British Petroleum - Logistics and Supply Chain Management Strategy - Case Study Example

Logistics and Suррly Сhаin Маnаgеmеnt Strаtеgy - British Реtrоlеum (BР) Student’s Name Subject Professor University/Institution Location Date British Petroleum Company British Petroleum Company widely referred to as the BP is a multinational oil and gas company whose headquarters are at London, England. The company provides fuel to its customers for transportation, energy forlighting and for providing heat, lubricants for engines and petrochemical products for making everyday items such as paints, clothes as well as packaging. The companyoperates through several subsidiaries, branches, joint venturesas established by the company’s law. It has well established branches and global businesses operation places including Europe, the US, Canada, Russia, South America, Asia, Australia as well as some parts of Africa. BP Energy Companyis the sixth largest in terms of market capitalization, while in terms of revenue it is the fifth largest in the world according to 2012 report. It is also the sixth- largest oil and gas company producer in the world. Due to the company’s wide range of products it isvertically integrated. As one of its marketing strategy it operates in all the above mentioned regions producing its various products independently of other branches located elsewhere in the world. Though the company produces almost the same products it employs different supply chain management in each region although its distribution strategy is almost similar all over the world. According to 2013 report BP operated in more than 80 countries producing around 3.2 million barrels of oil per day and by then it had reserves of more than 17.9 billion barrelsof oil.(Argenti & Druckenmiller 2004) Merging strategy In order to overcome most of itscompetitors globally the company has merged so many small companies since its establishment in 1959. Among them is the Amoco, BP merged with Amoco in 1998 and became BP Amoco. Before the merging Amoco had been the fourth largest oil company. This mega merge really boasted the name and the market power of BP Company. In 2000 BP merged with ARCO and Burmah Castrol Company forming BP plc. This coming together was aBP company’s initiative in bid to win a larger market share in the oil and other petroleum products industry. Moreover between 2003 and 2013 BP participated in the TNK-BP venture in Russia. (Ghemawat & Ghadar 2000) Vertical integration BP Company has largely based its competitive advantage on operating its branches and other subsidiaries through the vertical integration strategy. The company ensures that it is active all long the supply chain starting from locating deposits, organizing about its drilling , extracting crude oil, transporting and refining it into other petroleum products e.g. gasoline and petrol to the distribution of these products to company-owned retail stations, for sale to the consumers. Vertical integration operation structure enables the company to typically offer significant control on the final products cost. This is because the company is able to do away with all mark-up costs that would have been accrued if there were middle men in between the production of the commodity to the end user. (McGuire & Staelin 1983) By selling directly to the end consumers of petroleum and other products BP maximizes profits on its sales.BP has retail stations all over the world that are under the control of the main branch in each country or region. Vertical integration also helps the company to manage the whole distribution process as well as optimizing the utilization of its resourcesand avoid any wasteful costs. In addition BP has been able to improve coordination in supply chain, acquire a greater market share, and reduce market transactions in its supply chain as well as expanding its competence in the market.The customers’ needs and demands are directly met by the company by ensuring that they produce products that are fully in line with what the consumer wishes to have. For instance, the production of the perfumed petroleum jelly, Vaseline, various types of cooking oils etc. are products that are designed to directly meet consumer’s needs. Foreign direct investments British PetroleumCompany has established its petroleum investments in various parts of theglobe where it operates its business aiming at maximizing its market share globally. BP has its branches in Australia, Canada, Asia, US, parts of Africa, and Russia among others. In each of these locations BP ensures that each branch or subsidiary is self-sustaining in that it has its own oil deposits, drilling, refining and a complete distribution chain that does not depend on any other supporting company. For instance in Asia BP, has a share in the in the offshore deep-water assets in the South China Sea where it owns two blocks. (Balmer& Greyser 2002) In India, among the oil and gas assets operated by the Reliance Industries BP owns 30% of the total production. Moreover, it has the rights of exploration and production for more than 20 offshore oil blocks in the country. The company is also owns a major liquefied natural gas operations in Indonesia. Here the company operates the Tangguh LNGproject which has a capacity of 7.6 million tons of liquid natural gas annually. BP has also invested in the exploration and development of coal bedmethane in the country. In Iraq, on the other hand BP operates as a joint venture to the Ramaila Operating Organization in Rumaila oil field. Ramaila oilfield in Iraq is the fourth largest oilfield in the world. BP Company also operates two out of the Australia’s fivemain refineries; the Kwinana in Western Australia and the Bulwer Island refinery in Queensland. The two refineries are able to process more than 100,000 barrels per day. This gives the company an upper hand in the country’s fuel market. Most of the country’s consumers heavily depend on the two BP oil producers. This is supported by the oil and gas production projects in Azerbaijan sector of Caspian Sea, which produces about 80% of the country’s total oil production. (Lonsdale & Cox 2000) In Europe the company is among the top oil producers, owning the second largest oil refinery in the region with a capacity of 377,000 barrels of crude oil per day. This serves quite a large number of the region’s population. BP has learnt the art of investing in different regions in the world that enables it to compete effectively with the local companies. This also gives it a direct contact with her consumers. The company is also able to act appropriately to any emerging issue as far as the market is concerned.(Walker, Haasnoot & Kwakkel 2013) In US both to the North America and to the South America the company has been able to establish itself so well that it competes with other fuel suppliers effectively. In Canada for example the company operates a joint venture with Husky Energy in the sunrise Energy project which was projected to start its production in the year 2014. The project cost about £1.6 billionto establish. BP is the main producer of oil and gas in Trinidad and Tobago in North America where it holds more than 1350 sq.km of offshore assets. The company also owns onshore and offshore oil and gas explorations in Brazilas well as a biofuel production facility. This strategy has seen BP grow at a higher rate than its competitors. The strategy simplifies the supply chain of the company as well as the distribution channel. The company’s headquarter management explores for new oil and gas resources, plans for their development and full establishment of a branch or subsidiary firm at a region where the newoil or natural gas deposit has been found. The headquarter is responsible for the firms’ wells, offshore platforms, pipelines as well as the processing facilities, however, the marketing and distribution of the final product is done from the established firm. This makes the process a lot easier for the company in reaching out its consumers. The distribution is also made easy as there is no inputs are required from the headquarters. The downstream also carries out such activities as manufacturing, refining, transportation, supplying and trading of crudeoil, petrochemicals and other petroleum products. The petrochemical products are then supplied to various manufacturing plants that produces such products as paraxylene, PTA, acetic acid etc. which are located all over the world where BP has a share.(Argenti & Druckenmiller 2004) The supply and distribution chain of the company from the upstream to downstream flows as shown below The BP brand and Advertising Theinitial BP green shield brand The BP products are marketed all over the world under the brand name of BP. This was adopted in 2001 after the “Green shield” logo that the company used previously with the ‘Helios’ symbol. Apart from introducing a new brand name the company also introduced new corporate slogan “Beyond petroleum” The introduction of new brand name and slogan helped the company regain its name and reputation after the Deep-water Horizon explosion and Gulf Oil spill. The new slogan represents the company’s focus on achieving the growing demand for its products such as fossil fuel, gas and other petroleum products. It is also a representation of the company’s plans to deliver and manufacture more advanced products and to allow for transitions. The campaign for the company’s BP brand name was well done with a conclusion in 2007 Effie Award received from the American Marketing Association. This gave the consumers a positive impression that the company is one of the very best petroleum producers in the world. The later re-branding in 2010 which was alsocomplimented with press and Wikipedia article about the company’s new aim; “bringing brilliant minds together with technology at a massive scale to meet the worlds energy needs”, was also well received with people commenting on the article in the Wikipedia. . Billboard showing BP’s current slogan Supply chain related strategies Further measures taken by the company to improve its sales includes engaging the suppliers on the various ways necessary to achieve better performance while removing from the bid lists those suppliers that fail to improve on their activities and excluding them from the tender processes the company, also put across the need to establish a deep and along lasting relationship with just a small number of suppliers so as to ensure that the company is in a position to properly manage their performance and lower the cases of risk in the supply chain.In line to this, BP established a contract governance board that is currently developing an approved vendors list and using schedules and contract briefs for improving clarity within the contractual obligations.Working with fewer contractors while establishing global agreements and properly managing the strategic suppliers, has enabled BP Company to manage risks and leverage economies of scale. The to a report on the company’s sustainability it clarifies that BP holds annual business review meetings to examine how the company’s staffs are working together to meet their long term goals. (Walker, Haasnoot & Kwakkel 2013) BP also plans to reduce agency staff in critical procurement and supply chain management roles, so as to bring expertise that will improve capacity and capability throughout the company.This will enable the company to avoid wasting costs on the suppliers that are not promoting the company’s growth. This will also help the company be able to clearly supervise the movement of goods along the supply chain. Moreover the BP runs programmes that help build the skills and knowledge of businesses as well as develop the local supply chain. For example during tender processes at Birds Head region of Papua the company provides one-on-one business consultancy and technical assistance to local businesses. This has helped to improve competition of business especially in the supply of goods and services associated with the construction and operation of liquefied natural gas plants. The company also largely invests in joint ventures in its supply chain. This has helped BP to meet its production demands especially in theupstream. For instance according to the recent report by BP Sustainability Review, around 46% of BP’s upstream production and 13% of the company’s refining capacity in 2013 were from the joint ventures, in which BP was not the operator.(Walker, Haasnoot & Kwakkel 2013) Safety measures So as to maintain consumer loyalty, the company has given the safety issue priority in all of its activities starting from the company’s operations, workforce to the community around. The company offers training and capability programmes to the leaders in all levels on topics such as process safety, risk management as well as the supply related risk management skills e.g. avoiding cases of corruption. To track the safety in the processes progress, indicators that focus on the strength of controls to ensure prevention against any incident. These entailtests and inspection of equipment vital to process safety. Lagging indicators are alsoused to observe the record of events that have already happened such as oil spills and other primary losses,and then learn from the lessons derived. BP aims to protect and guard its operations against any hostile action that may harm its customers or disrupt the business operations. The company therefore employs all measures to protect itself from any potential threat. It also maintains a range of cyber security defenses to prevent and respond to any cyber-attack.(Walker, Haasnoot & Kwakkel 2013) Challenges The main challenge to the company’s supply chain management and the distribution pattern is the effectiveness of the contractors. Contractors are exposed to various risks that may hinder them from delivering.This is a challenge tothe companybecause, the operations of the company’s supply chain depends on the consistent and efficiency of the contractors. Another challenge is the environmental degradation caused by the petroleum products. BP is highly criticized due to the effects it causes on the environment especially water during its transportation. For instance during the Deep-water Horizon explosion and Gulf Oil spillso many water living creatures were affected.The water was also polluted and people also died. This made the company’s name to deteriorate and the reputation of the company was also affected. References Lonsdale, C, & Cox, A 2000, The historical development of outsourcing: the latest fad? Industrial Management & data systems, 1009, 444-450. Ghemawat, P, & Ghadar, F 2000, The dubious logic of global megamergers Harvard Business Review, 784, 64-74. Balmer, J M, & Greyser, S A 2002, Managing the Multiple Identities of the Corporation California management review, 443. Argenti, P A, & Druckenmiller, B 2004, Reputation and the corporate brand Corporate Reputation Review, 64, 368-374. McGuire, T W, & Staelin, R 1983, An industry equilibrium analysis of downstream vertical integration Marketing Science, 22, 161-191. Walker, W E, Haasnoot, M, & Kwakkel, J H 2013, Adapt or perish: a review of planning approaches for adaptation under deep uncertainty Sustainability, 53, 955-979. Read More