Kellogg and the Oil Industry - Case Study Example

M.W Kellogg Number: Introduction Kellogg is a firm that specializes in building and engineering works. It builds petrochemical as well as gas and other energy handling plants. Its services ranges from designing work, procurement of materials and equipment such as civil, electrical, structural engineering as well as project management services. The company provides maintenance services to processing plants, offshore and onshore pipeline, production facilities as well as natural gas plants. The company has undertaken projects in more than 30 globally and has worked in all the continents other than Antarctica. It has a labor force of approximately 27,000 workers in roughly 70 countries in five different continents (Sutton, 2005). Kellogg was a leading construction and engineering international company two decades ago. It had contracts all over the world worth billions in US dollars. However, the company started facing various problems in most of its branches in late 1990s with its parent company in USA experiencing a series of unmet challenges. Some of the problems that significantly tarnished its name and affected its performance were the issue of asbestos as well as investigations to its accounting practices. According to Engineering News Record year 2013, AECOM was the best company with Kellogg being number 17 with revenues worth $7.92 billion. It faces stiff competition from other leading companies such as AECOM, Bechtel Group Inc. Balfour Beatty plc, JCG Corporations, Foster Wheeler Ag, and Parsons Brinckerhoff Ltd among other world leading corporations. Bechtel Corporation is ranked number 5 among the major privately owned corporates. By year 2010, the company had revenues of over $30.8 billion and had approximately 49,000 workers hired in its various projects being undertaken in more than 50 countries. Flour Corporation has its headquarters in Texas USA. It is a public company that deals with procurement and maintenance work. It has employed over 41,000 workers. Kellogg had a number of competitive advantages over its rivals especially in the mid-1900s up to 1990s before starting to experience problems. First, the company was well dedicated towards doing thorough research in the energy industry which enabled them to always come up with new ideologies that would make a difference in the market. The company had a team of highly trained professionals in the mechanical department who were committed towards developing new or upgrading the existing gas production mechanisms. In addition, they had a highly equipped laboratory and the application of their high tech chemical and mechanical engineering techniques always gave them an upper hand in the industry. Kellogg Corporation made a number of differences in the engineering and energy industry. This was the first company’s business that it had been awarded by the Power Industry. Its work was highly commendable and made it win some tenders that made it make a gross profit of over $28,399 in 1919. This made it to start getting business with leading corporates such as The New York Central Railroad that wanted their piping to be prefabricated. This tender made the company more popular and its business started flourishing (Blout, 1996). In 1919, the company started in focusing in petroleum refinery and introduced the cracker technique, which enabled production of more gas and petro from crude oil. It made a remarkable difference by significantly increasing the percentage of gasoline obtained from crude oil from 30% to 45% by the year 1939. This was achieved as a result of introduction of sophisticated technologies such as the high-pressure thermal cracking process. With the technology, the company was able to open 130 new cross units in a period of ten years in United States alone and more than 20 others overseas (Blout, 1996). With the establishment of a research laboratory in 1926, the company highly improved the thermal cracking process. The technology was later accredited and made commercial. This was followed by opening a branch in London where the company embarked on developing a four catalytic cracking unit. Many companies adopted the technology, but were paying loyalties which were roughly $5 million per annum (Jeffers, 2003). In 1940, the company played a major role in the development of the Fluid Catalytic Cracking technology in alliance with other companies, which were upcoming. However, it was the first company to develop a Catalytic Cracking unit in Louisiana in the year 1942. Other remarkable achievements include the improvement of the ammonia, ethylene and nitrogen production process. This made the company win many awards such as the Kirkpatrick Chemical Engineering Award in the 1960s. The award made it the first engineering contracting firm to be awarded for improving technology. By 1975, the company was ranked number 18 out of the 400 engineering contractors (Jeffers, 2003). Then the company was ranked as the best engineering company in 1984, 1985, and 1986 with its contracts ranging from $6.9 to $10.9 billion. Lump sum is a term that is mostly used in the building among other related industry. It is a situation in which the possessor or the client pays stipulated amount (lump sum) to the supplier. Under the lump-sum contract, suppliers or contractors are required to a sign agreements stating that they will supply or provide specific services for a clearly stated and fixed price. This is done without regards to the actual expenses and other related costs incurred by the contractor. On the other hand, cost-plus involves a scenario whereby the client pays the contractor the actual cost of the project including cost of works done by the subcontractors and the main contractor. Other costs such as outgoings and the profit are included in this model. Contractors are required to procure all the trade deals by lump-sum competitive bid under this model. Contractors may take assignments of the subcontractors even though this is not very common in United States of America (Benton & McHenry, 2010). Lump-sum contracts are often meant for reducing contract administration costs as well as design costs. In this case, contractors are required to submit a global and gross price rather than tendering for individual items. This model is very common in the construction and other related industries, particularly for small projects. All possible risks that may be encountered in the project are assigned to the contractor. Lump sum contract has numerous advantages such as posing the owner to lower risk, minimizing changes in orders, less supervision by the owner, and completion of the project over a short period. Its main disadvantages include posing the contractor to a higher risk, quantifying changes is difficult, owner rejecting changes in the order among others (Benton & McHenry, 2010). Kellogg won the confidence of the Chinese government by selling their efficient ammonia and urea production technology in early 1970s. Demand for nitrogen in China had radically increased and Kellogg was among the top leading companies that had the expertise of handling such projects. In addition, among the companies that Kellogg was competing with was the Japanese firm, which was using Kellogg’s technological knowledge under a loyalty. This gave the company an upper hand over their competitors and won eight contracts in total concerning construction of ammonia plants. References Benton, W. C., & McHenry, L. F., (2010). Construction purchasing & supply chain management. New York: McGraw-Hill. Blout, E., (1996). The power of boldness: Ten master builders of American industry tell their success stories. Washington, D.C: Joseph Henry Press. Jeffers, J. O., (2003). Reflections: Glimpses of the past. Victoria, B.C: Trafford. Sutton, G. P., (2005). History of liquid propellant rocket engines. Reston, Va: AIAA, American Institute of Aeronautics and Astronautics Read More