Operations Management of BP Plc - Essay Example

? Operations Management of BP Plc Globalization and information technology have caused fierce competition among the leading oil firms. Many oil firms have stated to establish strategies which uphold their ready for action plan. British Petroleum Company is one of the leading oil companies that are reviewing their operations management critically. This is supposed to ensure quality performance and competitiveness. The intention of this essay is to examine management operations in the British Petroleum company. Operation management of BP focuses on transforming raw materials into labor material. This paper focuses on Porter’s five forces and the use of strategic groups in the achieving BP targets. It also transforms capital into goods and services. Operational management allows firms, and companies to come up with strategies that help companies deal with new market entrants and main competitors. Each company has a distinct way of dealing with its operations (Merz & Sauber1995). Many companies come up with distinct names for their departments. BP is a multinational company which has a vibrant operational and management department. Problem definition BP has come under intense pressure due to competition from other major oil producing companies. The company needs to reinvent itself in order to maintain its profitability. BP is known to produce large amounts of oil. However, the large amounts of oil are not reflected in the amounts of revenues generated. The company is also facing the threats that range from new entrants to the established oil companies. There is need to consider the strategies that are needed to keep the company economically viable and competitive. Body BP Amoco is a leading oil industry aims at supplying petroleum products to its international marketplace. Operation administration has become an essential tool in the oil industry management techniques. Operation management makes sure these industries adhere to quality of work. BP also known as BP Amoco is located in London (Wulf 2012). It is a globally established petroleum and oil firm. The company began in 1901. The company was used in all exploration and was a source of oil for the royal navy (Business Week 2012). The company was founded by William Knox and found oil for the first time in 1908. In 1917, the UK administration became in charge of the industry, and planned to rename it to B P (Business Week 2012). BP expanded its market in the entire Europe and later merged with American Oil Company (AMOCO). BP has been using high quality operational management skills with have been the reason behind the firm’s success. BP is in service in over a hundred countries on to serve the international market. BP focuses on drilling and discovering oil around the world (Scarborough & Spatarella1998).BP is paying attention to quality products. BP is setting achieve goals with a clear timeline. The company is closing down branches are considered to have declining revenues. Attention is paid to products which are consumer friendly. This has caused BP to rebrand and the initial step to create incentives to employees and to attract customers. BP is measuring quality and productivity through amount generated per barrel. The company explores unfinished lubricants, natural gas, refinement, distillation, selling, and delivery, along with manufacturing petroleum products (The Economist 2011). The company provides products for use in three categories. They are products for road construction, commercial and home based items. BP has launched operations in over 80 nations. The multinational oil company has over 233 billion revenues and has thousands of personnel and staff across the world. BP has five brands, which are, BP, Aral, am/pm, Castrol and ARCO. This can make the company retain its market share (McLeod & Miller 2001). Rapid changes in external market have forced the multinational company to decentralize its services and use cutting edge technology (The Economist 2011). The company faces stiff competition from other significant oil companies like Shell and Chevron. BP has adopted strategies that enable the company to be responsive to customers’ needs in different markets (Business Week 2012). The company has had to be adaptive in different market segments. According to Prokesch, BP continues to evolve depending on the current needs of customers to retain its large market share. The company uses its technical potential and political expertise to maintain a competitive edge. The company has a large operational knowledge base (Scarborough & Spatarella1998). The company is aware of market hostilities that come from national policies in some of the countries it operates (Reinhardt & Hanson 2002). BP is keen on substitutes to crude oil and petroleum. A good example is hydrogen and solar energy. The company’s operation management has been vibrant and is credited for coming up with strategies that facilitate easy adapting in new markets (Wulf 2012). According to Popper, BP has to generate an operational knowledge in all its brands if the company is to shrug off stiff competition from the rivals. BP shall have to adopt an approach of learning operational knowledge faster than its rivals (Scarborough & Spatarella1998). BP is known to be a leading innovator in the oil industry which makes the company earns consumer confidence across the world (McLeod & Miller 2001). The operations management in the company makes sure the company releases superior and highly useful products to its target market (The Economist 2011). The company researches on consumers needs before entering new markets. This has caused the oil company to be efficient and swift while entering new markets (Reinhardt & Hanson 2002). Consequently, the company has had success operations overseas for a long period. The operations management department of the BP Company uses well informed business techniques to remain efficient in the global market. According to Hyland, the process of manufacturing products to delivering is conducted to meet client requirements. The company is careful to delivery oil products that suit the client needs with precision (Merz & Sauber1995). The products from BP are known to be authentic. The company has a variety of products that satisfy a wide range of the consumer needs. The company has a pricing approach that is consistent with the quality of the products (The Economist 2011). Therefore, the company regulates its processes and remains competitive through the use of an internal mechanism. This has ensured that BP retains its large market share internationally. BP is known to respect new market entrants. According to the management policy, BP reinvents its approach to avoid being exceedingly predictable to competitors. BP has had to face the challenge of facing new entrants who are favored by the local regulations. Major international oil companies have described is super majors (Wulf 2012). Some of these companies that compete with BP are Total, ExxonMobil, Shell and ConocoPhillips. Most of the competing companies explore oil and gas and sell hydrocarbon products. This means they are competing for the same target market. With the energy industry becoming increasingly complex and competitive, some companies are opting to use a variety of models. BP is working on developing long-term value in a manner that enhances and complements a complex and growing approach to risk management. BP is keen on increasing the supply of raw material at low price. BP gets raw materials without the use of many middle men. According to Changati, product scope is the breadth of the products line. Product flexibility is the best way to map the scope of products of offered (Scarborough & Spatarella1998). BP has been engaging stakeholders to make sure its product scope adds it revenues. The approach used by the BP operations management aims at developing quality approaches to product development. According to Rucci, stakeholders are at the core of quality approach. The company delivers its products through global distributors. BP maintains a balanced bargaining power with its suppliers (Wulf 2012). BP does not face significant threats in supplier bargaining power (Pragman1996). The company is aware of the need to avail its products within the proximity of its clients. The company uses retail shops and terminal services to distribute their brand names and products (Reinhardt & Hanson 2002). The company has numerous centers of distribution than ensures customers have easy access to products. BP combines quality products and competitive prices to outcompete principal competing companies in the oil industry. The products are affordable and available in over 80 countries. The operations department of the company uses the logistics approach in the management system (Pragman1996). Through this, the company ensures efficient flow and storage of products and services. Buyer bargaining power The bargaining power of oil product buyers is set to rise with development of environmental friendly fuel. However, the existing substitute products are not escalating the bargaining power of the buyers. BP has been working on the differential advantage of its products in the oil industry (Business Week 2012). With the announcement from the chief executive of the company’s willingness to specialize in its revenue generating ventures, the uniqueness of BP’s products is set to rise. This might lessen the buyers bargaining power. The threat of competition from Chevron and Shell poses a threat to BP (Reinhardt & Hanson 2002). The buyers are increasingly becoming price sensitive, and the variety of competing products gives them a high bargaining power. According to Bob Dudley, the BP group chief executive, BP has to cease trying to do everything. The approach is to specialize on what BP does best. BP believes that superior products are the best way to market a company and overcome stiff competition. In a speech, February 2012, BP group chief executive asserted that super majors cannot be super in everything. With increasing competition, BP is paying keen attention to enhancing distinctive technology and skills in seven principal areas. These are a world class downstream business, exploration, gas value chains, deep water activity, technology, giant fields and relationships. BP believes that it has the potential to outcompete its leading competitors in these fields given its vast experience and strategic approach (Business Week 2012). BP is investing in areas where it has the most competitive advantage. The multinational is diversifying business ventures that are decreasingly competitive or ill-positioned. This strategy shall enable BP to focus its resources on the assets that develop or create the highest value. Consequently, BP is escalating its spending on exploration. The company is focusing on upstream ventures and projects which are estimated to have high cash margins. The net cash is obtained through operations divided by number of barrels produced. British Petroleum has observed the demand for gasoline and diesel is declining in the United States. Therefore, the company is investing in refineries at Tolendo, Whiting and Cherry Point. These refineries can process multiple types of crude oil which allow British Petroleum to large consumer markets (Wulf 2012). At the same time, BP is divesting Carson and Texas City refineries which are considered not to be strategically positioned. As part of the strategy, the company is increasing the amount of premium lubricants its sells. The company is selling off part of its Liquefied Petroleum Gas business. This incorporates tank filling and bottling. BP is divesting several oil fields which it considers other companies are well placed to operate. Small upstream businesses in Pakistan and Vietnam are being divested by British Petroleum (Business Week 2012). BP believes progress should be measured by the margins delivered from each barrel. The company believes that the operating cash generated is of enormous consequence compared to the quantity of oil it produces. The long-term strategy, as reflected in BP 2012 action plan, is that, value depends on both quality and quality. According to Dudley, it is time for British Petroleum to deliver growth value and investment. This can only be done through building on strengths. This represents are policy shift from consolidation to specialization. According to Porter, new entrants have to overcome key challenges like access to industrial distribution channels, retaliation from the super majors and customer switching costs. The petroleum industry requires economics of scale due to the nature and amounts of capital needed to get established in the oil industry. Capital expenditure is one of the key barriers facing new entrants. The new companies have to convince the market why their products are preferable. Switching costs and access to distribution channels are secondary to the capital expenditure requirement of this venture (Reinhardt & Hanson 2002). The fierce retaliation from companies like Shell and Mobil makes the new entrants take time to get established. BP, as an established oil industry and foremost player, has built a large capital base and acquired valuable assets over many decided. Therefore, it aims are retaining its market share by outcompeting new entrants in numerous fields. According to Porter’s analysis, substitute’s threat is high when buyers consider substituting products or services especially due to the price performance of the substitutes. When companies competing with BP have little substitute cost, it becomes easy for buyers to shift their loyalty. This poses a considerable threat to BP (Pragman1996). The increased environmental awareness and government regulation have resulted to a propensity for buyers to procure substitutes to oil products (Eisenhardt1999). This has BP is not facing intense threat of substitutes due to its strategy to diversify into solar and other forms of energy. The price of the substitutes tends of favor BP in both short and midterm. The cost of switching to other substitutes may be a risk buyers are reluctant to take. In conclusion, BP is one of the leading oil industry players. In the recent past, the company has reinvented itself with an aim of increasing revenues and overcoming the emerging threats in the oil industry. This has caused the company to rebrand and launch a vibrant 2012 action plan according to group chief executive in a speech February this year. BP is committed to its mission as an oil industry leader and player. Recommendations: BP should consider expanding production to check the threat of substitutes. This is necessitated increased awareness in renewable energy and environment friendly sources on energy. The company needs to innovate products regularly with consumer interest first. Customers tend to respect brands that launch new products in the market. BP should introduce products that are customized to the culture and the needs to the local market. The company needs to embrace technology in its operations. The shipments and delivery of services should reflect the desire to relate with clients at a personal level. E.g. updating customers on the duration the shipment is expected to take or an electronic message thanking a customer for visiting a filling station. References Business Week (2012). Company Overview of BP Gas Marketing Limited. Business Week, 1(1), 5-15. Merz, G.R., & Sauber, M.H. (1995). 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Energy Powerhouse: Students Harness Expertise for Cleantech Pursuits. Academy of Management Executive, 55(1), 5-17. Read More