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Supply Chain Management in Petroleum Industry

As a sort of new management idea, supply chain management is still on the starting stage in
our country. Some domestic enterprises or industries have attached importance to supply chain
management gradually. In recent years, idea of supply chain management has been introduced
to petroleum industry. The integrative management system which is from oil and gas
exploitation to storage, refining, chemical industry, transportation, and sale, has been formed,
but compared with more perfect supply chain system of overseas petroleum companies, it still
has many problems to be researched home.

Along with the development of petroleum industry, each big petroleum company also studies
the advanced management idea in the world, and introduces gradually the supply chain
management into the enterprise management. In order to optimize the resources disposition,
reduce the cost, and enhance the competitive ability, three big petroleum companies in our
country are all pressing on with the supply chain construction.

Each big petroleum company has already seen the benefit in reducing the cost and saving the
expense by constructing their own supply chain. They optimize the sale network by
implementing the supply chain management. They reduce the work strength simultaneously
enhance the management efficiency. But in the petroleum industry, there are long industry
chains, overfull correlative vocations, large enterprise scale and jumbled management.
Additionally, in the process of oil and gas exploration and production, we must follow the rule
that ground obeys underground. Risk and uncertain factors increase in the exploration course.
All of these bring influence to the development of supply chain, and they also cause the
supply chain of the oil-gas enterprise in the sub healthy condition. Therefore, it is heavy and
far to optimize the supply chain management of petroleum industry.

Supply Chain Management in the Petroleum Industry

Synchronizing supply and demand is essential to successful competition in our volatile world
markets, and SAP offers a number of applications to make that task easier. These include the
SAP® Supply Chain Management application and the SAP Advanced Planning &
Optimization component (SAP APO), as well as Duet™ software. The SAP Supply Chain
Management (SAP SCM) application brings you that balance through responsive supply
networks to facilitate interaction among customers, suppliers, and partners. The solution links
business partners and processes with real-time information, enabling dynamic synchronization
of demand-driven planning, logistics, and supply network execution. Through integration,
automation, and comprehensive functionality, SAP SCM transforms supply chains from sets
of linear processes into responsive supply networks. Customer-centric, demand driven
companies share knowledge, adapt intelligently to market conditions, and respond proactively
to shorter, less predictable product life cycles.
Ever since the supply chain was envisioned, there has been a focus on integration to improve
customer service at a lower cost. Today collaboration between different companies in the
chain is vital for the success of each chain. As the renovation of the current business practice
is usually necessary to fully realize the benefits of shared information, the prior realization of
the current business process and the desired future state is vital.


(1) The internal operation flow of the supply chain is not reasonable enough. After the
reorganization in petroleum industry, it mainly establishes three big petroleum companies.
Degree of the general adoption of the market principle is low, and the traditional logistics
management pattern still exists in. The subsidiary companies or branch companies of each
company have their own supply station, transport company or large-scale motorcade. This
formed many logistics installation, increases the operational cost, causes the upriver, middle
and downriver service integration of the supply chain to be not perfect enough. The partial
benefit thought is serious. These caused the supply chain of the whole industry represents the
subhealthy condition of “the shape does not disperse but the spirit does”. The core operation
of enterprises is not prominent, the scale superiority is insufficient. Especially in some
corporations, the management level is low, and they don’t reforge the operation flow basing
on the supply chain. They hinder the seamless links among enterprises within one supply
chain, and affect the healthy development of the whole supply chain.

(2) The supply chain lacks the crosswise integration. The petroleum industry represents
lacking the overall planning in the supply chain construction. In the process of conformity and
construction, each company adopts the longitudinal integration pattern of annexation and self-
construction, and constructs the supply chain of longitudinal integration, but neglecting the
relationship between the crosswise supply chains. It causes that every company lacks the
understanding on the “competition and cooperation” consciousness of supply chain
management. They see the competition but neglect the cooperation. For example, CNPC &
SINOPEC form excess inside competition in the finished oil product market, and represent
some unordered phenomenon externally. It weakens the whole strength of petroleum industry.
To the entire industry, the supply chain is constructed repeatedly, and massive financial
resources and physical resources are wasted. As a result, no matter building new factories or
investing proprietary, the investment burden of companies will increase. It compels companies
to promote both core operation and non-core operation, and this wastes energy and resource of
the companies. This modus operandi of considering their owns longitudinal supply chain
construction only, but neglecting the crosswise integrated procedure, is disadvantageous to the
development of the whole industry, and affects the international competitive ability of
petroleum industry in our country.

(3) The holistic informatization degree of the supply chain is low. At present, petroleum
industry has already achieved a certain level in e-business, ERP construction, system of
gathering and processing the exploration information and so on. But the informatization
development of enterprise is not balanceable, and the obtaining of information is not complete
and accurate enough. The level of sharing information should be enhanced. The integration
level of application system is insufficient, and the coverage range, the speed, the security and
the stability of the net are not well enough. Compared with some international big petroleum
companies and some international project work companies, the disparity is very big in some
aspects such as management informatization, optimizing the management flow, and decision-
making informatization. It has not formed proper automated management system. Even if the
exploration system and the exploitation system which are done well, the database construction
and the synthesis development still have differences, which are basically that partial and
dispersive network have not formed the scale. In addition, the informatization degree of every
nodal point on the supply chain is weaker. It affects the systematization and integration of the
whole supply chain construction and management. Simultaneously, during the process of
informatization construction, the lack of overall arrangement, and repeated construction bring
enormous difficulties to the supply chain integration, promotion and optimization.

(4)The organizational structure is disadvantageous to the supply chain management. The

mechanism of petroleum industry is not flexible enough, and its ability of adapting the market
change is weak. This causes the supply chain management to be limited largely. The
organizational structure of oil-gas enterprise is established on the basis of function. Every
function department maintains their own benefit as possible as they can, but they neglect the
dynamical equilibrium of the whole supply chain. It caused the storage of the entire supply
chain increases, the distribution of expense that relates to logistics in the cross-function field is
not reasonable, and the resources waste. The present organizational structure is
disadvantageous to exert the coordination relationships among each link on the supply chain,
to forms the integrative competition predominance, and to exert the coordination effect of
industry chain. Also, it cannot satisfy the effective information communication and
information share among each enterprise. This will affect the decision-making ability of
enterprise, and then affect the competition ability and the competition predominance of the
whole industry. Therefore, the current organizational structure is illogical, and it becomes a
big barrier to optimize the supply chain management.

(5) The present estimate indexes of performance have difficulty to adapt the needs of supply
chain management. As a so huge supply chain of the petroleum industry, it needs to establish
effective and uniform estimate indexes, to discover the links in which problems exist on the
supply chain, and thereby to compare and appraise the achievement of supply chain
management of companies. Only in this way, could benefit be distributed impartially in the
scope of supply chain. And then the industry development will be promoted. However, the
present estimate indexes of performance are mainly based on the department function, and
they emphasize on post analysis. Each department pursues their own benefits, and this makes
the logistics and the information flow anamorphic. It also causes difficulties to unify the
upriver, middle and downriver enterprises in the supply chain. It is not fit the performance
estimate of run flow in supply chain. It neither can reflect the dynamic run situation of the
supply chain, nor can estimate the run situation of the whole supply chain scientifically and