Supply Chain Strategies for British Petroleum

The report is about supply chain strategies for British petroleum and Marks & Spencer companies. One is a global company while the other is a retail company. British Petroleum is rated as the third popular oil and Gas Company globally. The organization was started in 1909. However in recent years the organization has merged with Amoco thus becoming BP Amoco Plc. The organisation majors in excavating some downstream product . The company is known of producing 4 million barrels of crude oil each day. It also operates in more than 80 countries globally Biello, (2010).The company happens to have the largest market share in the United States.

On the other hand Marks and Spencer is a leading retail company in the United Kingdom which is thought to have more than 21 million customers buying from their store every week. The company majors in selling home products, quality clothes, and food at an affordable price. The retailers have around 665 stores across the United Kingdom. They also have 291 franchised stores in 40 countries globally. These factors made the company become the largest footwear and clothing retailer in the United Kingdom.

British petroleum supply chain is characterized by three elements which are inflexibility, complexity and uncertainties. The oil and gas supply chain is associated with inflexibility and has many variables. Thus oil companies have vertically integrated supply chain. Crude oil has to move from where it is being produced to the refineries. This long distance brings about a long lead time. On the other hand, production is done in some countries, while the finished product is demanded everywhere in the world. The refining process is also very complex where a lot of capital must be invested. The refined products are distributed by use of water, air, and pipelines. This supply chain is based on a certain traditional model which is demonstrated by some stages in the supply chain, the supply chain for this company is divided into two activities which are upstream and the downstream.

Figure 1: British petroleum supply chain (Burns, 2013)

The diagram above is the supply chain of British Petroleum Company. BP has a vertically integrated supply chain. The company carries out all the activities involved in the oil and gas supply chain. The supply chain activities include the extraction and exploration of crude oil and gas, transportation and trade of oil and gas, manufacturing stage which involves refining of petrochemicals, lubricants, and lastly is the sales and marketing of the oil and gas. The sales and marketing activities include selling petrol to about 18000 service stations internationally. The first two stages in the supply chain are categorized as upstream while the last two steps are categorized as downstream we also have the midstream activities as shown from the diagram below

Figure 2: British petroleum upstream and downstream activities (Biello, 2010).

From the above diagram, it is clear that multinational networks of BP are thought to be heterogeneous. Many activities in these different stages have different requirements

Upstream Operations

Upstream activities are determined by the location of the natural resources and whether they can be exploited to bring a profit to the company. The location of these natural resources is mainly in politically unstable environments and developing countries. External partners are thought to be state-owned or people who have a close relationship with the government.

These activities are mainly affected by demand patterns. In this case, countries such as Europe and the United States are essential sales markets. These activities should be carried out near the markets through networks of the various service stations. They can also be carried out through partnership. On the other hand, petrochemicals which are normally used as inputs in this production process, can only be found in developed economies

Selecting location for both the upstream and downstream activities is necessary in a comprehensive company network. On the other hand mid-stream activities acts as links between upstream activities and downstream activities

 In the oil and gas industry access to natural resources is what influences the companies’ decisions. However, there are many oil reserves located across the world and mainly in the Middle East. There are many risks associated with doing business in an unstable environment (Biello, 2010). For example in 1970 when the late president of Libya came to power through a military coup, he nationalized the BP operations in Libya. Come 2008 BP had to struggle with the TNK-BP. This is because the shareholders wanted to take control of the company while being supported by their Russian government. However, in rich economies, BP must also form alliances with other local companies. However, there are significant advantages in collaborating with other companies. One is that the huge investment risk is shared between these companies.

What happened in the Gulf of Mexico affected the BPs upstream activities. Thus Bp came up with a “value over volume ”strategy. This was a situation where the company sold its non- core assets primarily in the upstream portfolio. Since 2010 the company has reduced its operated installations globally by a high percentage. However, considering geographical locations, this meant focusing on producing larger units. For example, the company sold its small upstream operations in countries such as Columbia and Vietnam. The principal aim of the company is to focus their investment in the regions that are considered higher margin regions in their portfolio. It simply means reducing low margin assets and keeping the profitable ones. BP focuses on important regions for their investments. These regions are the Gulf of Mexico, Angola, North Sea, and Azerbaijan.

For better connection between extraction and marketing of oil and gas, these hydrocarbons must be transported. This is done by use of various transportation methods and more specifically pipelines. Pipelines tend to be huge projects that run across different countries.

BP not only extracts oil and gas, but it also markets it. BP has invested heavily in the sales department (Biello, 2010). The company invested in various refineries in Germany. To improve its downstream activities the company acquired the shares of Sohio which used to be an American oil company and had refineries and service stations (Evangelista, 2002).. Come 1998 BP merged with Amaco to deal with the fierce competition through bringing together their global operations, giving birth to the largest producer of oil and gas in the USA. Amoco stations were later named as BP (Biello, 2010). Come 2000; ARCO also joined BP.ARCO happened to be an American oil company with many networks of refineries, chemical plants and pipelines, and more than 900trading outlets which have been named AMPM. Thus the service stations of BP Group around the Rocky Mountains were named as ARCO. However, after the Gulf of Mexico tragedy, ARCO was sold to another company named as Tesoro in Texas. Many of the downstream activities for this company are located in the United States and Europe. The company has since been looking for new markets. It recently got partners such as Sinopec and petrol china, and it has already come up with 850 retail stations in China. In the UK, for example, the company works closely with Marks and Spencer. In other parts of the world, the company acts as a franchise or with independent retailers who adhere to the standards of BP.

Midstream Activities – Efficient Bridges from Production to Refining

Some of the significant problems faced by BP are the fact that upstream activities are carried out in countries which are not stable economically or may be facing conflicts (Dermansky, 2013). These two factors may significantly affect the company because governments are likely to come up with different rules and regulations. Like we have seen British petroleum was made a national company in Libya after Gadhafi ascended to power

On the other hand, the oil and gas industry is faced with a lot of uncertainties and inflexibilities which might end up affecting the company’s operations in various parts of the world (Hussain, Assavapokee, & Khumawala, 2006). Some of these uncertainties are brought about by accidents, changes in economic policies, changes in oil prices and even a change in the business model can significantly affect the companies supply chain (Hayler, 2003).

M&S Company has different supply chain strategies for different products. However below is a general supply chain diagram for various products of mark and Spencer (Theorpe, 2012)

Figure 3: M&S supply chain (Burns, 2013)

The company sources its raw material from local producers or globally. On the other hand, the manufacturers are either located near the raw material, and the products are transported to the places where demand is high.

The M&S Supply chain is based on flexibility it encourages high service levels and customer reactions. Stores must be located near the customers. The main agenda is to ensure a constant supply of products in case of changes in demand. Thus the supply chain must be flexible enough to take in any changes. This can further be termed as agility. Thus M&S uses the concept of agility to ensure a continuous market demand and supply

The supply chain strategy ensures a low level of stock in the retail locations. Thus the retail company majors in manufacturing and other functions while making sure that the cost of inventory maintenance is kept low(Burns, 2013). There must be a high-level of communication from the retailer to the manufacturer. These help in managing high demand and ensuring an adjustable lead time.

Syrah Grenache 2009, is a French wine made by Marks &Spencer. The wine is made from France because that is where the facilities of production of red wine are located (Theorpe, 2012). However the distribution and warehousing of this wine is in the United Kingdom (Burns, 2013). This provides a balance between demand and supply. The supply chain of wine is thought to be responsive because it is meant to meet the demands of customers (Burns, 2013). This is further demonstrated by the company ensuring that the warehouses are  located near the customers. Wine is further transported to the United Kingdom using rail. The idea to source wine from a grape producing country is a great idea and gives the company a competitive advantage.

 The M&S Company sources bags from India. The M&S has good supply chain policies for leather bags. The supply chain effectively makes sure that the leather bags are well supplied to retail locations where inventory must be kept low (Burns, 2013). India happens to be the source of quality leather products, and also the labour cost is very low. However, M& S must have assurance from Indian suppliers.

Downstream Refining and Marketing

Logistical drivers such as facilities, transportation, and inventory determine whether the product will have the same supply chain or not. Also, factors such as pricing and sourcing decisions determine the supply chain

A company comes up with a logistics strategy to identify the service level which is cost effective. Marks and Spencer have different logistics strategy for different products. French wine is usually gotten from France (Theorpe, 2012). Thus the logistics strategy is classified as food logistics. We also have the fashion logistics which is meant for Autograph collection leather bags (Hussain, Assavapokee, & Khumawala, 2006).   Other products, especially those that belong to the furnishing section, depend on low volume sourcing markets

Facilities determine the performance of a supply chain regarding efficiency and responsiveness. The locations of the production facilities are different for every product. The responsive supply chain of colour lipstick and French wine need to have distribution centres which are centralized. While the supply chain of furnishing equipment’s and leather bag need to have a lower inventory volume

Inventory has a significant role to play in the supply chain. It ensures that a firm has a competitive advantage. M&S supply chain strategy for both the color lipsticks and French wine is to take a huge amount of inventory near the customers (Mohitpour, 2003). However for furnishing equipment’s and leather bags the strategy is usually to reduce the inventory by use of efficient value chain strategies.

Transportation has a great effect on responsiveness and efficiency (Gainsborough, 2006). M&S Gets its products from different locations (Johnson, 2013). The mode of transportation for each product is very much different. Supply network and the mode of transport depend on the quantity and size of each product.   

Sourcing strategies

M&S Company makes use of both local and global sourcing of products .sourcing products from local suppliers helps the company to participate in local community business (Burns, 2013). Some of the product sourced within the locality includes furnishing products. However French wine and leather bags are sourced from global suppliers. The company gets quality products from global suppliers at an affordable price.

The supplier bargaining power is very low, especially in retail clothing. M&S usually changes its supplier more often. For example, the initial suppliers of clothes were British suppliers, but it later decided to be outsourcing its product globally (Theorpe, 2012).This helps in avoiding cost but it affects the companies relationship with its suppliers (Burns, 2013). In this case, the company does not depend on some special suppliers. Therefore, their bargaining power is low. The company is also faced with the issue on logistics however, it is has a multimillion project meant for building automated warehouses to solve this issues.

  The decreasing value of a pound, together with  the European debt crisis has caused a negative effect on the UK retailers. The suppliers are faced with major issues especially when it comes to currency conversion. However, M&S have outsourced other supplier from different countries thus abandoning British Companies

One major similarity between these companies is that they are engaged in global sourcing and outsourcing. Global sourcing is a situation where the company acquires finished products, intermediate products and raw material (Theorpe, 2012). On the other hand, outsourcing can be defined as acquiring services across the world. BP sources oil and gas products from different parts of the world. It is also known to sources services globally. The same case happens to M&S retailers. They are known to source products from India and France.

  However, there are major differences between these companies in logistics. Logistics is defined as the coordination and movement of information and goods in an organization. Managing logistics in M&S is different from managing logistics in British petroleum. This is because one is a domestic company that covers a small geographical area while the other is a multinational company that covers a large geographical scope. For example in the area of transportation M&S has very many transportation options while British Petroleum has very few transportation options. Multinational companies are known to use multiple transportation methods in moving products from warehouse to customers. The case of British petroleum is worse because they have to know which means of transport to use for oil and gas since they are considered delicate and risky to human life .the Company also has a lot of costs to incur as compared to M&S. In M&S, for example, the cost incurred may only include transportation, worker, technology and store facilities (Theorpe, 2012). British petroleum incurs the same costs, but they have added government taxes, fees and tariffs when trading internationally. This company also get to be negatively affected by fluctuations in currency exchange rates. On the other hand, M&S have a single logistics manager that is responsible for managing planning and executing the movement of goods and information .However, for a multinational company such as British petroleum, the corporate logistics manager carries out his activities assisted by other regional logistics managers . This coordination brings a lot of issues when it comes to decision making.

There are many lessons to learn from these companies especially the oil spill which happened at the Mexican Gulf in 2010 and ended up affecting the supply chain of British petroleum (Evangelista, 2002). This made the company sell off its assets to cater for the expenses. One major lessons is that companies need to come up with emergent strategies which can assist them in case unplanned events happen without having to change their corporate strategy like what British Petroleum did .Not only can emergent strategies be used to cater for risks but also they can be used to take advantage of emerging opportunities.

On the other hand, companies need to have a good and long-term relationship with their suppliers. These will ensure that they have a high supplier bargaining power. Though many domestic companies are always advised to source products from local companies, they can choose to source products from other countries  where products are much cheaper than locally.

Conclusion

In conclusion supply chain strategies are important for the success of both domestic and multinational companies. Domestic companies always find it easier to handle activities in the supply chain compared to multinational companies. Domestic companies tend to have a different supply chain as compared to multinational companies.

References

Biello, D. 2010. The BP Spills Growing Toll on the Sealife of the Gulf(online). Available From:https://e360.yale.edu/feature/the_bp_spills_growing_toll_on_the_sea_life_of_the_gulf/2284/ (Accessed 10^th November, 2018)

Burns, P. (2013). Corporate entrepreneurship: innovation and strategy in M&S. Houndmills, Basingstoke, Palgrave Macmillan. Available from: https://www.myilibrary.com?id=977525. (Accessed 10^th November, 2018)

 Dermansky, J. 2013. Three years after the BP Spill, Tar Balls and Oil Sheen Blight Gulf Coast the Atlantic (0nline). Available From: https://www.theatlantic.com/national/archive/2013/04/three-years-after-the-bp-spill-tar-ballsand-oil-sheen-blight-gulf-co 30 (Accessed 10^th November, 2018)

Evangelista, J. 2002. Scaling the Tanker Market (PDF). Surveyor (American Bureau of Shipping),Exxon Mobil Annual Report. 2013. Available From: https://cdn.exxonmobil.com/en/shareholderarchive/~/media/Reports/Summary%20Annual%20Report/2013_ExxonMobil_Summary_Ann ual_Report.pdf  (Accessed 10^th November. 2018)

Gainsborough, M. 2006. Building World-class supply Chain Capability in the Downstream Oil Business. Business Briefing: Oil and Gas Processing Review, Gazprom Annual Report. 2013. Available From: https://www.gazprom.com/f/posts/07/271326/gazprom-annual-report-2013-en.pdf (Accessed 10^th November. 2018)

Hayler, W. 2003. American Merchant Seaman’s Manual,. Logistics Sector Development Potential of World’s Oil Exporters. International Journal of Energy Sector Management, 3(2)256-270

Hussain, R., Assavapokee, T. & Khumawala, B. 2006. Supply Chain Management in the Petroleum Industry: Challenges and Opportunities. International Journal of Global Logistics & Supply Chain Management 4(3), 90-97

Johnson, B. 2013. CBS News. “Dirty Bathtub” buried oil from BP Spill(online). Available From: https://www.cbsnews.com/news/study-dirty-bathtub-buried-oil-from-bp-spill/ (Accessed 10^th November. 2018)

Mohitpour, M. 2003. Pipeline Design and Construction, National Response Team. 2011. On scene Coordinator Report on Deepwater Horizon Oil Spill. Available From: https://www.uscg.mil/foia/docs/dwh/fosc_dwh_report.pdf (Accessed 10^th November. 2018)

Theorpe, J. (2012). Climate change risks and supply chain responsibility: how should companies respond when extreme weather affects small-scale producers in their supply chain? Oxfam GB publishers. Available From: ww.worldcat.org/title/climate-change-risks-and-supply-chain-responsibility-how-should-companies-respond-when-extreme-weather-affects-small-scale-producers-in-their-supply-chain/oclc/801925122(Accessed 10^th November. 2018)