Shell Geet

21 April 2012

SHELL AUSTRALI A LIMITED

SUPPLY CHAIN AND LOGISTICS

Geetinder Singh17297688

Shell Australia Limited-Supply Chain and Logistics

Faculty of Law & Management Graduate School of Management MARKETING LOGISTICS AND SUPPLY CHAIN MANAGEMENT SEMESTER: 1

YEAR: 2012

CAMPUS: Melbourne LECTURER: Navin Veerapa

Title: Shell Australia Limited: Supply Chain and Logistics

Assignment: Individual Due date: 21 April 2012 Student name: Geetinder Singh (17297688) Table of Contents Geetinder Singh-17297688

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Shell Australia Limited-Supply Chain and Logistics

Introduction 2 1. Background 4  Supply chain and Supply chain management 4 2. Company Background 4 

Shell Worldwide 4



Shell Australia 5

3. Supply Chain Shell Australia 6 3.1 Manufacturing 6 3.2 Distribution Centers 7 3.3 Warehousing and Storage 7 3.4 Shipment and Transportation 8 3.5 Customers 8 3.6 Inventory management and Order fulfillment 9 3.7 Materials handling 9 4. Comparison with the Competitors 10 5. Performance measurement 10 5.1 Balanced Score card approach 12 5.1.1

Measurement and evaluation of financial metrics 12

5.1.2

Measurement and evaluation of customer perspective 12

5.1.3

Measurement and evaluation of internal business perspective 12

5.1.4

Measurement and evaluation of innovation and learning perspective

12 5.2 Benchmarking 13 5.2.1

Comparing refineries 13

5.2.2

Determining improvement opportunities 14

Conclusion and Recommendations 15 References 16

Introduction Geetinder Singh-17297688

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Shell Australia Limited-Supply Chain and Logistics

Shell is a global group of energy and petrochemical companies. It has approximately 101,000 employees in almost 140 countries and territories. The parent company of Shell group is Royal Dutch Shell plc. which is incorporated in England and Wales. Shell is a superior brand with approximately more than 100 years history in the business. The company’s main strategy is to generate profitable growth, deliver sustainable growth and provide competitive returns to its shareholders. The company has upstream and downstream operations. The upstream operations explore and extract natural gas and crude oil. The downstream operations refine, trades, supplies and ship the oil worldwide and produce petroleum products for industrial customers. Overall, Shell is serving people at high level of standard by fulfilling the requirements of the customers (Shell Global Homepage 2012). Shell Brand is the most popular commercial symbols in the world. If we look at the revenue, Royal Dutch Shell is the largest private sector oil company in the world. Even though the company mainly runs its business in United States, it also produces crude oil and natural gas for the other countries. Shell has five main businesses such as refining and marketing, gas and power, production and exploration, trading and shipping and chemicals. Basically Shell provides oil change service, gas, petrol and convenience stores (Khan et al. 2011). This report mainly talks about the supply chain performance of the Shell Australia Limited. The first part of the report explains the supply chain process of shell in Australia. It mainly focuses on the Shell’s refineries, distribution centers, warehouses and storage areas. The transportation, material handling, inventory management and order fulfillment are also included in the process. In the second part, the comparative analysis of Shell with its two main competitors such as BP and Caltex is explained. The later part of the report talks about the performance evaluation and measurement of supply chain of Shell Australia. There are two main approaches that can be used for the measurement of supply chain such as Balanced Score card and benchmarking. It also explains the methods of improvement of supply chain process.

1. Background: Geetinder Singh-17297688

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Shell Australia Limited-Supply Chain and Logistics



Supply chain and Supply chain management: Supply chain is defined as a chain that refers to the flow of materials, payments, information, services from raw materials suppliers to the customers through warehouses and factories. Basically supply chain is a network of various activities that provides a service and delivers finished product to the end customer. It includes various tasks such as materials handling, purchasing, logistics, production planning and control, payment flow, warehousing, inventory control, delivery and distribution. All the supply chain activities are planned, organised and coordinated by Supply chain management. From the entire supply chain point of view, Supply chain management addresses the fundamental business problems of supplying product to meet demand in a complex and uncertain world.

2. Company Background: 

Shell Worldwide: Shell is a company of energy and petrochemicals. It has approximately 90,000 employees. It is headquartered in The Hague, the Netherlands. The company is established in almost 80 countries and territories. The parent company of Shell group is Royal Dutch Shell plc which is incorporated in England and Wales. The company’s main strategy is to generate profitable growth, deliver sustainable growth and provide competitive returns to its shareholders. The company has upstream and downstream operations. The upstream operations explore and extract natural gas and crude oil. The downstream operations refine, trades, supplies and ship the oil worldwide and produce petroleum products for industrial customers. Some facts and figures of Shell Worldwide in 2011:

Countries of operation

80+

Number of employees

90,000

Natural gas production

48%

Sale of LNG(Liquid Natural Gas)

18.8 million Tonnes

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Shell Australia Limited-Supply Chain and Logistics

Gas and Oil production

3.2 million barrels

Shell service station worldwide

43,000

Refineries and chemical plants

30+

Source: Shell Australia 2012. 

Shell Australia: Shell in Australia is being in action since 1901. It has divided its business into two main operations upstream and downstream. The main function of upstream business is to develop and supply liquefied natural gas and condensate liquefied petroleum gas to international markets and natural gas to local customers in Western Australia. The downstream business basically manufactures petroleum products and supply to Australian customers. It fulfills almost 25% of the Australia’s petroleum requirements. The company’s head office is in Melbourne. Some facts and figures of Shell Australia:

Shell branded service stations in Australia

850+

Refineries in Australia

2

Lubricants blending plants

1

Terminals throughout Australia

16

Years of service in Australia

100+

Source: Shell Australia 2012.

3.

Supply Chain Shell Australia:

Shell Australia’s downstream operations consist of manufacturing, supply, logistics, fuels, marine and chemicals. We will focus mainly on the supply and distribution process of petrol in Australia. The whole supply chain process of Shell is explained as below:

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Shell Australia Limited-Supply Chain and Logistics

3.1 Manufacturing: Refineries in Australia manufacture almost quarter of the Australian petroleum products such as petrol, LPG, diesel, aviation fuel, propylene, solvents and bitumen. At two refineries Geelong, Clyde and New South Wales petrol is refined and distributed locally and internationally. From the Refineries the petrol is distributed to its distributions centers such as Newport, North Fermantle, Parramatta and Pinkenba terminals. Geelong refinery is one of the largest refineries in Australia. It supplies 30% of South Australia and 50% of Victoria’s fuel. Petrol is one of the main products at this refinery. It is distributed to the Shell Newport terminal by pipeline. It is carried by ship to Australia’s coastal cities and Newzealand and by road to its local customers such as Coles express and shell service stations. The petrol is produced very clean at both of the refineries to comply with Federal Government requirements to minimise sulphur levels in premium unleaded petrol (Shell Australia Manufacturing, 2012)

3.2 Distribution Centers: After refining, the petrol is distributed to the Shell distribution centers. It has four distribution centers in Australia such as Newport, North Fermantle, Geetinder Singh-17297688

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Shell Australia Limited-Supply Chain and Logistics

Parramatta and Pinkenba terminals. Newport terminal is a major distribution point in Victoria. This terminal distributes million liters of petrol throughout Victoria and New South Wales Riverina district. North Fermantle is located near Perth and Western Australia. This terminal receives stores and distributes petrol to Perth and Western Australia. The petrol distribution facilities at this terminal are operated by Shell logistics under joint terminal arrangement between Shell and Caltex. Parramatta terminal is located close to Clyde refinery. It is a largest distribution center for Shell’s operations in New South Wales. Shell Pinkenba terminal is major fuel distribution center in Queensland. This terminal distributes product domestically and also export throughout Newzealand, Africa, Asia and Pacific islands. (Shell Australia Supply and Distribution, 2012)

3.3 Warehousing and Storage: Shell supply logistics is determined from its storage infrastructure. Basically the market determines the location and scale of its infrastructure. Shell does not have any kind of barriers for additional storage facilities. Mostly its storage areas are available on the distribution centers of the region. Newport terminal has warehousing facilities for the packaged fuel. There are 40 storage tanks available with storage capacity of 100 million liter of refined petrol in Pinkenba terminal. Basically these distribution centers stores the packaged fuel in these storage facilities before distribution (Shell Australia’s Submission on Petrol Prices, 2007).

3.4 Shipment and Transportation: from refineries to distribution centers and from distribution centers to service stations: The petrol is carried by pipelines to the terminals from Geelong and other refineries for distribution throughout Victoria State. For shipment to Australian coastal cities and New Zealand it is usually carried by ship. The rest of the petrol is carried by road to the local customers such as Coles express sites and Shell service stations. Geetinder Singh-17297688

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Shell Australia Limited-Supply Chain and Logistics

Shell uses road transport to distribute petrol to its customers. From North Fremantle terminal, Cootes transport is the one that delivers petrol to the customers. Cootes transport is a shell hired carrier. On Paramatta terminal, shell hired carriers and Shell logistics own fleets are used to distribute the product (Shell Australia’s Submission on Petrol Prices, 2007).

3.5 Customers: Today Shell branded sites fall into two categories such as dealer owned sites and Coles express site. Shell supplies petrol to around 600 Coles express and Shell branded sites. Coles express operates the service stations as well as convenience stores and car washes. Coles express independently sets the retail price for petrol at their sites. Shell sells to Coles express on a pricing mechanism which contains TGP (Terminal Gate Price) and the other charges such as delivery and branding (Shell Australia’s Submission on Petrol Prices, 2007). 3.6 Inventory management and Order fulfillment: Inventory management deals with the direct to store delivery. The supply team of Shell is responsible for the planning of supply of petrol throughout Australia in a timely manner. The shell has set up the schedules for refinery production in order to meet market requirements. Shell has developed some systems to maintain its inventory and order fulfillment. Those are as follows: i.

Shell eServe: It is a web base tool for online transactions which is very easy to use and safe. It is available 24/7 for the customers to place orders.

ii.

Shell eRouter: It is an Electronic Data Interchange (EDI) for accurate and efficient transactions. It is helpful in saving time to process orders and minimise procurement costs.

iii.

Interactive Voice Response (IVR): It is a self service system to order fuels, deliver checks and inquire for accounts. It is a 24/7 available telephone service.

iv.

Vendor managed inventory: Shell has developed a vendor managed inventory system for stocks of fuel. It lowers the procurement cost and maintains the ordering process. The

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Shell Australia Limited-Supply Chain and Logistics

inventory levels of storage tanks are monitored easily using this system. It also monitors the required stock quantity. (The Shell Global, 2012)

3.7 Materials handling: Supply and distribution team of Shell manages all aspects of storage and transportation of petrol by road, rail, sea and pipeline. The priority of the company is to make sure that petrol reach the end customers safely. Shell distribution centers such as Newport terminal follows the objectives of no harm to people under its health, security, safety and environment policy (HSSE). The HSSE policy is basically developed to comply with law and gain continuous performance improvement (Shell Australia Supply and Distribution, n.d.)

4. Comparison with the Competitors: There two main competitors of Shell Australia and these are BP and Caltex. BP has its own supply chain system. It undertakes the activities across its supply chain and also its brand owner and retailer of non BP branded products and packaging. It operates more than 200 service stations throughout Australia. In Australia, BP priced its petrol based on three major transparent and contestable markets. It priced its petrol based on Singapore product price, Terminal gate price and retail price. However Shell Australia uses the terminal gate price and Singapore benchmarking price. The other major competitor of Shell Australia is Caltex. Caltex has its own strong supply chain which is derived from effective integration of refining and supply and distribution. It has two refineries in Australia which produces fuel and fuel products. It has built a supply chain from crude to the customers or from scratch to the finished product throughout Australia. Caltex supply chain provides efficient supply to major oil companies in Queensland and New South Wales. Throughout Australia, Caltex operates twelve storage terminals. However Shell has four storage terminals. It Geetinder Singh-17297688

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Shell Australia Limited-Supply Chain and Logistics

distributes its products from the distributions centers to the customers via its own truck fleet. It also uses the fleets of third party contractors. So with the two refineries, two large capacity coastal product tankers, Caltex has developed a capable and high quality supply chain in Australia (Caltex Australia, 2010)

5.

Performance measurement:

Performance evaluation of company’s supply chain can be done by using two models such as Benchmarking, and Balanced Score Card. Before we do the performance measurement, company’s goals and objectives should be defined. The goals and objectives of Shell are explained in the table below: Performance metrics Performance metrics Performance metrics Performance metrics for internal business for innovation and for perspective

Total

supply

learning perspective

perspective

chain Supplier cost saving Net

cycle time

initiative

financial for

customer

perspective

profit

Vs Level

productivity ratio

of

perceived

customer value

of

product Total cash flow time

Supplier booking in Delivery performance

Order lead time

procedures Supplier

lead

time Product development Delivery reliability

against industry norms

cycle time

Product development Buyer cycle time

Delivery performance

supplier Information

partnership level

carrying Delivery reliability

cost

Purchase order cycle Capacity utilization

Buyer

time

relationship level

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supplier Information

carrying

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Shell Australia Limited-Supply Chain and Logistics

Supplier rejection rate

Accuracy

Frequency of delivery

of Rate

of

forecasting techniques

investment

Order entry methods

Cost

per

hour

return

on Response

to

urgent

deliveries operation Buyer

supplier

partnership level

Source: Sharma and Bhagwat, 2007 5.1

Balanced Score card approach: Balanced score card has four perspectives

such as financial, processes, innovation and customers. These four perspectives of balanced score card are applied to the four performance metrics discussed above in the table. Each of the four perspectives should be translated to the same metrics and measures that reflect strategic objectives and goals. 5.1.1

Measurement and evaluation of financial metrics: Financial performance

measure indicates the effective contribution of company’s strategy, execution and implementation for the firm improvement. Financial goals are identified as profitability achievement and liquid maintenance. Basically company’s survival is measured by cash flow and company’s success is measured by sales growth, equity return and capital employed. 5.1.2

Measurement and evaluation of customer perspective: How do

customers look at the business: The balanced score card wants that the management of the firm should translate their customer service mission statement into the measure that specifically reflect the factor that has a great meaning for the customers. In general, the customers are always concerned about quality of products and services and company’s performance. 5.1.3

Measurement and evaluation of internal business perspective: The

internal measures for the balanced score card comes from the business process. Customer’s satisfaction factors

are impacted by business process that affects cycle

time, employee’s skills, quality and productivity. Companies should make their own decision about the processes and competencies. Geetinder Singh-17297688

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Shell Australia Limited-Supply Chain and Logistics

5.1.4

Measurement and evaluation of innovation and learning perspective:

The question is can we create and improve the value: Company’s value is directly related to the company’s ability for improvement, innovation and learning. Innovation and learning brings efficiency in the operations of the business. It also maintains the financial ability through higher profitability earnings (Bhagwat and Sharma, 2007). Shell services has used the balanced score card method to develop multiple level of service to fulfill the needs of customers and business units it is serving. It has changed the mind of customers and business units so that they focus on the service related concerns instead of cost relating factors. (Kaplan & Norton, 2001)

Benchmarking: Benchmarking is a process for evaluation of product, services

5.2

and organisation’s workload which is recognised as best practices for the improvement of organisation. In other words it is a method that helps companies to identify opportunities for performance improvement. By learning and comparing from other’s experiences, companies can easily adopt best practices to identify their short term and long term opportunities for improvement. Some of the Shell benchmarking concepts are discussed below: 5.2.1

Comparing refineries: Shell has approximately 800 refineries in the world

and four refineries in Australia. There is no way that all the refineries are same in capacity and complexity. The first part of the Shell benchmarking process is the calculation of refinery complexity in NSP (normalized shift position). The calculated NSP counts for shell refineries are approximately from 10 to more than 120. The second part is mechanical unit count which converts the physical number of pieces of any equipment into count. This count is weighted for the cost of maintenance task and complexity for that piece of equipment. The last part of the benchmarking is to normalize refinery performance that is the total intake, feedstocks and crude for Geetinder Singh-17297688

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Shell Australia Limited-Supply Chain and Logistics

processing. It is very important for any business to maintain the positive margin between income from products sold minus cost of raw materials and minus the cost of production. Shell worldwide benchmarking has always concentrated on cost per bbl, the competitiveness metrics. The operating cost is divided in to subcategories such as energy costs, maintenance costs, personnel costs and other fixed costs. 5.2.2

Determining improvement opportunities: Once company’s operational

efficiency gaps are determined, it is important to identify the solutions to close these gaps. The poor performance of shell refineries could be either amount of labour employed in the maintenance activities or the cost of these resources. These two areas such as mechanical availability and maintenance cost in each refinery should be improved (Shell Global Solutions, 2012) Now-a-days, Shell global benchmarking group has provided a comparison of operational performance for almost 80 refineries. Using these benchmarks, the company has assigned the shell to conduct an asset management improvement study. It has involved the connection between Shell employees and Statoil to increase plant availability, reliability and minimise the maintenance costs. Under the benchmarking program, all the facility operations are analyzed such as health and safety, asset management, operating costs, asset utilization and availability, energy and environmental impact, production and personnel. Sustainable improvements in the company’s performance can be achieved in different areas throughout the organisation. There is an example that the cost of operations, energy consumption can be minimised once they are identified with the benchmarking process as those areas requires improvement. The benchmarking can also identify the opportunities for the improvement in the health, safety and environmental performance area. The other areas such as asset utilization and plant reliability are also included. After the improvement, the business focus will be enhanced and the organisation will be more effective. So it is very important that

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Shell Australia Limited-Supply Chain and Logistics

information collected by the benchmarking program can be used by the customers. Shell is working hard to make sure it actually happens (Shell Global Solutions, 2012)

Conclusion and Recommendations: Improvements in any company’s supply chain such as internal processes, production effectiveness, service level and customer satisfaction can be achieved with supply chain remodeling. However, the supply chain remodeling process is cost effective and needs great amount of money investment. It is very important for a company to measure its performance by using Balanced score card and benchmarking tools. By evaluating performance metrics of Shell it has been identified that company has already established metrics related to logistics, customers and supplier activities. To obtain a complete report of performance metrics, the company should use Balanced Score Card. Shell should always keep in mind that it is very important to maintain a Balanced score card. The balanced score card is necessary to retain its existing customers also for the future plans of its employees. The company has to know that strategy making is not very difficult but implementation of strategy in present and stable environment is the toughest thing to do. It is also very hard to communicate with the people who are already satisfied with the existing environment. So the only way to bring change and strategies within this company is through balanced score card.

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References: Bhagwat, R; & Sharma, M. 2007, Performance measurement of supply chain management: A balanced score card approach, Science Direct, Vol. 53, PP43-62. Caltex Australia 2010, ‘Supply Chain: Caltex Annual review and Annual Report’, Caltex Australia,

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2012,

Kaplan, R. S. & Norton, D. P. 2001, ‘The strategy focused organization’, vol. 23, no. 1, Sound View: Executive Book Summaries. Khan, Z, Azhar, K, Javeid, S & Tariq, R 2011, ‘Shell Petrol Pump: Islamabad’, Slide Share, viewed 16 April 2012, Shell Australia Manufacturing n.d., ‘Manufacturing’, Shell, Viewed 12 April 2012, Shell

Australia

n.d.,

‘Shell

at

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glance’,

Shell,

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2012,

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2012,


static.shell.com/static/aus/downloads/fuels/petrol_pricing/shell_subm_to_accc_petrol_price_in quiry_july07.pdf>

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Shell

Global

Homepage

2012,

‘At

a

glance’,

Shell,

viewed

15

April

2012,

The

Shell

global

2012,

‘eBusiness’,

Shell,

viewed

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2012,

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