Oil & Gas-Downstream supply chain is one of the most complex supply chains in the world, involving multiple remote locations, entities, and stakeholders. Unsurprisingly, the supply chain is very difficult to manage and optimize and is a key challenge area for any downstream company.
One of the major challenges in the downstream supply chain is managing the deviations in supply and demand forecasts and quickly responding to market situations in a cost efficient manner. However, thanks to Industry 4.0 and the wave of digitalization sweeping through the O&G sector, the equation is changing. O&G firms can adopt the Business 4.0TM framework - with Intelligence, Agility, Automation, and Cloud as its four pillars - to accelerate digital transformation (DX) of their supply chain. Let’s see how these pillars can help downstream companies tackle typical challenges and become more agile.
Challenge #1: Lack of end-to-end visibility causing silo-ed operations
The downstream supply chain can largely be divided into four functional areas - procurement of crude oil and inbound logistics (Trading & Supply), refinery production operations, primary distribution, and secondary distribution of the finished products. The demand for the finished products is generated through retail and commercial channels. The trading department is responsible for procurement of crude oil and supply to the refinery for production of the required products. The primary distribution function supplies the finished products from the refinery gates to storage terminals, while secondary distribution supplies the products from the storage terminals to petrol pumps. The product inventory is managed at various storage locations dispersed across the country or region. Thousands of trucks transport the fuel from the terminals to gas stations.
Each of these functional areas is owned by different groups of people or different group of companies operating under a single umbrella. Collaboration and coordination amongst these groups is crucial for the smooth and efficient functioning of the supply chain. For instance, product demand generated at the marketing end must be communicated to the trading department in advance, enabling them to initiate the crude oil procurement process in time. The terminal must also be prepared in advance to begin vessel unloading and loading activities for the crude and finished products, and avoid any demurrage charges or stock-out situations. It’s easy to see that perfect coordination between the planning, scheduling, logistics departments and the terminal managers is critical – something that’s currently missing due to multiple disparate data sources and lack of automation and seamless visibility.
How Business 4.0TM helps: Collaboration and visualization tools integrated into the supply chain can enable end-to-end visibility of the crude and product inventory at each point in the supply chain, the product demand at different locations, and the visibility into price trends at any point in time, breaking down silos and uncovering optimization opportunities. To enable this, there are multiple building blocks which should be kept in place. For example, each of the terminals in the supply chain should be equipped with Terminal Management/Automation System (TMS/TAS) to capture terminal inventory, loading-unloading data, while the tanks should be equipped with Automatic Tank Gauge (ATGs) to capture real time inventory data. Integrating ATGs and TMS is the first step towards achieving end-to-end inventory visualization.
The visualization and collaboration platform should not only provide visibility into the crude oil and product inventory across the value chain but also bring all the concerned stakeholders on a single platform to make data sharing and approvals easy. Such a collaborative environment enables agility in the supply chain for informed decision making while increasing transparency and fostering trust.
Challenge #2: Lack of single point of ownership
Merely achieving visualization is not enough. To achieve supply chain agility and enable timely decision-making, single point of ownership is a critical prerequisite. As various stakeholders are involved at different stages across the chain, the decision making power is also distributed, making coordination difficult to achieve.
How Business 4.0TM helps: Leveraging an ecosystem approach, different stakeholders can come together to set up a Centre of Excellence (COE) or a special focused group for inventory and supply chain management. The COE can then coordinate with stakeholders across the chain, and institutionalize best practices and policies to enable faster decision-making, better deviation management, and rapid response to unforeseen market situations such as crude oil production cuts and price fluctuations.
Challenge #3: Lack of analytics-driven demand planning and forecasting
Accurate demand forecasting of products is the first step in successfully initiating the downstream supply chain, making it extremely important to ensure accuracy. However, lack of proper data management processes makes this a critical pain point for most O&G companies.
How Business 4.0TM helps: Intelligent forecasting systems and advanced analytics algorithms can accurately forecast demand for inventories, perform what-if analysis, and assess different scenarios in case of deviations. The models can be further fine -tuned over time, through on-going learnings.
A multi-dimensional approach is the way forward
Downstream supply chain optimization requires a multi-dimensional approach. This means O&G firms must abandon their traditional siloed thinking and employ multi-directional efforts to achieve supply chain optimization. Enabling collaboration, coordination, and empowerment using new age analytics systems will be key to successful optimization aimed at offsetting the volatility in crude oil prices and ensuring sustainable margins.