Introduction
India’s downstream petroleum sector is dominated by three other public sector oil marketing
companies (OMCs) that is Indian Oil Corporation Limited (IOCL), Bharat Petroleum
Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL). India‘s
refining capacity stands at ~251 MMTPA as of October 2022, comprising 23 refineries.
Refinery capacity utilization is about 96% for the year 2021-22. India’s oil demand is
expected to increase by 40% to by 2030. But presence of huge logistic and operating
expenses makes petroleum product marketing a low-margin business for OMCs. Therefore,
OMCs exploring options for optimization of the oil supply chain can help in reducing their
operating and logistics expenses and can serve as important means for cost saving, margin
improvement, better customer service and increased profitability. Thus optimization of logistics
and supply chain management in OMCs have a huge potential and has not got its due attention
from the oil industry. Looking at the above perspective IOCL recognized the paramount need for
an integrated strategy for its multiple refineries for optimization of supply chain management.IOCL, established as a national oil corporation, is ranked highly on the Fortune 500 list and is the
world's 19th-largest petroleum company. The company has a countrywide sales network of more
than 23,000 retail outlets, including more than 10,000 petrol/diesel stations – backed by 165 bulk
storage facilities, 95 aviation fuel stations and 85 LPG bottling plants. With a significant share in
the petroleum products market (56%), refining capacity (42%), and downstream pipeline (69%)
throughput capacity, the company boasts an extensive network of retail outlets and distribution
facilities. With such an extensive network and multi-site refineries, IOCL faced number of challenges
in their supply chain management. Mr Uttam Kumar Basu, General Manager, Optimization,
IOCL, the company was struggling with a number of supply chain issues, including which crude
to purchase, where to process it, how much to buy and make, what to produce, and where and how
to transport it; wherein each refinery was handling projects on isolated basis. IOCL realised that
due to isolation actions across refineries, their ecosystem's supply chain lacked comprehensive
visibility and optimisation which hampered profitable decision-making across their refineries.
With a vast operational scope that includes 10 refineries, 80 different types of refineries, and a vast
network connecting depots, terminals, pipelines, and modes of transportation, IOCL identified
the lack of supply chain integration among five different refineries as a significant issue.
The objective IOCL was to increase their distribution and cost efficiency by integrating and
optimizing supply chain management across multiple refineries of IOCL. To meet above objective,
IOCL's strategic response emerged in the form of an integrated, multi-plant planning solution—
an initiative that aimed not just to address these complex supply chain intricacies but also to
unlock untapped efficiency, enhance profitability, and instil an informed decision-making ethos
throughout the organization. This case study unveils the remarkable journey of IOCL, highlighting
their collaborative synergy with Honeywell's cutting-edge Supply Chain Management solution. It
emphasises how this collaboration was essential in restructuring IOCL's complex supply chain
environment and setting up the company for future growth with operational effectiveness and
significant profitability advantages.
The case implicates importance of optimization in supply chain management in achieving
organizational performance and sustain its competitive advantage. Further it implicates the
how such strategic decision plays an important role in enhancing the operations efficiency
and profitability of the companies. Therefore, this case can be used in the areas of supply
chain management and strategic management
Problem Mitigation
IOCL encountered a multitude of challenges within its supply chain operations due to its extensive
reach and diverse operations - The first challenge was the complexity of decision-making. IOCL
had to make critical choices concerning crude selection, refinery production planning, and
distribution. These decisions needed to take into account factors like product demands, refinery
capabilities, crude assays, unit capacities, and transportation costs. However, the presence of
different departments autonomously managing their processes often resulted in incomplete data
and sub-optimal decisions. The lack of integration across IOCL's refineries posed a significant
challenge. The absence of a unified approach meant that different refineries operated based on
their distinct strategies, sometimes leading to inefficiencies or overlaps in operations. IOCL's
expansive network added another layer of complexity. With a vast network encompassing 80
different types of crude sourced from various regions, 10 refineries, and an intricate web of
depots, terminals, pipelines, and transportation modes, IOCL faced the formidable challenge
of integrating and optimizing these components to ensure smooth and efficient operations. To
overcome these challenges, IOCL sought an AI-driven supply chain management solution. After
extensive evaluation, they adopted Honeywell's Supply Chain Management Solution, which
offered comprehensive modules for demand planning, integrated planning, distribution planning,
and refinery production planning.
Demand Planning:The solution provided accurate demand forecasting and aggregation of
final demand numbers, helping IOCL align its supply with market needs. Demand planning is a
strategic process that businesses use to forecast and manage the future demand for their products
or services. It involves analyzing historical sales data, market trends, customer preferences, and
other relevant factors to estimate how much of a product or service customers are likely to purchase
in the future. The primary goal of demand planning is to ensure that a company has the right
amount of inventory or capacity to meet customer demand while minimizing excess inventory
and associated costs. Effective demand planning can lead to several benefits for businesses,
including reduced inventory carrying costs, improved customer satisfaction by ensuring products
are available when needed, and enhanced operational efficiency throughout the supply chain
Integrated Planning: Honeywell's solution integrated refinery and distribution models,
allowing IOCL to optimize the entire supply chain and maximize profitability. Integrated planning
refers to the process of aligning and coordinating various planning activities across different
functional areas of an organization to achieve common goals and objectives. It involves bringing
together different departments or functions, such as finance, sales, operations, marketing, human
resources, and supply chain, to collaboratively develop and execute plans that are coherent and
mutually supportive. The main purpose of integrated planning is to ensure that all aspects of
an organization work together harmoniously to optimize resources, streamline processes, and
enhance overall performance. This approach helps break down silos within an organization and
fosters better communication and collaboration between departments. Integrated planning can
occur at different levels, such as strategic, tactical, and operational planning.
Integrated planning has following benefits for the organisations : 1)ensuring that the plans
and activities of different departments are in alignment with each other and with the overall
organizational strategy; 2) coordinating planning efforts; 3) avoiding duplication of work; 4)
optimizing resource allocation; 5) eliminate inefficiencies; 6) providing a holistic view of the
organization, enabling better decision-making based on comprehensive and accurate information
from various functional areas; 7) assess and manage risks more effectively by considering potential
impacts on different aspects of the business; 8)responding more quickly and effectively to changes
in the business environment, as they have a better understanding of how changes in one area may
affect other areas; 9) encouraging collaboration between teams that might not typically interact,
leading to innovative ideas and solutions; 10) measurement of progress and performance across
multiple dimensions, helping to track achievements and identify areas for improvement; 11)
improve customer satisfaction and loyalty ; 12) better allocation of resources, such as finances,
human resources, and materials, based on a comprehensive understanding of overall priorities
and needs.
Distribution Planning:Operational plans for feed-stock allocation and product distribution
were generated, ensuring efficient utilization of transportation resources. Distribution planning
is the process of designing and managing the efficient movement of goods and products from
manufacturers or suppliers to end customers or retailers. It involves making decisions related to the distribution network, transportation methods, inventory levels, and other logistical aspects to
ensure that products reach their intended destinations in a timely and cost-effective manner. The
primary goal of distribution planning is to optimize the flow of goods through the supply chain
while minimizing costs and meeting customer demand.Key elements of distribution planning include: 1) Determining the structure of the distribution
network, including the number and location of distribution centres, warehouses, and stocking
points. This decision is influenced by factors such as customer locations, transportation costs,
lead times, and demand patterns; 2) Balancing inventory levels at various distribution points to
ensure that products are available to meet customer demand while avoiding overstocking or stockouts. This involves demand forecasting, safety stock calculations, and reorder point optimization;
3) Selecting the most appropriate transportation modes (such as road, rail, air, or sea) and
carriers to move products efficiently and cost-effectively. This also includes route planning, load
optimization, and carrier selection; 4) Coordinating the processing of customer orders, picking
and packing products, and preparing shipments for delivery. This ensures accurate and timely
order fulfilment; 5) Managing the storage and handling of products within distribution centres or
warehouses. This involves optimizing layout, storage methods, and material handling equipment
to maximize efficiency; 6) Planning and managing lead times for order processing, transportation,
and delivery to ensure that products reach customers within expected time-frames; 7) Planning
for the efficient handling of returns, exchanges, and product recalls, including the reverse flow of
goods from customers back to the manufacturer or distribution centre; 8) Utilizing technology
and software systems, such as warehouse management systems (WMS) and transportation
management systems (TMS), to facilitate distribution operations, track shipments, and monitor
inventory levels; 9) Coordinating efforts between different departments, suppliers, and partners
involved in the distribution process to ensure smooth operations and customer satisfaction.
Refinery Production Planning: IOCL could create operational plans for production, considering
factors such as unit capacities, and product specifications. Refinery production planning is
the process of optimizing the operations and resources within an oil refinery to maximize the
production of valuable petroleum products while minimizing costs and adhering to operational
and environmental constraints. Refineries are complex facilities that process crude oil into a range
of products such as gasoline, diesel, jet fuel, heating oil, and various petrochemicals. Refinery
production planning involves making strategic decisions to ensure that the right mix of products
is produced in the most efficient and profitable way.
Key aspects of refinery production planning include: 1)Choosing the appropriate types and sources
of crude oil to process based on their quality, availability, and compatibility with the refinery's
processing capabilities; 2)Determining the optimal operating conditions for various refinery
units, such as distillation units, catalytic crackers, hydrocrackers, and reformers, to maximize
the yield of desired products; 3) Balancing the production of different petroleum products to
meet market demand and achieve the highest possible profit margins. This involves adjusting
production rates and unit operations to optimize the overall product slate; 4) Implementing
strategies to improve the yield of valuable products while minimizing the production of lowervalue or undesirable byproducts; 5) Managing inventory levels of intermediate products and
finished products to ensure a steady supply to the market and avoid overstocking; 6) Optimizing
the use of energy resources within the refinery to reduce operational costs and environmental
impact; 7) Developing strategies to adapt to changes in crude oil availability, quality, and pricing,
and making adjustments to processing accordingly; 8) Scheduling maintenance activities for refinery units to minimize disruptions to production while ensuring safe and reliable operations;
9) Ensuring that production plans adhere to environmental regulations and sustainability goals,
such as emission limits and waste disposal requirements; 10) Monitoring market conditions, price
trends, and demand patterns to adjust production plans and respond to changes in the competitive
landscape; 11) Identifying and mitigating potential risks and uncertainties that could impact
production plans, such as supply chain disruptions, geopolitical events, and market volatility.
As the transformation unfolded, a remarkable change swept through the IOCL supply chain.
The integrated approach to supply chain planning and optimization translated to higher margins
and increased profitability, bolstering IOCL's financial performance. IOCL's decision-making
capabilities were greatly improved. The solution empowered the company to respond faster and
more effectively to dynamic market scenarios, ultimately resulting in enhanced adaptability and
competitiveness. The solution's integrated platform provided a unified view of supply chain
processes across all refineries, thereby fostering cohesive efforts and eliminating isolated decisionmaking processes. Resource allocation received a significant boost. By taking into account multiple
factors, the solution optimized resource allocation, leading to enhanced efficiency in crucial areas
like crude selection, refinery production planning, and distribution. The solution also equipped
IOCL with the capacity to analyze and devise strategies for future scenarios, such as shifts in
specifications or changes in market dynamics.
The adoption of Honeywell's Supply Chain Management Solution brought about significant
improvements for IOCL:
- Enhanced Visibility & Accurate Demand Prediction: Real-time insights enabled IOCL to make
informed decisions, leading to effective predicting and meeting market demands, including
higher margins and increased profitability, IOCL experienced enhanced financial performance
and a strengthened competitive edge.
Streamlined Order Management: The integrated platform from Honeywell's Supply Chain
Management solution offers IOCL a comprehensive view of its refining processes, enhancing
order management. This unified perspective fostered collaboration, eliminating information
silos and improving coordination between different departments and teams within Indian Oil
Corporation Limited (IOCL), including refining, production, and distribution units. Informed
by accurate and real-time data, decisions were optimized, ensuring better resource allocation and
reducing lead times. As a result, IOCL's order management became more efficient, responsive, and
customer-centric.
Strategic Analysis and Planning: the solution's analytical capacity equipped IOCL to proactively
formulate strategies for future scenarios, ensuring optimized resource utilization, production
alignment with market demands, and a proactive approach to challenges in both refinery and
strategic planning, further solidifying IOCL's standing as a front-runner in the energy sector. Adopting robust supply chain management is essential for even successful companies like Indian
Oil Corporation Limited (IOCL). An efficient supply chain helps enhance overall operational
efficiency by identifying and eliminating inefficiencies, reducing costs, and improving resource
utilization. As market demands are constantly changing, a well-managed supply chain allows
companies like IOCL to respond quickly and effectively to customer needs, thereby improving
customer satisfaction and loyalty. Additionally, by implementing effective risk management strategies, supply chain management minimizes potential disruptions and ensures uninterrupted
operations, safeguarding against losses. Ultimately, an optimized supply chain contributes to
increased profitability, making it a crucial aspect of maintaining a competitive edge in the market
for successful companies like IOCL
Conclusion
Indian Oil Corporation Limited's collaborative journey with Honeywell's Supply Chain
Management system is an example of a paradigm change in the optimisation of complicated
multi-refinery supply chains. The IOCL operating environment has been simplified, and its
decision-making powers have been redefined, through the integration of demand planning,
integrated planning, distribution planning, and refinery production planning modules. IOCL
has seen real improvements in profitability, responsiveness, and efficiency as a result of enhanced
visibility, coordinated activities, and resource optimisation. Additionally, IOCL is better equipped
to tackle upcoming problems because of the solution's analytical strength, enhancing its position
as a forward-thinking leader in the energy industry. The success of IOCL's operations and the
establishing of a standard for excellence in the sector are both exemplified by this case study,
which is a monument to the transformational potential of integrated supply chain management.