Introduction

The steadily increasing global demand for oil and its derivatives such as petrochemicals has
enabled companies providing these products to reach more customers and increase their
market share and profitability. This boom in global demand along with the ease of
international trade and the inflexibility involved in the petroleum industrys supply chain has
made its management more complex and more challenging. Despite the importance of
supply chain management and its growing complexity, the petroleum industry is still in the
development stage of efficiently managing their supply chains. However, even with the
inflexibility and complexity involved in the industrys supply chain, there is a lot of room for
improvement and cost reduction, specifically in its logistics area. Werner Paratorius,
president of BASFs petrochemicals division said Supply chain management is the backbone
of a business where logistics costs can be greater than manufacturing costs .
Oil and petrochemicals companies are forced to maintain higher safety stocks and search for
alternative sources of supplies. Inflexibility in the supply chain is the constraints involved
along the chain, such as long lead-times, manufacturing capacity, and limited means of
transportation, that are hard to change.
Commodities such as oil, gas, and petrochemicals require specific modes of transportation
such as pipelines, vessels or tankers, and railroads. These commodities are produced in
specific and limited regions of the world, yet they are demanded all over the globe since they
represent an essential source of energy and raw material for a large number of other
industries. Several weeks lead-time from the shipping point to the final customers location is
very common in this type of industry.
Opening new production sites or distribution centers closer to dispersed customers is one
way to reduce the lead time and transportation costs. However, the acquisition of such
facilities in the oil and petrochemical industries, if feasible, is typically very costly and often
results in higher inventory and operating costs

1.Whai is supply chain? 1

A supply chain is a system of organizations, people, technology, activities, information and
resources involved in moving a product or service from supplier to customer. Supply chain
activities transform natural resources, raw materials and components into a finished product
that is delivered to the end customer. In sophisticated supply chain systems, used products
may re-enter the supply chain at any point where residual value is recyclable. Supply chains
link value chains.
The Council of Supply Chain Management Professionals (CSCMP) defines supply chain
management as follows: Supply Chain Management encompasses the planning and
management of all activities involved in sourcing and procurement, conversion, and all
logistics management activities. Importantly, it also includes coordination and collaboration
with channel partners, which can be suppliers, intermediaries, third-party service providers,
and customers. In essence, supply chain management integrates supply and demand
management within and across companies.
Supply Chain Management is an integrating function with primary responsibility for linking
major business functions and business processes within and across companies into a
cohesive and high-performing business model. It includes all of the logistics management
activities noted above, as well as manufacturing operations, and it drives coordination of
processes and activities with and across marketing, sales, product design, finance and
information technology.
A typical supply chain begins with ecological and biological and political regulation of natural
resources, followed by the human extraction of raw material, and includes several production
links (e.g., component construction, assembly, and merging) before moving on to several
layers of storage facilities of ever-decreasing size and ever more remote geographical
locations, and finally reaching the consumer.
Many of the exchanges encountered in the supply chain will therefore be between different
companies that will seek to maximize their revenue within their sphere of interest, but may
have little or no knowledge or interest in the remaining players in the supply chain. More
recently, the loosely coupled, self-organizing network of businesses that cooperates to
provide product and service offerings has been called the Extended Enterprise.

"logistic/supply chain management" - lidija Pulevska Ivanovska, Faculty of Economics- Skopje

1.1 Supply chain modeling2

There are a variety of supply chain models, which address both the upstream and
downstream sides. However the SCOR model is most common.
The SCOR Supply-Chain Operations Reference model, developed by the Supply Chain Council,
measures total supply chain performance. It is a process reference model for supply-chain
management, spanning from the supplier's supplier to the customer's customer. It includes
delivery and order fulfillment performance, production flexibility, warranty and returns
processing costs, inventory and asset turns, and other factors in evaluating the overall
effective performance of a supply chain.
The Global Supply Chain Forum (GSCF) introduced another Supply Chain Model. This
framework is built on eight key business processes that are both cross-functional and crossfirm in nature. Each process is managed by a cross-functional team, including representatives
from logistics, production, purchasing, finance, marketing and research and development.
While each process will interface with key customers and suppliers, the customer
relationship management and supplier relationship management processes form the critical
linkages in the supply chain.
The American Productivity & Quality Center (APQC) Process Classification Framework (PCF)
SM is a high-level, industry-neutral enterprise process model that allows organizations to see
their business processes from a cross-industry viewpoint. The PCF was developed by APQC
and its member companies as an open standard to facilitate improvement through process
management and benchmarking, regardless of industry, size, or geography. The PCF
organizes operating and management processes into 12 enterprise level categories, including
process groups, and over 1,000 processes and associated activities.

1.2 Supply chain management3

In the 1980s, the term Supply Chain Management (SCM) was developed to express the need
to integrate the key business processes, from end user through original suppliers. Original
suppliers being those that provide products, services and information that add value for
customers and other stakeholders. The basic idea behind the SCM is that companies and
corporations involve themselves in a supply chain by exchanging information
regarding market fluctuations and production capabilities.

http://en.wikipedia.org/wiki/Supply_chain
3 "logistic/supply chain management" - lidija Pulevska Ivanovska, Faculty of Economics- Skopje

If all relevant information is accessible to any relevant company, every company in the supply
chain has the ability to help optimize the entire supply chain rather than sub optimize based
on a local interest. This will lead to better planned overall production and distribution which
can cut costs and give a more attractive final product leading to better sales and better
overall results for the companies involved.
Incorporating SCM successfully leads to a new kind of competition on the global market
where competition is no longer of the company versus company form but rather takes on a
supply chain versus supply chain form.
The primary objective of supply chain management is to fulfill customer demands through
the most efficient use of resources, including distribution capacity, inventory and labor. In
theory, a supply chain seeks to match demand with supply and do so with the minimal
inventory. Various aspects of optimizing the supply chain include:

liaising with suppliers to eliminate bottlenecks;

sourcing strategically to strike a balance between lowest material cost and
transportation, implementing JIT (Just In Time) techniques to optimize manufacturing
flow;
maintaining the right mix and location of factories and warehouses to serve customer
markets, and using location/allocation, vehicle routing analysis, dynamic
programming and, of course, traditional logistics optimization to maximize the
efficiency of the distribution side.

There is often confusion over the terms supply chain and logistics. It is now generally
accepted that the term Logistics applies to activities within one company/organization
involving distribution of product whereas the term supply chain also encompasses
manufacturing and procurement and therefore has a much broader focus as it involves
multiple enterprises, including suppliers, manufacturers and retailers, working together to
meet a customer need for a product or service.
Starting in the 1990s several companies chose to outsource the logistics aspect of supply
chain management by partnering with a 3PL, Third-party logistics provider. Companies also
outsource production to contract manufacturers. Technology companies have risen to meet
the demand to help manage these complex systems.
There are actually four common Supply Chain Models. Besides the two mentioned above,
there are the American Productivity & Quality Center's (APQC) Process Classification
Framework and the Supply Chain Best Practices Framework