Preparing for Global Change in the Petroleum Supply Chain

University of Nevada / COPPEAD Petroleum Executive Logistics Course

Houston, Texas

30 June 2005

Agenda
About A.T. Kearney Setting the stage oil is a complex global business A look to the future Petroleum supply chain value creation

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About A.T. Kearney

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A.T. Kearney is one of the worlds leading management consulting firms

Industry Practices
Aerospace and Defence Strategy and Organization Communications Consumer Goods and Automotive High Technology and Retail Financial Institutions Pharmaceutical and Healthcare

Energy Transportation and

Utilities

Operations

Service Practices

Supply Chain Next Generation Manufacturing Operating Asset Effectiveness

Technology Solutions

Our global service and industry practices enable tailored solutions to specific issues
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We use deep energy expertise to accelerate and expand results for our clients
Selected Oil & Gas Clients Energy Practice
Over 100 professionals specializing in Oil, Gas, and Chemicals Global practice: the group is managed as a fully integrated practice with no geographic or sub-practice boundaries so as to provide the best mix of people for any given engagement Serves the world's leading clients in all markets Capabilities include: Strategy Operations Strategy Technology Strategy and Implementation eBusiness Strategy Merger Integration Benchmarking Restructuring Process and Organisation Redesign Procurement Effectiveness Next Generation Cost Reduction Sourcing Supply Chain Network rationalization Commercial Optimization / Logistics Cost Reduction Contractor Optimization Net Working Capital Reduction Capital Projects Management
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Setting the stage oil is a complex global business

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Reserves Much of the traditional oil reserve base is located in the Middle East
Proven Oil Reserves by Country Top 20 (Billion Barrels) - 2005

U .A .E

K u w a it

U n ite d S ta te s

C h in a

B ra z il

Q a ta r

L ib y a

Sau d i A ra b ia

R u s s ia

K a z a k h s ta n

N o rw a y

N ig e ria

A lg e ria

A z e rb a ija n

M e x ic o

O m an
K u w a it

Ira n

Ira q

Proven Natural Gas Reserves by Country Top 20 (Trillion ft3) - 2005

1,800 1,500 1,200 900 600 300 0 U .A .E Eg yp t Q a ta r S a u d i A ra b ia N o rw a y U n ite d S ta t e s K az akh stan In d o n e s ia M a la y s ia U z b e k is ta n T u rk m e n is ta n N e th e rla n d s V e n e z u e la C an ad a N ig e ria R u s s ia A lg e ria C h in a
7

Ira n

V e n e z u e la

Note:

(1) Canadian Association of Petroleum Producers (CAPP) reports 4.3 billion barrels; considering Alberta Oil Sands (174.5 Bn Barrels on 2004) total reserves amount to178.8 billion barrels A.T. Kearney 82/7478 Sources: EIA (Energy Information Administration), CAPP

Ira q

C an ad a

(1)

300 250 200 150 100 50 0

Supply The global crude oil production totals to US$ 1.07 trillion
Crude Oil Production in 2004(1)
World Production Key Producing Regions

US$ 1.07 trillion

Americas
Argentina Other 4% 7%

Middle East
Kuwait 10% US 35% United Arabian Emirates 11% Others 11% Iran 17% Iraq 8% Saudi Arabia 43%

Africa

128

Brazil 7% Canada 15%

Middle East

301
Venezuela 14%

Asia Pacific Europe & Eurasia

97

Mexico 18% Kazakhstan 7%

Europe & Eurasia

245
Other 10%

Americas

299

United Kingdom 12%

Russian Federation 53%

Norway 18%

Note: (1) Based on production volume times regional spot crude oil prices Source: BP Statistical review of world energy 2005

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Supply Saudi Arabia, Russian Federation and USA dominate crude oil production
Regional Crude Oil Production Breakdown
Key Producing Countries1) (US$ Billion)
80% of global market 50% of Global Market

130

129

Middle East Asia Pacific Americas Africa Europe

110

58 50 47 45 45 43 35 33 30 28 27

25

23

22

18

14

14

12

11

11

10

10

10

Argentina

Norway

Kuwait

United Arabian Emirates

Russian Federation

United Kingdom

Kazakhstan

Indonesia

Venezuela

Note: 1) Covering 90% of Entire Oil Production in 2004 Source: BP, statistical review of world energy 2005 / A.T. Kearney Analysis

Malaysia

Saudi Arabia

Mexico

Canada

Nigeria

Algeria

Angola

China

Qatar

Egypt

Brazil

Oman

Libya

India

USA

Iran

Iraq

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Demand The global crude oil consumption totals to US$ 1.11 trillion
Crude Oil Consumption in 20041)
World Consumption US$ 1.11 trillion Africa Middle East Asia Pacific
37 65

Key Consuming Regions Americas

Mexico 6% Brazil 6% Canada 8% Other 10% US 70%

Europe & Eurasia

Italy 9% United Kingdom 9% Other 46%

288

France 10% Russian Federation 13%

Europe & Eurasia

280

Germany 13%

Asia Pacific

Indonesia 5% South Korea 10% India 11%

Australia 4% China 29%

Americas

445

Japan 23% Other 23%

Note: (1) Based on production volume times regional spot crude oil prices Source: BP Statistical review of world energy 2005/ A.T. Kearney analysis

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Demand The USA, China, Japan are the three dominant petroleum consumers
Regional Crude Oil Consumption Breakdown
Key Consuming Countries1) (US$ Billion)
80% of global market 50% of Global Market

311

Middle East Asia Pacific Americas Africa Europe

82 65 37 36 33 31 29 28 28 28 26 25 22 21 20 18 18

17

14

14

11
Thailand

11
Belgium & Luxembourg

11
Taiwan

11

Japan

Canada

Russian Federation

Mexico

China

India

France

South Korea

Germany

United Kingdom

Other S. & Cent. America

USA

Other Middle East

Indonesia

Note: 1) Covering 85% of Entire Oil Production in 2004 Source: BP, statistical review of world energy 2005/ A.T. Kearney Analysis

Netherlands

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Australia

Italy

Saudi Arabia

Brazil

Spain

Other Africa

Iran

Balance: Demand and supply are spatially separate resulting in complex product flows
Regional Crude Oil Production and Consumption (Million Barrels per Day)
Worldwide Comparison
74 77 77 78 80 81
16

= Production = Consumption

Europe & Eurasia Production vs. Consumption

20 17 20 18 20

Middle East Production vs. Consumption

21 23 25

Asia Pacific Production vs. Consumption

22 22 23

2002

2003

2004

2002

2003

2004

2002

2003

2004

Americas Production vs. Consumption

29 21 20 29 21 30

Africa Production vs. Consumption

2002

2003

2004

8 3 3 2003

9 3 2004
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2002

2003

2004

2002

Source: BP, statistical review of world energy 2005

An imbalance between the supply and demand for oil is driving recent price increases
NYMEX Light Sweet Crude Oil Prices

$70 $60 $50 $40 $30 $20 $10 $0

Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05
Source: Energy Information Administration
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US Petroleum imports have increased dramatically and are projected to continue

United States Petroleum Supply, Consumption, and Imports, 1970-2025 (Million Barrels Per Day)
30 25 20 Consumption Net imports 15 10 5 0 1970 1980 1990 2000 2010 2025
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History

Projections

68% 56%

Domestic supply

Source: Energy Information Agency

Most nations grew US imports with major share gains from Persian Gulf and Canada
US Crude Oil Import Sources
Key Importing Countries - 1983 Total = 5,051 kBPD Key Importing Countries - 2004 Total = 12,264 kBPD

Persian Gulf (Remainder)

Iraq Nigeria Saudi Arabia Venezuela

United Kingdom

Persian Gulf (Remainder)

Iraq Saudi Arabia

Other

Other

Nigeria

Norway

Canada Columbia United Kingdom Norway

Mexico Columbia Canada

Venezuela

Mexico

Source: Energy Information Administration / A.T. Kearney Analysis

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Refining Capacity kBPD

1000 1000 1500 1500 2000 2000 2500 2500 500 500 0 0

1997 US Refining Capacity in kBPD

In 1997 there were fifty refining & marketing companies in the US

Source: Energy Information Agency

50 R&M Companies Average Size = 302 kBPD

Valero Valero Hunt Hunt Giant Giant Wainco Wainco Time Time Paramou Paramou Pride Pride G G Placid Placid Coastal Coastal PetroStar PetroStar Lion Lion United United Pennzoil Pennzoil Holly Holly Ultramar Ultramar Tesoro Tesoro BHP BHP Farmland Farmland Cenex Cenex Murphy Murphy Sinclair Sinclair Total Total Crown Crown Diamond Diamond Fina Fina Mapco Mapco Coastal Coastal Lyondell Lyondell Solomon Solomon Phillips Phillips Clark Clark Ashland Ashland Texaco Texaco Unocal Unocal Tosco Tosco Arco Arco Dupont Dupont PDV PDV Koch Koch BP BP USX USX Star Star Sun Sun Mobil Mobil Amoco Amoco Exxon Exxon Chevron Chevron Shell Shell
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 and these companies traditionally struggled to achieve strong returns

Annual Return on Equity for Petroleum Companies Relative to US Industry
40% 35%

Return on Equity

30% 25% 20% 15% 10% 5% 0% 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 -5% -10% 1996
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US Majors
Source: Energy Information Agency

Independent Refiners

S&P Nonenergy Industrials

Refining Capacity kBPD

1000 1000 1500 1500 2000 2000 2500 2500 500 500 0 0 Paramount Paramount Hunt Hunt G Williams G Williams Calumet Calumet Suncor Suncor Alon Alon Petro Star Petro Star United United Giant Giant Western Western Holly Holly

Year

Average Size

Number of R&M Companies

2004 US Refining Capacity in kBPD

Consolidation of majors and growth of independents resulted in structural change

Source: Energy Information Agency: January 1, 2005

50

302

Pegasus Pegasus Ergon Ergon CHS CHS Frontier Frontier Murphy Murphy Rosemore Rosemore Sinclair Sinclair Chalmette Chalmette Total Total Lyondell Lyondell Deer Park Deer Park Tesoro Tesoro Shell Shell PDV PDV Motiva Motiva Koch Koch Premcor Premcor Sunoco Sunoco Marathon Marathon Chevron Chevron Valero Valero BP BP Exxon Exxon Conoco Conoco

1997 35

2003

485 335

2004 50+

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Capacity grew even though there were substantial refinery closures

US Refining Count and Capacity Trends
17,000

250 200 150

Distillation Capacity (kBPD)

16,000 15,500

100
15,000 14,500 14,000
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

50 0

Source: Energy Information Agency

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Number of Refineries

16,500

Until this last year, returns still did not achieve the costs of capital
US Refining & Marketing Returns on Invested Capital
(1996-2002)
7.73% 6.94%

5.39%

Top 4
Source: Energy Information Administration

Next 5-12

All Other
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The industry is now more efficient but consolidation and cost focus will continue
US Refined Product Margins and Costs per Barrel of Petroleum Product Sold
(1981-2003)

(1) Gross Margins Decline

Crude Cost Increase Product Prices Stagnant due to Over Supply and Economy

Margins continue to strengthen through 2004 / 2005

(2) Operators Respond (3) Net Margins Remain Low

Source:

Energy Information Administration

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Declining crude quality drives costs and capital and is forcing portfolio decisions
US Refining Crude Input Quality Trends
35.0 34.5 34.0 API Gravity, Degrees 33.5 33.0 32.5 32.0 31.5 31.0 30.5 30.0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 0.85 0.97 1.09 1.21 1.45

API Gravity

Sulfur

1.33 Sulfur Content, Wt %

Source:

Energy Information Administration

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In supply, Kinder & others employ strategies similar to the independents in refining
1994 Top 10 Interstate Oil Pipeline Companies Net Income (millions)
BP Exxon Colonial Shell Amoco SFPP Chevron ARCO Lakehead Point Agguello 0 100 200 300 400 500

2002 Top 10 Interstate Oil Pipeline Companies Net Income (millions)

Shell BP ExxonMobil Kinder Morgan Marathon Colonial Koch Phillips Mars Williams 0 100 200 300 400 500

Net Income (millions)

Net Income (millions)

There is an emerging trend toward common distribution assets industry pipelines, trucks and terminals in operations that are not differentiators
Source: Oil & Gas Journal Annual Pipeline Survey
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Technology has helped but the holy grail of integrated information is not realized
Proven Technologies SCADA Telemetry Linear Programming Multiphase Flow Models One call response Vision for the Future Demand driven Integrated real-time demand, flow, stock information Some progress Shell / i2 Aspentech Real time damage monitoring Satellite surveillance Opportunity commonly believed to be $0.50/BBL
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US supply chain participants are beginning to focus on customer profitability

Customer Cost to Serve Analysis for LS No. 2 Diesel - (cpg)
Sales Revenue = 83.4 6.5 82.1 1.3 89.9 89.5 COGS3 = 87.7

Limited market segmentation Over-serve customers that dont value extras Under-serve customers that do value extras Pricing optimization shortfall

-1.5 Product Revenue Freight Revenue Hedging Gains Total Revenue Product Cost Freight cost

-0.3 Trade Discounts

-1.4

-1.4

-0.2

-3.0 Net Margin

Gross SGA Costs Early payment Margin

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Finally, complexity remains an issue and an opportunity

CAFE standards Regulatory requirements drive 15 different gasoline formulations Few standards on operations Few standards on blending Limited information exchange standards Complexity within the organization.people dont talk Marketing / Supply / Logistics

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A look to the future

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The Global Business Policy Council provides deep insight into future trends
The Global Business Policy Council was formed over a decade ago with the objective of providing early warning against accelerating shifts in economics, politics, technology, demographics, and culture that are poised to shape and shake the global business environment Membership in the Global Business Policy Council is limited to a select group of corporate leaders (~50) and their companies joined by a small group of world-renowned policy makers, scholars, and other thought leaders and their companies. Each year, these members have three opportunities to gather for two-to-three days of intense discussion and reflection on the forces shaping a volatile and continually changing global business environment The Council produces a series of intellectual capital products that provide a broad range of insights on important global trends

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Any increasing number of important risks are affecting corporate operations

Most Critical Risks to Firm Operations (2004) (% of Total Respondents)
Traditional Risks Decrease of 7 16% From 2003 Emerging Risks Increase of 4 11% From 2003
51% 46% 30% 28% 26% 26%

64%

60%

Government Country Regulation / Financial Risk Legal Decisions

Currency / Interest Rate Volatility

Political and Social Disturbances

Corporate Governance Issues

Theft of Intellectual Property

Terrorist Attacks

Security Threats to Employees and Assets

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Large firms often attribute earnings underperformance to unexpected external events

External Events Reported in 2003 Annual Reports of the Fortune 100
43% of Fortune 100 companies blamed unexpected external events for failure to meet earnings expectations

Crisis in Latin America 43% Blame External Events War in Iraq September 11 Foreign Exchange Crisis Terrorism

20% 12% 12% 11% 9%(1)

Note: (1) Percentages do not add up due to multiple events reported by some companies Sources: A.T. Kearney analysis, company annual reports

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Over time, the impact of risks on large corporations is clear

Change in the Fortune 500

A third gone(1)

Almost 50% of original 500 gone

60% of original 500 gone

500

333 270 200

1970s

1980s

1990s

Today

Note: (1) Bought out or no longer in business Sources: INSEAD, A.T. Kearney analysis

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To better understand risks, A.T. Kearney focuses on the forces reshaping the world

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The implications for oil and gas supply chains are immense
Demographics Fundamental shift in customer demand and labor supply

Major growth outside US New competitors

Globalization Technology & Innovation

Increasing segmentation New Consumers Shift of location of demand

Continuous opportunities/threats from new products, processes, technologies Natural Resources & Environment Potential supply disruptions Regulation & Activism Sourcing Labor Conditions Environment Privacy

Wildcards
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Globalization / New Consumers

New markets will arise almost everywhere how will you seize them?
Canada
United States 68m Ireland 71m 145m Baltics

South Korea U.K.

Scandinavia

Japan 49m China

595m 39m

Benelux Russia Germany France 30m East

27m Europe Turkey

82m 24m Thailand Taiwan

Mexico Spain

24m

19m Iran

Italy Brazil
33m 9m 9m

Pakistan Israel Northern Africa South Africa

India

Hong Kong

Vietnam Malaysia

Singapore Philippines Indonesia Australia New Zealand

Middle Income

Upper Middle

Upper Income
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Source: World Bank, EIU, U.S. Census Bureau, A.T. Kearney analysis

Natural Resources & Environment

The key conventional energy resources will face challenges after 2020
Energy Resources Constraints

Oil

Oil Gas

Technology improvements could retard the oil scarcity High resource uncertainty as gas is likely to be more scarce than oil The future of the nuclear energy supply depends on technology and regulatory advances Resources will focus on limited countries driven by distance from the market Competition with food and leisure for land use Prices will further be reduced, new forms of energy storage required

Conventional energy resources

Gas

Nuclear Nuclear Powerpower Coal

Renewable resources

Biofuels Solar, wind & water

1990

2000

2010

2020

2030

2040

Source: A.T. Kearney; Shell Study 2050

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Technology & Innovation

The race for the future energy technologies is still open

New Technologies
Energy Technology Discontinuities

Commercial introduction of new primary energy takes ~ 25 years to obtain 1% of global market Future energy resources will focus on low emissions but several issues have still to be solved Nanotechnology: hydrogen/ energy storage costs efficiency Solar energy Government efforts and interests
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Internal combustion engine, oil Wood, wind, Steam engine, water, coal animals Electric dynamo, coal Nuclear CCGT power gas1) 1970- >1990 1990

Fuel Cell hydrogen?

Solar energy ?

1800

1850

1900

1950

2000

1) Combined cycle gas turbine Source: A.T. Kearney; Shell Study 2050

Technology & Innovation

Fuel Cells will create significant opportunities when commercialized

Fuel Cell Market Scenario 2015
Mobile
Passenger cars Other cars & vehicles Battery replacement Generators Commercial/ industrial Residential Launch Prototype phase Launch Launch Commercial phase Launch Launch Commercial phase Launch Commercial phase

Expected Market Share in 2015 2-10% (of new car registrations) 10%

Portable

Prototype phase

Stationary

Prototype phase

30%

Market volume1) (US$ millions)

Bes t Sce Case nari os

Commercial phase

10000

5000

Prototype phase

Mobile Portable Stationary

0 2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

1) Market covers only Fuel Cells, excl. revenues from new fuels Source: A.T. Kearney analysis

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Natural Resources & Environment

Supply disruptions may occur because of disruption at a transit chokepoint

Supply Chokepoint Oil & Gas:

Potential Transit Chokepoint Politically Unstable Country With Oil Or Gas Resources
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Regulation & Activism

A deregulatory era may be over how will you manage governments visible hand?
Powerful Forces Push New Constraints

The growing crisis of corporate credibility

Mingling of science and ethics including human cloning and ongoing biotechnology developments

63% of US citizens believe corporations are too powerful(1)

(1) Source: The Arlington Institute
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Global Business Policy Council executives recently identified three future scenarios
Circle the Wagons suggests the US becomes isolationist Patchwork World the US remains engaged in world affairs, but with limited friends Open Society combines multilateral problem solving with global open markets

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Circle the Wagons suggests the US becomes isolationist

USA

Hotspots Political Water Oil Transit Demographic US isolated and focused inward Friends Allies Rivals Adversaries
Europe seeks to rival US power and/or create Fortress Europe Emergence of Teenage Drivers as rising, unstable China and India flex their muscles International Organizations are ineffective

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Patchwork World US remains engaged in world affairs, but with limited friends

USA

Hotspots Political Water Oil Transit Demographic Friends Allies Rivals Adversaries

Resembles 2004 US engages on issues of national interest Mixed EU-US relationship with both cooperation and tensions Most conflicts remain localized International Organizations remain active but weak

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Open Society combines multilateral problem solving with global open markets

USA

Hotspots Political Water Oil Transit Demographic Friends Allies Rivals Adversaries
Emphasis on multilateral problem solving Global problems moderated by action Resumption of robust global growth and stability Coalitions counter terror and local conflict

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Wild Cards could shock the global operating environment what is your risk?

War Erupts Global Epidemic

Hacker Hell Terrorist Resurgence

Quantum Leap New Mercantilism

Country Disintegration

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Petroleum supply chain value creation

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The Petroleum supply chain is truly global with some of the largest complexities
Crude Sources Africa Bonny Forcados Asia Alif Belida Hydra Australia Cossack Gippsland Kutubu... Latin America Leona Isthmus Medanito Middle East Saudi Iranian Iraqi North America Alaska North Slope West Texas Inter. Hibernia North Sea Brent Blend Danish North Sea Liverpool Bay A.T. Kearney 82/7478 46 Inbound Transport Refining & Conversion Product Mix Outbound Transport Bulk Distr. Terminals Markets / Retail Outlets

Asia Refinery U.S. Refinery Asia Refinery U.S. Refinery Europe Refinery U.S. Refinery Asia Refinery U.S. Refinery

Ship Pipeline Barge Rail Truck

Asia Refinery U.S. Refinery Asia Refinery U.S. Refinery Europe Refinery U.S. Refinery Africa Refinery Europe Refinery Asia Refinery Asia Refinery Asia Refinery Asia Refinery

LPG Butane Premium Gasoline Mid Grade Gasoline Regular Gasoline Military Jet Fuel Commercial Jet Fuel Heater Oil Low sulfur diesel High sulfur diesel Aromatics and other Chemical Feedstocks Asphalt Coke Sulfur Others

Retail Outlets

Pipeline Barge Rail Truck

Market Centers

Industrial Users Petrochemical Construction Electricity Others

US supply chain infrastructure is one of the most complex systems in the world

US Petroleum Supply Chain Selected Physical Statistics

(Latest Available Estimates)

Refining Number Capacity (kBPD) Throughput (kBPD) Utilization (%) Crude stocks (mBBL)

144 16,761 14,926 89 294

Pipelines Total Miles Crude trunk line Crude gathering line Refined Product Throughput (kBPD) Crude + Product

~190,000 ~55,000 ~40,000 ~95,000 25,000

Terminals Number Total storage capacity (mBBL) Typical stocks (mBBL) Utilization (%)

1,612 700 237 34

Barge (Excludes Ocean Tankers) Liquid carriers 3,614 Throughput (kBPD) 4,180 Source:

Truck Petroleum Tank Trucks (thousands) Throughput (kBPD)

170.4 600

Rail Number of Tank Cars (thousands) Throughput (kBPD)

3,411 300

Energy Information Administration / Association of Oil Pipelines / BP Statistical

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Petroleum enters and leaves the US supply chain at many locations

US Petroleum Oil Flow - Supply Chain Energy Balance - 2000 (Quadrillion Btu)

Source: Energy Information Agency

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Supply chain is a substantial portion of the downstream sector controllable costs

Cost Contribution to US Retail Gasoline Prices - 2003
$1.80 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 $0.20 $0.20 $0.68 $1.56 $0.48

Roughly Equivalent

Retail Price

Refining Costs & Profits

Taxes

Source:Energy Information Administration / Department of Energy / A.T. Kearney Analysis

A.T. Kearney 82/7478 49

Crude Costs

Distribution / Marketing Costs & Profits

Executive expectation of supply chain as a source of value creation is rising rapidly

Importance of Procurement in Company Efforts (Average Responses from 2004 CEO Survey)
Past Current Future

4 = High

3.7 3.4 3.5

CEOs priorities:
Integrating and making our value chain more effective Create value through effective innovation with key suppliers

2.8 2.6

1.8

1 = Low
Cost Reduction Efforts Delivering Value Beyond Cost

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A.T. Kearney has identified four key levers for supply chain value creation

R Su isk pp Ma ly na C ge on m tin en ui t / ty
nt ed e nc em va nag Ad Ma st Co

Value Creation
V O alu pt e im C iz ha at i n io n

n tio th va ow no Gr In d an
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Increasing customer demands and reduced product cycle times have necessitated an increased commitment to innovation
Why Are Companies Focusing On It?
R Su isk pp Ma ly na C ge on m tin en ui t / ty

Customers look for innovation that cuts through the clutter and creates demand, not just satisfies it Long-term profitable growth triggers superior share price performance The pace of innovation in many industries has increased and become a differentiating factor for successful companies

Value Creation
V O alu pt e im C iz ha at in io n

n tio th va ow no Gr In d an

Co

n ed e nc em va nag A d Ma st t

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As companies focus on their core competencies, the importance of using the value chain as effectively rises
Why Are Companies Focusing On It?
R Su isk pp Ma ly na C ge on m tin en ui t / ty

Concentrating on activities that make best use of company assets helps fuel growth without investing capital Best-in-class capabilities are often available from other partners in the value chain

Value Creation
V O alu pt e im C iz ha at in io n

n tio th va ow no Gr In d an

Co

n ed e nc em va nag A d Ma st t

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Leaders are moving beyond basic savings / efficiency approaches to more advanced concepts
Why Are Companies Focusing On It?
R Su isk pp Ma ly na C ge on m tin en ui t / ty

Basic approaches have yielded major benefits but additional gains will be limited unless tactics are changed Advanced cost management approaches provide an opportunity to improve overall value

Value Creation
V O alu pt e im C iz ha at in io n

n tio th va ow no Gr In d an

Co

n ed e nc em va nag A d Ma st t

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Many efforts to improve supply chain efficiency have also increased supply chain risks
Why Are Companies Focusing On It?
Several measures which have improved efficiency have also increased supply risks Supplier consolidation Global sourcing JIT and Lean Manufacturing Supply risk management is an important part of an enterprises overall risk management strategy
R Su isk pp Ma ly na C ge on m tin en ui t / ty

Value Creation
V O alu pt e im C iz ha at in io n

n tio th va ow no Gr In d an

Co

n ed e nc em va nag A d Ma st t

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Supply chains able to create value exhibit common characteristics

Internal Capabilities of Supply Chains Capable of Delivering Value Beyond Cost Control
Are You Ready To Deliver Value? The Supply Chain is involved in setting company strategy Our company systematically applies advanced cost management strategies across our spend base We understand our supply risks and have mitigation strategies in place for all major spend categories Our organization is continuously developing and strengthening the skills required to successfully apply advanced techniques The Supply Chain fosters cross-functional teaming throughout the company We have a comprehensive management plan to attract and retain the best talent

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In summary

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Petroleum supply chains must anticipate and adapt to the coming change
Over the last 20 years, refiners consolidated inefficient and excess capacity and are beginning to make gains in business returns Consolidation of distribution assets is just beginning Enormous amounts of infrastructure and capital are invested in the fixed asset base particularly in the US These investments are at risk from changing conditions Crude quality Shifting demographic and economic centers China and India Potentially disruptive technologies Petroleum supply chains that employ leading practices can anticipate these changes, capture additional value and thrive well into the future

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Preparing for Global Change in the Petroleum Supply Chain

University of Nevada / COPPEAD Petroleum Executive Logistics Course

Houston, Texas

30 June 2005