shell lobp reevaluation strategy scm
TRANSCRIPT
Vir Mehta | Zahra Najmi | Surya Raviillu | Bentley Tang
Introduction | Roadmap
Underlying
Challenges
Inadequate utilization of
LOBPs
Excess demand
from North Carolina closure
Inefficient support of
low customer gravity Out-of-date
safety standards
Lack of team
cohesion
Introduction | Problem Statement
Strategy | Recommendations
Strategy | Eliminate WA & Absorb to CA
Production Capacity Utilization Price per Gallon
28M 63M 40% $5.00
Production Capacity Utilization Price per Gallon
40M 72M 50% $3.75
Washington
California
Production cost
reduction
Balanced customer gravity
Efficient utilization
Strategy | Procure Base Oil Supply from Canada
Distance between
LOBP and
refinery
Transport Mode
Reduction in per gallon
production cost
Strategy | Procure Base Oil Supply from Canada
Increase in flexibility
Reduced transportation
costsReducing lead
times
Strategy | Redistribute Excess Capacity from NC
Strategy | Redistribute Excess Capacity from NC
Considerations• Bulk/Packaged• Cap Capacity at 85%
Goals• Decrease Safety Risk• Minimize Total Cost
Strategy | Redistribute Excess Capacity from NC
Strategy | Safety Plan
LBOP Util. Bottle Mix Safety Perf.
LA 85% All Below Target
KY 85% All Slightly Below Target
OH 60% Bulk Only Slightly Below Target
PA 60% All Slightly Below Target
As utilization increases, the safety and environmental performance of a plant decreases.
Bottle Mix complexity plays a
role too
Strategy | Safety Plan
Safety Standards Conscious Culture Reliable Resources
HandbooksWorkshops
Training videos
Equipment KPI
reevaluationRelationship management
Risk Assessment
Routine Check
Procurement
Negotiations | Bringing the entire team together
Optimize KY performanceSafety Plan
Goals Priorities
Keep jobManage budgetary
aspects
FamilyLegacy & Reputation
Negotiations | Bringing the entire team together
Increase budget
Goals Priorities
Meeting budgetAvoid increase in
mileage
Containing mileageTransportation cost
Timely demand
Negotiations | Bringing the entire team together
Lower raw material costsCrown as backup
Goals Priorities
Must meet customer demand
Lowest TCO
Effective procurementReduction in
production cost
Negotiations | Bringing the entire team together
Increase budget by 10%
Goals Priorities
Focus on cost effective decisionsMaximize savings
Explore Outside Supply Points (OSPs)Bonus depends on
savings
Risks & Financials | Savings
Total Savings $48,679,395
Capacity of tanker: 8550 galCapacity of van: 3000 gal
Risks & Financials | Cost Assumptions
Risks & Financials | Production Redistribution
Transportation Total Cost
CA – WA $33,883,930
NC – PA $28,548,161
NC – OH $9,278,594
NC –MS $14,225,640
KY - MS $5,896,280
Expenses: $91,832,605
Plant Change
WA $$140,000,000
CA $105,000,000
LA $0
MS $(24,600,000)
KY $13,341,600
OH $48,560,000
PA $(136,389,600)
NC $204,600,000
Savings: $140,512,000Total Savings $48,679,395
Risks & Financials | Mitigation
• Model after NC
Selling WA
• Keep as backup and as baseline
Crown• Expanding
lubricant market
Political
• Avoid sole-sourcing
Weather
Conclusion
Questions?
Appendix A: Timeline
Year 1: Begin shutting down WA plan – put it up for sale (or rent); Start preparing CA for safety plan; Redistribute NC to closest suppliers ; begin looking for best base oil suppliers in CN.
Year 2: 80% of WA should be completed – Decide whether selling or renting would be more profitable; Officially introduce safety plan to CA -> begin implementing; solidify excess NC to near plants; choose CN supplier
Year 3: Evaluate effectiveness of SP – if effective, start with slightly below average plants; completely terminate operations in WA; begin supplying base oil from CN
Year 4+ Measure results, make changes as needed – start with quarterly measurements and if no incidents, then branch out to biannual measurements
Appendix B: Underlying Assumptions
LOBPs are machine-focused
(automated)
Greater utilization leads to lower
safety
(502) distance from CN to OH vs OH to
LA (965)
18-wheeler tanker carries 8550 gallons
& 18 wheeler van carries 3000 gal
Ohio reduced price = $3.80
Per gallon cost for rail - $15 and rail is
$5
Appendix C: Optimization Model
Bulk
Large
Small
Appendix D: New vs. Old Production