Supply Chain in Oil and Petrochemical Industry: Opportunities & Way Forward

The petroleum supply chain is a complicated assortment of infrastructures and processes whose mainstream begins with the explication of crude oil and finalizes with the delivery of petroleum products to consumers. This industry moves huge quantities of products and values and is backbone to almost all economic activity. In a study by Cigolini and Rossi (2010), oil supply chain is divided into three main stages: drilling, primary transport and refining. The upstream comprises of crude oil exploration, production and transportation. The downstream industry involves product refining, transport, storage, distribution and retail. While a vast network of tankers, barges, pipelines, railways and trucks transport crude oil from the oil fields to the refineries, pipelines, trucks, vessels and trains transport refined products to distribution centres and finally to retailers. The downstream petroleum supply chain network comprises the refining, logistics and commercialization of the petroleum products, whereas the upstream petroleum supply chain includes the activities that allow crude oil to be explored and transformed. In each segment, there are petroleum companies, which rely on physical infrastructures across the network to develop these functions.

Petroleum exploration is at the highest level of the chain. Decisions regarding petroleum exploration include design and planning of oil field infrastructure. Petroleum may be also supplied by international sources. Oil tankers transport petroleum to oil terminals, which are connected to refineries through a pipeline network. Decisions at this level incorporate transportation modes and supply planning and scheduling. Crude oil is converted to products at refineries, which can be connected to each other in order to take advantage of each refinery design within the complex. Products generated at the refineries are then sent to distribution centres. Crude oil and products up to this level are often transported through pipelines. From this level on, products can be transported through either pipelines or trucks, depending on consumer demands. In some cases, products are also transported through vessels or by train.

Digital technologies have a huge impact on the structure of supply chains. Factories are becoming smart by introducing new process technologies, often referred to as Industry 4.0 or Internet of Things (IoT). E-commerce is changing distribution channels. Automation and augmented reality are changing the processes in warehouses and transportation. Logistics service providers are investing in end-to-end visibility across the chain. Start-up companies are disrupting traditional logistics flows.

As in many other sectors, digitization is taking place at a fast pace in the petrochemical sector. Proven and new technologies are introduced on the shop floor, in the warehouse, in transportation and in many other logistic activities. They change the way companies run their factories and their supply chain. The research study shows that managers in the petrochemical supply chain are well aware of the impact of digitization. They almost unanimously report that digitization will have a significant impact on their internal processes and their supply chain. In particular, they expect that it will have an important impact on the information flow (ordering, planning and control) and the financial flow (accounting, invoicing, payment), less so on the physical flow of products.

Investments are planned mainly in proven technologies. Big data and advanced analytics, cloud computing, digital identifiers and low-cost sensor technologies will find their way into the petrochemical supply chain soon, if not now already. There is a bit more hesitation in the petrochemical industry on the technologies with medium to longer-term impact: “Maybe” is the typical answer participants gave when asked about plans for investment in the next 3 years on IoT, control tower solutions, robotics and automation, social media and self-learning systems. There is little enthusiasm for investments in augmented reality, blockchain and self-driving vehicles, which is in line with the low impact that is expected from these technologies. Finally, the overall interest in 3D-printing, unmanned aerial vehicles and bionic enhancement is low in the petrochemical supply chain. If and when investments in these technologies will be seen, it will most likely be in niche applications in the supply chain.

Today, oil and gas companies are looking for new ways of reducing total operating costs and improving efficiency and profits. In many cases, it is possible for the ideal configuration to change over time, due to changes in technology and consumer preferences. In some other cases, technology may allow several mechanisms for configuration across the supply-chain. Generally, oil and gas companies should view their supply-chain configuration and coordination systems as worthy of improvement. Making necessary improvements over time allows the firm to gain competitive advantages in the marketplace. A firm, believing its supply-chain has been optimized, can easily loose competitive advantages by being resistant to changes that might lead to improvements.

With modern information systems technologies, piecemeal assembly of components will not create an optimal management experience. The oil and gas industry requires a fundamental work-process change in order to accommodate the growing virtualization of a multinational business. Exploration and production will benefit from simplifying and streamlining data management and access, interlocking the experiences of regionally disparate workers, saturating investments and operational decisions. As the industry undergoes continued and accelerated consolidation, the need for a flexible, extensible, scalable, and adaptable system is more important than ever along a firm’s supply chain.

Adapting a supply chain-wide technology strategy can also result in every user of the system along the chain seeing a single file system, can access all computational servers with high-speed data access, can connect to real-time high-speed visualization, and can participate in realistic collaboration, and be provided instant service irrespective of the user’s location or desktop device. This also allows the system administrators to manage the enterprise from anywhere.

In addition, such functional factors as business-process modeling, automated notification, data access and sharing, and visualization should be available to the supplier just as it is to employees and other interested parties. This step is crucial in order to maximize the potential benefits of the collaboration between oil and Gas Company and its supplier organizations. This results in actual extension of the operating firm when it comes to planning and executing complex services.

Conclusion

Based on how digitization creates value in the petrochemical industry and the specific starting position for petrochemical players, three specific steps that petrochemical players should undertake for its implementation.

First, understand and quantify the value creation potential for the specific petrochemical company based on its individual starting position and create a digital roadmap/ strategy to guide implementation. The roadmap deployment could adopt two principle design options, either by function (e.g., manufacturing first then commercial, etc.) or by end-to-end value chain.

Second, implement first lighthouses (e.g., high-impact use cases) and build capabilities in parallel e.g., via a Digital Academy, focusing on capabilities required to deliver the digital roadmap. After first lighthouses are implemented, the digitization program should become self-financing quickly

Third, scale the digital academy to build capabilities internally at scale (in particular data engineering, data analytics, etc.) and roll-out the lighthouses. After scaling the digital academy, in-house talent is capable of identifying and implementing further use cases across different functions.