Shell Lubricants/Pennzoil - Rationalizing Your Supply Network
Session Code: 712 Presenter: Annette Knudsen, Manager, Shell Lubricants Sham Afzalpurkar, VP Supply Chain, Bristlecone
Agenda
About Shell Lubricants Business Needs for an advanced planning tool APO at Shell Lubricants Network Design
Overview Supply Chain Analysis Scenarios
Q&A
About Shell Lubricants
Shell Royal Dutch Acquired
Pennzoil Quaker State in 2003 Portfolio of 1300 products and 20 leading brands and leading brands
Shell Royal Dutch Acquired
choice for automotive
The consumer's first
products and services that enhance the car and the driving experience.h
Market share of 40% (?) for Shell/Pennzoil brands of motor oil (2003) $2.3 billion in revenues for year 2001 (??) ? in Fortune 100 Operating in 120 countries year
Vision We Will Be the First Choice for Customers, Talent and Stakeholders
Brands
Business Needs for an Advanced Planning System
Typical Lubes Supply Chain
Suppliers
Packaging
Blending/
& Contract Mfg Field DCs
Regional DC
Distributors/
Customers
Base Oils Bulk & Packaged Additives
Packaged Material
Bulk
Packaged
Contract Mfg
Bulk & Packaged
Key Levers in Lube Industry
Base Oils Base NeutralsOils Base Oils Bright stocks
Target I/B, O/B and interplant transfers costs by reducing shipments and Target I/B, O/B and interplant transfers costs by reducing shipments and Address additives supply cost 20% of volume comprises 40% of total Address additives supply cost 20% of volume comprises 40% of total Rationalize network design to meet customer needs and reduce transport Rationalize network design to meet customer needs and reduce transport costs build, relocate, close facilities
costs build, relocate, close facilities
Distribution Network Grades Packaging Lube Oil O/B plant DC Network Distribution ViscosityOil randing Neutrals BASF Lube index BPackaging O/B plant customer Additives Saturate Bulk or Bright stocks Dow Additives content packaged RDC network Viscosity Viscosity index Branding Grades Dupont Wax content Additives improvers content packaged Channel management Viscosity Wax content Bulk or Neutrals Huntsman Pour point Saturate improvers VMI Viscosity depressants Bright stocks Infenium Pour point Wax content improvers O/B plant DC Detergent depressants Grades point Lubrizol Pour O/B plant customer inhibitors Detergent depressants Monsanto RDC network inhibitors Detergent Sunoco Channel management inhibitors Key Leverage Points to Improve Supply Chain Efficiencies VMI Key Leverage Points to Improve Supply Chain Efficiencies BASF O/B plant DC Dow O/B plant customer Dupont RDC network increasing shipment sizes Huntsman increasing shipment sizes Channel management Infenium VMI Lubrizol Monsanto procurement costs procurement costs Sunoco
Lube Oil
Packaging
Distribution Network
Shell Lubricants
Where were we?
No consistent forecasting and planning process Different planning processes for different product
lines
No consensus forecast or plan Limited coordination/communication between
Sales, Marketing, and Supply Chain
Multiple, independent supply chain networks Non-optimized supply chain design and operation Supply chain does not extend to business partners
How did we get there?
Marketing driven, sales focus Pennzoil merged with Quaker State Company in 1998 and Shell acquired Pennzoil Quaker State in 2002
Lubricants Similar product production, distribution models Resulted in excess capacity, duplicate network components Consumer Products Pennzoil supplied automotive chemicals (Gumout) Quaker State owned several independently run business units supplying automotive consumer products
Where are we going?
Common planning processes for all business
units
Single, integrated and optimized supply chain
across all product lines
Supply chain is a strategic weapon
APO Components
Strategic Demand Tactical Planning (DP) Operational Production Planning / Detailed Scheduling (PP/DS) Network Design (ND)
Supply Network Planning (SNP)
Scheduling
Distribution M Planning / Deployment I
Transportation Planning / Vehicle Scheduling (TP/VS)
Global ATP (GATP)
Monitor
Supply Chain Cockpit
Current scope Sell Buy/Make Store Move Deliver
SAP APO Network Design Overview
APO Network Design Overview
Flexibility in modeling a supply network
Ability to use an existing SNP model as a starting point
Can include one-time opening and closing costs and various capacity constraints
Detail reporting capabilities & Easy to interpret reporting and user interface
Fast optimization
AP O
Solving Strategic Planning Problems
Which products should be
produced at what location?
How are customers assigned
to distribution centers?
Where shall new locations be
opened?
Which locations shall be
closed?
What are capacity
requirements for Plant/distribution centers ?
AP O
What is the utilization rate,
cost and return on assets?
Network Design Overview
Planning Methods : Assignment Decisions
Network Design Overview
Planning Methods : Assignment Decisions
Network Design Overview
Planning Methods : Assignment Decisions
Network Design Overview
Planning Methods : Location Decisions Location Planning: Structural Network Changes Cost optimal selection of locations Placement of given number of locations based on geographical
distance
Placement of optimal number of new locations
Network Design Overview
Planning Methods : Location Decisions
Network Design Overview
Planning Parameters : Supply Chain Model Demand Existing / potential locations Suppliers/Plants/Distribution centers/Customers Existing / potential transportation lanes Products Resources / Capacities Production process models
Network Design Overview
Planning Parameters : Costs
Transportation Production Storage/handling Material Procurement
Fixed maintenance
Location startup / shutdown Penalties for delayed/ unfulfilled demand
Network Design Overview
Display and analysis of Results Graphical result display Result display in table
format
Link with MS Excel Support of What-if analyses Modification of planning
parameters
Comparison of results of
different planning runs
AP O
Possibility of transferring
results into SAP-BW
Supply Network Analysis using APO Network Design
Strategic Studies at Shell Lubes
Plant Rationalization Determine impact of integrating multiple supply chains Make vs Buy Strategic Sourcing Determine optimal Regional Distribution Center (RDC)
network for consolidated distribution
Evaluate impact of customer pick-ups
Key Performance Indicators
KPI
Detail
costs at Supplier, Plant, RDC and Customers
Comments Current LTL rates vis--vis future
FTL rates resulting from consolidation Customer pick-up allowance vis-vis cost of shipping by manufacturer
Freight Costs Inbound/Outbound
RDC Costs Handling, Storage and Operating costs
offset by the decrease in freight costs?
Can the increase in these costs be
Inventory Costs
holding and ordering costs
Inventory carrying,
Additional link in the consolidation of
loads shall result in increased inventory. Will this be justified?
One time impact
Opening/closing
RDCs and related capital investment
RDCs required, optimal product flow etc
Determining the optimal number of
Typical Supply Chain
Supply Chain A FTL DC
FTL FTL/LTL
Customer
Suppliers FTL
Plants
FTL
Regional DC
Customer
FTL Customer FTL
Supply Chain B
Plants/DC
Suppliers FTL
LTL
Customer
Customer
LTL
Supply Network Design Approach to a Strategic Study
Approach
Objective of the Study
Data Collection
Modeling & Validation
Analysis
Scenario
Recommendation
Evaluation &
Define the Objective of the study Define Business Case Scope/Assumptions of the study
Objective Make or Buy decision for XXX Products Group Business Case Supply chain optimization based on Procurement costs from multiple far east vendors Multiple options in manufacturing (Shell supplied production equipment, supplierfs own equipment etc) Different inbound freight rates based on port of entry Cost of carrying inventory at various locations Scope Study based on sample set of 2 product groups representing entire supply chain volume across 208
Approach
Objective of the Study
Data Collection
Modeling & Validation
Analysis
Scenario
Recommendation
Evaluation &
Data Collection Formulate aggregation logic for Product Groups and
Locations
Gather Demand at Location / Product Group level Gather cost related data Define Business rules
Approach
Objective of the Study
Data Collection
Modeling
& Validation
Analysis
Scenario
Recommendation
Evaluation &
APO Modeling & Baseline Validate input data Model the baseline scenario (the AS-IS case) APO Scenario Modeling Model various problem specific scenarios. Each scenario should be able to address a specific
objective
Approach
Objective of the Study
Data Collection
Modeling
& Validation
Analysis
Scenario
Recommendation
Evaluation &
Evaluation Compare different scenario and select best option Perform Sensitivity Analysis Recommendation Develop Recommendations Review results with management Seek approval and funding to proceed Execute!
Network Rationalization
Scenarios
Scenario I
Establish base line cost for existing supply chains Supply Chain A FTL DC
FTL FTL/LTL
Customer
Suppliers FTL
Plants
FTL
Regional DC
Customer
FTL Customer FTL
Supply Chain B
Plants/DC
Suppliers FTL
LTL
Customer
Customer
LTL
Scenario II
Evaluate impact of consolidating DC fs into Regional DC fs.
Supply Chain A FTL Suppliers FTL
Customer
Plants
FTL
Regional DC DC
FTL FTL/LTL
Customer
FTL
Supply Chain B
FTL FTL/LTL
Suppliers FTL
Plants/DC
Customer
Scenario III
Evaluate impact of merging Supply Chains
Supply Chain A FTL Suppliers FTL
Customer
Plants
FTL
Regional DC DC
FTL FTL/LTL
Customer
FTL
Supply Chains B
FTL/LTL
Customer
FTL
FTL
Suppliers FTL
Plants Customer
LTL
Scenario IV
Evaluate impact of new locations
Supply Chain - Primary FTL DC
FTL FTL/LTL
Customer
Suppliers FTL
Plants
FTL
Regional DC
Customer
FTL
Supply Chains Secondary
FTL
FTL
New Regional DC Suppliers FTL
FTL/LTL
Plants/DC
FTL
FTL/LTL
Customer
Results of the Study
Identified opportunities to Improve production efficiency (plant mix) Consolidate shipments in fewer facilities Convert LTL to FTL Shipments QUESTIONS? Build / relocate facilities Close facilities with low through put
