Global Oil Supply Chain - Essay Example

GLOBAL OIL SUPPLY CHAIN Introduction The global oil supply chain constitutes of creation, integration, globalization, specialization of the oil to be subjected to supply chain management. This concept was still vital in the early 20th century. In this regard, the principle was important and relevant to the establishment of the assembly line. The oil supply chain comprises of innovations, including the advent of large-scale operation, re-engineering and down-sizing and Japanese based production methods. The down-sizing initiatives were driven by the need for cost reduction. The integration process included the development of the electronic data interchange system. This stage of supply chain development has been enhanced by the expansion of the internet collaborative systems. The integration of systems is manifest in the value added in the process of supply chain management. This process also contributes to cost reduction. Supply chain exists in three forms. The supply chain systems, which are independent of each other like production, storage and marketing are considered as stage one. The supply chain systems, which are integrated under one umbrella plan, are considered to be stage two of the supply chain management. According to Campbell and Samiec (2009, p. 45), the vertical integration system, which links the suppliers to customers, is considered to be a third stage of a supply chain. Tesco is a perfect illustration of the third stage of a supply chain. Globalization has also led to the development of the supply chain because of the need for interlinking the international supply chain systems. The aspect of globalizing the supply chain systems started in 1980 (Olson, and Singer, 2009, p. 56). The organizations opt for this global exercise was aimed at adding value, reduction of cost and gaining a competitive edge over other rival parties. Moreover, the need for a global sourcing compelled the organizations to embrace a global based supply chain system. Specialization is another supply chain development factor, which contributed to the advancement of the concept. Firms started to focus on the products and systems, which were productive and value-adding. In this regard, the firms abandoned the vertical systems and shift to value adding supply chain processes. The firms also developed partnerships with the collaboration of their operations on the global scene (Jacoby, 2012, p. 45). This culminated to the outsourcing of the less important processes to other firms. This transition made the organizations to emphasize on the major areas of production. According to Arlbjorn (2011, p. 39), specialization was another supply chain stage of evolution, which was marked by transportation brokerages and warehouse management. Additionally, this era of supply chain evolution was characterized by non-asset carriers. There was also the incorporation of logistical studies into the planning and performance management of the organizations. The market forces contributed in the specialization for better supply chain systems subject to the product line of firms. The market forces bring various variances due to the interaction of supply and demand in the market. These variations lead dynamism in the functioning if the supply chain. This dynamism ranges from communication between stakeholders to the overhaul of the supply chain infrastructure. According to Wheatley (2007, p. 43), there is also configuration of supply chain processes in order to fit into the changing demands of the market. This specialization enables firms to improve on their productivity. The quick employment of domain specific supply chain expertise has enhanced the development of the supply chain management. The supply chain development enhances the assembling of the networks. The practice of outsourcing supply chain was prevalent in the 1990’s. According to United States (2005, p. 34), the on-demand model of the supply chain was developed between 1998 and 2003. The supply chain management of oil incorporates the multiple buyers and suppliers of oil. Multiplicity of both the buyers and sellers enhances automated supply-chain systems. Supply chain of oil enhances information sharing and boost of creativity. Supply chain management incorporates of methodologies and proper processes. The momentum of the oil supply chain operation is high because of the stiff competition in the market. According to Inkpen (2012), the rapid price fluctuation plays a major role in the increase of the supply chain speed. The speed of the supply chains is determined by the continuous fluctuation of prices over the years. The scarcity of talented personnel also enhances the competition in the use of supply chain systems. The fluctuation of oil prices over the years in the context of supply chain management is reflected in the diagram below: The fluctuation of oil prices graph by Inkpen, 2012. This venture is a lucrative undertaking for oil based corporations because of its viability with regard to income generation and cost effectiveness. The customers compel the organizations to apply supply chain management in supplying of this crucial commodity. According to Jewell and Whicker (2010, p. 67), the company focuses on the restructuring of the production patterns in order to suit the ever growing demand for this commodity. The oil supply chain diagram is shown below. This diagram shows the process oil undergoes. When oil products are requested, they sparked off the supply chain. The requisition of the products leads to the planning of the quantity of the oil product required. This leads to the logistical flow of the oil to destination. The process of global oil supply chain diagram by Yang, 2013. The diagram shows the process of supply of oil from the extraction to the final consumer. The supply chain starts from the exploration where oil is extracted. Then all the refined oil is transported to the primary deport. The oil is then transferred to the agent, reseller of oil. Some oil is sold in its refined state while some oil is transferred to the secondary depot. The oil is then transported to the larger sellers and agents resellers. The other oil is sold directly to the final consumers. The reseller agents then sell the oil to the space shops, which also sell to the households. The larger shops also transfer some oil to the households and splaza shops. The oil is refined purified. The sophisticated plant and machinery are used in the oil processing process. The equipment allows oil to be processed. The supply chain is a comprehensive process through which oil is made in various refineries. The process entails the extraction of crude oil necessary in the preparation of petroleum oil. Perez and Barkhurst (2013, p. 71) asserts that this chain incorporates many stakeholders, including industries including the agricultural, the quarrying, mining, forestry, fishing and transport. The oil industry is also vital in this process given that it helps in the provision of affordable fuel, especially coal. The oil industry also contributes to the production of petroleum for the expansion of the premises of oil exploration initiatives. The oil extraction industry is important for this company given that this provides enough fuel for machinery in the functioning of the engines. Moreover, supply chain enhances the flow of oil through the use of various supply chain systems. These include airplanes, vehicles, motorbikes and ship. In this regard, the finalizing of all business transactions, are implemented through final delivery of oil to the customers. In order to have swift delivery of oil, infrastructure must be well developed. This is because infrastructure covers communication networks, which are crucial in conveying of information. For instance, Saudi Arabia has a good supply chain for delivery of oil as is easy given the abundance of petroleum fuel. This boosts the flow of oil from one location to another. The payment gateways help in the delivery of oil from one place to another place. According to Briggs (2010, p. 42), supply chain is subject to logistical issues with regard to the delivery of oil. The strategic locations contribute to the progression of the supply chain because the distance of locations determines the cost incurred by various supply chain traders in ferrying their products to customers. According to Fernando (2008, p. 34), planning is necessary in the supply chain. This is because a sophisticated system will make the process of transporting oil to clients easier. In this regard, the numbering of various paces is crucial. This will facilitate the delivery of oil. Saudi Arabia has an established physical address system. This has enhanced e-commerce in this country. According to O’kane (2011, p. 67), the models of selling and buying of Saudi Arabia are developed. This makes the transacting of oil international business easy. These supply chain models include seller-buyer, seller-seller and buyer-buyer models. In this respect, the seller-buyer model refers to the delivery of oil from the oil explorer to the final consumer. This depends on the chain of supply appropriate and the type of product to be delivered to the destination. In oil-rich countries, supply chain systems are well developed (Ramady, 2011, p. 54). This makes direct delivery of oil to clients impossible. In this case, the buyer-buyer model is the most appropriate given that it takes into account the middlemen like wholesalers and retailers. The supply chain of delivery of oil adds value to the oil because the prices at each point of the supply chain are different. Additionally, this process makes the oil of oil-rich company to be known by a wide population within a short time. This in turn boosts supply chain management because much oil is accessed by various international customers and retailers. The other model of model, which enhances supply chain in oil-rich companies, is a seller - seller model, whereby oil is sold by producers to various outlets. This helps in reduction of high levels of inventory. The supply chain is greatly influenced by delivery of oil. According to Shoult (2009, p. 39), technology and developed infrastructure are crucial in effecting oil business operations. The oil-rich countries have an advantage with regard to their geographical location. This is basic with regard to the development of sophisticated infrastructure like roads, communication networks and technology. Supply chain helps the countries to strategize their operation in terms of the primary activities of supplying of oil and secondary activities that are not differently connected to exploration of oil. In the modern world market, consumers are not only after cheaper oil, but also quality and efficiency. Consumers are seeking oil that they can depend on in terms of quality and being available when they need it and at a convenient place. This is achievable by countries through aggressive oil brand building campaign and strategic operation management. The two fold campaign ensures that the customers get the right brand image in their mind, and the countries are able to meet the expectation of the consumers. Most importantly, supply chain helps oil-rich countries to maximize on their profits and thereby increase their financial strength. Supply chain helps countries identify the most cost effective means of oil exploration through the use of technology, cheaper labor in foreign countries and efficient supply. When these factors are combined with the large economies of scale of the international companies, the result is increased profit margins (Reiss, 2012, p. 23). The more profit the world class companies get, the more they are able to invest in efficient means of production, expand to more lucrative markets and buy out weaker competitors through mergers. The business strategy of continuous improvement of the quality of the services and products of the company, are correlated. This is because supply chain affects the operation of the international oil business. According to Cummings, and Worley (2010, p. 53), the just in time (JIT) technique Japan employs is directly related to the operation of the oil business. This owes to the fact that the technique focuses on zero stock of vehicles. Oil is supplied through the supply chain, according to customer orders. These strategies enable the achievement of the company’s goals of maximization of revenue and improvement in quality of services and products. According to Henderson (2003, p. 440), the international oil corporations have been able to employ supply chain management in its worldwide subsidiaries to achieve the leading spot in oil business. They have managed to attain this leading spot in the world because of their effective supply chain strategies, product innovation and differentiation and strategic management. Many corporations trace their roots in Japan given the supply chain techniques applied by this nation. According to Frynas and Mellahi (2003, p. 555), the international firms face tough times in its attempt to establish supply chain in the oil industry, which is usually dominated by Arabic companies. According to Northouse (2010 p. 37), international firms have made use of the supply chain that relies on good supply tactics. The implementation of the supply chain plan in the last decade, century saw many corporations expand into big and lucrative market leaders globally, especially in the United States, United Kingdom, France and China. Currently, many corporations have many oil-based subsidiaries in the world and at least one manufacturing plant in all the subsidiaries of the world. According to Baril and Murray (2011, p. 41), many international oil companies entered the oil industry with a unique focus on low budgeted cost. However, after scanning the oil business environment, it reviewed the previous supply chain. The companies came up with supply chain strategy whereby it first identifies the needs of the oil market and provides an appropriate quantity that would serve the purpose for the consumers at affordable rates (Cox 1999, p. 170). This has enabled the companies to build value in its oil suppliers who have built a good working relationship with the companies and the customers who get innovative vehicles from the company. According to Paton and Mccalman (2008, p. 73), the international oil companies have skillfully been able to supply oil to various continents through the application of supply chain. For example, the United States oil corporation has benefited from supply chain because of its geographical location from the oil-rich countries like Saudi Arabia. The international oil companies have applied supply chain techniques in the supplying of oil from one location to the other. The oil products come in different prices to cater for different social classes in all the parts of the world. This supply chain strategy has enabled the firms to do oil business to suit the needs of the entire population. According to Saleem (2011, p. 27), Saudi Arabia companies lead in oil supply. The companies have achieved this through supply chain the use of its highly developed Research and Development department, which conducts extensive research of the market and new production technologies. This has been part of the company's strategic, operational management that also ensured that consumers have access to the products and services of the company in its worldwide chain of authorized dealers. The supply chain of a firm, which comprises of an egalitarian arrangement, is designed in the sense that the production process is automatically stopped in case quality is compromised. The manufacturing and assembling processes are also taken into consideration (Robert, 2007, p. 74). This system incorporates Michael porter forces in order to realize quality. The strategic information system also enhances quality customer service, which is a major determinant of revenue volumes. A digital economy usually passes out the forms, which apply obsolete strategies in carrying out business operations. In this respect, only the techno-savvy organization is able to comply with the technological evolutions. The dynamism in the technological development compels restructuring of business models and frameworks. The strategic information systems help in the transition processes of organizations (Lysons, 2006, p. 63). The strategic information systems enhance efficiency at the work place because business activities are streamlined to achieving the overall goals of an organization. The strategic information systems are usually able to manage project risks. The systems enable the tracking of packages, especially in the Federal Express Company. According to Fernando (2007, 43), the system has also helped in the development of sophisticated software, which has revolutionized the lifestyles of people. The advent of the internet is a creation of strategic information systems. According to Siebens (2007, p. 45), this tool has helped in many innovations, including e-fulfillment solutions. Additionally, the internet has helped firms. This strategic information system has improved the manner of communication among people. It has led to a generation of sufficient revenue through online advertisements and marketing. The strategic areas of this system include search, enterprising and operating systems. The focus on advertising enhances selling their oil. Conclusion The global oil corporations have established oil supply chains, which enable the companies to thrive on a global scale. In this respect, the companies have always faced enormous challenges, especially with regard to the transportation for the oil into depots and customers. The oil trade environment requires a comprehensive system of supply chain in order to enhance trade deals. The supply chains ensure there is a swift ferrying of the oil from the reservoir to the refinery. 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