenyan government is heavily involved in trying to regulate the oil industry as this is seen
as a critical sector in the countrys growth and development. The government uses various means
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to try and control the industry, through various laws, policies and other government institutions
and bodies. The institutional structure of petroleum industry comprises the Ministry of Energy,
the Energy Regulatory Commission (ERC), Kenya Pipeline Company (KPC), Kenya Petroleum
Refineries Limited (KPRL) and Multinational Independent Oil Marketing Companies that
include a State Oil Company, the National Oil Corporation of Kenya (NOCK). The Ministry of
Energy provides the policy leadership, while ERC provides regulatory stewardship of the subsector. The KPC is a state corporation fully owned by government under the MOE. Its overall
objective is to provide the economy with the most efficient, reliable, safe and least cost means of
transporting petroleum products from Mombasa to the hinterland. Specifically, it runs a 450kms
14 inch pipeline from Mombasa to Nairobi and manages open access Kipevu Oil Storages
Facilities and other common storage depots in the inland. KPRL is a limited company that runs a
single skimming refinery in Mombasa. Approximately 85.3 per cent of market share control is by
major oil companies, that is Shell, Total, Kenol Kobil and oil libya. The major oil companies are
vertically integrated with a stake of 51,4 per cent of the 1,153 retail outlets, the remaining are
controlled by new entrants and independent owners.
In 1981, the National Oil Corporation of Kenya Limited (NOCK) was established by the
government and incorporated under the Companies Act (Cap 486). The company's main
objective then was to coordinate oil exploration (upstream) activities. In 1988 the company was
mandated on behalf of the government to supply 30% of the country's crude oil requirements that
would in turn be sold to oil marketing companies for refining and onward sale to consumers. The
Petroleum Act (Cap 116) for a long time was used to guide operations in the sector. In addition
to this legislation there was the Petroleum Exploration and Production Act that was enacted in
1984. It gave NOCK the mandate to oversee oil exploration activities in the country. In 1994,
there was further implementation of policies to liberalize most of prices and sectors in the
country such as removal of exchange rate controls; interest rates decontrol and price decontrol
that included petroleum products among other goods in the consumer basket. It was during this
period that the oil industry was deregulated and NOCK lost its mandate to supply the 30% of the
countrys crude oil requirement. The company therefore had to formulate new survival strategies
that saw its entry into downstream operations. (Energy Act No. 12, December 2006)
Oil is critical to western type civilization. The United States of America (USA), the icon of this
civilization uses up 24% of the worlds oil per day. Oil is critical for the global economy.
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Similarly oil is the fulcrum of Kenyas economy. Even though Kenya uses only 0.8%of the
worlds oil per day, yet this small proportion drives investments, influences consumption and
sets the pace for economic growth. Transport, power generation, manufacturing and agricultural
sectors are dependant on the supply and affordability of petroleum products. Currently about
22% of Kenyas primary energy is drawn from oil. (Simiyu 2009)
For this reason, it can be that competitiveness of the Kenyan economy is directly linked to
competitiveness of the oil industry. As Kenya embarks on the vision 2030, any action that
improves its competitiveness will accelerate the realization of this vision. (Vision 2030)
1.2 Problem Statement
The major concern for the region and especially the land-locked countries has been security of
supply of petroleum products, fuel prices and capacity of product transportation/distribution
infrastructure. In this case oil companies have all of the problems in the supply chain of
petroleum products. The fierce competition in global markets, increasingly shorter product life
cycles, and increasingly higher customer expectations with respect to product capability and
reliability, delivery lead times, flexibility, and quality service have all led firms to focus on
supply chain management. SCM has become a potentially valuable way of securing competitive
advantage, since competition is no longer between organizations but among supply chains
(Malhotra and El Sawy, 2004).
Government regulations measurers had various implications on the oil industry. Firstly the
introduction of upfront tax led to major companies to exit the market with the argument that this
affected their cash flow forcing some to take up bank loans in order to pay for the tax. Though
this improved the Kenya Revenue Authority the efficiency to collect the tax it did hurt the
economy through lost jobs.
Secondly the formation of a government owned company has never saved the situation as the
company joined the rest in their mode of operations and with the aggressive acquisition of some
oil outlets we may end up with the same monopoly that was being avoided. Thirdly the batching
and tender system has opened up the old business malpractice of hoarding where a seller does
not release the stock to the market but waits until the demand upshots the supply causing the
prices to sky rocket and hence making super profit.
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Further, the reintroduction of price control in 2010 has also greatly affected the supply chain
performance in terms of inventory holding costs, since oil marketers hold their stocks in
anticipation of changes of prices.
Oil companies are of great importance affecting every other sector whether indirectly or directly
since everyone uses fuel as a source of energy. Our modern world needs energy and crude oil,
which is solemnly supplied by the oil companies.
In 2011 Wabwoba did a study on the impact of oil price regulation on the financial performance
of NOCK, in 2000 Joel did a study on the challenges facing oil marketers in Kenya, while in
2007 Mukiri did a research on supply chain management practises by manufacturing firms in
Kenya.
From the above, a knowledge gap can be noted that not much or no study has been undertaken
on the supply chain of oil marketing companies in Kenya thus the need to fill this gap has led to
this study.

1.3 Objectives of the Study

The general objective of the study is to investigate the challenges faced by oil marketing firms in
practicing effective Supply Chain Management
The specific objectives are as follows:
i.
ii.

To assess effect of constrained infrastructure on oil companies effectiveness in supply

chain management.
To determine the effect of price control on the effective supply chain management by oil
marketing companies.

iii.

To determine the effect of open tender system on the effective supply chain management
by oil marketing companies.

iv.

To determine the effect of advance payment of taxes on the effective supply chain
management by oil marketing companies.

1.4 Research Questions

The study will attempt to answer the following questions:

i.

To what extent does constrained infrastructure influence the effective supply chain
management by OMCs in Kenya?

ii.

To what extent does price control affect the effective management of supply chain by
OMCs companies in Kenya?

iii.

To what extent does the open tender system affect the ability of OMCs to effectively
manage their supply chains in Kenya?

iv.

To what extent does payment of taxes affect the ability of OMCs to effectively manage
their supply chains in Kenya.

1.5 Significance of the Study

Findings of this research will be of useful reference to other researchers or for further research in
the same field. This study will also increase the existing body of knowledge on supply chain
management particularly in the oil industry where little or no research has been done. In addition
this paper will be of importance to managers when they will be formulating their supply chain
management policies. And also to the government this study will enable them understand the
effect of their controls in the supply chain of oil companies thus formulate policies which are not
negative.

CHAPTER TWO: LITERATURE REVIEW

2.0 Introduction
In this chapter, literature which is related to and consistent with the objectives of the study is
comprehensively surveyed and reviewed. Important theoretical and practical problems are
brought out relevant literature on the aspects pertaining management of supply chain in the
petroleum sector is discussed.
2.1 Concept of Supply Chain Management
Mentzer et al (2001) defines supply chain management as the systematic, strategic, coordination
of the traditional business function within a particular company and across business within the
supply chain for purposes of individual company and the supply chain as a whole. Scott and
Westbrook(1991) and New and Payne (1995) defined SCM as a chain linking every element of
the manufacturing and supply process from raw materials through to end user, encompassing
several organizations boundaries and treating every organization within the value chain as a
unified virtual business entity.
Supply chains encompass the companies and the business activities needed to design, make,
deliver, and use a product or service. Businesses depend on their supply chains to provide them
with what they need to survive and thrive. Every business fits into one or more supply chains and
has a role to play in each of them. The pace of change and the uncertainty about how markets
will evolve has made it increasingly important for companies to be aware of the supply chains
they participate in and to understand the roles that they play. Those companies that learn how to
build and participate in strong supply chains will have a substantial competitive advantage in
their markets.
Ideally, the all encompassing philosophy of SCM embraces each of these functions to produce an
overall supply chain strategy that ultimately enhances firm performance (Wisner and Tan 2000).
In actuality, the literature is still very fragmented and although several studies purport to discuss
supply chain issues, most of the existing research only examines one link of the chain, or most
importantly only focuses on one ingredient in the supply chain performance mix. Six major
movements can be observed in the evolution of supply chain management studies. Creation,
Integration, Globalization, Specialization Phases One and Two, and SCM

2.2 Theoretical Framework

A well implemented supply chain strategy results in value creation for any organization. There
has been an increasing emphasis on SCM as a vehicle through which firms can achieve
competitive advantage in markets (Collin, 2003). A supply chain can be defined as a network of
supplier, manufacturing, assembly, distribution and logistics facilities that perform the functions
of procurement of materials, transformation of these materials into intermediate and finished
products, and the distribution of these products to customers.
Metzer et al. (2001, p.4) define supply chain as a set of three or more entities (organizations or
individuals) directly involved in the upstream and downstream flows of products, services,
finances, and information from a source to a customer. They further identify three types of
supply chain based on the degree of complexity: a direct supply chain; extended supply chain
and ultimate supply chain. Direct supply chain consists of a focal firm, its suppliers and
customers. The extended supply chain involves suppliers suppliers and customers customers.
The ultimate supply chain includes all the organizations that are involved in all flows of
products, services, finance and information from the ultimate suppliers to the ultimate customers.

Lalonde and Ginter, 2004 defines supply-chain management as the delivery of enhanced
customer and economic value through synchronized management of the flow of physical goods
and associated information from sourcing to consumption, though, achieving the real potential of
supply-chain management requires integration not only of these entities within the organisation,
but also of the external partners. The latter include the suppliers, distributors, carriers, customers,
and even the ultimate consumers. The goal of the extended enterprise is to do a better job of
serving the ultimate consumer, superior service leads to increased market share. Increased share,
in turn, brings with it competitive advantages such as lower warehousing and transportation
costs, reduced inventory levels, less waste, and lower transaction costs. The customer is the key
to both quantifying and communicating the supply chain's value.

Council of supply chain management professionals (2006) defined supply chain management as
the planning and management of all activities involved in sourcing and procurement, conversion,
and all logistics management activities. It also includes coordination and collaboration with
channel partners, which can be suppliers, intermediaries, third party service providers, and

customers. In essence, supply chain management integrates supply and demand management
within and across companies.

The above definitions emphasize the following characteristics of supply chain: Supply chains are
networks. The network concept implies some co-ordination of processes and relationships;
Supply chain consists of processes which can be defined as specific ordering of work activities
across time and space with a beginning and an end, and clearly identified inputs and outputs;
Supply chains have linkages which facilitate the coordination of processes and relationships;
Supply chain linkages are upstream and downstream. Upstream refers to the relationship
between an enterprise and its suppliers and suppliers supplier. Downstream refers to the
relationship between an enterprise and its clients and clients client.
Supply chain management is the coordination of production, inventory, location, and
transportation among the participants in a supply chain to achieve the best mix of responsiveness
and efficiency for the market being served. my own words. There is a difference between the
concept of supply chain management and the traditional concept of logistics. Logistics typically
refers to activities that occur within the boundaries of a single organization and supply chains
refer to networks of companies that work together and coordinate their actions to deliver a
product to market. Also traditional logistics focuses its attention on activities such as
procurement, distribution, maintenance, and inventory management. Supply chain management
acknowledges all of traditional logistics and also includes activities such as marketing, new
product development, finance, and customer service. In the wider view of supply chain thinking,
these additional activities are now seen as part of the work needed to fulfill customer requests.
Supply chain management views the supply chain and the organizations in it as a single entity. It
brings a systems approach to understanding and managing the different activities needed to
coordinate the flow of products and services to best serve the ultimate customer. This systems
approach provides the framework in which to best respond to business requirements that
otherwise would seem to be in conflict with each other.
Taken individually, different supply chain requirements often have conflicting needs. For
instance, the requirement of maintaining high levels of customer service calls for maintaining
high levels of inventory, but then the requirement to operate efficiently calls for reducing
inventory levels. It is only when these requirements are seen together as parts of a larger picture
that ways can be found to effectively balance their different demands.
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Effective supply chain management requires simultaneous improvements in both customer

service levels and the internal operating efficiencies of the companies in the supply chain.
Customer service at its most basic level means consistently high order fill rates, high on-time
delivery rates, and a very low rate of products returned by customers for whatever reason.
Internal efficiency for organizations in a supply chain means that these organizations get an
attractive rate of return on their investments in inventory and other assets and those they find
ways to lower their operating and sales expenses. There is a basic pattern to the practice of
supply chain management.
In Kenya, petroleum accounts for 22% of the total primary energy supply, 67% of which is
consumed in the transport sector while the rest is consumed mainly in industrial processing and
power generation (Aligula, 2006 ).

2.3 Constrained Infrastructure

The government also controls the distribution of petroleum products in Kenya through KPC
which is 100% state owned and the only way to transport products safely and faster to Nairobi
and western Kenya thus KPC enjoys a monopoly in the receipt, storage and transportation of the
petroleum products. This is a big challenge for oil companies in distributing their products as the
monopoly by KPC has led to inefficiencies in operations leading to delays in both distributing
the products and receiving It in the first place due to the inefficiencies, this has led to ships
staying in the port longer as KPC can not receive the products due to clogging of the pipeline
(lack of space usually known as lack of ullage in the industry) this in turn leads to increased
costs in terms of demurrages which affects the whole economy as these costs are transferred to
the consumers leading to an increase in the cost of living as all sectors are affected. (Petroleum
Insight Magazine, 2007).
Also the ban by KRA for transiting products from Mombasa has greatly affected OMCs
capability to strategically distribute their transit products to other countries as they have been
forced to use KPC whose capacity is constrained and are inefficient altogether. This has limited
OMCs ability to meet its set targets and its customer needs and requirements. Even though the
Ugandan authorities have tried to push for transiting of products by trucks from Mombasa to

10

meet their fuel requirements, KRA have refused to give authority citing dumping and high
tracking costs as their main reasons. (Petroleum Insight Magazine, 2010).
Findings in energy supply trends show that petroleum products are transported from the refinery
or Kipevu oil facility via pipeline, railway tankers or road tankers. The pipeline was considered
the safest and fastest means of getting the products from Mombasa to the interland but does not
get the product to its retail outlet. This is done through road tankers which collect fuel from such
depots to petrol stations. Road tankers are convenient and faster for short distances and are the
only means in areas not served by the pipeline. Stocks kept by oil dealers were in most cases be
determined by the financial size of the firm and its storage capacity. Small enterprises would not
(even if they are willing) have the financial ability to buy and keep large stocks for the same
reasons advanced above. However, as a matter of principle, all dealers indicated they would like
to have stocks to last them more than thirty days.
2.4 Price Controls
In 2006 the government enacted the energy act no. 12 which created the energy regulatory
commission (ERC) with a mandate to regulate the petroleum industry and renewable energy
sector. The function of ERC include: regulating the sale of petroleum products (through price
controls, which are set and given on 15th of every month), import and export of the petroleum
products. With ERC setting the maximum price that a company may sell its products, this poses
a significant challenge to the OMC as sometimes the products they have cost significantly higher
than the set price making them reluctant to sell their products, also as it approaches 15th of every
month and the OMCs expect an increase in the prices they hoard their products so that they can
take advantage of the increase in prices. Both these scenarios lead to a shortage in fuel in the
market adversely affecting the economy and the OMCs strategic distribution policies.
The pump prices of petroleum fuels reflect the heavy taxation that the products undergo. This
heavy taxation is due to the fact that petroleum products contribute substantial amounts of the
governments revenue in Kenya. As a result, the overriding concern for the government in
levying taxation on petroleum products has been targeted at maximizing revenue collection. The
government has consistently derived more than 10% of its revenue from the taxation of

11

petroleum products as "In any given fuel price, 35 per cent is the fuel taxation which comprises
of the tax levy and the direct tax by the Government.
Besides the reliance on the taxation of petroleum products to raise revenue, the government has
as well carried over the policy of subsidization of some products by others into the era of
liberalization. Among the major petroleum products available in the Kenyan market, illuminating
kerosene and diesel attract the least taxation while petrol fuels suffer much higher rates of
taxation. The rationale behind this policy is that majority of the households with low incomes
rely on kerosene for lighting and other basic use such as for food preparation. One group of
consumers subsidies another by paying higher taxes.
While the liberalization was expected to translate into lower prices through competition, this has
not been productive and part of the reason is due to the high tax levied on petroleum products by
the government. For instance, the pump price of Super petrol comprises up to 49% tax all
constituted from the Petroleum Development Levy, the Road Maintenance Levy and others. As a
policy measure, government preoccupation with revenue generation is not progressive because
the tax must pass on to the consumer resulting to inflation. Government reliance on petroleum
products for tax revenues must be reduced substantially through the realization that the present
levels of tax do hinder consumption.
2.5 Open Tender System
The importation of both crude and refined products is coordinated by the Ministry of Energy
through an Open Tender System (OTS). Prior to the OTS, the Ministry of Energy (MOE)
allocates the base load based on the historical market share of licensed importers. The OTS
winner allocates refined product based on calculated cargo participation. The cargo participation
allocation is calculated by the KPRL in two months advance, taking into consideration the
existing stock of the licensed importers. Data indicates that importation of crude is dominated by
major oil companies.
As a result of the OTS all private imports of petroleum products have been banned by the
ministry of energy (MOE). Since the product is allocated to oil companies based on their market
share in the industry, this is a punitive policy as it aims to ensure that the market will remain
dominated by a few multinational companies.

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2.6 Taxes
A legal notice that was published in 2011 indicated that excise duty on oil products is due and
payable at the time of importation or time of release by customs from Kenya Petroleum
Refineries Limited (KPRL). Upfront Tax payment which was introduced by the government as a
regulation measure have had their effect on margins, and thus increasing Financing cost. The
move requires marketers to pay 50 per cent of taxes upfront due on oil products, within four days
at the point of entry either at KPRL or Kenya Pipeline Company depot in Mombasa. A bank
guarantee has to be executed to cover the remaining balance of taxes with 25 per cent due
payable on the 15th day and the remainder on the 30th day (PIEA, 2010). In a global financial
environment where credit is hard to come by, oil companies will find it challenging to borrow for
payment of advance tax (Foster and Briceo-Garmendia, 2010).
In addition to this KRA require upfront payment of taxes for product to be discharged into
private depots, for product discharged into KPC KOSF the OMCs cannot have access to their
products until they pay duties. And for transit products, KRA require that OMCs secure bank
bonds to cover the products which are meant for further export, the bonds are restored once proof
of export is provided. To meet these requirements OMCs are forced to take up loans to finance
their operations leaving very little or no finance for developing and implementing strategies for
distribution of their products which limits their distribution efforts to what and how KRA want
the distribution to be done.
The debate in Kenya today with regard to fuel taxation has mainly focused on the arguments that
the current taxes such as the fuel levy and excise duty are too high. This has been intensified by
the oil price volatility which led to high prices of gasoline of up to Kshs. 110 or US$ 1.37 in
November 2008 following high prices of crude petroleum in the international market which
increased to US$147 per barrel. Motorists generally argue that the tax burden is too high even
though the situation has been made worse by the directive to collect it upfront on petroleum
products.

2.7 Conceptual Framework

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Figure 2.1 Conceptual framework.

Independent Variables

Dependent Variable

Constrained
Infrastructure

Price Control

Effective
Supply Chain
Management

Open Tender Systems

Taxes

Source: Researcher 2013

2.5 Previous studies on SCM in Kenya

Wabwoba (2011) did a research on the impact of oil price regulation on the financial
performance of NOCK. It was observed that when the international crude oil prices were rising,
oil marketing companies quickly passed on these increased costs to consumers but took long to
pass on cost reduction benefits to consumers when international oil prices were on a downward
spiral. Hence the government through its agency the ERC came up with a way of regulating the
fuel prices by setting the maximum prices which the oil marketers are to charge. The ERC in
addition developed a concept paper enumerating the petroleum supply chain logistics and their
cost implications on downstream retail prices (ERC 2011).

Joel (2000) did a survey research to establish the challenges facing the oil marketing companies
in Kenya and also to determine the extent to which the oil marketing companies in Kenya are
adopting best practices to manage challenges in the SCM. His findings showed myriad
challenges facing the SCM including high transportation costs, poor road network, challenges in
the pipeline transporting network, and capacity constraints of KPC among others.
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Mukiri (2007) carried out a survey of green supply chain management practices by
manufacturing firms in Kenya. He argues that in order for economies to embrace new
environment responsible values, believes and behaviours, there is strong need to green the entire
supply chain. She concludes that most manufacturing firms are supportive of green change
because of the benefits accrued.

CHAPTER THREE: RESEARCH METHODOLOGY

3.0 Introduction
This chapter involves analysis of the methods that shall be used to collect the data for the study.
These included research design, target population, sampling design, data collection instruments,
data collection procedure and data analysis procedure.

15

3.1 Research Design

According to John W. Creswell (2010) research design is the plan and structure of investigation
conceived so as to obtain answers to research questions. The plan is the overall program of the
research and includes an outline of what the investigator will do from writing of the hypothesis
and their operational implications for the final analysis of data. A descriptive survey will be used
because it provides an accurate portrayal or account of the characteristics, for example behavior,
opinions, abilities, beliefs, and knowledge of a particular individual, situation or group.
3.2 Target Population
The target population is from petroleum companies In Kenya. The total population is fifty (50)
OMCs which have been registered by KRA.
3.3 Sample Size and Sampling Techniques
Sample size determination is the act of choosing the number of observations to include in
a statistical sample. The sample size is an important feature of any empirical study in which the
goal is to make inferences about a population from a sample. In practice, the sample size used in
a study is determined based on the expense of data collection, and the need to have sufficient
statistical power.
Since the number is small, a census of all the oil marketing companies will be undertaken and
will target the Supply And Operations managed.

3.4 Data Collection Method

The main research instrument that will be used in the study is self administered questionnaires
with both closed and open ends.
The questionnaires will be sent through email and the researcher will follow up to ensure
response.
3.5 Validity and Reliability of data collection Instruments
Measurement is the assigning of numbers to observations in order to quantify a phenomenon.
Measurement involves the operationalization of these constructs in defined variables and the
development and application of instruments or tests to quantify these variables.

16

Key indicators of the quality of a measuring instrument are the reliability and validity of the
measures.
3.6 Data Analysis and Presentation
The purpose of this section will be to analyze the data based on the research objectives and
questionnaire items pertaining to the effect of constrained infrastructure, price control, open
tender system and taxes on effetive SCM by oil marketing companies. The data collected will be
first thoroughly edited and checked for completeness and comprehensibility. Descriptive
statistics will be used to analyze the data by way of percentages, proportions, and frequency
distributions. Descriptive data will provide a general picture on how SCM practices are carried
out and help to identify the specific practices, the extent of the value obtained and the barriers to
effective SCM practices in the oil marketing companies.
3.7 Ethical Considerations
The primary concern should be the privacy of the research participant, the details of ones
response should not be disclosed to another person.
Thus the researcher must enumerate how privacy and confidentiality concerns will be
approached. The research must be sensitive to not only how information is protected from
unauthorized observation, but also if and how participants are to be notified of any unforeseen
findings from the research that they may or may not want to know.
The research must consider how adverse events will be handled; who will provide care for a
participant injured in a study and who will pay for that care are important considerations.

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Drucker P.F (1999) Management challenges of the 21st century. New York: Harper Business,
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Energy Act No. 12, December 2006
Fisher, M. (1997). What is the right supply chain for your product. Harvard business review,
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Foster, V. and Briceo-Garmendia, C. (eds) (2010) Africas infrastructure: A time for
Transformation.
Ganeshan, Ram and Terry P. Harrison (1996), " An Introduction to Supply Chain Management",
Joel (2000) did a survey research to establish the challenges facing the oil marketing companies
in Kenya. Unpublished MBA project.
John W. Creswell (2010) Foundations of behavioral research. Holt, Rinehart and Winston (New
York).
John T. Mentzer. Bauknight, Dow N. (2001). The supply chain's future in the eeconomy
LaLonde, B. and Ginter, J. (2004) The Ohio State University 2002 Survey of Career Patterns
in Logistics
Lambert Douglas

and Lisa M. Ellram,( 1998.) Supply Chain Management: Processes,

partnerships, Performance.

18

Malhotra, And Omar A. El Sawy 2004. Sanjay ...Journal of Managcmeni Information Sy.srem.t
/Whner 2004^5. Vol. 21. No. 3. pp.
Mentzer, J.T., DeWitt, W., Keebler, J.S., Min, S., Nix, N.W., Smith, C.D. and Zacharia, Z.G.
(2001), Defining Supply Chain Management, Journal of Business Logistics, Vol.
22 No. 2, pp.1-25.
Mukiri (2007) carried out a survey of green supply chain management practices by
manufacturing firms in Kenya. Unpublished MBA project, university of Nairobi.
PIEA, (2007). Petroleum insight, Journal of the petroleum institute of East Africa, Nairobi.
Oakland Media service, Nairobi Kenya. (1st Quarter, 2007)
PIEA, (2010), Iinsight magazine quarterly published bulletin of the institute of Economic affairs
( 1st and 3rd quarter 2010)
Sessional Paper No. 10 of 1965 dwelt on the Electric Power Act (CAP 314).
Simiyu Brian, (2009) National Competitiveness of Kenya And its Oil clusters, Unpublished
MBA project, Strathmore University.
Wabwoba (2011) The impact of oil price regulation on the financial performance of NOCK.
Unpublished MBA project.
William M. K. Trochim. The Research Methods Knowledge Base, Trochim Publications, Atomic
Dog, 2006.
Wisner, J.D. and Tan, K.C., 2000. Supply chain management and its impact on purchasing,
Journal of Supply Chain Management,Vol.36 No.4, pp. 33-42.
Vision 2030: A globally competitive and prosperous Kenya. Government of Kenya 2007
APPENDICES
APPENDIX 1: INTRODUCTION LETTER TO THE RESPONDENTS

The Human Resource Manager,

Xxxxxx 2013.

19

Dear Sir/Madam,
RE: PERMISSION TO COLLECT DATA FOR MY MBA PROJECT
I am a student Kenyatta University Mombasa Campus, pursuing an MBA course in Strategic
Management. Pursuant to the pre- request course work, I am carrying out a research on strategic
supply chain management practices by oil companies In Kenya. The study will involve use of
questionnaires administered to the members of management and other staff.
The information gathered will be used exclusively for the purpose of this study and shall be kept
confidential and used only for academic purpose. A copy of the findings will be made available
to you on request.
Thank you in advance for your kind assistance.
Yours Sincerely,
Fahad Bahaidar 0721 522 571

APPENDIX 2: QUESTIONNAIRE
Kindly fill in the questionnaire:
Section A: Background Information
1. Name of the organization (optional)
2. Gender

Male

Female
20

3. Highest level of education

Secondary

[ ]

College

[ ]

University

[ ]

Others

[ ] specify

4. Indicate nature of the organization. Please tick as appropriate.

Multinational

Local company

5. Indicate below how many years you served at your company.

Less than 1yr

1-5

6-10

Greater than 10 yrs

6. How many branches do you have?

05
6 10
> 10
7. Respondent category
Management

other staff

Section B: Supply chain management practices.

8. Kindly indicate to what extent the following supply chain performance metrics are
affected by price control.
Great extent A moderate To no extent
a) Customer satisfaction
21

b) Delivery performance
c) Supply chain response time
d) Order to deliver lead time
e) Transportation cost
f) Flexibility
Others (Please specify )
9. Kindly indicate to what extent the following supply chain performance metrics are
affected by the open tender system.
Great extent A moderate To no extent
a) Customer satisfaction
b) Delivery performance
c) Supply chain response time
d) Order to deliver lead time
e) Transportation cost
f) Flexibility
Others (Please specify)
10. Kindly indicate to what extent the following supply chain performance metrics are
affected by bond guarantee for transit goods and advance payment of taxes for local
products.
Great extent A moderate To no extent
a) Customer satisfaction
b) Delivery performance
c) Supply chain response time
22

d) Order to deliver lead time

e) Transportation costs
f) Flexibility

Others (Please specify)

11. How do you manage your supply chain? Tick all that apply.
a) Close partnership with suppliers
b) Close partnership with customers
c) JIT supply
d) E Procurement
e) Supply chain bench marking
f) Use of external consultants
Others, please specify .
12. State the importance of the following factors in deciding the need to change the supply
chain management strategies in your organization. Where 5 very important, 4
important, 3 least important, 2 not important.
a) Price control by Energy Regulatory Commission
b) Advance payment of taxes
c) Insufficient storage facilities with Kenya Pipeline
d) Compulsory requirement to import crude

23

13. Kindly tick appropriately to indicate the level to which you agree or disagree with the
following measures in supporting supply chain management in the oil industry.
(Where 1= strongly disagree, 2= Disagree, 3=Neutral, 4= Agree, 5= strongly agree)

Strongly
disagree

Disagree

Neutral

Agree

Strongly
Agree

Improved of KRA simba system

More inter-country regional agreements
Better infrastructure e.g., road, storage
Improved
government policies
facilities etc
Closer cooperation between SC partners

14. Kindly tick appropriately to indicate the level to which you agree or disagree with the
following statements as regards to the challenges in the effective management of supply
chains in your firm

Price control by government agent (ERC)

Complex clearing procedures

Bank guarantee of transit goods

Mandatory to discharge fuel at KPC

terminals

Compliance to GSCM
24

Strongly
disagree

Disagree

Neutral

Challenges

Agree

Strongly
agree

(Where 1= strongly disagree, 2= Disagree, 3=Neutral, 4= Agree, 5= Strongly agree)

Deadlines to clear goods

Thank You, for your participation.

APPENDIX 3 - BUDGET
Budget for the proposal
NO

ITEM

COST (Kshs)

1.

Communication

1,500

2.

Printing

2,500

3.

Flash disk

2,000

4.

Stationery

1,000

25

5.

Photocopy

2,000

6.

Binding

1,000

TOTAL

10,000

APPENDIX 4 WORK PLAN

ACTIVITY

NUMBERS OF DAYS TAKEN

Choosing of a supervisor for the Research

Project.
Coming up with different Research topic to
discuss with the supervisor.
Working on the chapter one of the Project.

26

Working on the chapter two.

Working on the chapter three.
Compiling Proposal for the supervisor review.
Defending the project
Proceeding to field and gathering information.
Analysis of the findings.
Submission of the Final Project.

APPENDIX 4 LIST OF OIL COMPANIES

1
2
3
4
5
6
7
8
9
10
11
12

LIBYA OIL (K) LTD

KOBIL PETROLEUM (K) LTD
SHELL
TOTAL KENYA LIMITED
KENYA OIL LIMITED
NATIONAL OIL KENYA
LIMITED
ENGEN KENYA LIMITED
GAPCO (K) LIMITED
MAFUTA LIMITED
PETRO OIL (K) LTD
KAMKIS TRADING LTD
DALBIT PETROLEUM (K)
LTD

P.O BOX 64900 00620

P.O BOX 30061

NAIROBI
NAIROBI

P.O BOX 30322 00100

P.O BOX 44202

NAIROBI
NAIROBI

P.O BOX 58567

P.O BOX 10797
P.O BOX 40908

NAIROBI
NAIROBI
NAIROBI

P.O BOX 90462-80100

P.O. Box 9545 - 00300

MOMBASA
NAIROBI

P.O BOX 1931 -00200

NAIROBI

27

13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46

MOIL
METRO
HASHI ENERGY (K) LTD
HASS PETROLEUM
GALANA OIL (K) LTD
ADDAX
FOSSIL FUELS LTD
OILCOM (K) LIMITED
GLOBAL PETROLEUM
Mogas Kenya Limited
BAKRI
GULF ENERGY
OILCITY
ROYAL ENERGY (K) LTD
RIVA
Jade Petroleum Limited
MULOIL (K) LTD
Riva Petroleum Dealers limited
HARED
Trojan International LTD
PREMIUM
AL-LEYL PETROLEUM
LIMITED
Banoda Oil LTD
RANWAY TRADERS LTD
Tosha Petroleum LTD
NAFTON PETROLEUM
LIMITED
KEROKA PETROLEUM
LIMITED
PJ PETROLEUM EQUIPMENT
LIMITED
OLYMPIC PETROLEUM
LIMITED
SAMHAR PETROLEUM
PRODUCTS CO. LTD
AINUSHAMSI ENERGY
LIMITED
FAST ENERGY LIMITED
TOPAZ PETROLEUM
LIMITED
ESSAR PETROLEUM (East
Africa) Ltd

47 REGNOL OIL KENYA LTD

48 EAST AFRICA GASOIL LTD
49 ONE PETROLEUM LIMITED

P.O Box 3508

P.O Box 35198-00200
P.O BOX 10795
P.O BOX 76337-00508
P.O BOX 11672-00100
P.O Box 12403-00100
P.O BOX 41961-00100
P.O BOX 10370
P.O BOX 30621-00100
P.O Box 27696-00506
P.O Box 19095-00501
P.O Box 61872-00200
P.O Box 9222-00100
P.O Box 90148-80100
P.O BOX 16299-20100
P.O. Box 34725, 00100
P.O BOX 41391-00100
P.O. BOX 16299-20100

KISUMU
NAIROBI
NAIROBI
NAIROBI
NAIROBI
NAIROBI
NAIROBI
NAIROBI
NAIROBI
NAIROBI
NAIROBI
NAIROBI
NAIROBI
MOMBASA
NAIROBI
NAIROBI
NAIROBI
NAIROBI

P.O. BOX 100339-00100

P.O Box 56672-00100

NAIROBI
NAIROBI

P.O.BOX 1173-80100
P.O Box 101537-00101
P.O Box 56022- 00200
P.O Box 28433- 00100

MOMBASA
NAIROBI
NAIROBI
NAIROBI

P.O. BOX 101664 00101

NAIROBI

P. O. BOX 8034 00300

NAIROBI

P.O. BOX 74502 00200

NAIROBI

P.O BOX 24457-00100

NAIROBI

P.O BOX 10046-00101

NAIROBI

P.O BOX 5134 - 00506

P. O. BOX 22712 00400

NAIROBI
NAIROBI

P. O. BOX 16236 00100

NAIROBI

PO Box 45742-00100
P.O. BOX 77883 00622
JUJA RD
P.O BOX 3378-80100
P. O. BOX 90147

NAIROBI

28

NAIROBI
MOMBASA
MOMBASA

50 Millenium Dealers Limited

80100,
P.O. Box 27549-00506

Source: KRA list of Oil Companies 2012.

29

Nairobi