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