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OPERATIONS MANAGEMENT

CASE STUDY

GROUP MEMBERS:
FASAL MEHOOD (MB022014)
SAEED AHMEED (MB022023)
MALIK FAYYAZ (MB022016)
ASIM ARSHAD (MB022020)
RASHID QURESHI (MB023004)
MUHAMMAD ABID (MB022012)
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PREFACE

I n the business arena, those who have keen interest in the natural selection of
successful commercial organizations are relatively luckier than a
sensational evolutionist being charged of heresy in return of a successful &
legendary endeavor. We need only to relax at our desks with the business
magazines to see the “survival of the fittest” in action .

A striking feature of the modern capitalist economies is the ruthlessness with

which floundering firms are allowed to expire. Fame and past glory spare none as
a look in any country’s corporate graveyard will reveal: in today’s sink and swim
business environment, only the strongest survive. In this hectic and hostile world,
firms often appear to run around headless chickens, madly seeking breakthrough
business solutions but more often ‘muddling through’ in time-honored fashion.
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EXECUTIVE SUMMERY

I n today’s competitive landscape, organizations are under increasing

pressure to deliver more direct marketing campaigns that yield higher
response rates and greater customer retention. At the same time, lean budgets and
limited staffing gather the organization’s ability to develop and execute
successful campaigns.

In tough times, organizations must make every dollar count. Direct marketing
campaigns must effectively engage customers to generate more; high quality
leads that result in real ROI (Return On Investment) for the investment.
Equally important, direct marketing success must be achieved without adding
to resource costs.

We present the quest of Bolivar Oil Company for the positive synergy of
appropriate resources at MINIMUM Cost.

To begin with, the Bolivar Oil Company is a Multinational producer, refiner,

transporter & distributor of Oil Products. The company has various subsidiaries,
i.e.

 Oil extraction – Saudi Arabia & Brunei.

 Refineries – Australia & Japan.
 Marketing operations – Australia, Japan, Philippines & New Zealand.

The extensive descriptions of the salient activities in regards of Gurney’s

organizational objectives can be presented as:
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 Far Eastern Operations – The two major sources of Crude Oil

for Gurney Oil Company are Saudi Arabia & Brunei. This crude oil serves as an INPUT
for further Oil operations around the globe. The cost breakdown is given as under:

CAPACITY/Requirement COST
Saudi Arabia 70,000 barrels/day $25 per barrel
(Ghawar Fields)

Brunei 30,000 barrels/day (required) $26 per barrel

(Borneo Fields)

℘ Refinery Operations – The refineries are mainly located in Australia

& Japan. They are supplied with crude oil from Saudi Arabia & Brunei which is refined
here to produce Gasoline & Distillate as OUTPUTS. Furthermore, these refineries possess
adequate “processing flexibility” that allow the Operations Managers the room to estimate
start & finish dates relatively freely.

℘ Marketing Operations – The Marketing operations are set to

commence as soon as possible, i.e., as soon as the inventory is capable enough to bear
adequate number of orders. These subsidiaries have the luxury of implementing Research
& Development (R&D) methodologies to estimate Consumer Demand and the related
costs. The subsidiaries are located in Australia, Japan, and Philippines & New Zealand.

℘ Shipment / Tanker Operations – The shipment involves the

transportation of “refined oil products” from Australia & Japan to New Zealand &
Philippines, or to the Customers. These operations cannot afford to lag and must meet the
start & finish deadlines. Moreover, there are a limited number of tankers available, and
there exists “variable shipping costs” & “tanker-capacity constraint”.

℘ US Supply – The Contingency plan of Bolivar Oil Company involves

the back-up supply of refined oil from United States. The US bears a particular number of
surpluses during 2004, and the company can take advantage of this facility with the
precedence of “oil-supply shortage”.
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The reception of orders from customers and the End of Project are considered to
be MILESTONES for Bolivar Oil Company. Moreover, these activities are the
critical ones.

Problems

The major problems faced by the Bolivar Oil Company that greatly hinder the
organization include.

 Difficulty in coordinating the actions of subsidiaries into an overall

corporate plan.

 The “trial-&-error” based corporate plan does not reflect appropriately

the prevalent operating conditions.

The plan does not optimize for the total company.

The ISSUE

COST MINIMIZATION

The SOLUTION

 Linear Programming

 Network Analysis
The Linear Programming will require the “Lindo software”, that can be
downloaded from www.lindo.com. We have formulated the project in accordance
with “lindo syntax”. On the other hand, Network analysis requires “MS Project
2000”. We have scheduled the tasks involved along with the “network diagram”,
using this user-friendly software.
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The VARIABLES

SHIC(A) = No. of barrels of Saudi Arabian high intensity crude oil in Australia.

SLIC(A) = No. of barrels of Saudi Arabian low intensity crude oil in Australia.

SHIC(J) = No. of barrels of Saudi Arabian high intensity crude oil in Japan.

SLIC(J) = No. of barrels of Saudi Arabian low intensity crude oil in Japan.

BHIC(A) = No. of barrels of high intensity Brunei crude oil in Australia.

BLIC(A) = No. of barrels of low intensity Brunei crude oil in Australia.

BHIC(J) = No. of barrels of high intensity Brunei crude oil in Japan.

BLIC(J) = No. of barrels of low intensity Brunei crude oil in Japan.

AUg = Demand of gasoline in Australia.

JAg = Demand of gasoline in Japan.

PHg = Demand of gasoline in Philippines

NZg = Demand of gasoline in New Zealand.

Aud = Demand of distillate in Australia.

Jad = Demand of distillate in Japan.

PHd = Demand of distillate in Philippines.

NZd = Demand of distillate in New Zealand.

The CONSTRAINTS
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Demand Constraints (2003)

(10.0) Aug + (7.0) Jag + (5.0) PHg + (5.0) NZg < = 27.0

(10.00Aud + (5.0) Jad +(3.0) PHd + (2.0) NZd

< = 20.0

Capacity Constraints
1.19 SHIC (A) + 0.89 SLIC (A) + 0.93 BHIC (A) + 0.61 BLIC (A) < = 30,000.

1.26 SHIC (J) + 0.88 SLIC (J) + 0.91 BHIC (J) + 0.55 BLIC (J) < = 40,000.

Tanker constrains
SATA(0.12) + BTA(0.05) + PTA(0.02) + NTA(0.01) + SATJ ( 0.11) + BTJ (0.05) +

PTJ ( 0.01) + NTJ ( 0.06) < = 1000

Non-Negativity

All given Variables >= 0

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OBJECTIVE FUNCTION

MIN

SATC (A) 0.40 + SATC (J) 0.60 +

SAHIC (A) 1.19 + SAHIC (J) 1.26 +

SALIC (A) 0.89 + SALIC (J) 0.88 +

BTC (A) 0.20 + BTC (J) 0.30 +

BHIC (A) 0.93 + BHI (J) 0.91 +

BLIC (A) 0.61 + BLI (J) 0.55

Standard form

Min

SATC (A) 0.40 + SATC (J) 0.60 +

SAHIC (A) 1.19 + SAHIC (J) 1.26 +

SALIC (A) 0.89 + SALIC (J) 0.88 +

BTC (A) 0.20 + BTC (J) 0.30 +

BHIC (A) 0.93 + BHI (J) 0.91 +

BLIC (A) 0.61 + BLI (J) 0.55.

Subject to :

(10.0)Aug + (7.0) Jag + (5.0)PHg + (5.0) NZg < = 27.0

(10.00Aud + (5.0)Jad +( 3.0) PHd + ( 2.0 ) NZd < = 20.0

1.19 SHIC (A) + 0.89 SLIC (A) + 0.93 BHIC ( A) + 0.61 BLIC (A) < = 30,000.
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.26 SHIC (J) + 0.88 SLIC (J) + 0.91 BHIC ( J) + 0.55 BLIC (J) <= 40,000.

All variables are > = 0

END
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NETWORK ANALYSIS

We have used the software MS lindo for the purpose of “problem formulation” of
the issue on hand. Using the software, we have successfully accomplished these
tasks:

 Task Scheduling.
 Determination of Project duration (i.e. 54-55 days).
 Precedence Relationship of the Activities involved.
 Determination of Critical Activities & Critical Path.
 Categorizing the Project tasks on the basis of “constraint type”.
 Network Diagram.
 Draft of the Scheduled Calendar.

All this content is included in the ANNEXURE in order to give it the due priority.
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Critical Issues Questions

 Relevance of Sales Price
The issue on hand is of Cost Minimization. So, we should not be concerned
with the “profits”, at least for the time being. Moreover, the case has NO
mention of the sales price of refined products. In addition, the problems being
faced by us are at the operational level, and not concerned with our pricing
strategies. However, the consequent effect of Cost appropriation is on the
Sales price of the finished/refined product.

 Criticality of Refinery Operations

The objective is to optimize the cost of operations, be it extraction or refinery.
The refinery operations led to certain outputs that depict the plant capacity. So,
the location and the activities of the refineries hold direct impact on cost of
manufacturing and eventually price of output.

 Transportation Cost
Transportation is an operating expense that directly affects the net income
earned. So, appropriation of inbound and outbound logistics becomes a must
for Gurney Oil Company, and this can be achieved via “Value Chain
Analysis”.
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