S C M at Indian Oil Corporation Ltd.

About Indian Oil:

The Indian Oil Corporation Ltd. operates as the largest company in India in terms of turnover and is the only Indian company to rank in the Fortune "Global 500" listing. The oil concern is administratively controlled by India's Ministry of Petroleum and Natural Gas, a government entity that owns just over 90 percent of the firm. Since 1959, this refining, marketing, and international trading company served the Indian state with the important task of reducing India's dependence on foreign oil and thus conserving valuable foreign exchange. That changed in April 2002, however, when the Indian government deregulated its petroleum industry and ended Indian Oil's monopoly on crude oil imports. The firm owns and operates seven of the 17 refineries in India, controlling nearly 40 percent of the country's refining capacity.

Origins
Indian Oil owes its origins to the Indian government's conflicts with foreign-owned oil companies in the period immediately following India's independence in 1947. The leaders of the newly independent state found that much of the country's oil industry was effectively in the hands of a private monopoly led by a combination of British-owned oil companies Burmah and Shell and U.S. companies Standard-Vacuum and Caltex.

An indigenous Indian industry barely existed. During the 1930s, a small number of Indian oil traders had managed to trade outside the international cartel. They imported motor spirit, diesel, and kerosene, mainly from the Soviet Union, at less than world market prices. Supplies were irregular, and they lacked marketing networks that could effectively compete with the multinationals.

Burmah-Shell entered into price wars against these independents, causing protests in the national press, which demanded government-set minimum and maximum prices for kerosene--a basic cooking and lighting requirement for India's people--and motor spirit. No action was taken, but some of the independents managed to survive until World War II, when they were taken over by the colonial government for wartime purposes.

S C M at Indian Oil Corporation Ltd.

During the war, the supply of petroleum products in India was regulated by a committee in London. Within India, a committee under the chairmanship of the general manager of BurmahShell and composed of oil company representatives pooled the supply and worked out a set price. Prices were regulated by the government, and the government coordinated the supply of oil in accordance with defense policy.

The Indian Oil Industry Evolves: Late 1940s-60s

Wartime rationing lasted until 1950, and a shortage of oil products continued until well after independence. The government's 1948 Industrial Policy Resolution declared the oil industry to be an area of the economy that should be reserved for state ownership and control, stipulating that all new units should be government-owned unless specifically authorized. India remained effectively tied to a colonial supply system, however. Oil could only be afforded if imported from a country in the sterling area rather than from countries where it had to be paid for in dollars. In 1949, India asked the oil companies of Britain and the United States to offer advice on a refinery project to make the country more self-sufficient in oil. The joint technical committee advised against the project and said it could only be run at a considerable loss.

The oil companies were prepared to consider building two refineries, but only if these refineries were allowed to sell products at a price ten percent above world parity price. The government refused, but within two years an event in the Persian Gulf caused the companies to change their minds and build the refineries. The companies had lost their huge refinery at Abadan in Iran to Prime Minister Mussadegh's nationalization decree and were unable to supply India's petroleum needs from a sterling-area country. With the severe foreign exchange problems created, the foreign companies feared new Iranian competition within India. Even more important, the government began to discuss setting up a refinery by itself.

Between 1954 and 1957, two refineries were built by Burmah-Shell and Standard-Vacuum at Bombay, and another was built at Vizagapatnam by Caltex. During the same period the companies found themselves in increasing conflict with the government.

S C M at Indian Oil Corporation Ltd.

Background
Indian Oil Corporation (IOCL) is Indias number one oil company and holds the 189th spot on the famed Fortune 500 list of companies. It is the19th largest petroleum company in the world and has also been recognized as the number one company in petroleum trading among the national oil companies in the Asia-Pacific region. As Indias flagship national oil company, IOCL accounts for 56% petroleum products market share among public companies, 42% national refining capacity and 69% downstream pipeline throughput capacity. The company has a countrywide sales network of more than 23,000 retail outlets, including more than 10,000 petrol/diesel stations backed by 165 bulk storage facilities, 95 aviation fuel stations and 85 LPG bottling plants. Its subsidiary, IBP Co. Ltd., has another 3,000 retail sales outlets. IOCL operates 10 of India's 18 refineries with a combined rated capacity of one million barrels per day (bpd). The company also owns and operates the countrys largest network of crosscountry crude oil and product pipelines of 7,730 km, with a combined capacity of 58.62 million metric tons per annum. For the year 2004-05, IOCL sold 50.1 million tonnes of petroleum products, including exports of 1.96 million tonnes. Its seven own refineries achieved a throughput of 36.63 million tonnes, and the pipeline network transported 43.03 million tonnes of crude oil and petroleum products.

S C M at Indian Oil Corporation Ltd.

Supply Chain at Indian Oil

Introduction:
Supply chain initiatives have become a critical part of firms operations. Success is increasingly being dictated by how well a company can control its supply base and mitigate supply bottlenecks and liabilities. Such disruptions are a 6-figure to 7-figure expense for companies, with a handful of companies citing that the cost was more than $10 million according to recent reports (see Hendricks and Singhal 2005, as an example). Reengineering (or re-engineering) is the radical redesign of an organization's processes, especially its business processes. Rather than organizing a firm into functional specialties (like production, accounting, marketing, etc.) and looking at the tasks that each function performs, we should, according to the reengineering theory, be looking at complete processes from materials acquisition, to production, to marketing and distribution. The firm should be reengineered into a series of processes. The changes, and subsequent improvements, have been clearly identified by Hammer and Champy (1993) who have claimed originality and conveniently packaged the ideas into the concept of business re-engineering, which has subsequently been called business process re-engineering (BPR). The main proponents of re-engineering were Hammer and Champy (1993). In a series of books including Reengineering the Corporation, Reengineering Management, and The Agenda, they argue that far too much time is wasted passing-on tasks from one department to another. The Business processes pictured as a set of triangles as shown below. The model will be used to define the supplier and process inputs, your process, and the customer and associated outputs. The feedback loop from customers will also be used as shown in Figure 1:

Figure 1

Improving business processes is paramount for businesses to stay competitive in today's marketplace. Over the last 10 to 15 years companies have been forced to improve their business
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S C M at Indian Oil Corporation Ltd.

processes because we, as customers, are demanding better and better products and services. And if we do not receive what we want from one supplier, we have many others to choose from (hence the competitive issue for businesses). Many companies began business process improvement with a continuous improvement model. The proposed model will attempt to understand and measure the current process, and make performance improvements accordingly. Figure 2 below illustrates the basic steps. The research will begin by documenting what Oil Marketing Companies (OMCs) do today, establish some way to measure the process based on what their customers want, do the process, measure the results, and then identify improvement opportunities based on the data collected. Then implement process improvements, and measure the performance of the new process. This loop repeats over and over again, and is called continuous process improvement and the proposed research will be following this line of action.

Figure 2

S C M at Indian Oil Corporation Ltd.

Critical Issues in Managing the Supply Chain

Based on a literature review, the following are the critical factors in managing the supply chain of Indian oil company: Greening the Supply Chain How the LPG division can take a proactive posture in requiring a significant level of environmental responsibility in core business practices of their suppliers and vendors. Greening the Supply Chain refers to firms integrating environmental issues which include predevelopment activities, suppliers business practices, product design and development. Environmental responsive companies take proactive posture in requiring a significant level of environmental responsibility in core business practices of their suppliers and vendors (Business and Environment 1993; Sarkis, 2002). Companies are increasingly giving attention not only to the environmental characteristics of their products, but also to the developmental process, paying particular attention to the supply chain activities. Oil Corporations are considered to be in the high environmental impact sector, and hence more attuned and sensitive to environmental issues.

Maximize the reach of consumers

It is critical to work with supply chain partners to prospect and generate quality customers. Accelerating sales cycles by innovating internet based selling and hence allowing customers to access us 24/7 via web touch settings. It is imperative to educate customers by enabling them to complete routine self-service tasks by themselves (Ashcraft 1992). It also helps to build loyalty by relying on a variety of programs in giving our customers an outstanding use experience. A sustainable business value can be created by offering a tiered approach with distinct marketing, sales, training, and support services for each customer segments.

Enhancing Supplier Diversity Expanding the supplier base enables firms to include more diverse suppliers hence encouraging competition, enhancing transparency, and lowering costs for all parties concerned. Increase participation of local and national divisions in seeking out diverse and under-represented categories when seeking out new sources for suppliers and services (Caminiti 2005; Carbone
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S C M at Indian Oil Corporation Ltd.

2005). It is critical to implement enhanced quality training, educational, employment and networking services for the under-represented suppliers, and a successfully implementation of a web based Business-to-Business exchange system, mutually and simultaneously beneficial to many stakeholders.

Maximizing Operational Efficiency How we can maintain cost competitiveness through the restructuring of the supply chain systems for LPG cylinders of the oil marketing companies. Companies are serious about maintaining cost competitiveness or customer service differentiation must re-examine their process, measurement, and technology approaches and seek new areas of supplier performance improvement (Rudberg and Thulin 2009), including: 1. Inserting control points at suppliers to minimize errors. 2. Resolving last-minute supply disruptions based on cross-functional business goals. 3. Using predictive analytics to transform static supplier scorecards into forward-looking risk management instruments.

S C M at Indian Oil Corporation Ltd.

Challenge
As a leading oil supplier, IOCL had the multifaceted challenge of maintaining its leadership position and meeting its vision of being a diversified, integrated energy company with a strong environment conscience and national role in oil security and public distribution. As the company looked for ways to maximize profits one thing was clear more visibility into the supply chain and finding ways to optimize this value chain was critical. IOCL evaluated different supply chain management solutions to address this business problem and how best to implement a solution that integrates five separate refineries. A multi-site refining company has various supply chain problems to solve including which crude to buy, where to process it, how much to buy and make, what to make and where and how to transport it, said Uttam Kumar Basu, General Manager, Optimization, IOCL. Traditionally different departments or divisions within one organization manage their own disparate project of this complex process and dont always talk with one another. As a result, decisions are sometimes made based on incomplete data or they cant be applied across the entire corporation. Our challenge was how to plan for various possible breaks that could occur in the supply chain and how to best optimize each specific point to increase our profitability and link activities of five separate refineries, continued Mr. Basu. To put it in perspective IOCL had challenges in the supply chain to integrate, view and make decisions based on 80 crudes sourced from South America to South East Asia, 10 refineries and five detailed models, along with a large network of 200 depots, 40 terminals, 17 pipelines and six transportation modes. The resulting decision was to implement an integrated, multi-plant planning solution.

S C M at Indian Oil Corporation Ltd.

Solution
After serious consideration and an arduous evaluation process, IOCL selected Honeywells Supply Chain Management solution. At the heart of this solution is Honeywells Refinery and Petrochemical Modeling System (RPMS) known for its integrated planning features, cost effective implementation, passion and people commitment and unique investment modeling capabilities. The models developed with Honeywells solution covered the entire supply chain of IOCL from crude purchases at the refinery gate or ports to product distribution at the terminals. The scope of this problem was undocumented and we knew we needed not just a vendor, but a true partner to invest in and help undertake such a challenging project we found that partner in Honeywell, said Basu. The Supply Chain Management solution provided by Honeywell consisted of the following modules: Demand planning: for demand forecasting and aggregation of the final demand numbers Integrated planning: for the complete IOCL refining supply chain Distribution planning: for generating operational plans for feedstock allocation and product distribution Refinery production planning: for generating operational plans for production

An integrated planning model is actually an aggregation of refinery sub models and distribution models requiring large amounts of data. The refinery models along with the crude assay data are directly embedded into the Integrated Planning Model and supply and distribution structure is obtained from the supply chain database. This provides flexibility to build in more details in distribution models than what is required from the perspective of corporate-wide optimization. Basu commented, We were able to shift our supply chain to a demand-driven one. The Supply Chain Database was truly a paradigm shift within the company and one that could not be taken lightly and needed support from the executives down to the operator level.

S C M at Indian Oil Corporation Ltd.

In order to implement this challenging project a true partnership was formed between Honeywell and IOCL with teams of people involved at each stage including consultation, implementation and support. We knew we were taking on an almost impossible task and something that was unprecedented in our business we had to change our usual way of thinking and plan every step of the way using models that were developed years ago but had to be applied to our specific situation. By using IOCL and Honeywells proven experience and resourcing the appropriate subject matter experts for each specific phase we had an incredibly quick implementation taking only two months to measure its effectiveness, continued Mr. Basu. Amazingly it took only 10 months to have 5 refineries fully integrated. With Honeywells help we have set a worldwide benchmark in the area of Supply Chain Planning. The resulting project has set a defacto standard in Supply Chain Planning. Replacing the traditional planning model, which was sequential and decomposed and not responsive to demand, the new integrated planning approach utilizes the synergies that exist between each functional phase (procurement, manufacturing, sales and distribution) to maximize the corporate profit. Basu added, The investment modeling capabilities of Honeywells RPMS software also provides a unique opportunity for us to look at every investment as a capital expenditure and make decisions based on sophisticated investment analysis. We knew we needed a team approach that demanded committed consultants with proven industry background and models but also had the flexibility and maturity to build a partnership and forge new ground, said Basu. During the project it was difficult to identify who was an Indian Oil employee and who was a Honeywell employee we are a true combined team who look for ways to creatively solve problems and develop a new path. Indian Oil has committed to a five-year contract with Honeywell to provide for ongoing support and enhancements as well as a continuous upgrade of skills and induction of new people and training as needed.
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Benefits
Indian Oil Corporation Limited (IOCL) has implemented Honeywells Supply Chain Management solution to integrate and optimize the supply chain of five separate refineries. The project has resulted in the following benefits: Integrated supply chain planning which optimizes the entire supply chain providing higher margins and increased profitability, Crude selection and allocation which takes into account product demands, refinery capabilities and effect of crudes already procured, Optimal refinery production planning considering crude assays, unit capacities, product specifications and demands; and feedstock availability. Optimal distribution planning considering transportation costs, taxes and duties and transportation constraints

Indian Oil experienced major benefits on account of: Improved visibility into its supply chain process across the five selected refineries Investment analysis for refinery units, pipelines, etc. Analysis to formulate strategies to meet future scenarios like change in specifications Faster, more effective decision making on exchange strategies, imports and exports Improved response and execution capability

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S C M at Indian Oil Corporation Ltd.

Conclusion
Honeywells Supply Chain solution effectively helps manage business complexity and optimize the supply chain. With real-time knowledge collaboration and visibility across the enterprise, decisions are made more quickly and disruptions minimized. Internet-enabled supply chain applications dynamically model the supply chain, and when combined with advanced execution solutions, substantially improves profitability through measurable inventory and product cost reductions. These benefits are realized through faster reaction to market opportunities, improved customer relations, and true collaboration with suppliers and customers. Integrated with Honeywells advanced applications and the Experion control platform, these products offer an integrated suite of advanced forecasting, planning, and scheduling to manage the supply chain. An integrated framework supports various modules and state-of-the art tools for a broad range of business decisions. These enable the business to monitor the condition of the supply chain and provide immediate feedback and exception notices.

References:
1. http://www.managementparadise.com/forums/elements-logistics/212775-supply-chainmanagement-indian-oil-corporation-ltd.html. 2. http://www.businessgyan.com/node/996 3. https://www.iocl.com/

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