ILLUSTRATIVE

BPCL SUPPLY CHAIN OPTIMIZATION

- BUILDING A NEW APPROACH

B.K. DATTA
ED (SCO), BPCL

IMRC, 2008
IIM, BANGALORE
1

We have looked at end to end Supply Chain of BPCL

Core focus
area
We have looked at end to end supply chain in the last nine months
Crude/
feedstock
supply

Refinery
production
management

Pipeline/bar
ge/rail/road
distribution

Crude

Integrated

Primary

purchasing
Crude
freight cost
reduction

optimization of
all the refineries
Buying of
products from
competitors

Reduction in

freight
Retail
LPG
I&C
Aviation

Depot
Secondary
management freight

Depot

rationalisation
Inventory
management

Secondary
freight cost
reduction
LPG
I&C
Aviation

Customer
management

Retail
LPG
I&C
Aviation
Lubes

quality
giveaways

OBJECTIVE OF SUPPLY CHAIN OPTIMIZATION

CEO & Directors

IT&S

MANUFACTURING

MUMBAI
REFINERY
MR

KOCHI
REFINERY
KR

Design
principles

NUMALIGARH
REFINERY
NR

MARKETING

RETAIL & LPG

Objective is to maximize BPCL overall

contribution - focus on end to end
supply chain: no silos

Teams works closely with individual

business units to come up with
tailored solution

Focus on quick, near term action .

I& C,
AVIATION,
LUBES

Driver or Supply Chain Optimization Logic

Core value driver
in refinery

Drivers of value is
Netback

Overall optimization
requires three actions

Crude cost

Crude cost
Value addition by

Use LP models such

(dependant on
supply, demand),
freight and import
tariff

refinery
Marketing margin
Product placement
cost

Products produced
dependant on
refinery
configuration

Configuration

Product placement
dependant on
marketing margin,
logistics cost,
customer
incentives

Refinery situation

comprising of two or
three crude
distillation units and
downstream facilities
Different flexibility in
processing crude

as PIMS process
industry model
simulation

Supply Chain
Optimization
Department to
optimize based on
Crude cost
Optimal production
Product distribution
plan

Use real price

realized by
corporation (netback)

SCO is using PIMS for both refineries to evaluate

crude oils which was earlier done on standalone
Excel based yields and also for preparation of
optimum production plan

Identified seven cross Business Unit

Optimization Levers

Reduce
operating
complexity

Reduce
marginal
cost

Reduce
material
cost

Reduce variety
of crude

Purchase crude
jointly
Use existing
approach
Use D GRM for
spot crudes

Buy crude
for existing
throughput
cheaper

Use forward
prices for all
crude
Modify
decision
making tools

Improve net
contribution

Use netback prices in the model

Increase
demand forecast
accuracy

Change term
spot crude ratio

Be flexible on
crude
throughput

Focus
area

Use netback
prices

Increase
marginal
contribution
Relax the constraints on the I&C
products

Relax I & C
constraints

1
5

SCO Objectives

The objective of the group is to maximize Net Corporate

Realization (NCR)

To support so that the internal supply chain processes
within the Business units work smoothly

Support the integration hassles between planning and
execution

Joint agreement on all plans to ensure feasible schedules

Six core supply chain processes

SCO Department formed in Nov 2006

As part of Project Destiny initiated Project CRESCENDO (Crude Refining
Supply Chain Network & Depot Optimization) EC members decided to start
running following 6 core Supply Chain processes as one.

1
Demand
Planning
and review

2
Crude
Evaluation,
Selection &
Nomination

Inventory
Management
set norm, review

Monthly
Distribution Plan
execute and review

Refinery
Monthly Plan,

Product
Exchange Plan,

execute and review*

(crude, product, shipping)

- execute and review

7

Critical processes run by SCO cut across business units

Customers & End Consumers: Auto / fleet owners,
SCO driven
- processes

Households, industrial units, aviation companies

Channel : Retail, LPG Distributors, SKO dealers, Direct Sales

X indicates
units which
processes cut
across
Enabling Business
Processes

Core Business
Processes

Business Units
HR

Planning Demand
 Demand Planning
 Refinery Planning
 Crude Purchase
 Crude evaluation
 Product exchange
 Inventory mgmt
 Review

Refinery

IT, Ship

Log.

Mktg

SCO

X
X
X
X

X
X
X
X

X
X

X
X
X

X
X
X
X
X
X
X

X
X

X
X
X

Creating Demand
 Retail
 I&C
 LPG, Lubes, Aviation
Meeting Demand
 Production
 Crude Purchase
 Logistics

X
X

Finance

IT

Others

X
X
X

X
X

Note: Marketing includes Retail sales, Industrial & Commercial product sales, Aviation, Lubricants; IT = International Trade

SCO has recognised that it works in a matrix which has

three key implications for an organization

Different units with different goals;

SCO maximises overall economic benefit
SCO
NCR maximisation
for overall
corporation benefit
(bottom-line
impact)

Refinery

GRM (external metric)

Select sour crude (in

one case)

Maximise
Corporation benefit

Vs

Select sweet crude to

maximise profitable
products (in another
case)

International trade
(crude procurement)

Industrial product
sales

Earnings / savings
from shipping, etc

I&C business
volumes

Eg. 1 Cr savings from

loading 7 days late
(as quote on 2nd
lower than 7 days
before)

Eg. Need to
discount to be
competitive

Vs

9 Cr loss due to
impact on refinery
from 7 day delay

Impact of
decisions

Vs

Need to recover
Vs
freight
Opportunity
impact

SCO maximises overall economic benefit (NCR) for the

corporation
10

SCOs four pronged strategy to manage attendant

complexities and drive successful transformation

Simple Integrated
Business Process
Clearly
documented and
communicated

Business
Process

Technology

Use of Industry
proven
solution/tools
Linkage of
modules across
units

Line of Sight

Selection for a
matrix
Capability
development
- (technical and
behavioural)

People

Integration

Reliable consistent,
integrated and
timely information
through supporting
processes
- MIS / information
flows
- Meetings & forums

11

PIMS MODEL IS BASED ON LP PRINCIPLES

Output

Input
Crude oil
availability

Refinery
capacity

PIMS model
- Refinery units
- Product specifications
- Blend mix
- Crude oil assays

Demands by
Marketing
units

Optimum
crude mix
and
product
slate

Crude and
product
prices

12

SCO Decision Support Tools

PIMS Model Enhancements

Streamlined for actual Refinery configurations
In Refineries for all CDUs assays are generated and updated.
Secondary units yields (delta vectors) updated and tuned
Actual ATF processing constraints configured.

The PIMS models (MR/KR) updated for all crudes in the BPCL
basket.

6 version upgrades for PIMS model so far.

Model Audit and assessment arranged and executed with the
expert
consultation from Aspen (160 man-days)
Technology Upgrades (In-house)

Migration to Latest Version PIMS 2006.0

Crude Manager- Spiral 3.5

Purchased Crude Oil database for all regions from M/s Chevron and
standardized as a reference database in BPCL
13

BPCL IS MOVING TO BEST PRACTICE IN DEMAND

FORECASTING THROUGH FOUR IMPROVEMENTS
Best practice
Forecasting
1
tools

Time series forecasting adjusted for seasonality and

growth

Triggers for local realities to be incorporated at monthly

level

Process

Clear separation between business plan and demand

plan

Demand forecasted for 3 months

Time series based forecast at all levels with judgement
input for correction

100% compliance with clear timelines

Demand tree available in the system

3 Accountability

Central
4
support

Monthly variance calculated at all levels and reported

Sales own forecast

Specific support from central group on historical

forecast

Central groups drives consensus between refinery

and supplies
14

NEW APPROACH FOR TERM CRUDE PURCHASING

Base case

Objective
function

Maximise NCR

Subject to
constraints

Meet all annual demands

(Product netback)* X (Product

quantity) (Crude quantity) X
(Crude cost)

Annual flexible demands as

Annual supply availability

HS : LS = constrained by
SO2 emission (MR) / Crude
sulphur (KR)

given by marketing BUs

All exports open

Term: Crude availability (grade

and volume)
Spot: Crude availability (grade
and volume)

What has
changed?

ICPM PIMS
model used

Netback prices
Flexible
demand

Flexible
Refinery unit availability
Other
inputs

Crude prices

Product netbacks prices

Capacities adjusted for shutdown

Throughput

plans provided by refinery

Average price FOB (historical /

forward) with standard freight
assumptions corresponding to
specific price period

Netback prices based on RTPs

with marketing margins and
costs corresponding to crude
price
15

NEW APPROACH FOR SPOT CRUDE PURCHASING

Base case

Objective
function

Maximise NCR

Subject to
constraints

Meet monthly demands

(Product netback)* X (Product

quantity) (Crude quantity) X
(Crude cost)

Monthly flexible demands as

Term crude availability

Spot crude market
availability

given by marketing BUs

All exports open

Term: Quantity and laydays at

the refinery for the month under

consideration
Spot: Crude types and quantity
available in the market

What has
changed?

ICPM PIMS
model used

Netback prices
Flexible
demand

Flexible
Refinery unit availability
Other
inputs

Crude prices

Product netbacks prices

Capacities adjusted for unit

Throughput

availability as per refinery

Forward FOB corresponding to

month under consideration

Netback prices based on

forward RTPs with marketing
margins and costs (logistics,
customer incentives) for month
under consideration
16

NEW APPROACH FOR REFINERY MONTHLY

PRODUCTION PLANNING
Base case

Objective
function

Maximise NCR

Subject to
constraints

Meet all annual demands

(Product netback)* X (Product

quantity) (Crude quantity) X
(Crude cost)

Monthly flexible demands as

Annual supply availability

HS : LS = constrained by
SO2 emission (MR) / Crude
sulphur (KR)

given by marketing BUs

Black oils and exports open

Crude availability for the month

by type and volume, as derived
from laydays and inventory

What has
changed?

ICPM PIMS
model used

Netback prices
Flexible
demand

Flexible
Refinery unit availability
Other
inputs

Crude prices

Capacities adjusted for unit

constraints provided by refinery

Forward crude price estimates

Product netbacks prices

Throughput

for crudes arriving in the month

Actual prices for crudes coming
from invetntory

Forward netback prices using

RTP estimates using forward
crude prices and crack
spreads
Marketing margins
17

Crude Optimisation

Refinery Monthly Plan

1. Inputs on demand
2. IT inputs
3. Refinery Scheduling
4. PPG workings

Fortnightly plan

M1 M2 M3

F1 F2

Spot Crude

Spot Crude

Valuation

Purchase

Crude
Nomination
Cargo nomination

Fortnightly plan

F1 F2

Crude blend
Spot/Semi term

Optimal crude mix with PIMS

Move to 4 months Rolling Plan

18

Product Exchanges / Distribution Plan

Value Based Product Exchanges Plan - Consolidation of strengths & protecting our weakness
on Euro-3 Grades

Movement Plan drawn with overall Corporate interests - Well defined Objective Function of Revenue Maximization
- Maximum Utilization of Own Pipelines

Migrating to robust ASPEN DPO Model

19

Monthly Product exchange and Distribution Plan

Tentative
Distribution Plan
(SCO model)

FMDP/Exchanges

Handing over to RHQ

for implementation

Final Plan drawn

Plans drawn by RHQ

for discussion with
Railways/Coastal/Pipeline

Challenge - Reduction of giveaways from BIS

20

BPCL PLANS TO MOVE TO BEST PRACTICE IN

INVENTORY MANAGEMENT

Setting of
inventory
norms

Management
of refinery
inventory

International practice

BPCL - Target

Statistical basis for setting location

Set inventory norms based on

specific inventory norms

Cycle stock driven by batch size
Safety stock based on variability
in demand (e.g., seasonality) and
lead time (e.g., disruptions)

Separate tank farms for refinery

retail inventory system focused
on last mile demand management

empirical data/ 2 year statistics

Initiate inventory review process

Sewree, Manmad and Manglia

tanks for refinery evacuation to be
with BPCR

Irumpanam and Karur tanks for

refinery evacuation to be with KRL

Mathura, Mughalsarai and other

NRL storage points to be with NRL

8X7 operations staggered shift

Depot
operations

PDP for replenishment

for Sundays

Automatic standard replenishment

21

Inventory Management

To set location wise inventory norms, using statistical tool

Objective to maintain optimal levels of inventory and release
blocked working capital

Every fortnight, the overall inventory being reviewed with
Logistics for taking corrective actions

Export plans can be drawn based on the supply demand
scenario and the inventory situation.

Challenge Reduction of dead stock

22

Monthly Review - SCO receives basic inputs on

Basic inputs

Source

actual demand materialized

closing stock details.

Logistics

crude and products tanker status

landed cost of crude for the month,
demurrage,
details on past purchases
actual production and crude
processed data
Intermediate Stocks variation,
units on-stream data
actual RTPs
Movement Under-recoveries

IT

Refinery

Info.

RHQ

 Compare plan vs. actual analysis carried out to capture loss/gain

 Timely and accurate Input data is important
23

SCOs criteria for selecting a team

24

SCO has invested in PIMS linear programming

technology, with surrounding modules

Crude oil
availability
Refinery units
Product specifications
Blend mix
Crude oil assays

Optimum
crude mix
and product
slate

Crude and
Product
prices

Constraints

Refinery
capacity

Objective Function =
Maximise NCR

Demand from
Marketing
units

25

THANK YOU

26

C CONCEPT OF NETBACK USED FOR NCR MAXIMISATION

CONCEPTUAL

Overview

Illustration of Netback concept

Netback reflects real

realization
Realization includes
refinery and
marketing margin

Costs include
logistics cost and
customer incentives
(if any)

Crude Cost Refinery

Config.

Tariff
Marketing Logistics
Protection Margin
Cost

Marketing Netback
Incentives

27

CRUDE OIL AVAILABILITY

TABLE

BUY
TEXT

MIN

MAX

COST

BBH

Bombay high

12.7

12.7

35,344

AZL

Azeri Lt

6.0

6.0

35,387

SXP

SLEB

0.0

0.0

34,881

AM3

Arab mix 60:40

12.4

12.4

30,550

KU1

Kuwait

4.7

4.7

30,115

BLT

BASRAH

0.0

0.0

30,838

MX3

Arab mix 60:40

0.0

0.0

31,974

KUW

Kuwait

0.0

0.0

31,461

ALS

AL SHAHEEN

2.7

2.7

29,899

MOH

METHANOL

0.0

99.0

18,000

GAS

GAS

0.0

0.1

10,434

SKR

RETURN KERO

0.0

99.0

50,965

D2I

Diesel import

0.00

0.00

48,422

SKI

SKO import

0.81

0.81

45,629

KI2

SKO import 2nd

0.52

0.52

46,129
28

PRODUCTS DEMAND
TABLE

SELL
TEXT

MIN

MAX

PRICE

VPRICE

PPF

PP FEEDSTOCK

0.15

0.17

41,098

LPG

LPG

0.00

99.00

37,772

HNE

HAN, EXPORT

0.00

99.00

37,794

LNE

LAN Export

0.00

0.97

37,794

LNF

LAN, FERTILIZER

0.39

0.42

36,979

RIL

HAN -RELIANCE

0.32

0.35

38,790

HNR

HAN - REL- COASTAL

0.97

0.97

39,580

M91

Metro Euro-3

1.35

1.61

32,558

M90

MMPL MS Euro-2

1.94

2.26

32,145

LAB

LAB RELIANCE

1.29

1.72

39,662

KZZ

PDS Kerosene

2.03

2.90

SKR

Return Kero

0.00

99.00

35,351

SKO

KEROSENE

0.00

99.00

35,351

MTO

MTO Tier 1

0.13

0.23

43,866

AF1

JET FUEL

0.81

1.13

39,889

AF2

JET FUEL

0.68

1.90

39,423

AF3

JET FUEL

0.19

0.19

36,147

29

PRODUCTS SPECIFICATION
ROW
NAMES

TEXT

XSPG

SPECIFIC GRAVITY,MAX

NSPG

SPECIFIC GRAVITY,MIN

NSUL

SULPHUR WT %

XSUL

SULPHUR WT %

XMTB

MTBE % VOL

*XRVP

LNH
0.8

LNF
0.7

HNE

P95

M91

M90

0.77

0.78

0.78

0.77

0.7

0.72

0.72

0.71

0.5

0.05

0.05

0.0130

0.0130

0.045

RVP INDEX

18

11

10

10

10

10

XRVI

RVP INDEX

37.08

20

17.783

17.78

17.78

17.8

XRSH

RSH Content ppm

XARO

AROMATIC CON,VOL % MAX

14

12

42

42

NARO

AROMATIC CON,VOL % MIN

14

XPAR

PARAFIN % VOL

65

NPAR

PARAFIN % VOL MIN

*NN+A

(NAP +ARO) % VOL

NROI

RON INDEX MIN

8.23

7.81

*NRON

RESEARCH OCTANE

*NMON

40

95.0

92.5

7.46
89.5

85

81

81

*'NROI

RESEARCH OCTANE

7.73

7.31

6.96

*XTEL

LEAD CON g/LT

0.15

0.15

0.15

*NFSH

FLASH POINT DEG F

30

UNITS CAPACITY
TABLE

CAPS
TEXT

MIN

MAX

CCRT

CRD truput

0.00

99.00

CAT1

CDU I

10.50

14.00

CAT2

CDU II

5.50

7.00

CAT3

CDU III

9.00

17.50

CCR1

CDU I LS

0.00

99.00

CCR9

CDU I LS

0.00

99.00

CCR6

CDU II LS

0.00

99.00

CCR8

CDU II HS

0.00

99.00

CCRB

CDU II HS Like

0.00

99.00

CCD2

CDU III HS

0.00

99.00

CCD3

CDU III HS Like

0.00

99.00

CFPU

HCU LR to Vac

1.20

3.80

CHVU

CDU LR to Vac

2.60

5.20

CVDU

NCDU LR intake

0.00

9.30

CCCU

Cracker

2.50

3.50

CFCC

FCC

1.20

2.60

CMT1

MTBE UNIT

0.00

0.07

CARU

AROMATICS EXTR.

0.00

0.70

31

CRUDE AND PRODUCT PRICES

KOCHI REFINERY
Product Name
PP FEEDSTOCK
LPG DOMESTIC
LPG COMMERICIAL
LAN, FERTILIZER
LOCAL NAPHTHA
Metro Euro-3
MMPL MS Euro-2
BENZENE
TOLUENE
HEX
SBP
KEROSENE
MINERAL TURPENTINE
JET FUEL
Euro 2 Diesel
Euro 3 Diesel
NAVY GRADE DIESEL
LT DIESEL OIL
LOW SUL HVY STK
FUEL OIL
FO 380 DOM
FUEL OIL ADANI
BITUMEN 80/100
BITUMEN 60/70
BITUMEN 30/40
SULPHUR

Density

1.411
1.411

1.285
1.302
1.288
1.21
1.21
1.21
1.172

18 months
Rs/mt
42037.95
35881.00
37722.86
38150.66
40196.96
41044.54
40491.89
52640.00
46652.00
48312.87
48312.87
42094.32
44552.12
44193.53
40271.91
40480.48
40271.91
36428.10
24048.02
23548.02
22897.14
20964.20
28040.00
31600.00
33790.00
14976.00

average
Rs/kl

29088.97
28697.30

32758.23
34218.21
34311.75
33282.57
33454.94
33282.57
31082.00

32

SCO Models
Model

Type of review

ICPM (PIMS) MR/KR

Key support
entity

Output review: Review of product slate

Input review:
- Crude assay/quality
- Unit yeilds
- Routing
ORION - Crude Scheduling Under Implementation

Refinery Scheduling
Refinery technology/
Refinery Scheduling

Demand planning

Retail logistics

Output review: Review of model forecast

accuracy
Inventory norm
Input review: Inclusion of additional
parameters for forecasting
Input review: Review of model inputs
lead time, batch size, demand variability
etc.
Distribution optimization Input review: Review of model inputs on
LPG
freight cost, linkages etc. - Bulk
Distribution optimization Input review: Review of model inputs on
Retail
freight cost, linkages etc.
DPO
Under Implementation

Refinery Scheduling

Business Units
Retail logistics

LPG
Retail - Logistics
SCO
33