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Assignment 3: Production and Operations Management - Essay Example

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Production and Operations Management The relationship between the retail price of gasoline and global crude oil demand Crude oil is the primary raw material used in the manufacture of gasoline. This means that the demand of oil has a direct effect on the retail price of gasoline…
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Assignment 3: Production and Operations Management
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Download file to see previous pages The retail price that is set by refiners is of crude is inclusive of the price of obtaining crude oil, processing and transportation. The market price of crude oil may account for more than half the price of gasoline. Normally, transitions in the supply of oil have the potential of affecting short-term availability of gasoline. In case of some natural disasters like hurricane Katrina, the supply of crude oil reduces leading to a short-term increase in demand for gasoline. This imbalance in the demand and supply of crude oil has a direct bearing on the prices of gasoline. Strategies for maintaining price at the pump without losing profits If the global crude production decreased by 10%, oil companies would face the risk of making losses if they maintained their pump prices. Such a situation forces many of them to increase their pump prices. However, a company can adopt strategies to enable it to maintain its pump prices without losing profits. One of the ways in which Marathon achieve this is ordering crude oil in bulk. This will allow the company to enjoy discounts that are normally offered to those who buy products in bulk. This discount could be as high as 10% or more hence the company will still maintain its profits margins. Larger purchases enjoy larger discounts. Marathon can still enjoy the advantages of bulky buying even without stretching the limits of its usual buying. In order to achieve this, the company should form a buying co-op. The company should join forces with many other oil companies. They should all order the same type of materials at a time so that they can enjoy quantity breaks. Daniel (2006) warns that a company should be careful not to over buy because the tying up of money in the commodity can result to problems of cash flow in the company. The company should also make detailed time studies for their internal processes so as to identify where they can reduce time. This is important in reducing labour time and consequently, the money spent in the paying of overtime work. Apart from reducing labour time, the company can also hire employees at reduced hourly rates. This means that the company should only retain a few expertise meant to tackle more specific and sensitive issues of the company. The rest of the work should be handled by low-skied laborers who can be paid less compared to the experts. According to Karlgaard (2004), huge time savings can also be created by making small changes in the physical environment of the workplace for example, changing its layout. As noted earlier, the selling price should always factor in other factors of production for example, the cost of acquiring of raw materials. Therefore, it is important that Marathon buys its crude oil from cheaper vendors. This will enable them to maintain their profit margins despite the generally high crude oil prices. The company should also reduce its expenses. The management should go through their overall costs and decide on what to trim out for example, it can relocate its office from a high-rent district to a low-rent district. They could also share a building with other companies instead of renting it whole themselves. This means that marathon should analyze every aspect of its business and point out an excess spending. The effect of an additional moratorium on deep-water drilling US retail gas prices The ...Download file to see next pagesRead More
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